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

FORM 10-K

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

For the Fiscal Year Ended December 31, ~~2009OR~~2010OR

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

Commission File Number: 001-32007

NEWALLIANCE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


	Delaware	52-2407114

	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

	195 Church Street, New Haven, Connecticut	06510

	(Address of principal executive offices)	(Zip Code)

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

	Title of each Class	Name of each exchange on which registered

	Common Stock, par value $0.01 per share	New York Stock Exchange, Inc.

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

Yes X No

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

Yes No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” 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 Act).

Yes No X

The market value of the common equity held by non-affiliates was $1.2315 billion based upon the closing price of $11.5021 as of June 30, ~~2009~~2010 as reported in The Wall Street Journal on July 1, ~~2009~~2010. Solely for the purposes of this calculation, directors and officers of the registrant are deemed to be affiliates. As of February 24, ~~2010~~ 2011 there were 105,~~971~~005,~~903~~690 shares of the registrant’s common stock outstanding.

Documents Incorporated by Reference

~~Portions~~Form of10-K/A ~~the definitive Proxy Statement~~ for the ~~Annual~~fiscal ~~Meeting~~year ofended ~~Stockholders~~December ~~to be held on April 20~~31, 2010 ~~are~~is incorporated by reference into Part III, Items 10 - 14 of this 10-K.

TABLE OF CONTENTS

Part I		Page
Item 1.	Business	3
Item 1A.	Risk Factors	1817
Item 1B.	Unresolved Staff Comments	2221
Item 2.	Properties	2221
Item 3.	Legal Proceedings	2221
Item 4.	~~Submission~~(Removed ofand ~~Matters to a Vote of Security Holders~~Reserved)	22
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	6259
Item 8.	Financial Statements and Supplementary Data	6461
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	6461
Item 9A.	Controls and Procedures	6461
Item 9A (T).	Controls and Procedures	6461
Item 9B.	Other Information	6461
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	6562
Item 11.	Executive Compensation	6562
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	6562
Item 13.	Certain Relationships and Related Transactions, and Director Independence	6562
Item 14.	Principal Accountant Fees and Services	6562
Part IV
Item 15.	Exhibits, Financial Statement Schedules	6562

SIGNATURES

Forward-Looking ~~Statements~~StatementsThis 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:

~~This~~• ~~report~~NewAlliance’s business and operations could be negatively impacted if the merger agreement with First Niagara were to be terminated; • Changes in the interest rate environment may ~~contain~~reduce ~~certain~~the ~~forward-looking~~ net ~~statements~~interest margin and/or the volumes and values of loans made or held as ~~that~~well ~~term~~as isthe ~~defined~~value of other financial assets held; • General economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; • Adverse changes may occur in the ~~U.S.~~securities markets impacting the value of NewAlliance’s investments; • Competitive pressures among depository and other financial institutions may increase significantly and may decrease the profit margin associated with its business; • Recent government initiatives, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company; • Other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) initiatives may adversely affect the businesses in which NewAlliance is engaged; • Local, state or federal ~~securities~~taxing ~~laws~~authorities may take tax positions that are adverse to NewAlliance; • Competitors of NewAlliance may have greater financial resources and develop products that enable them to compete more successfully than NewAlliance; and • Unfavorable changes related to economic stress and dislocation may impact the Company’s vendors, counter-parties, and other entities on which the company has a dependence.

~~Forward~~Readers are cautioned not to place undue reliance on these forward-looking statements, ~~are~~which ~~based~~speak ononly as of the date of ~~certain~~this ~~assumptions~~report. ~~and~~Except ~~describe~~as ~~future~~required ~~plans,~~by ~~strategies,~~applicable ~~and~~law ~~expectations~~or ofregulation, Management undertakes ~~and~~no ~~are~~obligation ~~generally~~to ~~identified~~update bythese ~~use~~forward-looking ofstatements to reflect events or circumstances that occur after the ~~word~~date ~~“plan”,~~on ~~“believe”,~~which ~~“expect”,~~such ~~“intend”~~statements were made.PART IItem 1. BusinessGeneralIn 2003, NewAlliance was organized as a Delaware business corporation in connection with the conversion of NewAlliance Bank (the “~~anticipate~~Bank”), ~~“estimate”~~formerly New Haven Savings Bank, ~~“project”~~from mutual to capital stock form, orwhich ~~similar~~became ~~expressions~~effective on April 1, 2004. ~~Management~~The Bank’s ~~ability~~conversion to resulted ~~predict~~in ~~results~~the orCompany owning all of the ~~actual~~Bank’s ~~effects~~outstanding capital stock. The Bank is now a wholly-owned subsidiary of ~~its~~the ~~plans~~Company, ora ~~strategies~~bank isholding ~~inherently~~company ~~uncertain~~regulated by the Federal Reserve Board. ~~Accordingly~~On April 1, ~~actual~~2004, ~~results~~the ~~may~~Bank ~~differ~~changed ~~materially~~its ~~from~~name ~~anticipated~~to ~~results~~NewAlliance Bank. ~~Factors~~ ~~that~~The ~~could~~Bank ~~have~~was founded in 1838 as a ~~material~~Connecticut-chartered ~~adverse~~mutual ~~effect~~savings onbank and is regulated by the ~~operations~~State of ~~NewAlliance~~Connecticut Department of Banking ~~Bancshares,~~and ~~Inc~~the FDIC.By (“assets, NewAlliance” oris the ~~“Company”)~~third largest banking institution headquartered in Connecticut and ~~its~~the ~~subsidiaries~~fourth largest based in New England with consolidated ~~include~~assets of $9.03 billion and stockholders’ equity of $1.46 billion at December 31, ~~but~~2010. ~~are~~NewAlliance ~~not~~delivers ~~limited~~financial services to: individuals, families and businesses throughout Connecticut and Western Massachusetts. NewAlliance Bank provides commercial banking, retail banking, consumer financing, trust and investment services through 88 banking offices, 100 ATMs and its internet website (www.newalliancebank.com). NewAlliance common stock is traded on the New York Stock Exchange under the symbol “NAL”.

• 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; • Adverse changes may occur in the securities markets impacting the value of NewAlliance’s investments; • Competitive pressures among depository and other financial institutions may increase significantly and may decrease the profit margin associated with its business; • Recent government initiatives are expected to have a profound effect on the financial services industry and could dramatically change the competitive environment of the Company; • Other legislative or regulatory changes, including those related to residential mortgages, changes in accounting standards, and Federal Deposit Insurance Corporation (“FDIC”) initiatives may adversely affect the businesses in which NewAlliance is engaged; • Local, state or federal taxing authorities may take tax positions that are adverse to NewAlliance; • Expected cost savings associated with mergers may not fully be realized or realized within expected time frames; • Deposit attrition, customer loss or revenue loss following completed mergers may be greater than expected; • Competitors of NewAlliance may have greater financial resources and develop products that enable them to compete more successfully than NewAlliance; • Costs or difficulties related to the integration of acquired businesses may be greater than expected; and • Unfavorable changes related to economic stress and dislocation may impact the Company’s vendors, counter-parties, and other entities on which the company has a dependence.

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

PART I

Item 1. Business

General

In 2003, NewAlliance was organized as a Delaware business corporation in connection with the conversion of NewAlliance Bank (the “Bank”), formerly New Haven Savings Bank, from mutual to capital stock form, which became effective on April 1, 2004. The Bank’s conversion resulted in the Company owning all of the Bank’s outstanding capital stock. The Bank is now a wholly-owned subsidiary of the Company, a bank holding company regulated by the Federal Reserve Board. On April 1, 2004, the Bank changed its name to NewAlliance Bank. The Bank was founded in 1838 as a Connecticut-chartered mutual savings bank and is regulated by the State of Connecticut Department of Banking and the FDIC.

By assets, NewAlliance is the third largest banking institution headquartered in Connecticut and the fourth largest based in New England with consolidated assets of $8.43 billion and stockholders’ equity of $1.43 billion at December 31, 2009. NewAlliance delivers financial services to individuals, families and businesses throughout Connecticut and Western Massachusetts. NewAlliance Bank provides commercial banking, retail banking, consumer financing, trust and investment services through 87 banking offices, 104 ATMs and its internet website (www.newalliancebank.com). NewAlliance common stock is traded on the New York Stock Exchange under the symbol “NAL”.

Pending MergerOn August 18, 2010, the Company entered into an agreement and plan of merger with First Niagara Financial Group, Inc. (“First Niagara”), pursuant to which the Company will merge with and into First Niagara (the “Merger”). The Merger was approved by the Company’s shareholders and First Niagara’s shareholders at special meetings of shareholders held on December 20, 2010. Pending and subject to the receipt of all required regulatory approvals, the Merger is expected to close in the second quarter of 2011. See “Item 1A – Risk Factors – Risk Related to the Merger with First Niagara.”This annual report on Form 10-K has been written from the standpoint of business as usual, however and as applicable, references and disclosures have been made that relate to the pending merger.Lending ~~Activities~~ActivitiesGeneralThe Company originates commercial loans, commercial real estate loans, residential and commercial construction loans, residential real estate loans collateralized by one- to four-family residences, home equity lines of credit and fixed rate loans and other consumer loans predominantly in the States of Connecticut and Massachusetts. Loan originations totaled $2.16 billion in 2010 as the Company was able to capitalize on the opportunities in the marketplace by having the ability and liquidity to retain or sell these loans. The Company also has a portfolio of purchased mortgage loans, with property locations throughout the United States. The purchased portfolio has been declining over the past three years as no new loans have been purchased, primarily a result of the dislocations in the marketplace and general economic conditions throughout the United States.Real estate secured the majority of the Company’s loans as of December 31, 2010, including some loans classified as commercial loans. Interest rates charged on loans are affected principally by the Company’s current asset/liability strategy, the demand for such loans, the cost and supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by general economic and credit conditions, monetary policies of the federal government, including the Federal Reserve Board, federal and state tax policies and budgetary matters.Residential Real Estate LoansA principal lending activity of the Company is to originate prime loans secured by first mortgages on one- to four-family residences in the states of Connecticut and Massachusetts. The Company originates residential real estate loans primarily through commissioned mortgage representatives and brokers across our branch footprint. The Company originates both fixed rate and adjustable rate mortgages and has purchased both adjustable rate and 10 and 15 year fixed rate mortgages under its residential real estate purchase program. At December 31, 2010, the purchased portfolio made up 13.9% and 6.9% of the total residential real estate and total loan portfolios, respectively. Residential lending represents the largest single component of our total portfolio.Residential mortgage loan originations remained very strong in 2010. The Company originated a record $1.30 billion in residential mortgage loans, which included $355.8 million originated for sale. The decrease in conforming mortgage interest rates caused by government purchases of mortgage securities, a reduced number of competitors who have the ability and liquidity to retain or sell mortgage loans and enhanced sales efforts by the Bank were catalysts for the surge of mortgage originations we experienced throughout 2010.The Company currently sells the majority of the fixed rate residential real estate loans it originates with terms of 15 years or more. In 2009, however, the Company began the strategy of retaining jumbo 30 year fixed rate residential mortgage originations in its portfolio. During 2010 and 2009, the Company originated $135.8 million and $7.4 million, respectively, in jumbo 30 year fixed rate mortgages for portfolio. Loans are originated for sale under forward rate commitments. The percentage of loans the Company sells will vary depending upon interest rates and our strategy for the management of interest rate risk. The majority of loans originated for sale are sold servicing released, but the bank continues to service loans both held in portfolio and those sold prior to May 2007.The retention of adjustable rate or shorter term fixed rate, as opposed to longer term fixed rate, residential mortgage loans in the portfolio helps reduce the Company’s exposure to interest rate risk. However, adjustable rate mortgages generally pose credit risks different from the credit risks inherent in fixed rate loans primarily because as interest rates rise, the underlying debt service payments of the borrowers rise, thereby increasing the potential for default. Management believes that these risks, which have not had a material adverse effect on the Company to date, generally are less onerous than the interest rate risks associated with holding long-term fixed rate loans in the loan portfolio. The Company’s residential real estate loan purchase program purchased adjustable rate mortgages and fixed rate mortgages with maturity terms of less than 15 years. The servicing for these loans was retained by the seller. These purchases were originally concentrated in the Northeast and then expanded to locations across the United States following underwriting standards no less stringent than that used for the organic residential loan portfolio. The Company also purchases some

General The Company originates commercial loans, commercial real estate loans, residential and commercial construction loans, residential real estate loans collateralized by one- to four-family residences, home equity lines of credit and fixed rate loans and other consumer loans predominantly in the States of Connecticut and Massachusetts. Loan originations totaled $1.50 billion in 2009 as the Company was able to capitalize on the opportunities in the marketplace by having the ability and liquidity to retain or sell these loans. The Company also has a portfolio of purchased mortgage loans as described below, with property locations throughout the United States.

Real estate secured the majority of the Company’s loans as of December 31, 2009, including some loans classified as commercial loans. Interest rates charged on loans are affected principally by the Company’s current asset/liability strategy, the demand for such loans, the cost and supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by general economic and credit conditions, monetary policies of the federal government, including the Federal Reserve Board, federal and state tax policies and budgetary matters.

Residential Real Estate Loans A principal lending activity of the Company is to originate prime loans secured by first mortgages on one- to four-family residences in the states of Connecticut and Massachusetts. The Company originates residential real estate loans primarily through commissioned mortgage representatives and brokers across our branch footprint. The Company originates both fixed rate and adjustable rate mortgages and has purchased both adjustable rate and 10 and 15 year fixed rate mortgages under its residential real estate purchase program. At December 31, 2009, the purchased portfolio made up 21% and 10% of the total residential real estate and total loan portfolios, respectively. Residential lending represents the largest single component of our total portfolio.

The Company currently sells the majority of the fixed rate residential real estate loans it originates with terms of 15 years or more. During the third quarter of 2009, the Company allocated an initial pool of $50.0 million for the retention of jumbo 30 year fixed rate residential mortgage originations in its portfolio. In 2009, the Company originated $7.4 million in jumbo 30 year fixed rate mortgages that it retained in portfolio. Loans are originated for sale under forward rate commitments. The percentage of loans the Company sells will vary depending upon interest rates and our strategy for the management of interest rate risk. The majority of loans originated for sale are sold servicing released, but the bank continues to service loans both held in portfolio and those sold prior to May 2007.

Residential mortgage loan originations have remained very strong in 2009. The Company originated a record $1.04 billion in residential mortgage loans, including $475.9 million originated for sale. The decrease in conforming mortgage interest rates caused by government purchases of mortgage securities, a reduced number of competitors who have the ability and liquidity to retain or sell mortgage loans and enhanced sales efforts by the Bank were catalysts for the surge of mortgage originations we experienced throughout 2009.

In 2005, the Company began a strategy of purchasing adjustable rate and 10 and 15 year fixed rate residential mortgages and currently has purchased loans with property locations throughout the United States. The purchased portfolio is made up of prime loans individually re-underwritten by the Company to its underwriting criteria. In recent years, the mortgage market experienced extreme volatility and unusual pricing due to lower liquidity which led to a tightening of the credit markets and NewAlliance’s ensuing tightening of underwriting standards. The disruptions in the marketplace led to fewer residential mortgage purchases that met the Company’s pricing and underwriting criteria. In 2009 NewAlliance did not make any residential mortgage purchases and purchased $25.7 million during the twelve months ended December 31, 2008. NewAlliance plans on resuming purchases when loan pools are available that meet its criteria.

The retention of adjustable rate, shorter term fixed rate, or other designated pool allocations as discussed above of the jumbo 30 year fixed rate mortgages, as opposed to longer term, fixed rate residential mortgage loans in the portfolio helps reduce the Company’s exposure to interest rate risk. However, adjustable rate mortgages generally pose credit risks different from the credit risks inherent in fixed rate loans primarily because as interest rates rise, the underlying debt service payments of the borrowers rise, thereby increasing the potential for default. Management believes that these risks, which have not had a material adverse effect on the Company to date, generally are less onerous than the interest rate risks associated with holding long-term fixed rate loans in the loan portfolio. The Company’s residential real estate loan purchase program purchased adjustable rate mortgages and fixed rate mortgages with terms of maturity of less than 15 years. The servicing for these loans was retained by the seller. These purchases were originally concentrated in the Northeast and then expanded to locations across the United States following underwriting standards no less stringent than that used for the organic residential loan portfolio. The Company also purchases some fixed rate mortgages with terms greater than 15 years in low or moderate income areas within its Community Reinvestment Act assessment area.

Onfixed ~~September~~rate 7,mortgages ~~2008,~~with ~~Federal~~terms ~~Home Loan~~greater ~~Mortgage~~than ~~Corporation~~15 ~~(“FHLMC”)~~years in low or ~~(“Freddie~~moderate ~~Mac”)~~income ~~and~~areas ~~Federal~~within its Community Reinvestment ~~National~~Act ~~Mortgage~~assessment ~~Association~~area.Commercial ~~(“Fannie~~Real ~~Mae”)~~Estate LoansThe Company makes commercial real estate loans throughout its market area for the purpose of acquiring, developing, constructing, improving or ~~(“FNMA”)~~refinancing ~~were~~commercial ~~placed~~real ~~into~~estate ~~conservatorship~~where bythe property is the ~~United~~primary ~~States~~collateral ~~Treasury~~securing ~~Department~~the ~~(“Treasury”)~~loan, and ~~Federal~~the ~~Housing~~income ~~Finance~~generated ~~Agency~~from the property is the primary repayment source. ~~This~~Retail ~~action~~facilities, ~~along~~office ~~with~~buildings, ~~the~~light ~~softening~~industrial, warehouse, multifamily income properties, and ofmedical facilities normally collateralize commercial real estate loans. These properties are located primarily in Connecticut and Massachusetts. Among the reasons for management’s continued emphasis on commercial real estate lending is the desire to invest in assets with yields which are generally higher than yields on one- to four-family residential mortgage loans, and are more sensitive to changes in market interest rates. Terms generally range from five to 25 years, ~~temporarily~~with ~~slowed~~interest ~~originations~~rates adjusting primarily in three, five and ~~sales~~ten year intervals.Commercial real estate lending generally poses a greater credit risk than residential mortgage lending to owner occupants. The repayment of ~~fixed~~commercial ~~rate~~real estate loans depends on the business ~~mortgages~~and financial condition of the borrower. ByEconomic ~~December~~events ~~2008~~and changes in government regulations, ~~however~~which the Company and its borrowers do not control, could have an adverse impact on the cash flows generated by properties securing commercial real estate loans and on the market value of such properties. Commercial properties tend to decline in ~~conjunction~~value ~~with~~more ~~diminished~~rapidly ~~competition~~than residential owner-occupied properties during economic recessions and ~~fixed~~individual ~~mortgage~~loans ~~rates~~on ~~dropping~~commercial atproperties ~~times~~tend ~~below~~to ~~5%,~~be ~~originations~~larger ~~surged~~than individual loans on residential properties.Construction WeLoansThe ~~expect~~Company originates both residential and commercial construction loans. Typically loans are made to owner-borrowers who will occupy the ~~trend~~properties (residential construction) and to licensed and experienced developers for the construction of ~~low~~single-family ~~interest~~home ~~rates~~developments (commercial construction).Residential construction loans to ~~continue~~owner-borrowers ~~into~~generally ~~2010~~convert ~~and~~to a fully amortizing long-term mortgage loan upon completion of construction. Commercial construction loans generally have aterms ~~positive~~of ~~effect~~six months to two years. Some construction-to-permanent loans have fixed oninterest ~~originations~~rates ~~although~~for ~~not~~the atpermanent portion, but the Company originates mostly adjustable rate weconstruction ~~experienced~~loans.The proceeds of commercial construction loans are disbursed in ~~2009~~stages ~~due~~and ~~partly~~the terms may require developers to ~~the~~ pre-sell ~~announced~~a ~~end~~certain percentage of the ~~government~~properties ~~program~~they plan to ~~purchase~~build before the Company will advance any construction financing. Company officers, appraisers and/or independent engineers inspect each project’s progress before additional funds are disbursed to verify that borrowers have completed project phases.Construction lending, particularly commercial construction lending, poses greater credit risk than mortgage~~-backed~~ ~~securities~~lending into owner occupants. ~~March~~The ~~2010~~repayment of commercial construction loans depends on the business and financial condition of the borrower and on the economic viability of the project financed. ~~Lowering~~A number of ~~interest~~borrowers ~~rates~~have ~~has~~more ~~been~~than one construction loan outstanding with the Company at any one time. Economic events and changes in government regulations, which the Company and its borrowers do not control, could have an adverse impact on the value of properties securing construction loans and on the ~~tools~~borrower’s ability to complete projects financed and, if not the ~~government~~borrower’s residence, ~~has~~sell ~~used~~them for amounts anticipated at the time the projects commenced.The commercial construction portfolio includes loans to ~~stimulate~~commercial borrowers for residential housing development including condominium projects. Since 2008, this segment related to residential development has been negatively impacted by the ~~recessionary~~downturned economy. ~~The~~as ~~financial~~home ~~markets~~sales volumes have ~~become~~ been ~~supportive~~extremely low and prices have declined. The Company’s portfolio of ~~economic~~these ~~growth~~loans, however, is very small, at 1.7% and 2.3% of the ~~economic~~total ~~recovery~~commercial isreal ~~likely~~estate toportfolio beat ~~moderate~~December 31, 2010 and 2009, respectively, and less than one percent of the total loan portfolio for aboth ~~time~~periods.Commercial ~~With~~LoansCommercial ~~ready~~loans ~~liquidity~~are primarily collateralized by equipment, inventory, accounts receivable and/or ~~adequate~~leases. ~~capital~~Many of the Company’s commercial loans are also collateralized by real estate, but are not classified as commercial real estate loans because such loans are not made for the purpose of acquiring, refinancing or constructing the real estate securing the loan. Commercial loans primarily provide working capital, equipment financing, financing for leasehold improvements and financing for expansion. The Company ~~has~~offers ~~been~~both term and revolving commercial loans. Term loans have either fixed or adjustable rates of interest and, generally, terms of between two and seven years. Term loans generally amortize during their life, although some loans require a ~~leading~~balloon payment at maturity if the amortization ~~originator~~exceeds inseven ~~our~~years. ~~market~~Revolving ~~area~~commercial ~~throughout~~lines ~~2009~~of credit typically have one or two-year terms, are renewable annually and ~~expects~~have a floating rate of interest which is normally indexed to ~~remain~~the asCompany’s ~~such~~“base ~~going~~rate” of interest and ~~forward~~occasionally indexed to the London Interbank Offered Rate (“LIBOR”).

Commercial Real Estate Loans The Company makes commercial real estate loans throughout its market area for the purpose of acquiring, developing, constructing, improving or refinancing commercial real estate where the property is the primary collateral securing the loan, and the income generated from the property is the primary repayment source. Retail facilities, office buildings, light industrial, warehouse, multi-family income properties, and medical facilities normally collateralize commercial real estate loans. These properties are located primarily in Connecticut and Massachusetts. Among the reasons for management’s continued emphasis on commercial real estate lending is the desire to invest in assets with yields which are generally higher than yields on one- to four-family residential mortgage loans, and are more sensitive to changes in market interest rates. Terms generally range from five to 25 years, with interest rates adjusting primarily in three, five and ten year intervals.

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

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

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

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

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

The commercial construction portfolio includes loans to commercial borrowers for residential housing development including condominium projects. During 2008 and 2009, this segment related to residential development had been negatively impacted by the downturned economy as home sales volumes have been extremely low and prices have declined. The Company’s portfolio of these loans, however, is very small, at 2.3% and 3.9% of the total commercial real estate portfolio at December 31, 2009 and 2008, respectively, and less than one percent of the total loan portfolio for both periods.

Commercial Loans Commercial loans are primarily collateralized by equipment, inventory, accounts receivable and/or leases. Many of the Company’s commercial loans are also collateralized by real estate, but are not classified as commercial real estate loans because such loans are not

~~made~~In ~~for~~ the ~~purpose~~fourth quarter of ~~acquiring~~2009, ~~refinancing~~NewAlliance orlaunched ~~constructing~~a ~~the~~new ~~real~~division, ~~estate~~NewAlliance ~~securing~~Commercial Finance, the ~~loan~~formation of an asset-based lending business. ~~Commercial~~The new line of business expands the bank’s business lending offerings to include revolving lines of credit and term loans ~~primarily~~secured ~~provide~~by accounts ~~working~~receivable, ~~capital~~inventory, ~~equipment~~and ~~financing~~other assets. An asset-based loan is collateralized with a customer’s business assets, which can ultimately be the primary source of loan repayment. This type of financing ~~for~~is ~~leasehold~~particularly ~~improvements~~attractive to startup and ~~financing~~growth companies, as well as those in restructuring, turn-around, or other financially ~~for~~distressed ~~expansion~~situations that result in the inability to secure traditional commercial lending. ~~The~~NewAlliance ~~Company~~Bank ~~offers~~is ~~both~~well ~~term~~capitalized and ~~revolving~~poised to expand its lending capabilities to business customers seeking relevant, flexible capital solutions beyond traditional commercial lending. The outstanding balance represents approximately three percent of total loans at December 31, 2010. ~~Term~~The Company expects that asset-based lending will eventually represent approximately five percent of total loans.Commercial ~~have~~lending ~~either~~generally ~~fixed~~poses ora ~~adjustable~~higher ~~rates~~degree of ~~interest~~credit risk than real estate lending. Repayment of both secured and unsecured commercial loans depends substantially on the success of the borrower’s underlying business, financial condition and cash flows. Unsecured loans generally, ~~terms~~involve a higher degree of risk of loss than ~~between~~do ~~two~~secured ~~and~~loans ~~seven~~because, ~~years~~without collateral, repayment is primarily dependent upon the success of the borrower’s business. ~~Term~~There are very few unsecured loans in the Company’s portfolio. Secured commercial loans are generally ~~amortize~~collateralized ~~during~~by ~~their~~equipment, ~~life~~inventory, ~~although~~accounts receivable and leases. Compared to real estate, ~~some~~such ~~loans~~collateral ~~require~~is amore ~~balloon~~difficult ~~payment~~to atmonitor, ~~maturity~~its value is more difficult to validate, it may depreciate more rapidly and it may not be as readily saleable if repossessed. At December 31, 2010, the ~~amortization~~Company’s ~~exceeds~~outstanding ~~seven~~commercial loan portfolio ~~years~~included the following business sectors: manufacturing, professional services, wholesale trade, retail trade, transportation, educational and health services, contractors and real estate rental and leasing. ~~Revolving~~Industry ~~commercial~~concentrations ~~lines~~are reported quarterly to the Loan Committee of ~~credit~~the ~~typically~~Board ~~have~~of ~~one~~Directors.Consumer orLoansThe ~~two-year~~Company ~~terms~~originates various types of consumer loans, including ~~are~~auto, ~~renewable~~mobile ~~annually~~home, boat, educational and ~~have~~personal ainstallment ~~floating~~loans. ~~rate~~However, approximately 98% of ~~interest~~our ~~which~~consumer loan portfolio is ~~normally~~comprised ~~indexed~~of home equity loans and lines of credit secured by one- to four-family owner-occupied properties. These loans are typically secured by second mortgages. Home equity loans have fixed interest rates, while home equity lines of credit normally adjust based on the Company’s “base rate” of interest. Consumer loans are originated through the branch network.Credit Risk Management and ~~occasionally~~Asset ~~indexed~~QualityOne of management’s key objectives has been and continues to ~~the~~be ~~London~~to ~~Interbank~~maintain ~~Offered~~a ~~Rated~~high ~~(“LIBOR”)~~level of asset quality. NewAlliance utilizes the following general practices to manage credit risk:

In the fourth quarter of 2009, NewAlliance launched a new division, NewAlliance Commercial Finance, the formation of an asset-based lending business. The new line of business expands the bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets. An asset-based loan is collateralized with a customer’s balance sheet assets, which are considered the primary source of loan repayment. This type of financing is particularly attractive to start-up and growth companies, as well as those in restructuring, turn-around, or other financially distressed situations that result in the inability to secure traditional commercial lending. NewAlliance Bank is well capitalized and poised to expand its lending capabilities to business customers seeking relevant, flexible capital solutions beyond traditional commercial lending. The Company expects that asset-based lending will eventually represent five percent of total loans.

Commercial lending generally poses a higher degree of credit risk than real estate lending. Repayment of both secured and unsecured commercial loans depends substantially on the success of the borrower’s underlying business, financial condition and cash flows. Unsecured loans generally involve a higher degree of risk of loss than do secured loans because, without collateral, repayment is primarily dependent upon the success of the borrower’s business. There are very few unsecured loans in the Company’s portfolio. Secured commercial loans are generally collateralized by equipment, inventory, accounts receivable and leases. Compared to real estate, such collateral is more difficult to monitor, its value is more difficult to validate, it may depreciate more rapidly and it may not be as readily saleable if repossessed.

At December 31, 2009, the Company’s outstanding commercial loan portfolio included the following business sectors: manufacturing, professional services, wholesale trade, retail trade, transportation, educational and health services, contractors and real estate rental and leasing. Industry concentrations are reported quarterly to the Loan Committee of the Board of Directors.

Consumer Loans The Company originates various types of consumer loans, including auto, mobile home, boat, educational and personal installment loans. However, approximately 98% of our consumer loan portfolio is comprised of home equity loans and lines of credit secured by one- to four-family owner-occupied properties. These loans are typically secured by second mortgages. Home equity loans have fixed interest rates, while home equity lines of credit normally adjust based on the Company’s base rate of interest. Consumer loans are originated through the branch network.

Credit Risk Management and Asset Quality One of management’s key objectives has been and continues to be to maintain a high level of asset quality. NewAlliance utilizes the following general practices to manage credit risk:

•		Limiting the amount of credit that individual lenders may extend;
•		Establishing a process for credit approval accountability;
•		Careful initial underwriting and analysis of borrower, transaction, market and collateral risks;
•		Ongoing servicing of the majority of individual loans and lending relationships;
•		Continuous monitoring of the portfolio, market dynamics and the economy; and
•		Periodically reevaluating the Bank’s strategy and overall exposure as economic, market and other relevant conditions change.

NewAlliance’s lending strategy, which focuses on relationship-based lending within our markets, continues to produce excellent credit quality. As measured by relative levels of nonperforming assets, delinquencies, and net charge-offs, NewAlliance’s asset quality has consistently remained better than industry published averages.Credit Administration is independent of the lending groups, and is responsible for the completion of credit analyses for all loans above a specific threshold, for determining loan loss reserve adequacy and for preparing monthly and quarterly reports regarding the credit quality of the loan portfolio, which are submitted to senior management and the Board of Directors, to ensure compliance with the credit policy. In addition, Credit Administration is responsible for managing nonperforming and classified assets. On a quarterly basis, the criticized loan portfolio which consists of commercial and commercial real estate loans that are risk rated Special Mention or worse, are reviewed by management, focusing on the current status and strategies to improve the credit. The loan review function is outsourced to a third party to provide an evaluation of the creditworthiness of the borrower and the appropriateness of the risk rating classifications. The findings are reported to Credit Administration and summary information is then presented to the Loan Committee of the Board of Directors.

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

Trust ServicesThe Company provides a range of fiduciary and trust services and general investment management services to individuals, families and institutions. The ~~loan~~Company ~~review~~will ~~function~~continue to emphasize the growth of its trust and investment management services to increase fee-based income. At December 31, 2010, Trust Services managed approximately 1,260 account relationships and had assets under management of $1.03 billion. These assets are not included in the Consolidated Financial Statements. For the years ended December 31, 2010, 2009 and 2008, revenues for this area were $6.3 million, $5.8 million and $6.4 million, respectively.Brokerage, Investment Advisory and Insurance ServicesThe Company provides brokerage and insurance services through its wholly owned subsidiary, NewAlliance Investments, Inc., (“NAII”) Member FINRA – Financial Industry Regulatory Authority /SIPC – Securities Investor Protection Corporation. NAII offers traditional brokerage and insurance products through 25 registered representatives and 79 insurance licensed branch representatives offering customers an expansive array of investment products including stocks, bonds, mutual funds, fixed annuities, estate and retirement planning and life insurance. In 2007, the Company acquired Connecticut Investment Management Inc., an investment advisory firm.Investment ActivitiesThe primary objective of the investment portfolio is ~~outsourced~~to achieve a profitable rate of return on the investments over a reasonable period of time based on prudent management practices and sensible risk taking. The portfolio is also used to help manage the net interest rate risk position of the Company. As a ~~third~~tool ~~party~~to manage interest rate risk, the flexibility to ~~provide~~utilize anlong ~~evaluation~~term fixed rate investments is quite limited. In view of the ~~creditworthiness~~Company’s lending capacity and generally higher rates of return on loans, management prefers lending activities as its primary source of revenue with the ~~borrower~~securities portfolio serving a secondary role. The investment portfolio, however, is expected to continue to represent a significant portion of the Company’s assets, and includes U.S. Government and Agency securities, mortgage-backed securities, collateralized mortgage obligations, asset backed securities, high quality corporate debt, municipal bonds and corporate equities. The portfolio will continue to serve the ~~appropriateness~~Company’s liquidity needs as projected by management and as required by regulatory authorities.Sources of FundsThe Company uses deposits, repayments and prepayments of loans and securities, proceeds from sales of loans and securities and proceeds from maturing securities and borrowings to fund lending, investing and general operations. Deposits represent the ~~risk~~Company’s ~~rating~~primary ~~classifications~~source of funds.DepositsThe Company offers a variety of deposit accounts with a range of interest rates and other terms, which are designed to meet customer financial needs. Retail and commercial deposits are received through the Company’s banking offices. Additional deposit services provided to customers are ATM, telephone, Internet Banking, Internet Bill Pay, remote deposit capture and cash management.The ~~findings~~FDIC insures deposits up to certain limits (generally, $250,000 per depositor). Additionally, in November 2010 and January 2011, the FDIC issued final rules to provide separate temporary coverage for noninterest-bearing transaction accounts and Lawyer Trust Accounts (IOLTAs). The final rule indicates that all funds held in noninterest-bearing transaction accounts are ~~reported~~fully insured, without limit, and that this unlimited coverage is separate from, and in addition to, ~~Credit~~the ~~Administration~~coverage provided to depositors with respect to other accounts held at NewAlliance Bank. This temporary coverage will expire December 31, 2012.Deposit flows are significantly influenced by economic conditions, the general level of interest rates and ~~summary~~the ~~information~~relative attractiveness of competing deposit and investment alternatives. Deposit pricing strategy is ~~then~~monitored ~~presented~~weekly by the Pricing Committee and results are reported monthly to the ~~Loan~~Asset/Liability Committee. When determining our deposit pricing, we consider strategic objectives, competitive market rates, deposit flows, funding commitments and investment alternatives, Federal Home Loan Bank (“FHLB”) advance rates and rates on other sources of funds.National, regional and local economic and credit conditions, changes in competitor money market, savings and time deposit rates, prevailing market interest rates and competing investment alternatives all have a significant impact on the ~~Board~~level of ~~Directors~~the Company’s deposits. In 2010, NewAlliance was successful in generating and maintaining core deposits due to the Company’s concerted marketing and sales efforts and consumer desire for cash liquidity. Deposit levels could come under pressure, however, as equity markets start to rebound.

Trust Services

The Company provides a range of fiduciary and trust services and general investment management services to individuals, families and institutions. The Company will continue to emphasize the growth of its trust and investment management services to increase fee-based income. At December 31, 2009, Trust Services managed approximately 1,300 account relationships and had assets under management of $1.03 billion. These assets are not included in the Consolidated Financial Statements. For the years ended December 31, 2009, 2008 and 2007, revenues for this area were $5.8 million, $6.4 million and $6.8 million, respectively.

Brokerage, Investment Advisory and Insurance Services

The Company provides brokerage and insurance services through its wholly owned subsidiary, NewAlliance Investments, Inc., Member FINRA – Financial Industry Regulatory Authority /SIPC – Securities Investor Protection Corporation. The Firm offers traditional brokerage and insurance products through 23 registered representatives and 80 insurance licensed branch representatives offering customers an expansive array of investment products including stocks, bonds, mutual funds, fixed annuities, estate and retirement planning and life insurance. In 2007, the Company acquired Connecticut Investment Management Inc., an investment advisory firm.

Investment Activities

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

Sources of Funds

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

Deposits The Company offers a variety of deposit accounts with a range of interest rates and other terms, which are designed to meet customer financial needs. Retail and commercial deposits are received through the Company’s banking offices. Additional deposit services provided to customers are ATM, telephone, Internet Banking, Internet Bill Pay, remote deposit capture and cash management.

The FDIC insures deposits up to certain limits (generally, $100,000 per depositor and $250,000 for certain retirement plan accounts). The Emergency Economic Stabilization Act of 2008 (“EESA”) signed into law on October 3, 2008 raised the $100,000 limit on insured deposits to $250,000, matching the limit on qualified retirement accounts through December 31, 2009. As part of the Helping Families Save Their Homes Act of 2009, the temporary deposit insurance limit was extended through December 31, 2013. In addition, under the FDIC’s Transaction Account Guarantee (“TAG”) portion of the Temporary Liquidity Guaranty Program (“TLGP”), non-interest bearing transaction deposit accounts and interest-bearing transaction accounts paying 50 basis points or less will be fully insured above and beyond the $250,000 limit through June 30, 2010.

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

~~National~~Borrowings The Company is a member of the FHLB which functions in a reserve credit capacity for regulated, ~~regional~~federally ~~and~~insured ~~local~~depository ~~economic~~institutions and certain other home ~~credit~~financing ~~conditions~~institutions. As a member of the Federal Home Loan Bank of Boston (“FHLB Boston”), ~~changes~~a inregional ~~competitor~~bank ~~money~~of ~~market~~the FHLB, ~~savings~~NewAlliance Bank is required to own capital stock in the FHLB Boston and ~~time~~is ~~deposit~~authorized to apply for advances on the ~~rates,~~security ~~prevailing~~of ~~market~~their ~~interest~~FHLB ~~rates~~Boston stock and ~~competing~~certain ~~investment~~home ~~alternatives~~mortgages ~~all~~and other assets ~~have~~(principally asecurities, ~~significant~~which ~~impact~~are onobligations of, or guaranteed by, the ~~level~~United ofStates Government or its agencies) provided certain creditworthiness standards have been met. Under its current credit policies, the ~~Company~~FHLB Boston limits advances based on a member’s ~~deposits~~assets, total borrowings and net worth. InLong-term ~~2009,~~and short-term ~~NewAlliance~~FHLB ~~was~~Boston ~~successful~~advances inare ~~generating~~utilized as a source of funding to meet liquidity and ~~maintaining~~planning ~~core~~needs when the cost of these funds are favorable as compared to deposits ~~due~~or alternate funding sources.Additional funding sources are available through securities sold under agreements to repurchase and the Federal Reserve Bank (“FRB”). AcquisitionsThe Company’s ~~concerted~~growth ~~marketing~~and increased market share have been achieved through both internal growth and ~~sales~~acquisitions. ~~efforts~~Up inuntil ~~conjunction~~the ~~with~~announcement ~~being~~of ~~seen~~the First Niagara merger, the Company continually evaluated acquisition opportunities asthat awould ~~safe~~help ~~haven~~meet its strategic objectives. The volatility in the market over the past 36 months was not conducive to widespread acquisition activities, and ~~heightened~~as ~~consumer~~such, ~~desire~~2007 ~~for~~marked ~~cash~~the ~~liquidity~~last acquisition completed by the Company. ~~Deposit~~NewAlliance ~~levels~~completed ~~could~~six ~~come~~acquisitions, ~~under~~four ~~pressure,~~banking ~~however~~institutions and two trust and investment advisory firms, assince ~~equity~~its ~~markets~~conversion ~~start~~from a mutual bank to ~~rebound~~a stock bank in 2004.Subsidiary ActivitiesNewAlliance Bancshares, Inc. is a bank holding company and currently has the following wholly-owned subsidiaries. The Company has not participated in asset securitizations.

~~Borrowings The~~Alliance ~~Company~~Capital isTrust aII was ~~member~~organized ofby ~~the~~Alliance ~~FHLB~~Bancorp ~~which~~of ~~functions~~New inEngland, aInc. ~~reserve~~(“Alliance”) ~~credit~~to ~~capacity~~facilitate the ~~for~~issuance ~~regulated,~~of ~~federally~~“trust ~~insured~~preferred” ~~depository~~securities. ~~institutions~~The ~~and~~Company ~~certain~~acquired ~~other~~this ~~home~~subsidiary ~~financing~~when ~~institutions~~it acquired Alliance. AsThe aCompany’s ~~member~~debt ofto ~~the~~Alliance ~~Federal~~Capital ~~Home~~Trust ~~Loan~~II ~~Bank~~is ofrecorded ~~Boston~~as (“~~FHLB~~ Junior ~~Boston~~Subordinated Debentures issued to affiliated trusts”), ain ~~regional~~Note ~~bank~~10 of the ~~FHLB,~~Notes ~~NewAlliance~~to ~~Bank~~Consolidated isFinancial ~~required~~Statements tocontained ~~own~~elsewhere ~~capital~~in ~~stock~~this inreport, ~~the~~and ~~FHLB~~amounted ~~Boston~~to ~~and~~$3.6 ismillion ~~authorized~~at toDecember ~~apply~~31, ~~for~~2010. ~~advances~~In onJune ~~the~~2009, ~~security~~the ofCompany’s ~~their~~debt ~~FHLB~~to ~~Boston~~Alliance ~~stock~~Capital ~~and~~I ~~certain~~was ~~home~~paid ~~mortgages~~in ~~and~~full.Westbank ~~other assets~~Capital ~~(principally~~Trust ~~securities,~~II ~~which~~and ~~are~~Westbank ~~obligations~~Capital ~~of,~~Trust orIII were ~~guaranteed~~organized by, ~~the~~Westbank ~~United~~Corporation ~~States~~Inc. ~~Government~~(“Westbank”) orsolely ~~its~~for ~~agencies)~~the ~~provided~~purpose ~~certain~~of ~~creditworthiness~~trust ~~standards~~preferred ~~have~~financing. ~~been~~The ~~met.~~Company ~~Under~~acquired ~~its~~these ~~current~~subsidiaries ~~credit~~when ~~policies,~~it ~~the~~acquired ~~FHLB~~Westbank ~~Boston~~on ~~limits~~January ~~advances based~~2, on2007. aThe ~~member~~Company’s ~~assets,~~debt ~~total~~to ~~borrowings~~Westbank ~~and~~Capital ~~net~~Trust ~~worth.~~II ~~Long-term~~ and ~~short-term~~ III ~~FHLB~~is ~~Boston~~recorded ~~advances are utilized~~ as a“Junior ~~source~~Subordinated ofDebentures ~~funding~~issued to ~~meet~~affiliated ~~liquidity~~trusts” ~~and~~in ~~planning~~Note ~~needs~~10 ~~when~~of the ~~cost~~Notes ofto ~~these~~Consolidated ~~funds~~Financial ~~are~~Statements ~~favorable~~contained aselsewhere ~~compared~~in this report, and amounted to ~~deposits~~a ortotal ~~alternate~~ of ~~funding~~$17.5 ~~sources~~million at December 31, 2010.

~~Additional~~NewAlliance ~~funding sources are available~~Bank is ~~through~~a ~~securities~~Connecticut ~~sold~~chartered ~~under~~capital ~~agreements~~stock tosavings ~~repurchase~~bank and ~~the~~also ~~Federal~~has ~~Reserve~~the ~~Bank~~following wholly-owned ~~(“FRB”)~~subsidiaries all of which are incorporated in Connecticut.

~~Acquisitions~~NewAlliance Bank Community Development ~~The~~ ~~Company’s~~Corporation (“CDC”) ~~growth~~was ~~and~~organized ~~increased~~in ~~market~~1999 ~~share~~pursuant ~~have~~to a federal law which encourages the creation of such bank subsidiaries to further community development programs. The CDC has been ~~achieved~~funded ~~through~~by ~~both~~NewAlliance Bank with $7.5 million in cash ~~internal~~to ~~growth~~provide flexible capital for community development and ~~acquisitions~~neighborhood revitalization. The ~~Company~~Bank ~~continually~~intends ~~evaluates~~to ~~acquisition~~provide additional funding to the CDC, up to $10.0 million in ~~opportunities~~total, ~~that~~as ~~would~~the ~~help~~funds ~~meet~~can ~~our~~be ~~strategic~~utilized. ~~objectives~~The CDC investments can be in the form of equity, debt or mezzanine financing. ~~NewAlliance~~Current ~~will~~investments ~~continue~~include artist housing, affordable tohousing ~~pursue~~loan ~~economically~~pools, ~~advantageous~~equity ~~acquisitions~~investments in downtown real estate development and small business development funds.Fairbank Corporation is a wholly-owned subsidiary of ~~banks~~the CDC. Fairbank Corporation owns a 121-unit apartment building in New Haven, ~~asset~~Connecticut. ~~managers~~The building includes tenants eligible for federal “Section 8” housing cost assistance and ~~leasing~~a branch of the Bank. Fairbank Corporation was formed and ~~finance~~the ~~companies,~~investment ~~and~~made ~~may~~in ~~pursue~~1971 ~~other~~to ~~strategic~~further ~~opportunities~~the Bank’s commitment to ~~grow~~the ~~existing~~New Haven community.The Loan Source, Inc. is used to hold certain ~~businesses~~real estate that we may acquire through acquisitions or ~~expand~~foreclosure ~~into~~and other ~~related~~collection ~~financial~~actions ~~businesses~~and investments in certain limited partnerships. ~~NewAlliance’s~~ The ~~acquisition~~Loan ~~strategy~~Source, isInc. ~~focused~~currently onhas ~~three~~no ~~primary~~foreclosure ~~objectives:~~property under ownership.

• A return on investment that exceeds the Bank’s cost of capital; • Earnings accretion and franchise enhancement; and • An appropriate trade off between tangible book value dilution and earnings per share accretion/franchise enhancement.

NewAlliance has completed six acquisitions since its conversion from a mutual bank to a stock bank in 2004, the most recent being in March of 2007. The volatility in the markets over the past 24 months has not been conducive to widespread acquisition activity, however, the Company continues to be interested in opportunities to expand the franchise if and when they arise. Opportunities may be in the form of whole institutions and individual or branch networks, all of which are in our acquisition growth strategy. The consideration paid for these acquisitions may be in the form of cash, debt or NewAlliance common stock. The amount of consideration paid to complete these transactions may be in excess of the book value of the underlying net assets acquired, which could have a dilutive effect on NewAlliance’s earnings and tangible capital. In addition, acquisitions result in front-end charges against earnings; however, cost savings and revenue enhancements are also typically anticipated. Additionally, to supplement its acquisition strategy, NewAlliance will also consider FDIC assisted acquisitions and growth through de-novo branches. In December 2009, NewAlliance announced the opening of a branch in downtown Hartford, Connecticut. The opening, which is expected to occur in April 2010, will increase the total number of banking offices to 88.

Subsidiary Activities

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

Alliance Capital Trust I and Alliance Capital Trust II were organized by Alliance Bancorp of New England, Inc. (“Alliance”) to facilitate the issuance of “trust preferred” securities. The Company acquired these subsidiaries when it acquired Alliance. The Company’s debt to Alliance Capital Trust II is recorded as “Junior Subordinated Debentures issued to affiliated trusts” in Note 11 of the Notes to Consolidated Financial Statements contained elsewhere in this report, and amounted to a total of $3.6 million at December 31, 2009. In June 2009, the Company’s debt to Alliance Capital I was paid in full. Westbank Capital Trust II and Westbank Capital Trust III were organized by Westbank Corporation Inc. (“Westbank”) solely for the purpose of trust preferred financing. The Company acquired these subsidiaries when it acquired Westbank on January 2, 2007. The Company’s debt to Westbank Capital Trust II and III is recorded as “Junior Subordinated Debentures issued

	to affiliated trusts” in Note 11 of the Notes to Consolidated Financial Statements contained elsewhere in this report, and amounted to a total of $17.5 million at December 31, 2009.
	NewAlliance Bank is a Connecticut chartered capital stock savings bank and also has the following wholly-owned subsidiaries all of which are incorporated in Connecticut.
		NewAlliance Bank Community Development Corporation (“CDC”) was organized in 1999 pursuant to a federal law which encourages the creation of such bank subsidiaries to further community development programs. The CDC has been funded by NewAlliance Bank with $7.5 million in cash to provide flexible capital for community development and neighborhood revitalization. The Bank intends to provide additional funding to the CDC, up to $10.0 million in total, as the funds can be utilized. The CDC investments can be in the form of equity, debt or mezzanine financing. Current investments include artist housing, affordable housing loan pools, equity investments in downtown real estate development and small business development funds. Fairbank Corporation is a wholly-owned subsidiary of the CDC. Fairbank Corporation owns a 121-unit apartment building in New Haven, Connecticut. The building includes tenants eligible for federal “Section 8” housing cost assistance and a branch of the Bank. Fairbank Corporation was formed and the investment made in 1971 to further the Bank’s commitment to the New Haven community.
		The Loan Source, Inc. is used to hold certain real estate that we may acquire through acquisitions or foreclosure and other collection actions and investments in certain limited partnerships. The Loan Source, Inc. currently has no foreclosure property under ownership.
		NewAlliance Servicing Company operates as the Bank’s passive investment company (“PIC”). A 1998 Connecticut law allows for the creation of PICs. A properly created and maintained PIC allows the Bank to contribute its real estate loans to the PIC where they are serviced. The PIC does not recognize income generated by the PIC for the purpose of Connecticut business corporations’ tax, nor does the Bank recognize income for these purposes on the dividends it receives from the PIC. Since its establishment in 1998, the PIC has allowed the Bank, like many other banks with Connecticut operations, to experience substantial savings on the Connecticut business corporations tax that otherwise would have applied.
		NewAlliance Investments Inc. offers brokerage and investment advisory services and fixed annuities and other insurance products to its customers. NewAlliance Investments, Inc. is a registered broker-dealer, registered investment advisor and is a member of FINRA and SIPC.

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

NewAlliance Investments Inc. offers brokerage and investment advisory services and fixed annuities and other insurance products to its customers. NewAlliance Investments, Inc. is a registered broker-dealer, registered investment advisor and is a member of FINRA and SIPC.

~~Employees~~EmployeesAt December 31, 2010, the Company had 1,197 employees consisting of 951 full-time and 246 part-time employees. None of the employees were represented by a collective bargaining group. The Company maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan, an employee 401(k) investment plan, an employee stock ownership plan and a stock-based long-term compensation plan. The Company’s pension plan was frozen to new participants hired after December 31, 2007. Management considers relations with its employees to be good. See Notes 11 and 12 of the Notes to Consolidated Financial Statements contained elsewhere within this report for additional information on certain benefit programs.Market AreaThe Company is headquartered in New Haven, Connecticut in New Haven County. The Company has 88 banking offices located throughout New Haven, Middlesex, Hartford, Tolland, Windham and Fairfield Counties in Connecticut and Hampden and Worcester Counties in Massachusetts. The Company’s primary deposit gathering area consists of the communities and surrounding towns that are served by its branch network. The Company’s primary lending area is much broader than its deposit gathering area and includes the entire State of Connecticut and Central and Western Massachusetts, although most of the Company’s loans are made to borrowers in its primary deposit gathering area.CompetitionThe Company is subject to strong competition from banks and other financial institutions, including savings and loan associations, commercial banks, finance and mortgage companies, credit unions, consumer finance companies, brokerage firms and insurance companies. Certain of these competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services than NewAlliance. Competition from both bank and non-bank organizations is expected to continue.The Company faces substantial competition for deposits and loans throughout its market area. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations, automated services and office hours. Competition for deposits comes primarily from other savings institutions, commercial banks, credit unions, mutual funds and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized service. Competition for origination of first mortgage loans comes primarily from other savings institutions, mortgage banking firms, mortgage brokers and commercial banks and from other non-traditional lending financial service providers such as internet based lenders and insurance and securities companies. Competition for deposits, for the origination of loans and for the provision of other financial services may limit the Company’s future growth.The banking industry is also experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. Technological advances are likely to increase competition by enabling more companies to provide cost effective products and services.Regulation and SupervisionGeneralThe Company is required to file reports and otherwise comply with the rules and regulations of the FRB, the FDIC, the Connecticut Banking Commissioner and the Securities and Exchange Commission (“SEC”) under the federal securities laws.

At December 31, 2009, the Company had 1,171 employees consisting of 932 full-time and 239 part-time employees. None of the employees were represented by a collective bargaining group. The Company maintains a comprehensive employee benefit program providing, among other benefits, group medical and dental insurance, life insurance, disability insurance, a pension plan, an employee 401(k) investment plan, an employee stock ownership plan and a stock-based long-term compensation plan. The Company’s pension plan was frozen to new participants hired after December 31, 2007. Management considers relations with its employees to be good. See Notes 12 and 13 of the Notes to Consolidated Financial Statements contained elsewhere within this report for additional information on certain benefit programs.

Market Area

The Company is headquartered in New Haven, Connecticut in New Haven County. The Company has 87 banking offices located throughout New Haven, Middlesex, Hartford, Tolland, Windham and Fairfield Counties in Connecticut and Hampden and Worcester Counties in Massachusetts. The Company’s primary deposit gathering area consists of the communities and surrounding towns that are served by its branch network. The Company’s primary lending area is much broader than its deposit gathering area and includes the entire State of Connecticut and Central and Western Massachusetts, although most of the Company’s loans are made to borrowers in its primary deposit gathering area.

Competition

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

The ~~Company~~Bank ~~faces~~is ~~substantial~~subject ~~competition~~to extensive regulation ~~for~~by ~~deposits~~the Connecticut Department of Banking, as its chartering agency, and ~~loans~~by ~~throughout~~the FDIC, as its ~~market~~deposit ~~area~~insurer. The ~~primary~~Bank ~~factors~~is inrequired ~~competing~~to file reports with, and is periodically ~~for~~examined ~~deposits~~by, ~~are~~the ~~interest~~FDIC, ~~rates~~the Connecticut Department of Banking and the FRB concerning its activities and financial condition. It must obtain regulatory approvals prior to entering into certain transactions, ~~personalized~~such ~~services~~as mergers.In addition to federal and state banking laws and regulations, NewAlliance and certain of its subsidiaries including those that engage in brokerage, investment advisory and insurance activities, are subject to other federal and state laws and regulations. Changes in these laws and regulations are frequently introduced at both the ~~quality~~federal and ~~range~~state levels. The likelihood and timing of any such changes and the impact such changes might ~~financial~~have ~~services~~on NewAlliance and its subsidiaries are impossible to determine with certainty. The following discussion of the laws and regulations material to the operations of the Company and the Bank is a summary and is qualified in its entirety by reference to such laws and regulations. Any change in such regulations, ~~convenience~~whether by the Connecticut Department of ~~office~~Banking, ~~locations~~the FDIC, ~~automated~~the ~~services~~SEC or the FRB, could have a material adverse impact on the Bank or the Company.Holding Company RegulationNewAlliance Bancshares, Inc. is a registered bank holding company under the Bank Holding Company Act (“BHCA”) and ~~office~~is subject to comprehensive ~~hours~~regulation and regular examinations by the Federal Reserve Board. ~~Competition~~The ~~for~~Federal ~~deposits~~Reserve ~~comes~~Board ~~primarily~~also ~~from~~has extensive enforcement authority over bank holding companies, including, among other ~~savings~~things, ~~institutions~~the ability to assess civil money penalties, to issue cease ~~commercial~~and ~~banks~~desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, ~~credit~~enforcement ~~unions~~actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under Connecticut banking law, ~~mutual~~no ~~funds~~person may acquire beneficial ownership of more than 10% of any class of voting securities of a Connecticut-chartered bank, or any bank holding company of such a bank, without prior notification of, and ~~other~~lack ~~investment~~of ~~alternatives~~disapproval by, the Connecticut Banking Commissioner.Under Federal Reserve Board policy, a bank ~~The~~holding ~~primary~~company ~~factors~~must inserve ~~competing~~as a source of strength for ~~loans~~its ~~are~~subsidiary ~~interest~~bank. ~~rates~~Under this policy, ~~loan~~the ~~origination~~Federal Reserve Board may require, and has required in the past, ~~fees~~a holding company to contribute additional capital to an undercapitalized subsidiary bank.Bank holding companies must obtain Federal Reserve Board approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the ~~quality~~majority ~~and~~of ~~range~~such shares); (ii) acquiring all or substantially all of ~~lending~~the ~~services~~assets ~~and~~of ~~personalized~~another ~~service~~bank or bank holding company; or (iii) merging or consolidating with another bank holding company.The ~~Competition~~BHCA also prohibits a bank holding company, with certain ~~for~~exceptions, ~~origination~~from acquiring direct or indirect ownership or control of ~~first~~more ~~mortgage~~than ~~loans~~5% ~~comes~~of ~~primarily~~the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other ~~savings~~than ~~institutions~~those of banking, ~~mortgage~~managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking ~~firms~~or managing or controlling banks. The list of activities permitted by the FRB includes, among other things: (i) operating a savings institution, mortgage ~~brokers~~company, finance company, credit card company or factoring company; (ii) performing certain data processing operations; (iii) providing certain investment and ~~commercial~~financial ~~banks~~advice; (iv) underwriting and ~~from~~acting ~~other~~as an insurance agent for certain types of credit-related insurance; (v) leasing property on a full-payout, non-~~traditional~~operating ~~lending~~basis; ~~financial~~(vi) ~~service~~selling ~~providers~~money ~~such~~orders, astravelers’ ~~internet~~checks ~~based~~and ~~lenders~~United States Savings Bonds; (vii) real estate and ~~insurance~~personal property appraising; (viii) providing tax planning and preparation services; (ix) financing and investing in certain community development activities; and (x) subject to certain limitations, providing securities ~~companies.~~brokerage ~~Competition~~services for ~~deposits~~customers.DividendsThe Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the ~~origination~~past year is sufficient to cover both the cash dividends and a rate of ~~loans~~earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. The FRB also indicated that it would be inappropriate for ~~the~~a ~~provision~~company ofexperiencing ~~other~~serious financial ~~services~~problems to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve Board, the Federal Reserve Board may ~~limit~~prohibit a bank holding company from paying any dividends if the ~~Company~~holding company’s ~~future~~bank subsidiary is classified as “undercapitalized.”Financial ~~growth~~ModernizationThe Gramm-Leach-Bliley Act (“GLBA”) permits greater affiliation among banks, securities firms, insurance companies, and other companies under a new type of financial services company known as a “financial holding company”. A financial holding company essentially is a bank holding company with significantly expanded powers. Financial holding companies are authorized by statute to

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

Regulation and Supervision

General The Company is required to file reports and otherwise comply with the rules and regulations of the FRB, the FDIC, the Connecticut Banking Commissioner and the Securities and Exchange Commission (“SEC”) under the federal securities laws.

The Bank is subject to extensive regulation by the Connecticut Department of Banking, as its chartering agency, and by the FDIC, as its deposit insurer. The Bank is required to file reports with, and is periodically examined by, the FDIC, the Connecticut Department of Banking and the FRB concerning its activities and financial condition. It must obtain regulatory approvals prior to entering into certain transactions, such as mergers.

In addition to federal and state banking laws and regulations, NewAlliance and certain of its subsidiaries including those that engage in brokerage, investment advisory and insurance activities, are subject to other federal and state laws and regulations. Changes in these laws and regulations are frequently introduced at both the federal and state levels. The likelihood and timing of any such changes and the impact such changes might have on NewAlliance and its subsidiaries are impossible to determine with certainty.

The following discussion of the laws and regulations material to the operations of the Company and the Bank is a summary and is qualified in its entirety by reference to such laws and regulations. Any change in such regulations, whether by the Connecticut Department of Banking, the FDIC, the SEC or the FRB, could have a material adverse impact on the Bank or the Company.

Holding Company Regulation NewAlliance Bancshares, Inc. is a registered bank holding company under the Bank Holding Company Act (“BHCA”) and is subject to comprehensive regulation and regular examinations by the Federal Reserve Board. The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. Under Connecticut banking law, no person may acquire beneficial ownership of more than 10% of any class of voting securities of a Connecticut-chartered bank, or any bank holding company of such a bank, without prior notification of, and lack of disapproval by, the Connecticut Banking Commissioner.

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

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

The BHCA also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted

byengage ~~the~~in ~~FRB~~a ~~includes~~number of financial activities previously impermissible for bank holding companies, ~~among~~including ~~other~~securities ~~things:~~underwriting, ~~(i)~~dealing ~~operating~~and market making; sponsoring mutual funds and investment companies; insurance aunderwriting ~~savings~~and ~~institution,~~agency; ~~mortgage~~and merchant banking activities. The act also permits the Federal Reserve Board and the Treasury Department to authorize additional activities for financial holding companies if they are “financial in nature” or “incidental” to financial activities. A bank holding company, ~~finance~~may become a financial holding company if each of its subsidiary banks is well capitalized, ~~credit~~well ~~card~~managed, and has at least a “satisfactory” Community Reinvestment Act rating. A financial holding company must provide notice to the Federal Reserve Board within 30 days after commencing activities previously determined by statute or by the Federal Reserve Board and Department of the Treasury to be permissible. ~~factoring~~The Company has not submitted notice to the Federal Reserve Board of its intent to be deemed a financial holding company;. ~~(ii)~~However, ~~performing~~it ~~certain~~is not precluded from submitting a notice in the future should it wish to engage in activities only permitted to financial holding companies.Under GLBA, all financial institutions are required to establish policies and procedures to restrict the sharing of nonpublic customer data ~~processing~~with ~~operations;~~nonaffiliated ~~(iii)~~parties ~~providing~~and to protect customer data from unauthorized access. ~~certain~~In ~~investment~~addition, the Fair and ~~financial~~Accurate ~~advice;~~Credit Transactions Act of 2003 (iv“FACT Act”) ~~underwriting~~includes many provisions concerning national credit reporting standards, and ~~acting~~permits asconsumers, anincluding ~~insurance~~customers of NewAlliance, to opt out of information ~~agent~~sharing among affiliated companies for ~~certain~~marketing ~~types~~purposes. ofThe FACT Act also requires banks and other financial institutions to notify their customers if they report negative information about them to a credit~~-related~~ ~~insurance;~~bureau ~~(v)~~or ~~leasing~~if ~~property~~they are granted credit on terms less favorable than those generally available. The Federal Reserve and the Federal Trade Commission are granted extensive rulemaking authority under the FACT Act, and NewAlliance Bank and its affiliates are subject to those provisions. NewAlliance has developed policies and procedures for itself and its subsidiaries, including NewAlliance Bank, and believes it is in compliance with all privacy, information sharing, and notification provisions of GLBA and the FACT Act.Connecticut Banking Laws and SupervisionNewAlliance Bank is a ~~full~~state-~~payout~~chartered savings bank under Connecticut law and as such is subject to regulation and examination by the Commissioner and the Department of Banking of the State of Connecticut. The Department of Banking regulates savings banks, among other financial institutions, ~~non-operating~~for ~~basis;~~compliance ~~(vi)~~with ~~selling~~the ~~money~~laws ~~orders~~and regulations of the State of Connecticut, ~~travelers’~~as ~~checks~~well as the appropriate rules and ~~United~~regulations of federal agencies. The approval of the ~~States~~Commissioner ~~Savings~~is ~~Bonds;~~required ~~(vii)~~for, ~~real~~among ~~estate~~other things, the establishment of branch offices and ~~personal~~business ~~property~~combination ~~appraising;~~transactions. ~~(viii)~~The Commissioner conducts periodic examinations ~~providing~~of ~~tax~~Connecticut-chartered ~~planning~~banks. The FDIC also regulates many of the areas regulated by the Commissioner, and ~~preparation~~federal ~~services;~~law ~~(ix)~~may ~~financing~~limit some of the authority provided to Connecticut-chartered banks by Connecticut law.Lending Activities Connecticut banking laws grant savings banks broad lending authority, generally identical to commercial banks. With certain limited exceptions, total loans made to any one obligor under this statutory authority may not exceed 15% of a bank’s equity capital and ~~investing~~reserves for loan and lease losses, plus an additional 10% if the loan is fully secured by readily marketable collateral.DividendsThe Bank may pay cash dividends out of its net profits. For purposes of this restriction, “net profits” represents the remainder of all earnings from current operations. Further, the total amount of all dividends declared by the Bank in any year may ~~certain~~not ~~community~~exceed ~~development~~the ~~activities;~~sum of its net profits for the year in question combined with its retained net profits from the preceding two years, unless the Commissioner approves the larger dividend. Federal law also prevents the Bank from paying dividends or making other capital distributions that would cause it to become “undercapitalized.” The FDIC may limit the Bank’s ability to pay dividends. No dividends may be paid to the Bank’s stockholder if such dividends would reduce stockholders’ equity below the amount of the liquidation account required by the Connecticut conversion regulations.PowersConnecticut law permits Connecticut banks to sell insurance and fixed- and variable-rate annuities if licensed to do so by the Connecticut Insurance Commissioner. With the prior approval of the Commissioner, Connecticut banks are also authorized to engage in a broad range of activities related to the business of banking, or that are financial in nature or that are permitted under the BHCA or the Home Owners’ Loan Act (x“HOLA”), ~~subject~~both federal statutes, or the regulations promulgated as a result of these statutes. Connecticut banks are also authorized to ~~certain~~engage ~~limitations~~in any activity permitted for a national bank or a federal savings association upon filing notice with the Commissioner, unless ~~providing~~the ~~securities~~Commissioner ~~brokerage~~disapproves ~~services~~the ~~for~~activity.AssessmentsConnecticut ~~customers~~banks are required to pay annual assessments to the Connecticut Department of Banking to fund the Department’s operations. The general assessments are paid pro-rata based upon a bank’s asset size.

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

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

Under GLBA, all financial institutions are required to establish policies and procedures to restrict the sharing of nonpublic customer data with nonaffiliated parties and to protect customer data from unauthorized access. In addition, the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) includes many provisions concerning national credit reporting standards, and permits consumers, including customers of NewAlliance, to opt out of information sharing among affiliated companies for marketing purposes. The FACT Act also requires banks and other financial institutions to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available. The Federal Reserve and the Federal Trade Commission are granted extensive rulemaking authority under the FACT Act, and NewAlliance Bank and its affiliates are subject to those provisions. NewAlliance has developed policies and procedures for itself and its subsidiaries, including NewAlliance Bank, and believes it is in compliance with all privacy, information sharing, and notification provisions of GLBA and the FACT Act.

Connecticut Banking Laws and SupervisionNewAlliance Bank is a state-chartered savings bank under Connecticut law and as such is subject to regulation and examination by the Commissioner and the Department of Banking of the State of Connecticut. The Department of Banking regulates savings banks, among other financial institutions, for compliance with the laws and regulations of the State of Connecticut, as well as the appropriate rules and regulations of federal agencies. The approval of the Commissioner is required for, among other things, the establishment of branch offices and business combination transactions. The Commissioner conducts periodic examinations of Connecticut-chartered banks. The FDIC also regulates many of the areas regulated by the Commissioner, and federal law may limit some of the authority provided to Connecticut-chartered banks by Connecticut law.

Lending ActivitiesConnecticut banking laws grant savings banks broad lending authority, generally identical to commercial banks. With certain limited exceptions, total loans made to any one obligor under this statutory authority may not exceed 15% of a bank’s equity capital and reserves for loan and lease losses, plus an additional 10% if the loan is fully secured by readily marketable collateral.

~~DividendsThe~~EnforcementUnder ~~Bank~~Connecticut ~~may~~law, ~~pay~~the ~~cash~~Commissioner ~~dividends~~has extensive enforcement authority over Connecticut banks ~~out~~and, ofunder ~~its~~certain ~~net~~circumstances, ~~profits~~affiliated parties, insiders, and agents. ~~For~~The ~~purposes~~Commissioner’s enforcement authority includes cease and desist orders, fines, receivership, conservatorship, removal of ~~this~~officers ~~restriction~~and directors, emergency closures, dissolution and liquidation.Federal RegulationsCapital RequirementsUnder FDIC regulations, federally insured state-chartered banks that are not members of the FRB (“~~net~~state ~~profits~~non-member banks”), such ~~represents~~as ~~the~~NewAlliance ~~remainder~~Bank, ofare ~~all~~required ~~earnings~~to ~~from~~comply ~~current~~with ~~operations~~minimum leverage capital requirements. ~~Further~~If the FDIC determines that an institution is not anticipating or experiencing significant growth and is, in general, a strong banking organization, rated composite 1 under the ~~total~~Uniform Financial Institutions Ranking System established by the Federal Financial ~~amount~~Institutions Examination Council, the minimum capital leverage requirement is a ratio of ~~all~~Tier ~~dividends~~1 ~~declared~~capital byto total assets of 3%. For all other institutions, the ~~Bank~~minimum inleverage ~~any~~capital ~~year~~ratio ~~may~~is not ~~exceed~~less than 4%. Tier 1 capital is the sum of ~~its~~common ~~net~~stockholders’ ~~profits~~equity, noncumulative perpetual preferred stock (including any related surplus) and minority investments in certain subsidiaries, less intangible assets (except for ~~the~~certain ~~year~~servicing rights and credit card relationships) and certain other specified items.The FDIC regulations require state non-member banks to maintain certain levels of regulatory capital in ~~question~~relation ~~combined~~to ~~with~~regulatory ~~its~~risk-weighted ~~retained~~assets. ~~net~~The ~~profits~~ratio of regulatory capital to regulatory risk-weighted assets is referred to as a bank’s “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items (including recourse obligations, direct credit substitutes and residual interests) to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the ~~preceding~~categories ~~two~~perceived ~~years~~as representing greater risk. For example, ~~unless~~under the ~~Commissioner~~FDIC’s ~~approves~~risk-weighting system, cash and securities backed by the ~~larger~~full ~~dividend~~faith and credit of the U.S. government are given a 0% risk weight, loans secured ~~Federal~~by ~~law~~one- ~~also~~to ~~prevents~~four-family residential properties generally have a 50% risk weight, and commercial loans have a risk weighting of 100%.State non-member banks, such as the Bank, ~~from~~must ~~paying~~maintain ~~dividends~~a minimum ratio of total capital to risk-weighted assets of at least 8%, of which at least one-half must be Tier 1 capital. Total capital consists of Tier 1 capital plus Tier 2 or ~~making~~supplementary capital items, which include allowances for loan losses in an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and certain other capital instruments, and a portion ~~distributions~~of the net unrealized gain on equity securities. The includable amount of Tier 2 capital cannot exceed the amount of the institution’s Tier 1 capital. Banks that ~~would~~engage ~~cause~~in itspecified levels of trading activities are subject to ~~become~~adjustments ~~“undercapitalized~~in their risk based capital calculation to ensure the maintenance of sufficient capital to support market risk.The Federal Deposit Insurance Corporation Improvement Act (the “FDICIA”) required each federal banking agency to revise its risk-based capital standards for insured institutions to ensure that those standards take adequate account of interest-rate risk, concentration of credit risk, and the risk of nontraditional activities, as well as to reflect the actual performance and expected risk of loss on multi-family residential loans. The FDIC, along with ~~may~~the ~~limit~~other federal banking agencies, has adopted a regulation providing that the ~~Bank~~agencies will take into account the exposure of a bank’s ~~ability~~capital and economic value to ~~pay~~changes ~~dividends~~in interest rate risk in assessing a bank’s capital adequacy. NoThe ~~dividends~~FDIC ~~may~~also behas ~~paid~~authority to establish individual minimum capital requirements ~~the~~in ~~Bank~~appropriate cases upon determination that an institution’s ~~stockholder~~capital iflevel ~~such~~is, ~~dividends~~or ~~would~~is ~~reduce~~likely ~~stockholders’~~to ~~equity~~become, inadequate in light of the particular circumstances. As ~~below~~a bank holding company, the ~~amount~~Company is subject to capital adequacy guidelines for bank holding companies similar to those of the ~~liquidation~~FDIC ~~account~~for ~~required~~state-chartered bybanks. Prompt ~~the~~Corrective ~~Connecticut~~Regulatory ~~conversion~~ActionFederal law requires, among other ~~regulations~~things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories:

~~PowersConnecticut~~• ~~law~~Well ~~permits~~capitalized ~~Connecticut~~ – ~~banks~~at toleast ~~sell~~5% ~~insurance~~leverage ~~and~~capital, ~~fixed-~~6% tier one risk based capital and ~~variable-rate~~10% ~~annuities~~total ifrisk ~~licensed~~based tocapital. do • soAdequately bycapitalized ~~the~~– ~~Connecticut~~at ~~Insurance~~least ~~Commissioner~~4% leverage capital, 4% tier one risk based capital and 8% total risk based capital. ~~With~~• ~~the~~Undercapitalized ~~prior~~– ~~approval~~less ofthan ~~the~~4% ~~Commissioner~~leverage capital, ~~Connecticut~~4% ~~banks~~tier ~~are~~one ~~also~~risk ~~authorized~~based capital and less than 8% total risk based capital. “Undercapitalized” banks must adhere to ~~engage~~growth, incapital distribution (including dividend) and other limitations and are required to submit a ~~broad~~capital ~~range~~restoration ofplan. ~~activities~~A ~~related~~ bank’s compliance with such a plan is required to ~~the~~be ~~business~~guaranteed ofby ~~banking,~~any orcompany that ~~are~~controls ~~financial~~the undercapitalized institution in ~~nature~~an oramount ~~that~~equal ~~are~~to ~~permitted~~ the ~~under~~lesser of 5% of the ~~BHCA~~institution’s total assets when deemed undercapitalized or the ~~Home~~amount ~~Owners’~~necessary ~~Loan~~to ~~Act~~achieve (the status of adequately capitalized. • Significantly undercapitalized – less than 3% leverage capital, 3% tier one risk based capital and less than 6% total risk-based capital. “~~HOLA~~Significantly undercapitalized”), ~~both~~banks ~~federal~~ must ~~statutes,~~comply orwith ~~the~~one ~~regulations~~or ~~promulgated~~more asof a ~~result~~number of ~~these~~additional ~~statutes.~~restrictions, ~~Connecticut~~ including ~~banks~~but ~~are~~not ~~also~~limited ~~authorized~~to an order by the FDIC to ~~engage~~sell insufficient ~~any~~voting ~~activity~~stock ~~permitted~~to ~~for~~become aadequately ~~national~~capitalized, ~~bank~~ requirements to reduce total assets, cease receipt of deposits from correspondent banks or adismiss ~~federal~~directors ~~savings~~or ~~association~~officers, ~~upon~~and ~~filing~~restrictions ~~notice~~on ~~with~~interest ~~the~~rates ~~Commissioner~~paid on deposits, ~~unless~~ compensation ~~the~~of ~~Commissioner~~executive ~~disapproves~~officers and capital distributions by the ~~activity~~parent holding company.

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

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

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

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

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

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

• ~~adequacy.~~Critically ~~The~~undercapitalized ~~FDIC~~– ~~also~~less ~~has~~than ~~authority~~2% totangible ~~establish~~capital. ~~individual~~“Critically ~~minimum~~undercapitalized” ~~capital~~institutions ~~requirements~~ are insubject ~~appropriate~~to ~~cases~~additional ~~upon~~measures ~~determination~~including, ~~that~~subject anto ~~institution’s~~a ~~capital~~narrow ~~level is~~exception, orthe isappointment ~~likely~~of toa ~~become,~~receiver ~~inadequate~~or inconservator ~~light~~within of270 ~~the~~days ~~particular~~after ~~circumstances~~it obtains such status.

As aof ~~bank~~December ~~holding~~31, ~~company~~2010, ~~the~~NewAlliance ~~Company is~~Bank ~~subject~~was to“well ~~capital adequacy guidelines for bank holding companies similar to those of the FDIC for state-chartered banks~~capitalized”.

~~Prompt~~Transactions ~~Corrective~~with ~~Regulatory~~Affiliates Under ~~Action~~federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal ~~law~~Reserve ~~requires~~Act (the “FRA”). In a holding company context, ~~among~~at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and by requiring that such transactions be on terms that are consistent with safe and sound banking practices.Further, Section 22(h) of the FRA restricts loans to directors, executive officers, and principal stockholders (“insiders”). Under Section 22(h), loans to insiders and their related interests may not exceed, together with all other ~~things~~outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the board of directors. Further, under Section 22(h), loans to directors, executive officers and principal stockholders must be made on terms substantially the same as offered in comparable transactions to other persons, except that ~~federal~~such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the bank’s ~~regulatory~~employees ~~authorities~~and does not give preference to the insider over the employees. Section ~~take~~22(g) of the FRA places additional limitations on loans to executive officers.EnforcementThe FDIC has extensive enforcement authority over insured banks, including NewAlliance Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. Insurance of Deposit AccountsThe FDIC insures deposits up to the standard maximum deposit insurance amount (“~~prompt~~SMDIA”) ~~corrective~~of ~~action~~$250,000. The deposit insurance limit was increased in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) of 2010, which, among other provisions, made permanent the increase in the SMDIA from $100,000 to $250,000. Additionally, in November 2010, the FDIC issued a final rule to provide separate temporary coverage for noninterest-bearing transaction accounts. The final rule indicates that all funds held in noninterest-bearing transaction accounts are fully insured, without limit, and that this unlimited coverage is separate from, and in addition to, the coverage provided to depositors with respect to ~~banks~~other ~~that~~accounts doheld at an insured depository institution, such as NewAlliance Bank. The term “noninterest-bearing transaction account” includes a traditional checking account or demand deposit account which receives no interest. It also includes Interest on Lawyers Trust Accounts (“IOLTAs”) as a result of an amendment to the Federal Deposit Insurance Act signed into law on December 29, 2010 by President Obama. It does not ~~meet~~include other accounts, such as traditional checking or demand ~~minimum~~deposit ~~capital~~accounts ~~requirements~~that may earn interest, NOW accounts and money-market deposit accounts. ~~For~~This ~~these~~provision ~~purposes~~for non-interest bearing transaction accounts and IOLTAs became effective December 31, 2010 and terminates on December 31, 2012. Beginning January 1, 2013, such accounts will be insured under the ~~law~~FDIC’s ~~establishes~~general ~~five~~deposit ~~capital~~insurance coverage rules.The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of four risk categories: based on the institution’s financial condition and supervisory ratings. An institution’s assessment rate depends on the capital category and supervisory category to which it is assigned. In November 2010, the FDIC adopted a notice of proposed rulemaking which, among other things, would define the assessment base as “average consolidated total assets minus average tangible equity” as required by the DFA. The proposed assessment rules would become effective April 1, 2011. On February 7, 2011, a final rule was approved by the FDIC which encompasses all of the proposed rules.In the fourth quarter of 2009, the FDIC voted to require insured institutions to prepay thirteen quarters of estimated insurance assessments. The estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012 was paid on December 30, 2009. Unlike the special assessment, the pre-payment allowed the FDIC to strengthen the cash position of the DIF immediately without immediately impacting bank earnings.In addition, FDIC insured institutions are required to pay assessments to the Federal Deposit Insurance Corporation at an annual rate of approximately 0.0106 of insured deposits to fund interest payments on bonds issued by the Financing Corporations, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will

• Well capitalized – at least 5% leverage capital, 6% tier one risk based capital and 10% total risk based capital. • Adequately capitalized – at least 4% leverage capital, 4% tier one risk based capital and 8% total risk based capital. • Undercapitalized – less than 4% leverage capital, 4% tier one risk based capital and less than 8% total risk based capital. “Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such a plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. • Significantly undercapitalized – less than 3% leverage capital, 3% tier one risk based capital and less than 6% total risk-based capital. “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. • Critically undercapitalized – less than 2% tangible capital. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

As of December 31, 2009, NewAlliance Bank was “well capitalized”.

Transactions with AffiliatesUnder federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act (the “FRA”). In a holding company context, at a minimum, the parent holding company of a bank and any companies which are controlled by such parent holding company are affiliates of the bank. Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and by requiring that such transactions be on terms that are consistent with safe and sound banking practices.

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

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

Insurance of Deposit Accounts NewAlliance deposit accounts are insured by the FDIC up to applicable legal limits (generally, $100,000 per depositor and $250,000 for certain retirement plan accounts). Through the enactment of EESA, the $100,000 limit on insured deposits was increased to $250,000, matching the limit on qualified retirement accounts, through December 31, 2009 and was extended through December 31, 2013 as part of the Helping Families Save Their Homes Act of 2009.

The Company and the Bank are participating in the FDIC’s TLGP. As a result, the Bank’s non-interest bearing transaction deposit accounts and interest-bearing transaction accounts paying 50 basis points or less will be fully insured above and beyond the $250,000

continue ~~limit~~until ~~through~~the ~~June~~Financing ~~30,~~Corporation ~~2010~~bonds mature in 2017 through 2019. The ~~unlimited~~assessment ~~insurance~~rate ~~coverage~~is ~~for~~adjusted ~~covered~~quarterly ~~deposits~~to reflect changes in ~~excess~~the assessment bases of the ~~$250~~fund based on quarterly Call Report and Thrift Financial Report submissions.The FDIC may terminate insurance of deposits if it finds that the institution is in an unsafe or unsound condition to continue operations,~~000~~ has engaged in unsafe or unsound practices, or has violated ~~limit~~any ~~were~~applicable ~~subject~~law, regulation, rule, order or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition or violation that might lead to atermination ~~surcharge~~of deposit insurance.Federal Reserve SystemThe FRB regulations require depository institutions to ~~the~~maintain ~~Company~~reserves against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $058.8 million or less (which may be adjusted by the FRB) the reserve requirement is 3%; and for amounts greater than $58.8 million, 10% ~~per~~(which may be adjusted by the FRB between 8% and 14%), against that portion of total transaction accounts in excess of $~~100~~58.8 million. The first $10.7 million of ~~deposits~~otherwise byreservable balances (which may be adjusted by the ~~FDIC~~FRB) are exempted from the reserve requirements. The Bank is in ~~2009~~compliance with these requirements.The FRB pays interest on required reserve balances held at Reserve Banks to satisfy reserve requirements and ~~will~~on beexcess ~~assessed~~balances (balances held in excess of required reserve balances and contractual clearing balances). The interest rate paid on required reserve balances is determined by the Board of Governors and is intended to eliminate effectively the implicit tax that reserve requirements previously imposed on depository institutions. The interest rate paid on excess balances is also determined by the Board and gives the FRB an ~~annual~~additional tool for the conduct of monetary policy. The interest rate paid as of ~~between~~December $31, 2010 was 25 basis points. The Board of Governors will continue to evaluate the appropriate settings of the rates paid on balances in light of evolving market conditions and make adjustments as needed.Federal Home Loan Bank SystemThe Bank is a member of the FHLB, which consists of 12 regional FHLB’s. The FHLB provides a central credit facility primarily for member institutions. Member institutions are required to acquire and hold shares of capital stock in the FHLB in an amount at least equal to the sum of 0.1535% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year and 4.5% of its advances (borrowings) from the FHLB. The Bank was in compliance with this requirement with an investment in FHLB Boston stock at December 31, 2010 of $0120.258 million. At December 31, 2010, ~~per~~the Bank had approximately $~~100~~2.11 billion in FHLB Boston advances.The FHLBs’ are required to provide funds for certain purposes including the resolution of insolvent thrifts in the late 1980s and contributing funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLB’s pay to their members and result in the FHLB’s imposing a higher rate of interest on advances to their members. If dividends were reduced, ~~depending~~or interest on future FHLB advances increased, a member bank affected by such reduction or increase would likely experience a reduction in its net interest income. Recent legislation has changed the ~~Risk~~structure ~~Category~~of the FHLBs’ funding obligations for insolvent thrifts, revised the capital structure of the ~~institution~~FHLBs’ ~~during~~and implemented entirely voluntary membership for FHLBs’.In February 2009, the ~~extension~~FHLB Boston advised its members that, ~~period~~while it currently meets all its regulatory capital requirements, it was focusing on preserving capital in response to ongoing market volatility, and accordingly, suspended its quarterly dividend and extended the moratorium on excess stock purchases, primarily due to other-than-temporary impairment charges on its private-label mortgage-backed securities investments. In a letter to member banks on October 29, 2009, the FHLB Boston announced the filing of its quarterly report to the SEC and disclosed that the credit quality of the loans underlying its portfolio of private-label mortgage-backed securities remains vulnerable to the housing and capital markets, which could result in additional losses. Accordingly, to protect its capital base and build the retained earnings, the moratorium on excess stock repurchases and the quarterly dividend payout suspension continue. Also, the FHLB Boston implemented a revised operating plan that includes certain revenue enhancement and expense reduction initiatives and the goal of the plan is ~~through~~to ~~June~~build retained earnings to an appropriate level so that they may eventually resume paying dividends and end the moratorium on excess stock repurchases. This plan appears to be working as the FHLB Boston announced its fourth consecutive quarter with positive net income as of the quarter ended September 30, 2010. However, they are experiencing a reduced demand for advances and still remain cautious regarding additional future potential credit losses with the slow growth in the economy as well as the nominal recovery in the housing market. Recent Regulatory InitiativesDodd-Frank Wall Street Reform and Consumer Protection ActIn July 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”), which contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The DFA changes the existing regulatory structure, such as creating a host of new agencies,

The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of four risk categories based on the institution’s financial condition and supervisory ratings. An institution’s assessment rate depends on the capital category and supervisory category to which it is assigned. For 2008, assessment rates for insurance fund deposits varied from five basis points for the strongest institution to 43 basis points for the weakest. Effective January 1, 2009, the FDIC increased assessment rates uniformly by seven basis points for the first quarter of 2009 only, thereby making the assessment rates between twelve and 50 basis points. In February 2009, the FDIC adopted a final rule modifying the risk-based assessment system to change the way that the FDIC’s assessment system differentiates for risk and made corresponding changes to assessment rates beginning in the second quarter of 2009. Base assessment rates that took effect April 1, 2009 range between 12 and 45 basis points with three possible adjustments to assessment rates of (1) a decrease of up to five basis points for long-term unsecured debt, including subordinated debt and, for small institutions, a portion of Tier 1 capital (2) an increase not to exceed 50% percent of an institutions assessment rate before the increase for secured liabilities in excess of 25% of domestic deposits and (3) for non-Risk Category I institutions, an increase not to exceed 10 basis points for brokered deposits in excess of 10% of domestic deposits. This rule changed assessment rates to between seven and 77.5 basis points, depending on the risk category of the institution and its use of secured borrowings and brokered deposits. These rule changes by the FDIC had a significant effect on the Bank’s assessment costs. The assessment rate for NewAlliance Bank was approximately 14 basis points beginning April 1, 2009.

In November 2006, the FDIC Board of Directors approved a final rule to implement a One-Time Assessment Credit, as required by the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”). For 2007 assessment periods, effective with the June 2007 invoice, credits were used to fully offset the Bank’s assessment. For assessment periods beginning in 2008, credits were applied to 90 percent of the Bank’s assessment and was exhausted in the first quarter of 2009.

In May 2009, the FDIC imposed a five basis point special assessment on each insured depository institutions assets minus Tier 1 capital as of June 30, 2009. This special assessment was due to recent and anticipated failures of FDIC-insured institutions resulting from the deterioration in banking and economic conditions that have significantly increased losses to the Deposit Insurance Fund (“DIF”).

In the fourth quarter of 2009, the FDIC voted to require insured institutions to prepay thirteen quarters of estimated insurance assessments. The estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012 was paid on December 30, 2009. Unlike the special assessment, the pre-payment allows the FDIC to strengthen the cash position of the DIF immediately without immediately impacting bank earnings.

In addition, FDIC insured institutions are required to pay assessments to the Federal Deposit Insurance Corporation at an annual rate of approximately 0.0114 of insured deposits to fund interest payments on bonds issued by the Financing Corporations, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2017 through 2019. The assessment rate is adjusted quarterly to reflect changes in the assessment bases of the fund based on quarterly Call Report and Thrift Financial Report submissions.

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

Federal Reserve System The FRB regulations require depository institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $55.2 million or less (which may be adjusted by the FRB) the reserve requirement is 3%; and for amounts greater than $55.2 million, 10% (which may be adjusted by the FRB between 8% and 14%), against that portion of total transaction accounts in excess of $55.2 million. The first $10.7 million of otherwise reservable balances (which may be adjusted by the FRB) are exempted from the reserve requirements. The Bank is in compliance with these requirements.The FRB pays interest on required reserve balances held at Reserve Banks to satisfy reserve requirements and on excess balances held in excess of required reserve balances and contractual clearing balances. The interest rate paid on required reserve balances is determined by the Board of Governors and is intended to eliminate effectively the implicit tax that reserve requirements used to impose on depository institutions. The interest rate paid on excess balances is also determined by the Board and gives the FRB an

~~additional~~while merging and removing others, in an ~~tool~~effort ~~for~~to streamline the ~~conduct~~regulatory process; increase oversight of ~~monetary~~specific ~~policy~~institutions regarded as a systemic risk; amend the Federal Reserve Act; promote transparency and additional changes. ~~The~~Among ~~interest~~other ~~rate~~things, ~~paid~~the asDFA establishes the Consumer Finance Protection Bureau, provides for an advanced warning system on the stability of ~~December~~the 31economy, and includes new rules on executive compensation and corporate governance. ~~2009~~The ~~was~~legislation 25also ~~basis~~authorizes ~~points~~banking agencies to promulgate new regulations in a number of areas. The ~~Board~~true impact of ~~Governors~~the ~~will~~DFA ~~continue~~can’t tobe ~~evaluate~~evaluated until those regulations are finalized over the ~~appropriate~~next few years.Real Estate Settlement ~~settings~~Procedures ActThe U.S. Department of Housing and Urban Development (“HUD”) issued a final rule effective January 1, 2010 that implements significant changes to the ~~rates~~Real ~~paid~~Estate onSettlement ~~balances~~Procedures inAct ~~light~~(“RESPA”). The new rules require a standard form of ~~evolving~~Good ~~market~~Faith ~~conditions~~Estimate to disclose key terms and closing ~~make~~costs, ~~adjustments~~including items such as ~~needed~~the loan term, fixed or adjustable interest rate, prepayment penalty, total closing cost and cost of homeowners insurance.~~Federal~~ ~~Home~~Additionally, ~~Loan~~changes ~~Bank~~to ~~System~~the settlement statement are also required and will allow borrowers to ~~The~~ ~~Bank~~compare istheir final closing costs and loan terms against their good faith estimate. There are also limitations on third-party costs and a ~~member~~30 day window from the date of closing to correct any errors or violations and reimburse the ~~FHLB~~borrower for any overcharges.Regulation E, ~~which~~Electronic ~~consists~~Fund TransfersThe Board of Governors of the FRB amended Regulation E, Electronic Fund Transfers, with final rules announced November 12, ~~regional~~2009 ~~FHLB~~that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (“ATM”) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. Consumers are now provided a clear disclosure of the fees and terms associated with the institution’s overdraft service. The ~~FHLB~~mandatory ~~provides~~compliance adate ~~central~~was ~~credit~~July ~~facility~~1, ~~primarily~~2010.Other ~~for~~RegulationSarbanes-Oxley ~~member~~Act ~~institutions.~~of 2002The stated goals of the Sarbanes-Oxley ~~Member~~Act ~~institutions~~of 2002 (“SOX”) are ~~required~~to increase corporate responsibility, to ~~acquire~~provide for enhanced penalties for accounting and ~~hold~~auditing ~~shares~~improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of ~~capital~~corporate ~~stock~~disclosures inpursuant to the securities laws.SOX includes very specific additional disclosure requirements and new corporate governance rules, requires the ~~FHLB~~SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. SOX represents significant federal involvement in anmatters ~~amount~~traditionally atleft ~~least~~to ~~equal~~state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the ~~sum~~relationship between a board of 0directors and management and between a board of directors and its committees.~~35%~~SOX addresses, among other matters, audit committees; certification of financial statements and internal controls by the ~~aggregate~~Chief ~~principal~~Executive Officer and ~~amount~~Chief Financial Officer; the forfeiture of ~~its~~bonuses ~~unpaid~~or ~~residential~~other ~~mortgage~~incentive-based ~~loans~~compensation and ~~similar~~profits ~~obligations~~from atthe sale of an issuer’s securities by directors and senior officers in the ~~beginning~~twelve-month period following initial publication of any financial statements that later require restatement; a prohibition on insider trading during pension plan black-out periods; disclosure of ~~each~~off-balance ~~year~~sheet transactions; a prohibition on certain loans to directors and officers; expedited filing requirements for Forms 4~~.5%~~; disclosure of ~~its~~a ~~advances~~code of ethics and filing a Form 8-K for significant changes or waivers of such code; “real time” filing of periodic reports; the formation of a public company accounting oversight board (~~borrowings~~“PCAOB”); auditor independence; and various increased criminal penalties for violations of securities laws. The SEC has enacted rules to implement various provisions of SOX. USA PATRIOT ActUnder Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking regulatory authorities and law enforcement agencies. Information sharing among financial institutions for the ~~FHLB~~above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of GLBA and other privacy laws. ~~The~~Financial ~~Bank~~institutions ~~was~~that inhold correspondent accounts for foreign banks or provide private banking services ~~compliance~~to ~~with~~foreign ~~this~~individuals ~~requirement~~are required to take measures to avoid dealing with ancertain ~~investment~~foreign inindividuals ~~FHLB~~or ~~Boston~~entities, ~~stock~~including atforeign ~~December~~banks with profiles that raise 31money laundering concerns, ~~2009~~and are prohibited from dealing with foreign “shell banks” and persons from jurisdictions of ~~$120~~particular concern.8 ~~million~~The primary federal banking regulators and the Secretary of the Treasury have adopted regulations to implement several of these provisions. AtAll ~~December~~financial ~~31,~~institutions ~~2009,~~also are required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank ~~had~~Merger ~~approximately~~Act $1or the BHCA.75 NewAlliance has in place a Bank Secrecy Act and USA PATRIOT Act ~~billion~~compliance program, and engages in ~~FHLB~~very ~~Boston~~few ~~advances~~transactions of any kind with foreign financial institutions or foreign persons.

The FHLBs’ are required to provide funds for certain purposes including the resolution of insolvent thrifts in the late 1980s and contributing funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLB’s pay to their members and result in the FHLB’s imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future FHLB advances increased, a member bank affected by such reduction or increase would likely experience a reduction in its net interest income. Recent legislation has changed the structure of the FHLBs’ funding obligations for insolvent thrifts, revised the capital structure of the FHLBs’ and implemented entirely voluntary membership for FHLBs’.

During the fourth quarter of 2008 and throughout 2009 several of the regional banks within the FHLB took significant credit related other-than-temporary impairment charges on certain private-label residential mortgage-backed securities and home equity loan investments. In February 2009, the FHLB Boston advised its members that, while it currently meets all its regulatory capital requirements, it was focusing on preserving capital in response to ongoing market volatility, and accordingly, suspended its quarterly dividend and extended the moratorium on excess stock purchases, primarily due to other-than-temporary impairment charges on its private-label mortgage-backed securities investments. The Boston regional bank recorded other-than-temporary impairment charges of approximately $370.0 million for the nine months ended September 30, 2009 on their portfolio of private-label mortgage-backed securities. The FHLB Boston has stated that it expects and intends to hold its private-label mortgage-backed securities to maturity. In a letter to member banks on October 29, 2009, the FHLB Boston announced the filing of its quarterly report to the SEC and disclosed that the credit quality of the loans underlying its portfolio of private-label mortgage-backed securities remains vulnerable to the housing and capital markets, which could result in additional losses. Accordingly, to protect its capital base and build the retained earnings, the moratorium on excess stock repurchases and the quarterly dividend payout suspension continue. Also, the FHLB Boston implemented a revised operating plan that includes certain revenue enhancement and expense reduction initiatives and the goal of the plan is to build retained earnings to an appropriate level so that they may eventually resume paying dividends and end the moratorium on excess stock repurchases.

Recent Regulatory Initiatives Helping Families Save Their Homes Act of 2009On May 20, 2009, President Obama signed into law the Helping Families Save Their Homes Act of 2009. This act was a step towards stabilizing and reforming the United States financial and housing markets by helping American homeowners and increasing the flow of credit. It expands the reach of the Making Home Affordable Program (a Troubled Asset Relief Program (“TARP”) initiative) with a thrust on reducing foreclosures, makes improvements to Hope for Homeowners which targets help to underwater borrowers and made modifications to Federal Housing Authority and federally guaranteed farm loans. The act also contains provisions to help restore and support the flow of credit by increasing the borrowing authority of the FDIC and the National Credit Union Administration as well as extending the temporary increase in deposit insurance. The increase in deposit insurance provides added confidence to depositors and, in turn, will provide depository institutions with a more stable source of funding and enhanced ability to continue making credit available across the economy.

Real Estate Settlement Procedures Act The U.S. Department of Housing and Urban Development (“HUD”) issued a final rule effective January 1, 2010 that implements significant changes to the Real Estate Settlement Procedures Act (“RESPA”). The new rules require a standard form of Good Faith Estimate to disclose key terms and closing costs, including items such as the loan term, fixed or adjustable interest rate, prepayment penalty, total closing cost and cost of homeowners insurance. Additionally, changes to the settlement statement are also required and will allow borrowers to compare their final closing costs and loan terms against their good faith estimate. There are also limitations on third-party costs and a 30 day window from the date of closing to correct any errors or violations and reimburse the borrower for any overcharges.

~~Regulation~~Community E,Reinvestment ~~Electronic~~Act ~~Fund~~and ~~Transfers~~Fair Lending LawsNewAlliance has a responsibility under the Community Reinvestment Act of 1977 (“CRA”) to help meet the credit needs of our communities, including low- and moderate-income neighborhoods. The ~~Board~~CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of ~~Governors~~products and services that it believes are best suited to its particular community, consistent with the CRA. In connection with its examination, the FDIC assesses our record of compliance with the ~~FRB~~CRA. ~~amended~~In ~~Regulation~~addition, Ethe Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Our failure to comply with the provisions of the CRA could, ~~Electronic~~at ~~Fund~~a ~~Transfers~~minimum, result in regulatory restrictions on our activities. Our failure to comply with ~~final~~the ~~rules~~Equal ~~announced~~Credit ~~November~~Opportunity Act and the Fair Housing Act could result in enforcement actions against us by the FDIC as well as other federal regulatory agencies and the Department of Justice. The Bank’s latest FDIC CRA rating was “outstanding”.New York Stock Exchange DisclosureThe annual certification of NewAlliance’s Chief Executive Officer required to be furnished to the New York Stock Exchange pursuant to Section 303A.12,(a) ~~2009~~of ~~that~~the ~~prohibit~~NYSE ~~financial~~Listed ~~institutions~~Company Manual was previously ~~from~~filed ~~charging~~with ~~consumers~~the ~~fees~~New ~~for~~York ~~paying~~Stock ~~overdrafts~~Exchange on ~~automated~~May ~~teller~~5, ~~machine~~2010.Impact of Inflation and Changing PricesThe Consolidated Financial Statements and their Notes presented within this document have been prepared in accordance with accounting principles generally accepted in the United States of America (“~~ATM~~GAAP”), which requires the measurement of financial position and ~~one-~~operating results in terms of historical dollar amounts without considering changes in the relative purchasing power of money over time ~~debit~~due ~~card~~to ~~transactions,~~inflation. ~~unless~~The aimpact ~~consumer~~of ~~consents~~inflation is reflected in the increased cost of the Company’s operations. Unlike the assets and liabilities of industrial companies, nearly all of the assets and liabilities of the Company orare ~~opts~~monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the ~~overdraft~~same ~~service~~extent ~~for~~as ~~those~~the ~~types~~prices of ~~transactions~~goods and services.Availability ~~Consumers~~of InformationNewAlliance ~~will~~makes ~~also~~available befree ~~provided~~of charge on our website (http://www.newalliancebank.com), our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) ~~clear~~of ~~disclosure~~the Securities Exchange Act of 1934 as soon as practicable after we electronically file such reports with or furnish it to the ~~fees~~SEC. NewAlliance is an electronic filer and ~~terms~~as ~~associated~~such reports filed with the SEC are also available on ~~institution~~their website (http://www.sec.gov). The public may also read and copy any materials filed with the SEC at the SEC’s ~~overdraft~~Public ~~service~~Reference Room, 100 F Street, NE, Washington, DC 20549. ~~The~~Information ~~mandatory~~about ~~compliance~~the ~~date~~Public isReference ~~July~~Room can be obtained by calling 1,-800-SEC-0330. ~~2010~~Information on our website is not incorporated by reference into this report. Investors are encouraged to access these reports and the other information about our business and operations on our website.

Other Regulation Temporary Liquidity Guarantee ProgramOn November 21, 2008, the FDIC adopted the Final Rule implementing the TLGP inaugurated October 14, 2008. The TLGP consists of two basic components: (1) the Debt Guarantee Program which guarantees newly issued senior unsecured debt of banks, thrifts, and certain holding companies and (2) the Transaction Account Guarantee Program which guarantees certain non-interest bearing deposit transaction accounts, such as business payroll accounts, regardless of dollar amount. The purpose of the TLGP was to provide an initiative to counter the system wide crisis in the nation’s financial sector by promoting financial stability by preserving confidence in the banking system and encourages liquidity in order to ease lending to creditworthy business and consumers.

The Company is participating in the TLGP and as a result, its non-interest bearing transaction deposit accounts and interest bearing transaction accounts paying 50 basis points or less will be fully insured through June 30, 2010. The Company did not participate in the Debt Guarantee portion of the TLGP.

Emergency Economic Stabilization Act of 2008On October 3, 2008, President Bush signed into law the EESA. The legislation was in response to the financial crises affecting the banking system and financial markets. The TARP was established under the EESA with the specific goal of stabilizing the United States financial system and preventing a systemic collapse. This was initially done by infusing billions of dollars into financial institutions and U.S. automakers. Since 2008, the U.S. Department of the Treasury has established several programs under the TARP, including the Financial Stability Program to further stabilize the financial system, restore the flow of credit to consumers and businesses and tackle the foreclosure crisis to keep millions of Americans in their homes.

NewAlliance is not participating in the TARP due to having adequate capital and the restrictive nature of the TARP guidelines. TARP would place restrictions on common share dividend increases, dilute our existing shareholders through the grant of warrants, restrict share repurchases and reduce earnings per share and return on equity.

Sarbanes-Oxley Act of 2002The stated goals of the Sarbanes-Oxley Act of 2002 (“SOX”) are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

SOX includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. SOX represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

SOX addresses, among other matters, audit committees; certification of financial statements and internal controls by the Chief Executive Officer and Chief Financial Officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement; a prohibition on insider trading during pension plan black-out periods; disclosure of off-balance sheet transactions; a prohibition on certain loans to directors and officers; expedited filing requirements for Forms 4; disclosure of a code of ethics and filing a Form 8-K for significant changes or waivers of such code; “real time” filing of periodic reports; the formation of a public company accounting oversight board (“PCAOB”); auditor independence; and various increased criminal penalties for violations of securities laws. The SEC has enacted rules to implement various provisions of SOX.

USA PATRIOT ActUnder Title III of the USA PATRIOT Act, all financial institutions are required to take certain measures to identify their customers, prevent money laundering, monitor customer transactions and report suspicious activity to U.S. law enforcement agencies. Financial institutions also are required to respond to requests for information from federal banking regulatory authorities and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of GLBA and other privacy laws. Financial institutions that hold

~~correspondent~~Item ~~accounts~~1A. Risk ~~for~~FactorsAn ~~foreign~~investment ~~banks~~in orour ~~provide~~common ~~private~~ stock ~~banking~~involves ~~services~~certain risks inherent to ~~foreign~~our ~~individuals~~business. The material risks and uncertainties that management believes affect the Company are ~~required~~described tobelow. ~~take~~To ~~measures~~understand these risks and to ~~avoid~~evaluate ~~dealing~~an investment in ~~with~~our ~~certain~~common ~~foreign~~stock, ~~individuals~~you orshould ~~entities~~read this entire report, including ~~foreign~~the ~~banks~~following ~~with~~risk ~~profiles~~factors.If any of the following risks actually occur, the Company’s financial ~~that~~condition ~~raise~~and ~~money~~results ~~laundering~~of ~~concerns~~operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly.Changes in interest rates and spreads could have a negative impact on earnings and results of operations, which could have a negative impact on the value of NewAlliance stock.NewAlliance’s earnings and financial condition are ~~prohibited~~dependent to a large degree upon net interest income, which is the difference between interest earned from ~~dealing~~loans ~~with~~and ~~foreign~~investments and interest paid ~~“shell~~on ~~banks”~~deposits and ~~persons~~borrowings. ~~from~~The ~~jurisdictions~~narrowing of ~~particular~~interest ~~concern~~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, unrealized gains and financial condition. The Company cannot predict with ~~primary~~certainty ~~federal~~or ~~banking~~control ~~regulators~~changes in interest rates. Regional and local economic conditions and the ~~Secretary~~policies of regulatory authorities, including monetary policies of the ~~Treasury~~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 ~~adopted~~an adverse ~~regulations~~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 ~~implement~~apply ~~several~~for fewer mortgages, or cause depositors to shift funds from accounts that have a comparatively lower rate, to accounts with a higher rate or experience customer attrition due to competitor pricing. If the cost of ~~these~~interest-bearing ~~provisions~~deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. ~~All~~Changes ~~financial~~in ~~institutions~~the asset and liability mix may also ~~are~~affect ~~required~~net interest income. Similarly, lower interest rates cause higher yielding assets to ~~establish~~prepay ~~internal~~and ~~anti-money~~floating ~~laundering~~or ~~programs~~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 ~~effectiveness~~problems of numerous financial institutions have reduced market liquidity, increased normal bid-asked spreads and increased the uncertainty of amarket participants. Such illiquidity could reduce the market value of the Company’s investments, even those with no apparent credit exposure. The valuation of the Company’s investments requires judgment and as market conditions change investment values may also change. Weakness in the markets for residential or commercial real estate could reduce NewAlliance’s net income and profitability.Softening residential housing markets, increasing delinquency and default rates and constrained secondary credit markets have been affecting the mortgage industry generally. NewAlliance’s financial ~~institution~~results may be adversely affected by changes in ~~combating~~real ~~money~~estate ~~laundering~~values. ~~activities~~The iseffects of ongoing mortgage market challenges, combined with the ongoing correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held, mortgage loan originations and gains on sale of mortgage loans. Continued declines in real estate values and home sales volumes, and financial stress on borrowers as a ~~factor~~result of job losses, or other factors, could have further adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect NewAlliance’s financial condition or results of operations.NewAlliance may experience higher levels of loan losses due to becurrent ~~considered~~economic conditions.The current economic conditions have led to declines in ~~any~~collateral ~~application~~values ~~submitted~~and bystress on the ~~financial~~cash ~~institution~~flows ~~under~~of borrowers. Therefore, NewAlliance’s allowance for loan losses may need to be increased, or may be deemed insufficient by various regulatory agencies. Such agencies may require the Bank ~~Merger~~to ~~Act~~recognize oran increase to the ~~BHCA~~allowance for loan losses. ~~NewAlliance~~Any ~~has~~increases in ~~place~~the allowance for loan losses will result in a ~~Bank~~decrease ~~Secrecy~~in ~~Act~~net income and, possibly capital, and may ~~USA~~have ~~PATRIOT~~a ~~Act~~material ~~compliance~~adverse ~~program~~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 ~~engages~~Analysis of Financial Condition and Results of Operation, located elsewhere in ~~very~~the ~~few~~Report ~~transactions~~for further discussion related to the process for determining the appropriate level of ~~any~~the allowance for loan losses.If the goodwill that ~~kind~~the Company has recorded in connection with ~~foreign~~its ~~financial~~acquisitions ~~institutions~~becomes orimpaired, ~~foreign~~it ~~persons~~could have a negative impact on the Company’s profitability.Applicable accounting standards require that the purchase method of accounting be used for all business combinations. Under purchase accounting, if the purchase price of an acquired company exceeds the fair value of the company’s net assets, the excess is

Community Reinvestment Act and Fair Lending LawsNewAlliance has a responsibility under the Community Reinvestment Act of 1977 (“CRA”) to help meet the credit needs of our communities, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. In connection with its examination, the FDIC assesses our record of compliance with the CRA. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit discrimination in lending practices on the basis of characteristics specified in those statutes. Our failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on our activities. Our failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions against us by the FDIC as well as other federal regulatory agencies and the Department of Justice. The Bank’s latest FDIC CRA rating was “outstanding”.

New York Stock Exchange Disclosure

The annual certification of NewAlliance’s Chief Executive Officer required to be furnished to the New York Stock Exchange pursuant to Section 303A.12(a) of the NYSE Listed Company Manual was previously filed with the New York Stock Exchange on May 20, 2009.

Impact of Inflation and Changing Prices

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

Availability of Information

NewAlliance makes available free of charge on our website (http://www.newalliancebank.com), our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after we electronically file such reports with or furnish it to the SEC. NewAlliance is an electronic filer and as such reports filed with the SEC are also available on their website (http://www.sec.gov). The public may also read and copy any materials filed with the SEC at the SEC’s Public Reference Room, 100 F Street, NE, Washington, DC 20549. Information about the Public Reference Room can be obtained by calling 1-800-SEC-0330. Information on our website is not incorporated by reference into this report. Investors are encouraged to access these reports and the other information about our business and operations on our website.

carried on the acquirer’s balance sheet as goodwill. At December 31, 2010, the Company had approximately $527.2 million of goodwill on its balance sheet. Companies must evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to the results of operations in the period in which the impairment occurs. There can be no assurance that future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on NewAlliance’s financial condition and results of operations.The impact on the Company and the Bank of enacted legislation, in particular the Dodd-Frank Act and its implementing regulations cannot be predicted at this time.Recently enacted and potential financial regulatory reforms could have a significant impact on our business, financial condition and results of operations. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) into law. The Dodd-Frank Act is expected to have a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.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. Larger banking institutions have become increasingly active in our market areas. Many of these competitors have substantially greater resources and lending limits than we have and may offer certain services that we do not or cannot efficiently provide. Our profitability depends upon our continued ability to successfully compete in our market areas. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to grow profitably.NewAlliance is subject to extensive government regulation and supervision.NewAlliance, primarily through NewAlliance Bank and certain non-bank subsidiaries, is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not stockholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. 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 “Regulation and Supervision” in Item 1A1 of this report for further information. ~~Risk~~NewAlliance ~~Factors~~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.

AnNewAlliance’s ~~investment~~stock inprice ~~our~~can ~~common~~be volatile. NewAlliance’s stock ~~involves~~ price ~~certain~~can ~~risks~~fluctuate ~~inherent~~widely in response to ~~our~~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 business. ~~The~~combinations, ~~material~~strategic ~~risks~~partnerships, ~~and~~joint ~~uncertainties~~ventures ~~that~~ or ~~management~~capital ~~believes~~commitments ~~affect~~by or involving the Company ~~are~~or ~~described~~the ~~below.~~Company’s Tocompetitors; ~~understand~~• ~~these~~ operating ~~risks~~ and tostock ~~evaluate~~price anperformance ~~investment~~of inother ~~our~~companies ~~common~~that ~~stock,~~investors ~~you~~deem ~~should~~comparable ~~read~~to ~~this~~NewAlliance; ~~entire~~ • ~~report~~news reports relating to trends, ~~including~~concerns and other issues in the ~~following~~financial ~~risk~~services ~~factors~~industry; • changes in government regulations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts.

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

Changes in interest rates and spreads could have a negative impact on earnings and results of operations, which could have a negative impact on the value of NewAlliance stock.NewAlliance’s earnings and financial condition are dependent to a large degree upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads, meaning the difference between interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect NewAlliance’s earnings, unrealized gains 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 rate, to accounts with a higher rate 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 financial institutions have reduced market liquidity, increased normal bid-asked spreads and increased the uncertainty of market participants. Such illiquidity could reduce the market value of the Company’s investments, even those with no apparent credit exposure. The valuation of the Company’s investments requires judgment and as market conditions change investment values may also change.

Weakness in the markets for residential or commercial real estate, including the secondary residential mortgage loan markets, could reduce NewAlliance’s net income and profitability.Beginning in 2007 and continuing into 2010, softening residential housing markets, increasing delinquency and default rates, and increasingly volatile and constrained secondary credit markets began affecting the mortgage industry generally. NewAlliance’s financial results may be adversely affected by changes in real estate values. Decreases in real estate values could adversely affect the value of property used as collateral for loans and investments. If poor economic conditions result in decreased demand for real estate loans, the Company’s net income and profits may decrease.

The declines in home prices in many markets across the U.S., along with the reduced availability of mortgage credit, also may result in increases in delinquencies and losses in NewAlliance’s portfolio of loans related to residential real estate construction and development. Further declines in home prices coupled with a worsening economic recession and associated increases in unemployment levels could drive losses beyond that which is provided for in NewAlliance’s allowance for loan losses. In that event, NewAlliance’s earnings could be adversely affected.

Additionally, recent weakness in the secondary market for residential lending could have an adverse impact upon the Company’s profitability. Significant ongoing disruptions in the secondary market for residential mortgage loans have limited the market for and liquidity of most mortgage loans other than conforming Fannie Mae and Freddie Mac loans. The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held, mortgage loan originations and gains on sale of mortgage loans. Continued declines in real estate values and home sales volumes, and financial stress on borrowers as a result of job losses, or other factors, could have further adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect NewAlliance’s financial condition or results of operations.

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 ~~may~~stock ~~experience~~price ~~higher~~to ~~levels~~decrease regardless of ~~loan~~ the ~~losses~~Company’s ~~due~~operating results.NewAlliance may not be able to ~~current~~attract ~~economic~~and ~~conditions~~retain skilled people.~~The~~NewAlliance’s ~~current~~success ~~economic~~depends, ~~conditions~~in large part, ~~have~~on ~~led~~its ability to ~~declines~~attract and retain key people. Competition for the best people in ~~collateral~~most ~~values~~activities engaged in by the Company can be intense and ~~stress~~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 ~~cash~~business ~~flows~~because of ~~borrowers~~their skills, knowledge of the market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.NewAlliance ~~Therefore~~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, ~~NewAlliance~~some new technologies needed to compete effectively result in incremental operating costs. The Company’s ~~allowance~~future ~~for~~success ~~loan~~depends, ~~losses~~in ~~may~~part, ~~need~~upon its ability to beaddress ~~increased~~the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as orto ~~may~~create beadditional ~~deemed~~efficiencies ~~insufficient~~in byoperations. ~~various~~Many ~~regulatory~~of ~~agencies~~the Company’s competitors have substantially greater resources to invest in technological improvements. ~~Such~~The ~~agencies~~Company may not be able to effectively implement new technology-driven products ~~require~~and ~~the~~services ~~Bank~~or be successful in marketing these products and services to ~~recognize~~its ancustomers. ~~increase~~Failure to successfully keep pace with technological change affecting the ~~allowance~~financial ~~for~~services ~~loan~~industry ~~losses.~~could ~~Any~~have a material adverse impact on the Company’s business ~~increases~~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 ~~allowance~~Company’s ~~for~~internal ~~loan~~controls, ~~losses~~disclosure ~~will~~controls ~~result~~and inprocedures, aand ~~decrease~~corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in ~~net~~part ~~income~~on certain assumptions and can provide only reasonable, ~~possibly~~not ~~capital~~absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and ~~may~~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 or the lack of controls by third party vendors exposes the Company to reputation risk and potential monetary loss. The Company has exposure to fraudulent use of our customer’s personal information resulting from its general business operations through loss or theft of the information and through customer use of financial instruments, such as debit cards.Changes in accounting standards can materially impact NewAlliance’s financial statements.NewAlliance’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. ~~See~~From time to time, the ~~sections~~Financial ~~titled~~Accounting ~~“Allowance~~Standards Board or regulatory authorities change ~~for~~the ~~Loan~~financial ~~Losses”~~accounting and ~~“Classification~~reporting standards that govern the preparation of ~~Assets~~our financial statements. These changes can be hard to predict and ~~Loan~~can ~~Review”~~materially inimpact how we record and report our financial condition and results of operations. ~~Item~~In 7some cases, ~~Management~~we could be required to apply a new or revised standard retroactively, resulting in the Company restating prior period financial statements.Changes and interpretations of tax laws and regulations may adversely impact NewAlliance’s ~~Discussion~~financial statements.Local, state or federal tax authorities may interpret tax laws and ~~Analysis~~regulations differently than NewAlliance and challenge tax positions that NewAlliance has taken on its tax returns. This may result in the disallowance of ~~Financial~~deductions ~~Condition~~or differences in the timing of deductions and ~~Results~~result in the payment of ~~Operation~~additional taxes, ~~located~~interest ~~elsewhere~~or penalties that could materially affect NewAlliance’s performance.Unpredictable catastrophic events could have a material adverse effect on NewAlliance Bank.The occurrence of catastrophic events such as hurricanes, pandemic disease, windstorms, floods, severe winter weather or other catastrophes could adversely affect NewAlliance’s business and, in ~~the~~turn, ~~Report~~its ~~for~~financial ~~further~~condition ~~discussion~~or ~~related~~results of operations. This may result in a significant number of employees that are unavailable to perform critical operating functions at either their regular worksite or the ~~process~~disaster ~~for~~recovery ~~determining~~worksite. Unpredictable natural and other disasters could have an adverse effect on the ~~appropriate~~Company ~~level~~in that such events could materially disrupt its operations or the ability or willingness of its customers to access the ~~allowance~~financial ~~for~~services ~~loan~~offered ~~losses~~by NewAlliance Bank.

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.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, 2009, the Company had approximately $527.2 million of goodwill on its balance sheet. Companies must evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are to be charged to the results of operations in the period in which the impairment occurs. There can be no assurance that future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on NewAlliance’s financial condition and results of operations.

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

The impact on the Company and the Bank of enacted legislation, in particular the Emergency Economic Stabilization Act of 2008 and its implementing regulations cannot be predicted at this time. On October 3, 2008, President Bush signed into law the EESA, which includes the TARP. The legislation was in response to the financial crises affecting the banking system and financial markets. EESA is expected to have a profound effect on the financial services industry. The effect of programs developed under EESA, including the TARP and Capital Purchase Program (“CPP”), could dramatically change the competitive environment of the Company.

TARP gave the Treasury authority to deploy up to $700.0 billion into the financial system with an objective of improving liquidity in capital markets. On October 14, 2008, Treasury announced plans to direct $250.0 billion of this authority into preferred stock investments in banks (the CPP), the first $125.0 billion of which was allocated to nine major financial institutions. By the end of December 2008, an additional $100.0 billion was allocated to American International Group, the Federal Reserve Bank of New York, Citigroup and U.S. automakers, GM and Chrysler. In January 2009, the remaining $350.0 billion was also released by Congress. Through September 30, 2009, the Treasury disbursed over $200.0 billion in capital to 685 institutions in 48 states under the CPP. Many of these institutions have since redeemed these investments. The general terms of this preferred stock program are as follows for a participating bank:

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

The ~~President~~merger ~~has~~agreement ~~recently~~may ~~proposed~~be aterminated ~~program~~in accordance with its terms and the merger may not be completed.The majority of the conditions to ~~incent~~fulfill ~~small~~the ~~business~~completion ~~lending~~of ~~activity~~the merger have been completed with the exception of regulatory approvals and the continued accuracy of the representations and warranties by ~~making~~both ~~unused~~parties ~~TARP~~and ~~funds~~the ~~available~~performance by both parties of their covenants ~~for~~and ~~this~~agreements, ~~purpose~~and the receipt by both parties of legal opinions from their respective tax counsels.In ~~The~~addition, ~~Company~~certain iscircumstances ~~not~~exist ~~participating~~whereby inNewAlliance may choose to terminate the ~~CPP,~~merger ~~however~~agreement, including if First Niagara’s share price declines to below $10.22 (subject to customary anti-dilution adjustments) as of the ~~actual~~first date when all regulatory approvals for the merger have been received, ~~impact~~combined ~~that~~with ~~EESA~~such ~~and~~decline being at least 20% greater than a corresponding decline in the ~~implementation~~value of ~~exisiting~~the ~~programs~~NASDAQ Bank Index. If this situation occurs, orthe agreement allows First Niagara the ability to make an adjustment to the exchange ratio, pursuant to a specified formula, to cure any ~~other~~shortfall ~~governmental~~caused by the decline in share price ~~program~~as ~~will~~previously ~~have~~described. onThere can be no assurance that the ~~financial~~conditions ~~markets~~to ~~and~~closing of the ~~Company~~merger ~~cannot~~will ~~reliably~~be fulfilled or that the merger will be ~~determined~~completed.Termination atof ~~this~~the ~~time~~merger agreement could negatively impact NewAlliance. If the merger agreement is terminated, there may be various consequences, including:

~~Strong~~• ~~competition within~~ NewAlliance’s ~~market~~businesses ~~areas~~ may ~~limit~~have ~~growth~~been ~~and~~adversely ~~profitability.Competition~~impacted inby the ~~banking~~failure ~~and~~to ~~financial~~pursue ~~services~~other ~~industry~~beneficial isopportunities ~~intense.~~due Into ~~our~~the ~~market~~focus ~~areas,~~of wemanagement ~~compete~~ on ~~with~~the ~~commercial banks~~merger, ~~savings~~without ~~institutions,~~realizing ~~mortgage~~any ~~brokerage~~of ~~firms,~~the ~~credit~~anticipated ~~unions,~~ benefits ~~finance~~of ~~companies,~~completing ~~mutual~~the ~~funds,~~merger; ~~insurance companies,~~ and ~~brokerage~~• ~~and~~the ~~investment banking firms operating locally and elsewhere. As we grow, we will be expanding into~~ market ~~areas~~price ~~where~~of weNewAlliance ~~may~~common ~~not~~stock bemight asdecline ~~well~~to ~~known~~the asextent ~~other institutions~~ that ~~have~~ the ~~been~~current ~~operating~~market inprice ~~those~~reflects ~~areas~~a ~~for some time. In addition, larger banking institutions have become increasingly active in our~~ market ~~areas.~~assumption ~~Many of these competitors have substantially greater resources and lending limits than we have and may offer certain services~~ that wethe domerger ~~not~~will orbe ~~cannot efficiently provide~~completed. 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~~If isthe ~~subject~~merger toagreement ~~extensive~~is ~~government~~ terminated ~~regulation~~ and ~~supervision.~~NewAlliance’s board of directors seeks another merger or business combination, ~~primarily~~NewAlliance ~~through~~stockholders cannot be certain that NewAlliance ~~Bank~~will be able to find ~~and~~a ~~certain~~party ~~non-bank~~willing ~~subsidiaries,~~to isoffer equivalent or more attractive consideration than the consideration First Niagara has agreed to provide in the merger.NewAlliance will be subject to ~~extensive~~business ~~federal~~uncertainties and ~~state~~contractual ~~regulation~~restrictions while the merger is pending.Uncertainty about the effect of the merger on employees and ~~supervision~~customers may have an adverse effect on NewAlliance. ~~Banking~~These ~~regulations~~uncertainties ~~are~~may ~~primarily~~impair ~~intended~~NewAlliance’s ability to ~~protect~~attract, ~~depositors’~~retain ~~funds~~and motivate key personnel until the merger is completed, ~~federal~~and ~~deposit~~could ~~insurance~~cause ~~funds~~customers and others that deal with NewAlliance to seek to change existing business relationships with NewAlliance. Retention of certain employees may be challenging during the ~~banking~~pendency ~~system~~of the merger, as acertain ~~whole~~employees may experience uncertainty about their future roles. In addition, the ~~not~~merger ~~stockholders~~agreement restricts NewAlliance from making certain acquisitions and taking other specified actions until the merger occurs without the consent of First Niagara. These ~~regulations~~restrictions ~~affect~~may prevent NewAlliance from pursuing attractive business opportunities that may arise prior to the ~~Company~~completion of the merger.The merger agreement limits NewAlliance’s ~~lending~~ability ~~practices~~to pursue alternatives to the merger.The merger agreement contains “no-shop” provisions that, subject to limited ~~capital~~exceptions, ~~structure~~limit NewAlliance’s ability to initiate, ~~investment~~solicit, ~~practices~~encourage or knowingly facilitate any inquiries or competing third-party proposals, ~~dividend~~or ~~policy~~engage ~~and~~in ~~growth~~any negotiations, ~~among~~or ~~other~~provide any confidential information, or have any discussions ~~things.~~with ~~Congress~~any ~~and~~person ~~federal~~relating ~~regulatory~~to ~~agencies~~a ~~continually~~proposal ~~review~~to ~~banking~~acquire ~~laws~~all or a significant part of NewAlliance. In addition, NewAlliance has agreed to pay First Niagara a termination fee in the ~~regulations~~amount ~~and~~of ~~policies~~$60 million in the event that First Niagara terminates the merger agreement for ~~possible~~certain ~~changes~~reasons. ~~Changes~~These toprovisions ~~statutes,~~might ~~regulations~~discourage a potential competing acquirer orthat ~~regulatory~~might ~~policies,~~have ~~including~~an ~~changes~~interest in ~~interpretation~~acquiring all or ~~implementation~~a significant part of NewAlliance ~~statutes,~~from ~~regulations~~considering or ~~policies,~~proposing ~~could~~that ~~affect~~acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the ~~Company~~merger, or might result in ~~substantial~~a ~~and~~potential ~~unpredictable~~competing acquirer’s proposing to pay a lower per share ~~ways.~~price ~~Such~~to ~~changes~~acquire ~~could~~NewAlliance ~~subject~~than ~~the~~it ~~Company~~might otherwise have proposed to ~~additional~~pay.Settlement ~~costs,~~agreement ~~limit~~related ~~the~~to ~~types~~lawsuits filed against NewAlliance challenging ofthe ~~financial~~merger ~~services~~is not approved, and ~~products~~an weadverse judgment in such lawsuits or any future similar lawsuits may ~~offer~~prevent ~~and/~~the merger from becoming effective or ~~increase~~from becoming effective within the ~~ability~~expected oftimeframe.NewAlliance, ~~non-banks~~the tomembers ~~offer~~of ~~competing~~the ~~financial~~NewAlliance ~~services~~board ~~and~~of ~~products~~directors, ~~among~~certain ~~other~~NewAlliance ~~things.~~officers, ~~Failure~~First toNiagara ~~comply~~and ~~with~~Merger ~~laws~~Sub are named as defendants in a number of purported class action lawsuits brought by various NewAlliance stockholders, ~~regulations~~both orin ~~policies~~the ~~could~~Superior ~~result~~Court of New Haven County in ~~sanctions~~Connecticut byand ~~regulatory~~in the Court of Chancery in the State of ~~agencies~~Delaware, ~~civil~~challenging ~~money~~the ~~penalties~~proposed merger and~~/or~~ ~~reputation damage~~seeking, ~~which~~among ~~could~~other ~~have~~things, ato ~~material~~enjoin ~~adverse~~the ~~effect~~defendants onfrom completing the ~~Company’s~~merger ~~business,~~on ~~financial~~the ~~condition~~agreed-upon terms and ~~results~~rescission of ~~operations.~~the ~~While~~merger ~~NewAlliance~~to the extent it has ~~policies~~been ~~and~~completed. ~~procedures~~In ~~designed~~December to2010, ~~prevent~~the ~~any~~parties ~~such~~reached ~~violations,~~an ~~there~~agreement ~~can~~in beprinciple noto ~~assurance~~resolve ~~that~~these ~~such~~actions ~~violations~~and ~~will~~the ~~not~~settlement ~~occur.~~contemplated ~~See~~by the ~~section~~agreement ~~captioned~~has ~~“Regulation~~been ~~and~~submitted ~~Supervision”~~to inthe ~~Item~~Connecticut 1court offor ~~this~~approval. Immediately ~~report~~following ~~for~~final ~~further~~approval ~~information~~by the Connecticut court, the parties to the Delaware actions shall dismiss those actions with prejudice.

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’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.

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~~ One ~~continually encounters technological change.The financial services industry is continually undergoing rapid technological change with frequent introductions~~ of ~~new~~the ~~technology-driven~~conditions ~~products~~to ~~and~~the ~~services.~~closing ~~The effective use~~ of ~~technology~~ ~~can~~the ~~increase~~merger ~~efficiency~~is ~~and~~that ~~enable~~no ~~financial institutions to better serve customers and to reduce costs. However~~judgment, ~~some new technologies needed to compete effectively result in incremental operating costs. The Company’s future success depends~~decree, ininjunction ~~part,~~or ~~upon~~other ~~its~~order ~~ability~~(whether ~~to address the needs of its customers by using technology~~temporary toor ~~provide~~permanent) ~~products and services~~ that ~~will~~prohibits ~~satisfy~~the ~~customer~~completion ~~demands, as well as to create additional efficiencies in operations. Many~~ of the ~~Company’s~~merger ~~competitors~~ be ~~have substantially greater resources to invest~~ in ~~technological improvements~~effect. ~~The~~ As ~~Company may not be able to effectively implement new technology-driven products~~such, ~~and~~if ~~services~~any orplaintiff bewere successful in ~~marketing~~obtaining ~~these~~an ~~products~~injunction ~~and~~prohibiting ~~services~~the ~~to its customers.~~NewAlliance ~~Failure~~or toFirst ~~successfully~~Niagara ~~keep~~defendants ~~pace~~from ~~with~~completing ~~technological~~the ~~change~~merger ~~affecting~~on the ~~financial~~ agreed ~~services~~upon ~~industry~~terms, ~~could~~then ~~have~~such ainjunction ~~material~~may ~~adverse~~prevent ~~impact on~~ the ~~Company’s~~merger ~~business~~ from ~~and,~~becoming ineffective ~~turn,~~or ~~its~~from ~~financial~~becoming ~~condition~~effective ~~and~~within ~~results~~the ofexpected ~~operations~~timeframe.

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 or the lack of controls by third party vendors exposes the Company to reputation risk and potential monetary loss. The Company has exposure to fraudulent use of our customer’s personal information resulting from its general business operations through loss or theft of the information and through customer use of financial instruments, such as debit cards.

Changes in accounting standards can materially impact NewAlliance’s financial statements.NewAlliance’s accounting policies and methods are fundamental to how the Company records and reports its financial condition and results of operations. From time to time, the Financial Accounting Standards Board or regulatory authorities change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the Company restating prior period financial statements.

Changes and interpretations of tax laws and regulations may adversely impact NewAlliance’s financial statements. Local, state or federal tax authorities may interpret tax laws and regulations differently than NewAlliance and challenge tax positions that NewAlliance has taken on its tax returns. This may result in the disallowance of deductions or differences in the timing of deductions and result in the payment of additional taxes, interest or penalties that could materially affect NewAlliance’s performance.

Unpredictable catastrophic events could have a material adverse effect on NewAlliance Bank.The occurrence of catastrophic events such as hurricanes, pandemic disease (including the H1N1 virus), windstorms, floods, severe winter weather or other catastrophes could adversely affect NewAlliance’s business and, in turn, its financial condition or results of operations. This may result in a significant number of employees that are unavailable to perform critical operating functions at either their regular worksite or the disaster recovery worksite. Unpredictable natural and other disasters could have an adverse effect on the Company in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services offered by NewAlliance Bank.

Unprecedented disruption and significantly increased risk in the financial markets.The banking industry experienced unprecedented turmoil in 2008 as some of the world’s major financial institutions collapsed, were seized or were forced into mergers as the credit markets tightened and the economy headed into a recession and has eroded confidence in the world’s financial system. In 2009, the banking industry stabilized somewhat but was still operating in a recessionary economy as evidenced by the increase in the unemployment rate and the increase in delinquencies and foreclosures across the country and the failure of over 140 financial institutions by the FDIC in the past year. There can be no assurance that NewAlliance Bank will not be impacted by the economic crisis in a way we cannot currently predict or mitigate, but we will continue to attempt to navigate this landscape for the long-term benefit of our shareholders.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company conducts business from its executive offices at 195 Church Street, New Haven, Connecticut and its 7576 banking offices located in Connecticut and 12 banking offices located in Massachusetts. Of the 8788 banking offices, 30 are owned and 5758 are leased. Lease expiration dates range from 3 months to 1918 years with renewal options of 5 to 3332 years.

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

		~~Number of~~		Number of
Location		~~BankingOffices~~		Banking Offices
Connecticut:
New Haven County			28	28
Middlesex County			6	6
Hartford County			16	17
Tolland County			12	12
Windham County			5	5
Fairfield County			8	8
Massachusetts:
Worcester County			1	1
Hampden County			11	11
Total	~~Total~~		87	88

The total net book value of properties and equipment at December 31, ~~2009~~2010 was $5759.17 million. For additional information regarding our premises and equipment and lease obligations, see Notes 76 and 1514 of the Notes to Consolidated Financial Statements.

Item 3. Legal Proceedings

~~NewAlliance~~In isthe ~~not~~ordinary ~~involved~~course inof ~~any~~business, ~~pending~~we are ~~legal~~involved ~~proceedings~~in ~~other~~various ~~than~~threatened ~~routine~~and pending legal proceedings. ~~occurring~~We inbelieve ~~the~~that ~~ordinary~~we ~~course~~are ofnot ~~business.~~a ~~NewAlliance~~party ~~believes~~to ~~that~~any ~~those~~pending ~~routine~~legal, arbitration, or regulatory proceedings ~~involve,~~that inwould ~~the~~have ~~aggregate,~~a ~~amounts~~material ~~which~~adverse ~~are~~impact ~~immaterial~~on toour ~~the~~ financial ~~condition~~results ~~and~~or ~~results~~liquidity. Certain oflegal ~~operations~~proceedings ofin ~~the~~which ~~Company.~~we are involved are described below:

~~Item~~On 4or about August 20, 2010, a lawsuit was filed by Stanley P. ~~Submission~~ Kops against NewAlliance and its directors in the Connecticut Superior Court for the Judicial District of ~~Matters~~New Haven (NNH-CV10-6013984) challenging the proposed merger between NewAlliance and First Niagara. The purported class action alleges that the NewAlliance board of directors breached its fiduciary duties to aNewAlliance ~~Vote~~stockholders by failing to maximize stockholder value in approving the merger agreement with First Niagara and that NewAlliance and First Niagara aided and abetted this alleged breach of ~~Security~~fiduciary ~~Holders~~duty.

~~None~~Since the first action was commenced, nine additional lawsuits have been filed against NewAlliance, First Niagara, Merger Sub, and/or the NewAlliance directors and certain officers of NewAlliance. The plaintiffs in the additional lawsuits are: Southwest Ohio Regional Council of Carpenters Pension Plan (NNH-CV10-6014110); Cynthia J. Kops (NNH-CV10-6014155); Joseph Caldarella (NNH-CV10-6014192); Michael Rubin (NNH-CV10-6014328); Arlene H. Levine and Gertrude M. Nitkin (NNH-CV10-6014477); Port Authority of Alleghany County Retirement & Disability Allowance Plan for Employees Represented by Local 85 of the Amalgamated Transit Union (NN-CV10-6014634); Alan Kahn (Case No. 5785); Moses Eilenberg (Case No. 5796); and Erie County Employees’ Retirement System (Case No. 5831). The latter three lawsuits were filed in the Court of Chancery of the State of Delaware and the remainder were filed in the Connecticut Superior Court. The claims in the nine additional lawsuits are substantially the same as the claims in the first lawsuit and seek, among other things, to enjoin the proposed merger on the agreed upon terms. Certain of the new actions, however, also seek attorneys’ and experts’ fees and actual and punitive damages if the merger is completed.

On September 28, 2010, the three Delaware actions were consolidated into In re NewAlliance Bancshares, Inc. Shareholders Litigation (No. 5785-VCP), and the plaintiffs in the consolidated action filed an amended complaint which adds allegations challenging the accuracy of disclosures in the preliminary Form S-4, a motion to preliminarily enjoin the defendants from taking any action to consummate the merger and a motion seeking expedited discovery. On October 22, the court granted the plaintiffs’ motion for expedited discovery and tentatively scheduled a preliminary injunction hearing for December 1, 2010.

On October 19, 2010, the seven Connecticut actions were transferred to the complex litigation docket in the Judicial District of Stamford. The cases were consolidated on October 20 and, on October 22, the plaintiffs filed an amended complaint which adds allegations challenging the accuracy of disclosure in the preliminary Form S-4. The plaintiffs in the Connecticut actions also have indicated that they intend to seek a preliminary injunction and expedited discovery.

On October 18 and 19, 2010, the Company and other defendants filed motions in the seven Connecticut actions and in the consolidated Delaware action requesting that the courts direct the plaintiffs in all the actions to confer and agree on a single forum in which to litigate their claims, or if the plaintiffs are unable to agree, that the courts confer and designate a single forum, and that the cases in the other forum be stayed. The defendants’ motions are pending.

On December 6, 2010, the parties to the Connecticut and Delaware actions reached an agreement in principle to resolve the Connecticut Action and the Delaware Action. Part of that agreement was that the defendants would not object to the payment of plaintiffs’ attorney fees up to $750,000. The settlement contemplated by the agreement has been submitted to the Connecticut court for approval. Immediately following final approval by the Connecticut court of the settlement, the parties to the Delaware actions shall dismiss those actions with prejudice. As part of the settlement, the defendants deny all allegations of wrongdoing and deny that the disclosures in the joint proxy/statement prospectus were inadequate but have agreed to provide supplemental disclosures. These supplemental disclosures were provided in the Company’s Current Report on Form 8-K, filed on December 6, 2010. The settlement will not affect the timing of the merger or the amount of consideration to be paid in the merger. There are no injunction proceedings pending at this time.

Item 4. (Removed and Reserved)

PART II

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

Market Information
The Company’s common stock is traded on the New York Stock Exchange under the symbol “NAL”. The following table sets forth the high and low closing prices of our common stock and the dividends declared per share of common stock for the periods indicated.

	Market Price
					Dividends Declared
2009	High		Low		Per Share
2010	High		Low		Per Share
First Quarter	$	1312.0689	$	911.5529	$	0.070
Second Quarter		13.7029		11.5017		0.070
Third Quarter		12.6097		1011.7007		0.070
Fourth Quarter		1215.4522		1012.6858		0.070
	Market Price
					Dividends Declared
2008	High		Low		Per Share
First Quarter	$	13.08	$	10.34	$	0.065
Second Quarter		13.71		12.38		0.070
Third Quarter		16.00		11.66		0.070
Fourth Quarter		15.10		11.33		0.070

On February 24, 2010, the closing price for the Company’s common stock was $12.08.

	Market Price
					Dividends Declared
2009	High		Low		Per Share

First Quarter	$	13.06	$	9.55	$	0.070
Second Quarter		13.70		11.50		0.070
Third Quarter		12.60		10.70		0.070
Fourth Quarter		12.45		10.68		0.070

~~HoldersAs~~On ofFebruary ~~January 31~~24, ~~2010~~2011, ~~there~~the ~~were~~closing ~~105,971,903 shares of common stock outstanding, which were held by approximately~~price ~~10,565~~for ~~holders~~the ~~of record. The number of stockholders of record was determined by American Stock Transfer and Trust~~ Company.’s ~~Such~~common ~~number of record holders does not reflect the number of persons or entities holding~~ stock inwas ~~nominee name through banks, brokerage firms, and other nominees~~$15.55.

~~DividendsThe~~HoldersAs ~~Company~~of ~~began~~January ~~paying~~31, 2011, ~~quarterly~~there ~~dividends~~were in104,988,327 ~~2004~~shares onof ~~its~~ common stock ~~and~~outstanding, ~~currently~~which ~~intends~~were toheld ~~continue~~by approximately to9,272 doholders soof ~~in the foreseeable future~~record. The ~~Company’s ability to pay dividends depends on a~~ number of ~~factors,~~stockholders ~~however, including the ability~~ of ~~the~~record ~~Bank~~was todetermined ~~pay~~by ~~dividends~~American toStock ~~the~~Transfer ~~Company~~and ~~under~~Trust ~~federal~~Company. ~~laws~~Such ~~and~~number ~~regulations,~~of ~~and~~record asholders adoes ~~result there~~not ~~can~~reflect bethe nonumber ~~assurance~~of ~~that~~persons ~~dividends~~or ~~will~~entities ~~continue~~holding tostock ~~be paid~~ in ~~the~~nominee ~~future.~~name ~~See the~~through ~~section~~banks, ~~captioned~~brokerage ~~“Regulation~~firms, and ~~Supervision”~~other ~~in Item 1 of this report for further information~~nominees.

~~Securities~~DividendsThe ~~Authorized~~Company ~~for~~began ~~Issuance~~paying ~~Under~~quarterly dividends in 2004 on its common stock and paid its 27th consecutive ~~Equity~~dividend ~~Compensation~~on ~~PlansInformation~~February ~~regarding~~15, ~~equity-based~~2011. ~~compensation~~This was most likely the last dividend to be paid ~~awards~~by ~~outstanding~~NewAlliance ~~and~~due ~~available~~to ~~for~~the ~~future~~merger ~~grants~~with asFirst Niagara which is anticipated to close early in the second quarter of ~~December~~2011. 31The Company’s ability to pay dividends depends on a number of factors, ~~2009~~however, ~~segregated~~ including ~~between~~the ~~equity-based~~ability ~~compensation~~of ~~plans~~the ~~approved~~Bank byto pay dividends to the ~~stockholders~~Company under federal laws and ~~equity-based~~regulations, and as a result there ~~compensation~~can ~~plans~~be ~~not~~no ~~approved~~assurance bythat ~~stockholders,~~dividends iswill ~~presented~~continue to be paid in the ~~table~~future. ~~below~~See the section captioned “Regulation and Supervision” in Item 1 of this report for further information.

				Number of securities
				remaining available for
				future issuance under
	Number of securities to	Weighted-average		equity compensation
	be issued upon exercise	exercise price of		plans (excluding
	of outstanding options,	outstanding options,		securities reflected in
	warrants and rights	warrants and rights		column (a))
Plan category	(a)	(b)		(c)
Equity compensation plans approved by security stockholders	7,884,801	$	14.30	4,778,280	(1)
Equity compensation plans not approved by security stockholders	-			-
Total	7,884,801	$	14.30	4,778,280

(1) This figure includes 3,524,323 shares that may be issued pursuant to options presently authorized but unissued, and 1,253,957 shares that may be issued as restricted stock, all in accordance with the 2005 Long-Term Compensation Plan approved by the

Company’s stockholders in April 2005. In addition, in May 2009 performance shares were awarded to executives and other key members of senior management. The target number of shares awarded is 65,149. The actual number of shares earned may be more or less than 65,149 depending on the performance of NewAlliance stock total shareholder return against a group of banks and thrifts as listed on the SNL Thrift Index.

Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities
None.

Purchases of Equity Securities by the Issuer and Affiliated PurchasersThe following table sets forth information about the Company’s stock repurchases for the three months ended December 31, 2009. Management may engage in future share repurchases as market conditions warrant.23

ISSUER PURCHASES OF EQUITY SECURITIES
		Average Price			Maximum Number of
		Paid per Share		Total Number of Shares	Shares That May Yet Be
	Total Number of	(includes		Purchased as Part of Publicly	Purchased Under the Plans
	Shares Purchased	commission)		Announced Plans or Programs	or Programs
Period
October 1 - 31, 2009	494,359	$	10.89	494,359	2,392,913
November 1 - 30, 2009	89,100	$	10.97	89,100	2,303,813
December 1-31, 2009 (1)	4,854	$	11.79	-	2,303,813
Total	588,313	$	10.91	583,459

Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth information about the Company’s stock repurchases for the three months ended December 31, 2010.

ISSUER PURCHASES OF EQUITY SECURITIES

			Average Price		Total Number of Shares		Maximum Number of
			Paid per Share		Purchased as Part of Publicly		Shares That May Yet Be
	Total Number of		(includes		Announced Plans or		Purchased Under the Plans
	Shares Purchased		commission)		Programs		or Programs

Period


October 1 - 31, 2010		-	$	-		-	1,421,938

November 1 - 30, 2010		-	$	-		-	1,421,938

December 1-31, 2010 (1)		220,803	$	-		-	1,421,938

Total		220,803	$	-		-

On January 31, 2006, a second stock repurchase plan was announced and provides for the repurchase of up to 10.0 million shares of common stock of the Company. There is no set expiration date for this plan, however, the Company is precluded from repurchasing its outstanding common stock under the terms of the merger agreement with First Niagara.

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

Stock Performance Graph

The following graph compares the cumulative total return on NewAlliance Bancshares common stock over the last five fiscal years, as reported by the NYSE through December 31, ~~2009~~2010, with (i) the cumulative total return on the S&P 500 Index and (ii) the cumulative total return on the SNL Thrift Index for the period.

This graph assumes the investment of $100 on December 31, ~~2004~~2005 in our common stock, the S&P 500 Index and the SNL Thrift Index and assumes that dividends are reinvested.

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NEWALLIANCE BANCSHARES, S&P 500 INDEX AND SNL THRIFT INDEX

	~~Period Ending~~	Period Ending
Total Return Indices		12/31/0405	12/31/0506	12/31/0607	12/31/0708	12/31/0809	12/31/0910
NewAlliance Bancshares, Inc.		100.00	96114.5463	~~110~~81.7993	8395.2966	9989.7433	93114.2602
S & P 500		100.00	104.91	121.48	128.16	80.74	102.11
SNL Thrift		100.00	116.57	69.93	44.50	41.50	43.37
SNL Thrift		100.00	103.53	120.68	72.40	46.07	42.97
S&P 500		100.00	115.79	122.16	76.96	97.33	111.99
Source: SNL

Item 6. Selected Financial DataThe following tables contain certain information concerning the financial position and results of operations of the Company at the dates and for the periods indicated. This information should be read in conjunction with the Consolidated Financial Statements and related notes.In August 2010, the Company entered into an agreement and plan of merger with First Niagara with an anticipated closing date early in the second quarter of 2011. The pending merger has lead to significant increases in the Company’s merger related charges in 2010.In July 2007, a restructuring of part of the available-for-sale securities portfolio was completed. A recognized loss in the amount of $28.3 million, or $18.4 million net of tax, was recorded to non-interest income as a result of this restructuring. Selected Financial Data includes the effect of this transaction at and for the year ended December 31, 2007.

The following tables contain certain information concerning the financial position and results of operations of the Company at the dates and for the periods indicated. This information should be read in conjunction with the Consolidated Financial Statements and related notes.

	For the Year Ended December 31,

(In thousands, except per share data)	2010		2009		2008		2007		2006

Selected Operating Data
Interest and dividend income	$	350,812	$	371,799	$	399,173	$	403,280	$	331,032
Interest expense		116,525		168,592		209,057		228,243		161,451

Net interest income before
provision for loan losses		234,287		203,207		190,116		175,037		169,581
Provision for loan losses		17,000		18,000		13,400		4,900		500

Net interest income after
provision for loan losses		217,287		185,207		176,716		170,137		169,081
Non-interest income		61,161		59,246		55,896		31,165		51,631
Merger related charges		12,325		84		185		2,523		3,389
Other non-interest expense		174,684		172,129		166,384		159,923		144,717

Income before provision for
income taxes		91,439		72,240		66,043		38,856		72,606
Income tax provision		33,471		25,797		20,747		15,063		23,769

Net income	$	57,968	$	46,443	$	45,296	$	23,793	$	48,837





Basic and diluted earnings per share	$	0.59	$	0.47	$	0.45	$	0.23	$	0.49
Weighted-average shares outstanding
Basic		98,515		99,163		99,587		103,146		99,981
Diluted		98,784		99,176		99,707		103,582		100,484

Dividends per share	$	0.28	$	0.28	$	0.275	$	0.255	$	0.235

In July 2007 a restructuring of part of the available-for-sale securities portfolio was completed. A recognized loss in the amount of $28.3 million, or $18.4 million net of tax, was recorded to non-interest income as a result of this restructuring. Selected Financial Data includes the effect of this transaction at and for the year ended December 31, 2007.

	At December 31,

(In thousands)	2010		2009		2008		2007		2006

Selected Financial Data
Total assets	$	9,027,848	$	8,434,313	$	8,299,518	$	8,210,984	$	7,247,696
Loans (1)		5,091,216		4,762,045		4,962,785		4,727,969		3,822,876
Allowance for loan losses		55,223		52,463		49,911		43,813		37,408
Short-term investments		25,000		50,000		55,000		51,962		28,077
Investment securities		2,827,755		2,568,621		2,238,344		2,377,733		2,386,985
Goodwill		527,167		527,167		527,167		531,191		454,258
Identifiable intangible assets		27,548		35,359		43,860		53,316		49,403
Deposits		5,239,375		5,024,042		4,447,231		4,373,280		3,900,252
Borrowings		2,242,579		1,889,928		2,376,496		2,355,504		1,903,864
Stockholders’ equity		1,458,972		1,434,953		1,381,216		1,407,107		1,362,305
Nonperforming loans (2)		74,883		50,507		38,331		16,386		12,468
Nonperforming assets (3)		78,424		54,212		40,354		17,283		12,468

	For the Year Ended December 31,
(In thousands, except per share data)		2009		2008		2007		2006		2005
Selected Operating Data
Interest and dividend income	$	371,799	$	399,173	$	403,280	$	331,032	$	276,570
Interest expense		168,592		209,057		228,243		161,451		100,461
Net interest income before provision for loan losses		203,207		190,116		175,037		169,581		176,109
Provision for loan losses		18,000		13,400		4,900		500		400
Net interest income after provision for loan losses		185,207		176,716		170,137		169,081		175,709
Non-interest income		59,246		55,896		31,165		51,631		45,524
Conversion and merger related charges		84		185		2,523		3,389		2,156
Other non-interest expense		172,129		166,384		159,923		144,717		139,084
Income before provision for income taxes		72,240		66,043		38,856		72,606		79,993
Income tax provision		25,797		20,747		15,063		23,769		27,394
Net income	$	46,443	$	45,296	$	23,793	$	48,837	$	52,599

Basic and diluted earnings per share	$	0.47	$	0.45	$	0.23	$	0.49	$	0.50
Weighted-average shares outstanding
Basic		99,163		99,587		103,146		99,981		105,110
Diluted		99,176		99,707		103,582		100,484		105,517
Dividends per share	$	0.28	$	0.275	$	0.255	$	0.235	$	0.21

	At December 31,
(In thousands)		2009		2008		2007		2006		2005
Selected Financial Data
Total assets	$	8,434,313	$	8,299,518	$	8,210,984	$	7,247,696	$	6,561,402
Loans (1)		4,762,045		4,962,785		4,727,969		3,822,876		3,276,706
Allowance for loan losses		52,463		49,911		43,813		37,408		35,552
Short-term investments		50,000		55,000		51,962		28,077		46,497
Investment securities		2,568,621		2,238,344		2,377,733		2,386,985		2,388,789
Goodwill		527,167		527,167		531,191		454,258		425,001
Identifiable intangible assets		35,359		43,860		53,316		49,403		52,016
Deposits		5,024,220		4,447,830		4,373,665		3,900,667		3,798,112
Borrowings		1,889,928		2,376,496		2,355,504		1,903,864		1,380,755
Stockholders’ equity		1,434,953		1,381,216		1,407,107		1,362,305		1,310,868
Nonperforming loans (2)		50,507		38,331		16,386		12,468		7,391
Nonperforming assets (3)		54,212		40,354		17,283		12,468		7,391

	For the Year Ended December 31,
	2009		2008		2007		2006		2005
	2010				2009				2008			2007			2006
Selected Operating Ratios and Other Data
Performance Ratios (4)
Average yield on interest-earning assets	~~4.90~~	%4.53	~~5.48~~%	%	~~5.71~~	%4.90	~~5.31~~%	%	~~4.79~~	%5.48	%		5.71	%		5.31	%
Average rate paid on interest-bearing liabilities	~~2.61~~	1.78	~~3.35~~		~~3.80~~	2.61	~~3.16~~		~~2.20~~	3.35			3.80			3.16
Interest rate spread (5) (7)	~~2.29~~	2.75	~~2.13~~		~~1.91~~	2.29	~~2.15~~		~~2.59~~	2.13			1.91			2.15
Net interest margin (6) (7)	~~2.68~~	3.02	~~2.61~~		~~2.48~~	2.68	~~2.72~~		~~3.05~~	2.61			2.48			2.72
Ratio of interest-bearing assets to interest-bearing liabilities	~~117.42~~	118.17	~~116.57~~		~~117.63~~	117.42	~~121.99~~		~~126.65~~	116.57			117.63			121.99
Ratio of net interest income after provision for loan losses to non-interest expense	~~107.55~~	116.19	~~106.09~~		~~104.73~~	107.55	~~114.16~~		~~124.40~~	106.09			104.73			114.16
Non-interest expense as a percent of average assets	~~2.03~~	2.16	~~2.03~~		~~2.04~~	2.03	~~2.12~~		~~2.18~~	2.03			2.04			2.12
Return on average assets	~~0.55~~	0.67	~~0.55~~		~~0.30~~	0.55	~~0.70~~		~~0.81~~	0.55			0.30			0.70
Return on average equity	~~3.30~~	3.98	~~3.22~~		~~1.69~~	3.30	~~3.65~~		~~3.76~~	3.22			1.69			3.65
Ratio of average equity to average assets	~~16.58~~	16.81	~~17.14~~		~~17.63~~	16.58	~~19.13~~		~~21.57~~	17.14			17.63			19.13
Dividend payout ratio	~~59.57~~	47.46	~~61.11~~		~~110.87~~	59.57	~~47.96~~		~~42.00~~	61.11			110.87			47.96
Non-GAAP Ratios (8)
Efficiency ratio (9)	~~66.58~~	64.03	~~67.93~~		~~69.95~~	66.58	~~67.39~~		~~63.56~~	67.93			69.95			67.39
Tangible common equity ratio (10)	~~11.08~~	10.67	~~10.48~~		~~10.79~~	11.08	~~12..73~~		~~13.70~~	10.48			10.79			12.73
Regulatory Capital Ratios
Leverage capital ratio	~~11.05~~	10.94	~~11.05~~		~~10.92~~	11.05	~~13.20~~		~~14.31~~	11.05			10.92			13.20
Tier 1 capital to risk-weighted assets	~~19.92~~	19.65	~~18.71~~		~~18.60~~	19.92	~~22.71~~		~~24.99~~	18.71			18.60			22.71
Total risk-based capital ratio	~~21.11~~	20.84	~~19.80~~		~~19.58~~	21.11	~~23.67~~		~~26.02~~	19.80			19.58			23.67
Asset Quality Ratios
Nonperforming loans as a percent of total loans (1) (2)	~~1.06~~	1.47	~~0.77~~		~~0.35~~	1.06	~~0.33~~		~~0.23~~	0.77			0.35			0.33
Nonperforming assets as a percent of total assets (3)	~~0.64~~	0.87	~~0.49~~		~~0.21~~	0.64	~~0.17~~		~~0.11~~	0.49			0.21			0.17
Allowance for loan losses as a percent of total loans	~~1.10~~	1.08	~~1.01~~		~~0.93~~	1.10	~~0.98~~		~~1.08~~	1.01			0.93			0.98
Allowance for loan losses as a percent of non-performing loans	~~103.87~~	73.75	~~130.21~~		~~267.38~~	103.87	~~300.03~~		~~481.02~~	130.21			267.38			300.03
Net loan charge-offs as a percent of average loans	~~0.32~~	0.29	~~0.15~~		~~0.05~~	0.32	~~0.02~~		~~0.03~~	0.15			0.05			0.02

(1)		Loans are stated at their principal amounts outstanding, net of deferred loan fees and costs and net unamortized premium on acquired loans.
(2)		Nonperforming loans include all loans 90 days or more past due, restructured loans due to a weakening in the financial condition of the borrower and other loans which have been identified by the Company as presenting uncertainty with respect to the collectability of principal or interest. All of the Company’s nonperforming loans do not accrue interest.
(3)		Nonperforming assets consist of nonperforming loans and other real estate owned.
(4)		Performance ratios are based on average daily balances during the periods indicated and are annualized where appropriate. Regulatory Capital Ratios and Asset Quality Ratios are end-of-period ratios.
(5)		Interest rate spread represents the difference between the weighted average yield on average interest-bearing assets and the weighted average cost of average interest-bearing liabilities.
(6)		Net interest margin represents net interest income as a percentage of average interest-earning assets.
(7)		No tax equivalent adjustments were made due to the fact that ratio would not be materially different.
(8)		In light of diversity in presentation among financial institutions, the methodologies for determining the non-GAAP financial measures listed may vary significantly.
(9)		The efficiency ratio represents the ratio of non-interest expenses, net of OREO expenses, to the sum of net interest income before provision for loan losses and non-interest income, excluding security and limited partnership gains or losses. The efficiency ratio is not a financial measurement required by accounting principles generally accepted in the United States of America. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to non-interest expense control and also believes such information is useful to investors in evaluating company performance.
(10)		The tangible common equity ratio excludes goodwill and identifiable intangible assets. The 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 ~~anlayze~~analyze the relative strength of ~~New Alliance~~NewAlliance’s ~~captial~~capital position and is useful to investors in evaluating Company performance due to the importance that analysts placed on this ratio since the introduction of ~~TARP~~the Troubled Asset Relief Program.

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

~~Overview~~OverviewThe 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 and presenting an accurate view of our financial position and operating results.In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our internal control over financial reporting and concluded that such control was effective as of December 31, 2010. Management’s report on the effectiveness of our internal control over financial reporting is included in Item 8, Financial Statements and Supplementary Data, of this report. 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 Item 8, Financial Statements and Supplementary Data, of this report. This overview summarizes the MD&A, which includes the following sections:

~~The~~• ~~following~~ Our ~~Management’s~~Business ~~Discussion~~— ~~and~~a ~~Analysis~~general ofdescription ~~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~~ Critical ~~transparency~~Accounting ~~and~~Estimates ~~clarity~~— ~~are~~a ~~the~~discussion ~~primary goals~~ of ~~successful~~accounting ~~financial~~estimates ~~reporting.~~ that Werequire ~~remain~~critical ~~committed~~judgments toand ~~increasing~~estimates. ~~the~~• ~~transparency~~Recent ofAccounting ~~our~~Estimates ~~financial~~— ~~reporting,~~a ~~providing~~ discussion ~~our~~of ~~stockholders~~recently ~~with~~adopted ~~informative~~accounting ~~financial~~pronouncements ~~disclosures~~or ~~and~~changes. ~~presenting~~• anOperation ~~accurate~~ Results ~~view~~— ~~of our financial disclosures and presenting~~ an ~~accurate~~analysis ~~view~~ of our ~~financial~~ Company’s ~~position~~consolidated ~~and operating~~ results~~.In~~ ~~accordance~~of ~~with~~operations ~~Section~~for ~~404 of~~ the ~~Sarbanes-Oxley~~ three ~~Act~~years ofpresented ~~2002,~~in our ~~management,~~Consolidated ~~including~~Financial ~~our~~Statements. ~~Chief~~• ~~Executive Officer and Chief~~ Financial ~~Officer~~Condition, ~~conducted~~Liquidity ~~an evaluation of our internal control over financial reporting~~ and ~~concluded~~Capital ~~that~~Resources ~~such~~— ~~control~~an ~~was~~overview ~~effective as~~ of ~~December 31, 2009. Management’s report on the effectiveness of our internal control over~~ financial ~~reporting is included in Item 8~~condition, ~~Financial~~contractual ~~Statements~~obligations and ~~Supplementary~~liquidity ~~Data,~~and ofcapital ~~this report~~resources.

~~MD&A~~Our BusinessGeneralBy assets, NewAlliance is ~~provided~~the third largest banking institution headquartered in Connecticut and the fourth largest based in New England with consolidated assets of $9.03 billion and stockholders’ equity of $1.46 billion at December 31, 2010. Its business philosophy is to operate as a community bank with local decision-making ~~supplement~~authority. NewAlliance delivers financial services to— individuals, families and ~~should~~businesses bethroughout ~~read~~Connecticut and Western Massachusetts. NewAlliance Bank provides commercial banking, retail banking, consumer financing, trust and investment services through 88 banking offices, 100 ATMs and its internet website (www.newalliancebank.com). NewAlliance common stock is traded on the New York Stock Exchange under the symbol “NAL”.NewAlliance has a relentless commitment to improve the financial well-being of the people and businesses in ~~conjunction~~the markets we serve, and to invest in the communities where they reside and work. We accomplish this by operating a community banking business model with— a commitment to be a leader in our ~~Consolidated~~markets by seeking ~~Financial~~to ~~Statements~~continually deliver superior value to our customers, shareholders, employees and ~~the~~communities.The ~~accompanying~~Company’s ~~notes~~results ~~thereto~~of ~~contained~~operations independ ~~Item~~primarily 8on net interest income, ~~Financial~~which is the difference between the income earned on its ~~Statements~~loan and ~~Supplementary~~securities ~~Data~~portfolios and its cost of funds, consisting of ~~this~~the ~~report~~interest paid on deposits and borrowings. ~~This~~Results ~~overview~~of ~~summarizes~~operations are also affected by the ~~MD&A~~Company’s provision for loan losses, ~~which~~income ~~includes~~and ~~the~~expenses ~~following~~pertaining ~~sections:~~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 increases in cash surrender value of 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, FDIC insurance assessments and other operating expenses.

• Our Business — a general description of our business, our objectives and the challenges and risks of our business. • Critical Accounting Estimates — a discussion of accounting estimates that require critical judgments and estimates. • Recent Accounting Estimates — a discussion of recently adopted accounting pronouncements or changes. • Operation Results — an analysis of our Company’s consolidated results of operations for the three years presented in our Consolidated Financial Statements. • Financial Condition, Liquidity and Capital Resources — an overview of financial condition, contractual obligations and liquidity and capital resources.

Our Business

General

By assets, NewAlliance is the third largest banking institution headquartered in Connecticut and the fourth largest based in New England with consolidated assets of $8.43 billion and stockholders’ equity of $1.43 billion at December 31, 2009. Its business philosophy is to operate as a community bank with local decision-making authority. NewAlliance delivers financial services to individuals, families and businesses throughout Connecticut and Western Massachusetts. NewAlliance Bank provides commercial banking, retail banking, consumer financing, trust and investment services through 87 banking offices, 104 ATMs and its internet website (www.newalliancebank.com). NewAlliance common stock is traded on the New York Stock Exchange under the symbol “NAL”.

NewAlliance has a relentless commitment to improve the financial well-being of the people and businesses in the markets we serve, and to invest in the communities where they reside and work. We accomplish this by operating a community banking business model with a commitment to be a leader in our markets by seeking to continually deliver superior value to our customers, shareholders, employees and communities.

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 increases in cash surrender value of 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, FDIC insurance assessments 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:

• Grow and retain primary households to increase core deposit relationships with a focus on checking and savings accounts; • Build high quality, profitable loan portfolios using organic, purchase and acquisition strategies; • Build and diversify revenue steams through development of banking-related fee income and growth in wealth management services; • Grow through a disciplined acquisition strategy, de-novo branching and new business lines; • Maintain expense discipline and improve operating efficiencies; • Invest in technology to enhance superior customer service and products; and • Maintain a rigorous risk identification and management process.

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

Challenges and Risks

As we look forward, management has identified certain challenges and risks that are most relevant and likely to have a near term impact on performance. Of these, five key challenges and risks are described below: Net interest margin. The growth of the net interest margin is vital to our continued success and enhanced profitability. For the year ended December 31, 2009, our net interest margin increased seven basis points to 2.68%, by (a) significantly reducing our deposit costs, particularly on higher cost time deposits, while growing core deposits; (b) reducing our wholesale funding costs and (c) growth in our investment portfolio compensating for the decline in income due to a lower yield. These positive factors more than offset decreases in interest income on loans with interest rates based on the prime rate and other indices. For the three months ended December 31, 2009, the net interest margin increased to 2.82% and was the fifth consecutive quarterly increase in the margin. We expect to further increase the net interest margin by continuing to focus on sensible deposit pricing and the generation of organic loans, including expanding the number of commercial lending business lines we offer. The risk associated with decreasing deposit costs is a potential outflow of deposits to competitors as customers search for higher rates. However, we believe that further strengthening our brand, focusing on providing quality products and services that customers want and building on the momentum and deposit growth experienced in 2009, will help mitigate this risk. Another aspect of the net interest margin is the yield earned on the loan portfolio. Although interest rates remained at historical lows in 2009, this was offset by record mortgage originations of $1.04 billion in residential mortgage loans and improved pricing. Additionally, the dislocations in the credit markets are still present and therefore, we believe that there are continued pricing opportunities in our lending area. We are well positioned to maximize these opportunities because of our liquidity position and our ability to retain loans on our balance sheet. Although the Federal Reserve has stated that interest rates are expected to remain at very low levels for an extended period, there is a belief that rates will need to be increased in the second half of 2010 to counterbalance the large amount of economic stimulus in the economy if the Federal Reserve is to achieve its dual objective of price stability and long-term growth. If interest rates do increase, the Company’s asset sensitive position is expected to have a positive impact on our net interest margin in a rising interest rate environment. See the discussion on the management of market and interest rate risk under Item 7A, Quantitative and Qualitative Disclosures About Market Risk on page 62 for further information.

~~Maintaining~~Critical ~~credit~~Accounting ~~quality~~EstimatesOur ~~and~~Consolidated ~~rigorous~~Financial ~~risk~~Statements ~~management. The~~are ~~national~~prepared ~~economy~~in ~~experienced~~accordance ~~improvement~~with ~~through~~GAAP. ~~2009~~In ~~and~~connection ~~home prices~~with ~~and~~the ~~home~~preparation ~~sales~~of ~~appear~~our tofinancial ~~have~~statements, ~~bottomed~~we ~~while~~are ~~high~~required ~~unemployment,~~to ~~delinquencies~~make assumptions and ~~foreclosures~~estimates ~~are~~about ~~still~~future ~~top concerns.~~events, ~~During~~ ~~this~~and ~~turbulent~~apply ~~time,~~judgments ~~NewAlliance~~that ~~continued~~affect tothe ~~maintain~~reported ~~its~~amounts ~~strong~~of ~~credit~~assets, ~~quality~~liabilities, ~~as delinquencies~~revenue, ~~nonperforming~~expenses ~~loans~~ and ~~charge-off’s~~ ~~all~~the ~~outperform~~related ~~the~~disclosures. ~~average~~We ofbase our ~~peer~~assumptions, ~~group.~~estimates ~~Our~~and ~~ratios~~judgments ofon ~~nonperforming~~historical ~~loans~~experience, tocurrent ~~total~~trends ~~loans~~and ~~was~~other ~~1.06%,~~factors ~~total~~that management believes ~~delinquencies~~ to ~~total~~be ~~loans~~relevant ~~was~~at ~~1.54%~~the ~~and~~time our ~~allowance~~Consolidated ~~for~~Financial ~~loan~~Statements ~~losses~~are toprepared. ~~total~~On ~~loans~~a ~~was~~regular ~~1.10%~~basis, atmanagement ~~December~~reviews ~~31,~~the ~~2009.~~accounting ~~Net~~policies, ~~loan~~assumptions, estimates ~~charge-offs~~ ~~increased~~and judgments to ~~$15.4~~ensure ~~million~~that ~~for~~our ~~the~~financial ~~year~~statements ~~ended~~are ~~December~~presented ~~31,~~fairly ~~2009,~~and anin ~~increase~~accordance ~~from~~with $7GAAP.3 ~~million~~However, ~~for~~because ~~the~~future ~~year~~events ~~ended~~and their effects cannot be ~~December~~ 31determined with certainty, ~~2008.~~actual ~~Net~~results ~~charge-offs~~could indiffer ~~the~~from ~~fourth~~our ~~quarter~~assumptions ofand ~~2009~~estimates, ~~however,~~and ~~decreased~~such bydifferences ~~almost~~could 50be material.0%Our ~~from~~significant ~~the~~accounting ~~third~~policies ~~quarter~~are ~~2009. We~~discussed ~~are~~in ~~not~~Note ~~immune~~1, toof the ~~trends~~Notes into ~~loan~~Consolidated ~~delinquencies~~Financial ~~and~~Statements, ~~provisions~~included ~~that~~in ~~permeate~~Item ~~the industry~~8, ~~the~~Financial ~~effects~~Statements ofand ~~which~~Supplementary ~~will~~Data, ~~continue~~of tothis be ~~felt~~report. ~~throughout~~Management ~~2010~~believes asthat ~~home~~the ~~sales~~following accounting estimates are ~~expected~~the tomost ~~remain~~critical ~~somewhat~~to ~~stagnant~~aid ~~and~~in ~~delinquencies~~fully understanding and ~~foreclosures~~evaluating ~~rise~~our ~~throughout the~~reported ~~country.~~financial ~~However~~results, weand ~~expect~~they torequire bemanagement’s ~~able~~most todifficult, ~~continue~~subjective toor ~~maintain~~complex ~~strong~~judgments, ~~asset~~resulting ~~quality~~from ~~relative~~the need to ~~industry~~make ~~levels~~estimates asabout ~~we have not experienced~~ the ~~severity~~effect of ~~problems~~matters ~~associated~~that ~~with~~are ~~the~~inherently ~~housing crisis nationally~~uncertain. InManagement ~~continuing~~has toreviewed ~~exercise~~these ~~rigorous~~critical ~~risk management~~accounting estimates and ~~prudent~~related ~~credit~~disclosures ~~practices,~~with wethe ~~will~~Audit ~~also~~Committee ~~further~~of ~~enhance~~our ~~credit processes~~Board.

Deploying capital. We ended 2009 with Tier 1 leverage capital at 11.05%, which is substantially above our peer group average, has remained strong throughout the economic crisis and was achieved without Federal assistance as we are not a TARP recipient. We continuously search for the best use for our capital to enhance shareholder value. The Company has completed six acquisitions since 2004, the most recent being in the first quarter of 2007. While the volatility over the past 24 months has not been conducive to widespread acquisition activity, we believe that there are opportunities in the current environment on which we may be able to capitalize as a result of our flexibility and capital strength. Key tactics include de-novo branching, acquiring banks that provide earnings accretion, including FDIC assisted acquisitions of troubled banks and seizing opportunities to purchase regional bank branch divestitures. Additionally, investments in new business lines, technology and process improvements are also part of our capital deployment strategy.

Competition in the marketplace. NewAlliance faces competition within the financial services industry from some well established companies and many local players. We expect deposit competition to remain vigorous and face additional pressure as equity markets start to rebound. Additionally, we remain poised to take advantage of the current market conditions as we have sufficient liquidity and the ability to retain originated loans on our balance sheet. Moreover, consumers view “big banks” with skepticism and their willingness to switch is now at an historic high. Therefore, we must continue to expand our product offerings, improve operating efficiencies and develop and maintain our brand to increase market share to benefit from these opportunities.

New regulation. The banking industry continued to be impacted by regulatory changes during 2009 including several regulations that have been adopted and others that are pending. These regulatory changes encapsulate both short-term resolutions and to ensure long-term stability in the financial markets, including The Wall Street Reform and Consumer Protection Act of 2009, Real Estate Settlement Procedures Act (“RESPA”), Secure and Fair Enforcement Act (“SAFE Act”), overdraft legislation, compensation disclosures, prepayment of FDIC deposit assessments and potential consolidation of regulatory agencies. Although the full effect of these new regulations is not yet known, they are expected to have both financial and compliance repercussions. As we have seen in the past two years, there have been unintended consequences from the measures taken by the Government in an effort to stabilize the economy. In complying with new regulations, there can be no assurance that NewAlliance Bank will not be impacted in a way we cannot currently predict or mitigate, but we will continue to attempt to navigate this landscape for the long-term benefit of our shareholders.

All five of these challenges and risks—net interest margin, maintaining credit quality and rigorous risk management, deploying capital, competition and new regulation—have the potential to have a material adverse effect on NewAlliance; however, we believe NewAlliance is well positioned to appropriately address these challenges and risks.

See also Item 1A, Risk Factors in Part I of this report for additional information about risks and uncertainties facing NewAlliance.

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.

Our significant accounting policies are discussed in Note 1, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this report. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board.

Other-Than-Temporary Impairment of Investments

Critical Estimates	Judgment and Uncertainties			Effect if Actual Results Differ from Assumptions
Our investment securities portfolio is comprised of available-for-sale and held-to-maturity investments. The available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. The held-to-maturity portfolio is carried at amortized cost. Management determines the classification of a security at the time of its purchase. We conduct a periodic review of our investment securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary for debt securities, the security is written down to a new cost basis and the amount of impairment related to the credit loss component would be reported within non-interest income in the consolidated statement of income while the remaining amount would be recognized in other comprehensive income. For equity securities, the entire other-than-temporary would be considered credit related and would be recorded in earnings. During 2009, we recorded other-than-temporary credit impairment charges on two securities which totaled $1.4 million. At December 31, 2009, we have net unrealized gains on our available-for-sale portfolio of $45.8 million comprised of gains in the amount of $70.7 million and losses of $24.9 million. In the held-to-maturity portfolio, we have net unrealized gains of $11.6 million comprised of $11.6 million in gains and $38,000 in losses. For further discussion on other-than-temporary impairment of investments, see the “Investment Securities” section on page 46 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 5 of the Notes to Consolidated Financial Statements.	Significant judgment is involved in determining when a decline in fair value is other-than-temporary. The factors considered by management include, but are not limited to:			Adverse changes in management’s assessment of the factors used to determine that a security was not other-than-temporarily impaired could lead to additional impairment charges. Conditions affecting a security that we determined to be temporary could become other than temporary and warrant an impairment charge. Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge. The Company has seven securities that are currently valued at 30.0% or more below book value that are not considered other than temporarily impaired. At December 31, 2009, these securities have a fair value of $16.3 million compared to a book value of $27.0 million.
Our investment securities portfolio is comprised of available-for-sale and held-to-maturity investments. The available-for-sale portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. The held-to-maturity portfolio is carried at amortized cost. Management determines the classification of a security at the time of its purchase. We conduct a periodic review of our investment securities portfolio to determine if the value of any security has declined below its cost or amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary for debt securities, the security is written down to a new cost basis and the amount of impairment related to the credit loss component would be reported within non-interest income in the consolidated statement of income while the remaining amount would be recognized in other comprehensive income. For equity securities, the entire other-than-temporary would be considered credit related and would be recorded in earnings. During 2010, we recorded other-than-temporary credit impairment charges on a security which totaled $1.2 million. At December 31, 2010, we have net unrealized gains on our available-for-sale portfolio of $35.5 million comprised of gains in the amount of $64.0 million and losses of $28.5 million. In the held-to-maturity portfolio, we have net unrealized gains of $9.4 million comprised of $9.4 million in gains and $48,000 in losses. For further discussion on other-than-temporary impairment of investments, see the “Investment Securities” section on page 43 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 4 of the Notes to Consolidated Financial Statements.	Significant judgment is involved in determining when a decline in fair value is other-than-temporary. The factors considered by management include, but are not limited to:			Adverse changes in management’s assessment of the factors used to determine that a security was not other-than-temporarily impaired could lead to additional impairment charges. Conditions affecting a security that we determined to be temporary could become other than temporary and warrant an impairment charge. Additionally, a security that had no apparent risk could be affected by a sudden or acute market condition and necessitate an impairment charge. The Company has one security that is currently valued at 30.0% or more below book value that is not considered other than temporarily impaired. At December 31, 2010, this security has a fair value of $2.3 million compared to a book value of $4.7 million.
		•	Percentage and length of time by which an issue is below book value;
		•	Financial condition and near-term prospects of the issuer including their ability to meet contractual obligations in a timely manner;
		•	Ratings of the security;
		•	Whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions;
		•	Whether the decline is due to interest rates and spreads or credit risk;
		•	The value of underlying collateral; and
		•	Our intent and ability to retain the investment for a period of time sufficient to allow for the anticipated recovery in market value or more likely than not will be required to sell a debt security before its anticipated recovery which may be until maturity.

3130

Goodwill and Identifiable Intangible Assets

Critical Estimates	Judgment and Uncertainties			Effect if Actual Results Differ from Assumptions
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, considering other publicly available market information and using an independent valuation firm, as appropriate.In the first quarter of fiscal 2009, we completed our annual impairment testing of goodwill using an independent valuation firm, and determined there was no impairment. Through year end, no events or circumstances subsequent to the annual testing date indicate that the carrying value of the Company’s goodwill may not be recoverable.The carrying value of goodwill and identifiable intangible assets at December 31, 2009, was $527.2 million and $35.4 million, respectively. For further discussion on goodwill and identifiable intangible assets, see the “Goodwill and Intangible Assets” section on page 57 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 8 of the Notes to Consolidated Financial Statements.	Fair value was determined using widely accepted valuation techniques, including estimated future cash flows, comparable transactions, control premium and market peers. 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. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. Accounting standards require testing for impairment between annual test dates if an event occurred or circumstances changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the third quarter, given the economic climate and the Company’s market capitalization relative to book value, the Company’s management performed a review to determine if there were any triggering events which would require the Company to perform an interim goodwill impairment analysis. This review included but was not limited to potential triggering events such as the following events and circumstances:			If actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material. Management has evaluated the effect of lowering the estimated fair value of the reporting unit and determined that fair value would have to decline more than 10% before Step 2 of the impairment analysis would be required under accounting guidance for goodwill impairment.
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, considering other publicly available market information and using an independent valuation firm, as appropriate.In the first quarter of fiscal 2010, we completed our annual impairment testing of goodwill using an independent valuation firm, and determined there was no impairment. Through year end, no events or circumstances subsequent to the annual testing date indicate that the carrying value of the Company’s goodwill may not be recoverable, therefore, no interim testing was required. The carrying value of goodwill and identifiable intangible assets at December 31, 2010, was $527.2 million and $27.5 million, respectively. For further discussion on goodwill and identifiable intangible assets, see the “Goodwill and Intangible Assets” section on page 54 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 7 of the Notes to Consolidated Financial Statements.	Fair value was determined using widely accepted valuation techniques, including estimated future cash flows, comparable transactions, control premium and market peers. 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. It is our policy to conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations.			If actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material. Management has evaluated the effect of lowering the estimated fair value of the reporting unit and determined that fair value would have to decline more than 10% before Step 2 of the impairment analysis would be required under accounting guidance for goodwill impairment.
		•	A significant adverse change in legal factors or business climate,
		•	An adverse action or assessment by a regulator,
		•	Unanticipated competition,
		•	A loss of key personnel,
		•	Impairment of other assets or the establishment of valuation allowances on deferred tax assets,
		•	Cash flow or operating losses at the reporting unit level,
		•	Negative current events or long-term outlooks for specific industries,
		•	Not meeting analyst expectations or internal forecasts in consecutive periods or downward adjustments to further forecasts,
		•	Planned or announced layoffs or asset dispositions,
		•	Market capitalization of the Company below its book value.
	Upon consideration of the guidance on goodwill impairment and the Company’s financial position, the Company concluded that the fact that its market capitalization was below its book value at September 30, 2009 was outweighed by the lack of other triggering events and no other events or circumstances occurred that would trigger the requirement to perform an interim test for goodwill impairment.

Allowance for Loan Losses

Critical Estimates	Judgment and Uncertainties	Effect if Actual Results Differ from Assumptions
It is the policy of NewAlliance to maintain an allowance for loan losses that equals management’s best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date.Management follows a guiding principle that the level of the reserve should be directionally consistent with asset quality indicators. The adequacy of the allowance for loan losses 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, historical loss rates over the business cycle, 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 and experience of staff.The allowance for loan losses is reviewed and approved by the Board of Directors on a quarterly basis. For further discussion on the allowance for loan losses, see the “Allowance for Loan Losses” section on page 55 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 6 of the Notes to Consolidated Financial Statements.	We determine the adequacy of the allowance for loan losses by analyzing and estimating losses inherent in the portfolio. The allowance for loan losses contains uncertainties because the calculation requires management to use historical information as well as current economic data to make judgments on the adequacy of the allowance. As the allowance is affected by changing economic conditions and various external factors, it may impact the portfolio in a way currently unforeseen.	Adverse changes in management’s assessment of the factors used to determine the allowance for loan losses could lead to additional provisions. Actual loan losses could differ materially from management’s estimates if actual losses and conditions differ significantly from the assumptions utilized. These factors and conditions include general economic conditions within NewAlliance’s market, trends within industries, real estate and other collateral values, interest rates and the financial condition of the individual borrower. While management believes that it has established adequate specific and general allowances for probable losses on loans, there can be no assurance that the regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for losses, thereby negatively affecting the Company’s financial condition and results of operations.
It is the policy of NewAlliance to maintain an allowance for loan losses that equals management’s best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date.Management follows a guiding principle that the level of the reserve should be directionally consistent with asset quality indicators. The adequacy of the allowance for loan losses 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, historical loss rates over the business cycle, 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 and experience of staff.The allowance for loan losses is reviewed and approved by the Board of Directors on a quarterly basis. For further discussion on the allowance for loan losses, see the “Allowance for Loan Losses” section on page 52 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Note 7 of the Notes to Consolidated Financial Statements.	We determine the adequacy of the allowance for loan losses by analyzing and estimating losses inherent in the portfolio. The allowance for loan losses contains uncertainties because the calculation requires management to use historical information as well as current economic data to make judgments on the adequacy of the allowance. As the allowance is affected by changing economic conditions and various external factors, it may impact the portfolio in a way currently unforeseen.	Adverse changes in management’s assessment of the factors used to determine the allowance for loan losses could lead to additional provisions. Actual loan losses could differ materially from management’s estimates if actual losses and conditions differ significantly from the assumptions utilized. These factors and conditions include general economic conditions within NewAlliance’s market, trends within industries, real estate and other collateral values, interest rates and the financial condition of the individual borrower. While management believes that it has established adequate specific and general allowances for probable losses on loans, there can be no assurance that the regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for losses, thereby negatively affecting the Company’s financial condition and results of operations.

3331

Income Taxes

Deferred Tax Assets and Liabilities

Critical Estimates	Judgment and Uncertainties	Effect if Actual Results Differ from Assumptions
Management uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company’s asset and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carryback” refund claims could be made. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable based on available evidence at the time the estimate is made.Each quarter, we reevaluate our estimate related to the valuation allowance, including our assumptions about future profitability. At December 31, 2009 and December 31, 2008, our valuation allowance was $21.6 million and $30.7 million, respectively, of which $20.1 million for both years was established against the net state deferred tax asset as a result of the implementation of a Connecticut passive investment company and is not a result of assumptions about future profitability.Because of a review of the factors discussed above related to the adequacy of the valuation allowance, our income tax expense for the year-ended December 31, 2009 included an increase in the valuation allowance attributable to capital losses of $215,000. The increase was mainly due to additional capital losses incurred in 2009. For further discussion on our deferred taxes and valuation allowance, see Note 14 of the Notes to Consolidated Financial Statements.	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.	Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets or deferred tax liabilities could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets valuation allowance would be charged to income tax expense in the period such determination was made. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our income taxes.
Management uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company’s asset and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carryback” refund claims could be made. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable based on available evidence at the time the estimate is made.Each quarter, we reevaluate our estimate related to the valuation allowance, including our assumptions about future profitability. At December 31, 2010 and December 31, 2009, our valuation allowance was $23.2 million and $21.6 million, respectively, of which $22.1 million and $20.1 million, respectively, was established against the net state deferred tax asset as a result of the implementation of a Connecticut passive investment company and is not a result of assumptions about future profitability.Because of a review of the factors discussed above related to the adequacy of the valuation allowance, our income tax expense for the year-ended December 31, 2010 included a decrease in the valuation allowance attributable to capital losses of $406,000. The decrease was mainly due to additional capital gains incurred in 2010. For further discussion on our deferred taxes and valuation allowance, see Note 13 of the Notes to Consolidated Financial Statements.	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.	Should actual factors and conditions differ materially from those used by management, the actual realization of net deferred tax assets or deferred tax liabilities could differ materially from the amounts recorded in the financial statements. If we were not able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets valuation allowance would be charged to income tax expense in the period such determination was made. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our income taxes.

Tax Contingencies

Critical Estimates	Judgment and Uncertainties	Effect if Actual Results Differ from Assumptions
We regularly face challenges from domestic tax authorities regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record reserves for probable exposures. A number of years may elapse before a particular matter, for which we have established a reserve, is audited and fully resolved or clarified. We adjust our tax contingencies reserve and income tax provision in the period in which actual results of a settlement with tax authorities differs from our established reserve, the statute of limitations expires for the relevant tax authority to examine the tax position or when more information becomes available. For further discussion on current tax examinations, see Note 14 of Notes to Consolidated Financial Statements.	Our tax contingencies reserve contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. Our 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.	We believe that our tax reserves reflect the probable outcomes of known contingencies. Although we think that our estimates and judgments discussed herein are reasonable, actual results may differ, which could be material to our financial statements. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would generally be recognized as a reduction in our effective income tax rate.
We regularly face challenges from domestic tax authorities regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures associated with our various tax filing positions, we record reserves for probable exposures. A number of years may elapse before a particular matter, for which we have established a reserve, is audited and fully resolved or clarified. We adjust our tax contingencies reserve and income tax provision in the period in which actual results of a settlement with tax authorities differs from our established reserve, the statute of limitations expires for the relevant tax authority to examine the tax position or when more information becomes available. For further discussion on current tax examinations, see Note 13 of Notes to Consolidated Financial Statements.	Our tax contingencies reserve contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. Our 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.	We believe that our tax reserves reflect the probable outcomes of known contingencies. Although we think that our estimates and judgments discussed herein are reasonable, actual results may differ, which could be material to our financial statements. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would generally be recognized as a reduction in our effective income tax rate.

3432

Pension and Other Post Retirement Benefits

Critical Estimates	Judgment and Uncertainties	Effect if Actual Results Differ from Assumptions
Pension costs and liabilities are dependent on assumptions used in calculating such amounts. 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. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors, and in accordance with U.S. GAAP the impact of these differences is accumulated and amortized over future periods.The discount rate assumptions used to measure the postretirement benefit obligations is set by reference to published high-quality bond indices, as well as certain yield curves. The Company used the Citigroup Pension Liability Index as a benchmark. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.The expected rate of return on plan assets is based on current and expected asset allocations, as well as the long-term historical risks and returns with each asset class within the plan portfolio. A lower expected rate of return on plan assets increases pension costs. For further discussion on pension and other post retirement benefits, see Note 12 of the Notes to Consolidated Financial Statements.	To reflect market interest rate conditions in calculating the projected benefit obligation, the pension discount rate was decreased from 6.10% at December 31, 2008 to 5.85% at December 31, 2009, and the postretirement discount rate decreased from 6.25% to 5.50% at each of these periods. An expected rate of return on plan assets of 7.75% was utilized at December 31, 2009 and 2008.	While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect future pension or other postretirement obligations and expense. Continued volatility in pension expense is expected as assumed investment returns vary from actual.A 25 basis point decrease in the discount rate would increase annual pension expense by $314,000, while a 25 basis point increase in the discount rate would decrease annual pension expense by $299,000.A 25 basis point decrease or increase in the expected return on assets would increase or decrease annual pension expense, respectively, by $225,000.
Pension costs and liabilities are dependent on assumptions used in calculating such amounts. 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. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors, and in accordance with U.S. GAAP the impact of these differences is accumulated and amortized over future periods.The discount rate assumptions used to measure the postretirement benefit obligations is set by reference to published high-quality bond indices, as well as certain yield curves. The Company used the Citigroup Pension Liability Index as a benchmark. A higher discount rate decreases the present value of benefit obligations and decreases pension expense.The expected rate of return on plan assets is based on current and expected asset allocations, as well as the long-term historical risks and returns with each asset class within the plan portfolio. A lower expected rate of return on plan assets increases pension costs. For further discussion on pension and other post retirement benefits, see Note 11 of the Notes to Consolidated Financial Statements.	To reflect market interest rate conditions in calculating the projected benefit obligation, the pension discount rate was decreased from 5.85% at December 31, 2009 to 5.35% at December 31, 2010, and the postretirement discount rate decreased from 5.50% to 4.85% at each of these periods. An expected rate of return on plan assets of 7.50% and 7.75% was utilized at December 31, 2010 and 2009, respectively.	While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect future pension or other postretirement obligations and expense. Continued volatility in pension expense is expected as assumed investment returns vary from actual.A 25 basis point decrease in the discount rate would have increased annual pension expense by $333,000, while a 25 basis point increase in the discount rate would have decreased annual pension expense by $318,000.A 25 basis point decrease or increase in the expected return on assets would have increased or decreased annual pension expense, respectively, by $219,000.

Recent Accounting Changes

We have adopted the following new accounting pronouncements and authoritative guidance during 2010. Except as indicated, the adoption of the following pronouncements did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This guidance is intended to improve the transparency of financial reporting by requiring enhanced disclosures about a bank’s allowance for loan losses and the credit quality of its financing receivables (generally defined as loans and leases). The primary goal of the disclosure requirements is to provide more information about the credit risk in a bank’s portfolio of loans and how that risk is analyzed and assessed in arriving at the allowance for loan loss.

FASB ASU 2010-06, Improving Disclosures about Fair Value Measurements. This guidance amends Topic 820, Fair Value Measurements and Disclosures. The guidance requires additional disclosures about fair value measurements including transfer in and out of Levels 1 and 2 and higher levels of disaggregation for the different types of financial instruments. For the reconciliation of Level 3 fair values measurements, information about purchases, sales, issuances and settlements should be presented separately.

FASB ASU 2009-16, an update to Topic 860 – Transfer of Financial Assets. This guidance requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk in the assets. The guidance eliminates the concept of a qualifying special-purpose entity, changes the requirements for the derecognition of financial assets, and enhances the disclosure requirements for sellers of the assets.

FASB ASU No. 2009-17, an update to Topic 810 – Consolidations. The guidance requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity (which would result in the enterprise being deemed the primary beneficiary of that entity and, therefore, obligated to consolidate the variable interest entity in its financial statements); to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to revise guidance for determining whether an entity is a variable interest entity; and to require enhanced disclosures that will provide more transparent information about an enterprise’s involvement with a variable interest entity.

FASB ASU 2010-09, an update to Topic 855 – Subsequent Events. The guidance updates certain recognition and disclosure requirements. Among other things, this guidance retracts, for public entities, the requirement to disclose the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or were available to be issued.

Operating Results

Table 1: Summary Income Statements

	Year Ended December 31,						Change

							2010/2009						2009/2008
(Dollars in thousands, except per share data)	2010		2009		2008		Amount			Percent			Amount			Percent

Net interest income	$	234,287	$	203,207	$	190,116	$	31,080			15	%	$	13,091			7	%
Provision for loan losses		17,000		18,000		13,400		(1,000	)		(6	)		4,600			34
Non-interest income		61,161		59,246		55,896		1,915			3			3,350			6
Operating expenses		174,684		172,129		166,384		2,555			1			5,745			3
Merger related charges		12,325		84		185		12,241			14,573			(101	)		(55	)
Income before income taxes		91,439		72,240		66,043		19,199			27			6,197			9
Income tax expense		33,471		25,797		20,747		7,674			30			5,050			24

Net income	$	57,968	$	46,443	$	45,296	$	11,525			25	%	$	1,147			3	%

Basic and diluted earnings per share	$	0.59	$	0.47	$	0.45

Earnings Summary

Comparison of 2010 and 2009
The Company, for 2010, achieved record net income of $58.0 million, or $0.59 per diluted share; attained $9.03 billion in total assets; originated a record $2.16 billion in loans and preserved credit quality. These results were the culmination of NewAlliance’s continued focus on strong banking fundamentals and successful achievement of its priorities to sustain net revenue momentum, continue deposit growth and improve operating leverage.

As shown in Table 1, net income increased $11.5 million, or $0.12 per share, over the year ended 2009. This was primarily due to the increase in net interest income of $31.1 million, or 15.3%, as the Company significantly reduced its cost of funds while growing lending and deposit relationships. The Company’s net interest margin increased 34 basis points to 3.02% from 2.68% for the years ended December 31, 2010 and 2009, respectively and the interest rate spread increased 46 basis points to 2.75% for the year ended December 31, 2010. The increase in net interest income was partially offset by increases in non-interest expenses, primarily merger related charges of $12.2 million and income tax expense. Merger related charges are attributable to the First Niagara transaction, which also contributed $3.7 million to the increase in income tax expense. The remaining increase in income tax expense of $4.0 million was due to the higher income earned in 2010.

Comparison of 2009 and 2008
The year 2009 was one of continued stress on the banking system, where raising capital and controlling credit costs were top priorities for the industry. Assisted by numerous Government programs, the longest and deepest economic downturn since the 1930’s appears to have abated. However, continued credit market tightness, damage to household balance sheets and lack of job security are tempering the economic recovery. NewAlliance leveraged its position of financial and credit strength and proceeded aggressively to take deposit market share, build revenue momentum and take advantage of disruption in the marketplace.

As shown in Table 1, earnings per share for the year ended December 31, 2009 increased $0.02 over the same period in 2008 primarily due to a substantial reduction in our cost of funds while gaining deposit market share, predominantly core deposits, gains on sales of mortgage-backed securities and residential mortgages. These were the main drivers behind the increases in net interest income before provision and non-interest income of $13.1 million and $3.4 million, respectively. Additionally, these increases more than offset the $4.6 million increase in the provision for loan losses due to the economic environment and loan net charge-offs, the increase in operating expenses of $5.7 million, largely due to the FDIC special assessment of $3.9 million and a $5.1 million increase in income tax expense due to higher net income along with an increase in the effective tax rate.

Average Balances, Interest and Average Yields/Cost
Table 2 below sets forth certain information concerning average interest-earning assets and interest-bearing liabilities and their associated yields or rates for the periods indicated. The average yields and costs are derived by dividing income or expenses by the average balances of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown and reflect annualized yields and costs. Average balances are computed using daily balances. Yields and amounts earned include loan fees and fair value adjustments related to acquired loans. Loans held for sale and nonaccrual loans have been included in interest-earning assets for purposes of these computations. Interest on nonaccrual loans has been included only to the extent reflected in the Consolidated Statements of Income. Unrealized gain or losses on available-for-sale investment securities are excluded from average yield calculations.

~~Recent~~Table ~~Accounting~~2: ~~Changes~~Average Balance Sheets for the Years Ended December 31, 2010, 2009 and 2008

We have adopted the following new accounting pronouncements and authoritative guidance during 2009. Except as indicated, the adoption of the following pronouncements did not have a material impact on the Company’s consolidated financial statements.In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS No. 168”). The objective of SFAS No. 168 is to replace SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles” and to establish the FASB Accounting Standards CodificationTM (“Codification” or “FASB ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). The Codification supersedes all previous level (a) through (d) GAAP, aside from non-codified FASB statements and guidance issued by the SSEC. The Codification did not change GAAP, but rather reorganized it into approximately 90 accounting topics within a consistent structure to simplify user access. Contents in each of these accounting topics are further organized by subtopic, section and paragraph. Changes to the Codification are in the form of Accounting Standards Updates issued by the FASB. An Accounting Standards Update is not authoritative; rather, it is a document that communicates the specific amendments that change the Codification and provides background information about the guidance, including the basis for conclusions on changes made to the Codification. The adoption of SFAS No. 168 and the Codification did not have a material impact on the Company’s consolidated financial statements but changed the referencing system for accounting standards from the legacy GAAP citations to codification topic numbers. In June 2009, the FASB issued FASB Accounting Standards Update (“ASU”) No. 2009-01, Topic 105, Generally Accepted Accounting Principles. This ASU amends the Codification for the issuance of SFAS No. 168 in its entirety, including the accounting standards update instructions contained in Appendix B of the statement. SFAS No. 168 is summarized above.The following pronouncements provide citations to the applicable Codification, as appropriate.FASB ASC 820-10, Effective date of Fair Value Measurements and Disclosures. This guidance requires disclosure of nonfinancial assets and liabilities in accordance with FASB ASC 820, Fair Value Measurements and Disclosures.FASB ASC 815-10, Disclosures about Derivative Instruments and Hedging Activities. This guidance changes the disclosure requirements regarding derivative instruments and hedging activities in accordance with FASB ASC 815-10-65.FASB ASC 350-30, Determination of the Useful Life of Intangible Assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB ASC 350, Intangibles – Goodwill and Other.FASB ASC 805, Business Combinations. This guidance became effective on January 1, 2009 and applies prospectively to any future business combinations. It is expected to have a significant effect on the Company’s consolidated financial statements, when a business combination occurs.FASB ASC 820-10, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This guidance provides additional clarification for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements.FASB ASC 320-10, Recognition and Presentation of Other-Than-Temporary Impairments. This guidance makes the accounting for other-than-temporary impairments more operational and improves the presentation of other-than-temporary impairments in the financial statements. The adoption of this pronouncement resulted in a $1.0 million, net of tax, cumulative effect adjustment increasing retained earnings and decreasing accumulated other comprehensive income.FASB ASC 825-10, Interim Disclosures about Fair Value of Financial Instruments. This guidance requires disclosures about the fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements.FASB ASC 855-10, Subsequent Events. This guidance establishes general standards of accounting for and the disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. For further information, see Note 1 in Notes to Consolidated Financial Statements.

	Twelve Months Ended December 31,

	2010							2009							2008

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

Interest-earning assets
Loans
Residential real estate	$	2,483,550	$	119,135		4.80	%	$	2,497,784	$	131,119		5.25	%	$	2,503,135	$	138,005		5.51	%
Commercial real estate		1,286,185		75,128		5.84			1,216,121		70,735		5.82			1,203,399		74,159		6.16
Commercial business		469,013		25,893		5.52			436,674		22,019		5.04			460,679		27,819		6.04
Consumer		703,766		31,554		4.48			736,764		34,207		4.64			710,132		38,984		5.49

Total loans		4,942,514		251,710		5.09			4,887,343		258,080		5.28			4,877,345		278,967		5.72
Fed funds sold and other short-term investments		80,469		157		0.20			92,253		387		0.42			46,211		1,209		2.62
Federal Home Loan Bank of Boston stock		120,821		-		-			120,821		-		-			118,985		4,526		3.80
Securities		2,606,640		98,945		3.80			2,493,186		113,332		4.55			2,238,586		114,471		5.11

Total securities, short-term investments and Federal Home Loan Bank stock		2,807,930		99,102		3.53			2,706,260		113,719		4.20			2,403,782		120,206		5.00

Total interest-earning assets		7,750,444	$	350,812		4.53	%		7,593,603	$	371,799		4.90	%		7,281,127	$	399,173		5.48	%
Non-interest earning assets		923,482							894,857							929,355

Total assets	$	8,673,926						$	8,488,460						$	8,210,482



Interest-bearing liabilities
Deposits
Money Markets	$	940,556	$	9,106		0.97	%	$	579,806	$	9,170		1.58	%	$	420,972	$	9,315		2.21	%
NOW		383,017		933		0.24			363,621		1,069		0.29			368,277		1,368		0.37
Savings		1,757,322		10,832		0.62			1,756,246		23,881		1.36			1,257,542		29,047		2.31
Certificates		1,450,151		29,737		2.05			1,591,055		46,561		2.93			1,792,948		64,942		3.62

Total interest-bearing deposits		4,531,046		50,608		1.12			4,290,728		80,681		1.88			3,839,739		104,672		2.73
Repurchase agreements		105,711		1,389		1.31			138,219		1,663		1.20			183,650		4,021		2.19
FHLB advances and other borrowings		1,922,206		64,528		3.36			2,038,012		86,248		4.23			2,222,615		100,364		4.52

Total interest-bearing liabilities		6,558,963		116,525		1.78	%		6,466,959		168,592		2.61	%		6,246,004		209,057		3.35	%
Non-interest-bearing demand deposits		570,555							518,264							483,631
Other non-interest-bearing liabilities		86,139							96,212							73,848

Total liabilities		7,215,657							7,081,435							6,803,483
Equity		1,458,269							1,407,025							1,406,999

Total liabilities and equity	$	8,673,926						$	8,488,460						$	8,210,482

Net interest-earning assets	$	1,191,481						$	1,126,644						$	1,035,123

Net interest income			$	234,287						$	203,207						$	190,116

Interest rate spread						2.75	%						2.29	%						2.13	%
Net interest margin (net interest income as a percentage of total interest-earning assets						3.02	%						2.68	%						2.61	%
Ratio of total interest-earning assets to total interest-bearing liabilities						118.17	%						117.42	%						116.57	%

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

Comparison of 2010 and 2009
As shown in Tables 2 and 3, net interest income increased $31.1 million for the year ended December 31, 2010 compared to the same period ended December 31, 2009. The increase was primarily due to: a) repricing or maturing interest-bearing liabilities outpacing interest-earning assets during the period, thereby allowing us to reduce our cost of funds at a faster pace and b) the average balance of interest-earning assets outpacing the growth in interest-bearing liabilities by $64.8 million and c) the shift in the mix of funding sources from higher cost time deposits and borrowings to core interest and non-interest bearing deposits which was a factor in reducing the cost of funds. The net interest margin increased 34 basis points for the year ended December 31, 2010 from the 2009 comparative period. The net interest margin for the years ended December 31, 2010 and 2009 was 3.02% and 2.68%, respectively.

Interest and dividend income decreased $21.0 million to $350.8 million at December 31, 2010 compared to $371.8 million at December 31, 2009 primarily due to lower asset yields. Partially offsetting the net decrease in asset yields, was growth in interest-earning assets with average balances increasing $156.8 million from the same period a year ago due to the loan and investment portfolios. The decline of 37 basis points in the average yield was due to lower market interest rates and, to a lesser extent, the increased level of nonperforming loans. The increase in organic loans and investment securities helped to relieve some of the interest rate pressure as the Company, with ready liquidity, was able to grow these portfolios. The interest income decline in the loan portfolio related to the average balance was primarily due to the decrease in the average balance of the purchased loan portfolio.

The decrease in income attributable to the loan portfolio was $6.4 million, of which $9.9 million was due to lower yields, partially offset by an increase of $3.5 million due to net average balance growth. The increase in interest income attributable to the average balance was primarily in commercial real estate loans and asset based lending, partially offset by continued declines in the purchased

~~FASB~~residential ~~ASC~~loan ~~715-20~~portfolio. The decline in the average yield of 19 basis points was primarily in organic residential mortgage loans as homeowners have been taking advantage of refinancing opportunities at lower rates throughout 2009 and 2010. Loan yields have also been negatively impacted by the increase in nonperforming loans of $24.4 million from December 2009. Earnings on the investment securities portfolio decreased $14.4 million primarily due to the decline in the average yield. The low level of market interest rates has pushed the average yield down 75 basis points resulting in a decline in interest income of $19.4 million.The cost of funds for the year ended December 31, ~~Postretirement~~2010 ~~Benefit~~decreased $52.1 million, or 30.9% to $116.5 million, compared to $168.6 million ~~Plan~~for ~~Assets~~the same period a year ago. ~~This~~ ~~guidance~~The ~~provides~~decrease in the cost of funds was primarily due to a shift to a more favorable funding mix and our focus on pricing discipline which resulted in the cost of funds being reduced by 83 basis points.The cost of deposits for ~~additional~~the ~~disclosures~~year ~~about~~ended ~~plan~~December ~~assets~~31, 2010 decreased $30.1 million to $50.6 million, compared to $80.7 million for the same period a year ago, primarily resulting from the Company’s diligence in bringing deposit costs down while continuing to increase core deposit balances. While the average interest-bearing deposit balances increased $240.3 million, deposit costs declined $30.1 million. The Company experienced a decrease of $30.6 million in deposit interest expense due to a ~~defined~~reduction of 76 basis points on the average rate paid and was attributable across all deposit categories. Deposit interest expense increased $574,000 due to the net increase of the average balance of interest-bearing core deposits of $381.2 million, partially offset by a decrease of $140.9 million in the average time deposit balances. Through our continued emphasis on building core deposit relationships and migration from maturing time deposits as they repriced at reduced rates, the Company has been able to grow core deposit average balances. The main driver of this growth has been money market accounts with an average balance increase of $360.8 million. Additionally, when combined with the decline in the average rate paid of 61 basis points, interest expense decreased by $64,000 for this product. A further benefit ~~pension~~of orthe low interest rate environment has been the decline in the average rate paid on borrowings from the Federal Home Loan Bank (“FHLB”). FHLB advances and other ~~postretirement~~borrowing ~~plan~~costs decreased $21.7 ~~Pursuant~~million due to the ~~guidance~~decline in the average rate paid of 87 basis points. Supported by the growth in deposits, the ~~added~~Company ~~disclosures~~was ~~include:~~able (to pay down higher cost borrowings as they mature or replace them with new advances at substantially lower rates and reduce its overall reliance on borrowings.Comparison of 2009 and 2008As shown in Table 2 and 3, net interest income for the year ended December 31, 2009 was $203.2 million, an increase of $13.1) ~~how~~million ~~investment~~from ~~allocation~~December ~~decisions~~31, ~~are~~2008. ~~made~~The net interest margin increased seven basis points to 2.68% for the year ended December 31, 2009 as compared to the year ended December 31, 2008. This increase was a net result of the loss of the FHLB Boston dividend and a reduction in interest-earning asset yields that were more than offset by ~~management~~the reduction in the costs of interest-bearing liabilities. Interest and dividend income decreased $27.4 million to $371.8 million at December 31, (2009 compared to $399.2) ~~major~~million ~~categories~~at December 31, 2008 comprising of ~~plan~~a ~~assets~~decrease of $40.9 million due to rate, offset by a $13.5 million increase due to volume. The decline in rate was primarily due to a) newly originated loans and (3adjustable or variable rate loans that were reset at reduced rates due to the rate cuts imposed by the FRB throughout 2008, b) ~~significant~~the ~~concentrations~~absence of a quarterly dividend from the FHLB Boston and c) a decline in the average yield in the investment securities portfolio due to a decline in market interest rates resulting from the current economic conditions. Loan yields have also been negatively impacted to a lesser extent by the increase in nonperforming loans. Investment growth helped to mitigate the effect of ~~risk~~the rate decline on interest income as the average balance increase of $302.5 ~~Additionally~~million accounted for approximately $13.0 million of the increase to interest income. Due to the growth in core deposits the Company has expanded the securities portfolio primarily with purchases of adjustable rate mortgage-backed securities. The average balance of the loan portfolio increased $10.0 million for the period, ~~this~~which ~~requires~~includes an ~~employer~~increase of $23.1 million in the average balance of loans held for sale. Given the economic and market conditions that have beset the industry over the last year, there have been fewer commercial originations that met our underwriting criteria and although residential mortgage originations were relatively strong, approximately half were originated at fixed rates and sold in the secondary market.The cost of funds for the year ended December 31, 2009 decreased $40.5 million, or nearly 20.0% to ~~disclose~~$168.6 ~~information~~million, ~~about~~compared to $209.1 million for the same period a year ago. The Company’s continued strategy during this period was to reduce deposit costs and focus on the ~~valuation~~growth of ~~plan~~core ~~assets~~interest ~~similar~~and non-interest-bearing deposits. The result was a decrease of $24.0 million in deposit interest expense due to ~~that~~changes ~~required~~in ~~under~~the ~~FASB~~mix ~~ASC~~of ~~820~~deposits with net average balance growth of $451.0 million and a decrease of 85 basis points on the average rate paid. This decrease in deposit interest expense was primarily in time deposits, which decreased $18.4 million due to the declines ~~Fair~~ ~~Value~~in ~~Measurements~~the average balances and ~~Disclosures~~average rate paid of $201. ~~For~~9 ~~further~~million ~~information~~and 69 basis points, ~~see~~respectively. ~~Note~~Through 12targeted marketing campaigns and migration from maturing time indeposits ~~Notes~~as they repriced at reduced rates, the Company was able to ~~Consolidated~~grow ~~Financial~~core ~~Statements~~deposit average balances by a total of $652.9 million. The main driver of core deposit growth was savings and money market accounts with an average balance increase of $498.7 million $158.8 million, respectively. Additionally, when combined with the

Operating ResultsTable 1: Summary Income Statements

	Year Ended December 31,						Change
							2009/2008					2008/2007
(Dollars in thousands, except per share data)		2009		2008		2007		Amount		Percent			Amount		Percent
Net interest income	$	203,207	$	190,116	$	175,037	$	13,091		7	%	$	15,079		9	%
Provision for loan losses		18,000		13,400		4,900		4,600		34			8,500		173
Non-interest income		59,246		55,896		31,165		3,350		6			24,731		79
Operating expenses		172,129		166,384		159,923		5,745		3			6,461		4
Merger related charges		84		185		2,523		(101	)	(55	)		(2,338	)	(93	)
Income before income taxes		72,240		66,043		38,856		6,197		9			27,187		70
Income tax expense		25,797		20,747		15,063		5,050		24			5,684		38
Net income	$	46,443	$	45,296	$	23,793	$	1,147		3	%	$	21,503		90	%
Basic and diluted earnings per share	$	0.47	$	0.45	$	0.23

Earnings Summary Comparison of 2009 and 2008 The year 2009 was one of continued stress on the banking system, where raising capital and controlling credit costs were top priorities for the industry. Assisted by numerous Government programs, the longest and deepest economic downturn since the 1930’s appears to have abated. However, continued credit market tightness, damage to household balance sheets and lack of job security are tempering the economic recovery. NewAlliance leveraged its position of financial and credit strength and proceeded aggressively to take deposit market share, build revenue momentum and take advantage of disruption in the marketplace. As shown in Table 1, earnings per share for the year ended December 31, 2009 increased $0.02 over the same period in 2008 primarily due to a substantial reduction in our cost of funds while gaining deposit market share, predominantly core deposits, gains on sales of mortgage-backed securities and residential mortgages. These were the main drivers behind the increases in net interest income before provision and non-interest income of $13.1 million and $3.4 million, respectively. Additionally, these increases more than offset the $4.6 million increase in the provision for loan losses due to the economic environment and loan net charge-offs, the increase in operating expenses of $5.7 million, largely due to the FDIC special assessment of $3.9 million and a $5.1 million increase in income tax expense due to higher net income along with an increase in the effective tax rate.Comparison of 2008 and 2007 In a year that had unprecedented turmoil in the economy and financial markets, NewAlliance improved the core performance of the Company, was able to mitigate the steep declines in market interest rates with new growth and avoided vast losses in its loan and investment securities portfolios due to historically sound credit practices.As shown in Table 1, net income was $45.3 million for the year ended December 31, 2008, an increase of $21.5 million from the year ended December 31, 2007. The largest single component for this year over year increase resulted from the securities restructuring in 2007 for which a net loss of $28.3 million ($18.4 million, net of tax) was recorded. During the year ended December 31, 2007, NewAlliance sold approximately $759.0 million of available-for-sale securities and realized net losses totaling $28.3 million. The sale was undertaken 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. NewAlliance replaced substantially all of the assets sold with higher yielding agency hybrid adjustable rate mortgage-backed securities.Excluding the restructuring charge, net income increased $3.1 million from the prior year period. The primary driver of this year-over-year increase was the increase in net interest income of $15.1 million largely due to the reduction of deposit costs and organic growth in the loan portfolio, partially offset by declines in average loan yields and increased borrowings.

~~Mostly~~decline ~~offsetting~~in the ~~increase~~average inrate ~~net~~paid ~~interest~~ of ~~income~~95 ~~was~~basis anpoints ~~increase~~on insavings ~~the~~and ~~provision~~63 ~~for~~basis ~~loan~~points ~~losses~~on ofmoney ~~$8.5~~market, ~~million~~interest ~~due~~expense ~~to the~~decreased ~~increase~~by in$5.3 ~~nonperforming~~million ~~loans~~during ~~and~~this toperiod ~~reflect~~for ~~the~~these ~~rising~~products.A ~~risk~~further ~~inherent~~benefit inof the ~~loan~~core ~~portfolio~~deposit ~~owing~~growth towas ~~the~~a ~~current~~substantial ~~economic~~reduction ~~environment,~~in anand ~~increase~~reliance inon ~~operating~~borrowings ~~interest~~from ~~expenses~~the ~~of $6~~FHLB.5 ~~million~~FHLB ~~largely~~advances ~~due~~and toother ~~higher~~borrowing ~~salaries~~costs ~~and~~decreased ~~employee~~$14.1 ~~benefits~~million due ~~expense~~to ~~including~~the ~~payment~~decline ofin anthe ~~executive~~average ~~severance~~balance and ~~higher~~the ~~bonus~~average ~~accruals~~ rate aspaid ~~well~~on asFHLB ~~increased~~advances ~~outside~~of ~~services expense for consulting~~$184.6 ~~Income~~million ~~tax~~and ~~expense~~ 29 ~~also~~basis ~~increased~~points, ~~primarily attributable to higher pre-tax income~~respectively. ~~Average~~The ~~Balances,~~Company ~~Interest~~was ~~and~~able ~~Average~~to ~~Yields/Cost Table 2~~replace ~~below~~maturing ~~sets~~advances ~~forth~~with ~~certain~~new ~~information~~advances ~~concerning~~at ~~average~~substantially ~~interest-earning~~lower ~~assets~~ rates ~~and interest-bearing liabilities and their associated yields~~ or ~~rates~~payoff ~~for the~~maturing ~~periods indicated~~advances.Rate/Volume ~~The~~AnalysisThe ~~average~~following ~~yields~~table ~~and~~presents ~~costs~~the ~~are~~extent ~~derived~~to bywhich ~~dividing~~changes ~~income~~in or interest ~~expenses~~rates byand ~~the~~changes ~~average~~in ~~balances~~volume of interest-earning assets orand interest-bearing liabilities, ~~respectively,~~have ~~for~~affected the ~~periods~~Company’s ~~shown~~interest ~~and~~income ~~reflect annualized yields~~ and ~~costs.~~interest ~~Average~~expense ~~balances~~during ~~are~~the ~~computed~~periods ~~using daily balances~~indicated. ~~Yields~~Information ~~and~~is ~~amounts~~ provided ~~earned~~in ~~include~~each ~~loan~~category ~~fees~~with ~~and~~respect ~~fair~~to: ~~value~~(i) ~~adjustments~~changes ~~related~~attributable to ~~acquired loans.~~changes ~~Loans~~in ~~held~~volume ~~for~~(changes ~~sale~~in ~~and~~volume ~~nonaccrual~~multiplied ~~loans~~by ~~have~~prior ~~been~~rate); ~~included~~(ii) inchanges ~~interest-earning~~attributable ~~assets~~to ~~for~~changes ~~purposes~~in ofrate ~~these~~(changes ~~computations.~~in ~~Interest~~rate onmultiplied ~~nonaccrual~~by ~~loans~~prior ~~has~~volume); ~~been~~ and ~~included~~(iii) ~~only~~the tonet ~~the~~change. ~~extent~~The ~~reflected~~changes inattributable to the ~~Consolidated~~combined ~~Statements~~impact of ~~Income.~~ volume ~~Unrealized~~and ~~gain~~rate ~~or losses on available-for-sale investment securities are excluded~~have ~~from~~been ~~average~~allocated ~~yield~~proportionately ~~calculations.~~to ~~Table~~the 2:changes ~~Average~~due ~~Balance~~to ~~Sheets~~volume ~~for~~and the ~~Years~~changes ~~Ended~~due ~~December~~to ~~31, 2009, 2008 and 2007~~rate.

	Twelve Months Ended December 31,
	2009						2008						2007
					Average						Average						Average
		Average			Yield/			Average			Yield/			Average			Yield/
(Dollars in thousands)		Balance		Interest	Rate			Balance		Interest	Rate			Balance		Interest	Rate
Interest-earning assets
Loans
Residential real estate	$	2,497,784	$	131,119	5.25	%	$	2,503,135	$	138,005	5.51	%	$	2,303,785	$	127,794	5.55	%
Commercial real estate		1,216,121		70,735	5.82			1,203,399		74,159	6.16			1,138,661		74,963	6.58
Commercial business		436,674		22,019	5.04			460,679		27,819	6.04			462,962		33,964	7.34
Consumer		736,764		34,207	4.64			710,132		38,984	5.49			665,433		43,802	6.58
Total loans		4,887,343		258,080	5.28			4,877,345		278,967	5.72			4,570,841		280,523	6.14
Fed funds sold and other short-term investments		92,253		387	0.42			46,211		1,209	2.62			59,340		3,172	5.35
Federal Home Loan Bank of Boston stock		120,821		-	-			118,985		4,526	3.80			105,838		6,777	6.40
Securities		2,493,186		113,332	4.55			2,238,586		114,471	5.11			2,321,527		112,808	4.86
Total securities, short-term investments and Federal Home Loan Bank stock		2,706,260		113,719	4.20			2,403,782		120,206	5.00			2,486,705		122,757	4.94
Total interest-earning assets		7,593,603	$	371,799	4.90	%		7,281,127	$	399,173	5.48	%		7,057,546	$	403,280	5.71	%
Non-interest earning assets		894,857						929,355						909,901
Total assets	$	8,488,460					$	8,210,482					$	7,967,447

Table 3: Rate/Volume Analysis

Interest-bearing liabilities
		Twelve Months Ended											Twelve Months Ended
Deposits
		December 31, 2010											December 31, 2009
Money Markets	$	579,806		$	9,170		1.58	%	$	420,972		$	9,315		2.21	%		$	503,071	$	16,979		3.38	%
		Compared to											Compared to
NOW		363,621			1,069		0.29			368,277			1,368		0.37				407,835		4,466		1.10
		Twelve Months Ended											Twelve Months Ended
Savings		1,756,246			23,881		1.36			1,257,542			29,047		2.31				893,562		17,545		1.96
		December 31, 2009											December 31, 2008
Certificates		1,591,055			46,561		2.93			1,792,948			64,942		3.62				2,057,327		91,943		4.47
		Increase (Decrease)											Increase (Decrease)
Total interest-bearing deposits		4,290,728			80,681		1.88			3,839,739			104,672		2.73				3,861,795		130,933		3.39
		Due to											Due to
Repurchase agreements		138,219			1,663		1.20			183,650			4,021		2.19				205,055		7,580		3.70
(In thousands)		Rate				Volume			Net				Rate				Volume			Net
FHLB advances and other borrowings		2,038,012			86,248		4.23			2,222,615			100,364		4.52				1,932,724		89,730		4.64
Interest-earning assets
Total interest-bearing liabilities		6,466,959			168,592		2.61	%		6,246,004			209,057		3.35	%			5,999,574		228,243		3.80	%
Loans
Non-interest-bearing demand deposits		518,596								484,090									492,658
Residential real estate		$	(11,241	)		$	(743	)	$	(11,984	)		$	(6,592	)		$	(294	)	$	(6,886	)
Other non-interest-bearing liabilities		95,880								73,389									71,145
Commercial real estate			301				4,092			4,393				(4,201	)			777			(3,424	)
Total liabilities		7,081,435								6,803,483									6,563,377
Commercial business			2,175				1,699			3,874				(4,407	)			(1,393	)		(5,800	)
Equity		1,407,025								1,406,999									1,404,070
Consumer			(1,150	)			(1,503	)		(2,653	)			(6,195	)			1,418			(4,777	)
Total liabilities and equity	$	8,488,460							$	8,210,482								$	7,967,447
Total loans			(9,915	)			3,545			(6,370	)			(21,395	)			508			(20,887	)
Net interest-earning assets	$	1,126,644							$	1,035,123								$	1,057,972
Fed funds sold and other short-term investments			(186	)			(44	)		(230	)			(1,477	)			655			(822	)
Net interest income				$	203,207							$	190,116							$	175,037
Federal Home Loan Bank stock			-				-			-				(4,595	)			69			(4,526	)
Interest rate spread							2.29	%							2.13	%							1.91	%
Securities			(19,361	)			4,974			(14,387	)			(13,427	)			12,288			(1,139	)
Net interest margin (net interest income as a percentage of total interest-earning assets							2.68	%							2.61	%							2.48	%
Total securities, short-term investments and federalhome loan bank stock			(19,547	)			4,930			(14,617	)			(19,499	)			13,012			(6,487	)
Ratio of total interest-earning assets to total interest-bearing liabilitites							117.42	%							116.57	%							117.63	%
Total interest-earning assets		$	(29,462	)		$	8,475		$	(20,987	)		$	(40,894	)		$	13,520		$	(27,374	)
Interest-bearing liabilities
Deposits
Money market		$	(4,409	)		$	4,345		$	(64	)		$	(3,089	)		$	2,944		$	(145	)
NOW			(191	)			55			(136	)			(282	)			(17	)		(299	)
Savings			(13,064	)			15			(13,049	)			(14,360	)			9,194			(5,166	)
Time			(12,983	)			(3,841	)		(16,824	)			(11,587	)			(6,794	)		(18,381	)
Total interest bearing deposits			(30,647	)			574			(30,073	)			(29,318	)			5,327			(23,991	)
Repurchase agreements			143				(417	)		(274	)			(1,523	)			(835	)		(2,358	)
FHLB advances and other borrowings			(17,037	)			(4,683	)		(21,720	)			(6,077	)			(8,039	)		(14,116	)
Total interest-bearing liabilities		$	(47,541	)		$	(4,526	)	$	(52,067	)		$	(36,918	)		$	(3,547	)	$	(40,465	)
Increase in net interest income		$	18,079			$	13,001		$	31,080			$	(3,976	)		$	17,067		$	13,091

~~Net~~Provision ~~Interest~~for ~~Income~~Loan ~~Analysis~~LossesThe provision ~~Net~~for ~~interest~~loan ~~income~~losses (“provision”) is based on management’s periodic assessment of the ~~amount~~adequacy ~~that~~of ~~interest~~the ~~and~~loan ~~fees~~loss allowance which, in turn, is based on ~~earning~~such interrelated factors as the composition of the ~~assets~~loan ~~(loans~~portfolio and ~~investments)~~its ~~exceeds~~inherent risk characteristics, the ~~cost~~level of ~~funds~~nonperforming loans and charge-offs, ~~primarily~~both ~~interest~~ current ~~paid~~and tohistoric, local economic and credit conditions, the ~~Company’s~~direction ~~depositors~~of ~~and~~real ~~interest~~estate onvalues, ~~external~~and ~~borrowings~~regulatory guidelines. ~~Net~~The ~~interest~~provision is ~~margin~~charged isagainst ~~the~~earnings ~~difference~~in ~~between~~order ~~the~~to ~~income~~maintain onan ~~earning~~allowance ~~assets~~for ~~and~~loan ~~the~~losses ~~cost~~that reflects management’s best estimate of probable losses inherent in the loan ~~interest-bearing~~portfolio ~~funds~~at asthe balance sheet date.Management performs a ~~percentage~~monthly review of ~~earning~~the ~~assets.~~loan ~~During 2009~~portfolio, and based on this review determines the ~~FRB~~ level ~~left~~of the ~~overnight~~provision ~~lending~~necessary ~~target~~to ~~rate~~maintain ~~unchanged~~an atadequate aallowance ~~range~~for ~~between~~loan 0losses.0% ~~and~~Management ~~0.25%.~~recorded ~~For~~a ~~the~~provision ~~twelve~~of ~~months~~$17.0 million for the year ended December 31, ~~2008,~~2010. ~~the~~The ~~FRB~~primary ~~lowered~~factors ~~the~~that ~~target~~influenced ~~federal~~ management’s ~~funds~~decision ~~rate~~to ~~seven~~record ~~times,~~this ~~for~~provision were: a) ~~total~~the ~~decrease~~increase ofin ~~400~~non-performing ~~basis~~loans ~~points~~of ~~(from 4~~$24.~~25%~~ 4 tomillion, ~~between~~or 048.003%, ~~and 0.25%~~b). ~~Decreases~~continuing oftrends ~~200~~in ~~basis~~delinquencies, ~~points~~c) ~~and~~net 25charge-offs ~~basis~~of ~~points~~$14.2 ~~occurred~~ million ~~during the first~~ and ~~second~~d) ~~quarters~~the

ofongoing ~~2008,~~support ~~respectively, while the FRB left the overnight federal funds target rate unchanged at 2.00% for the quarter ending September 30, 2008. During the fourth quarter~~ of ~~2008~~estimated ~~the~~credit ~~FRB reduced the target~~losses ~~federal~~embedded ~~funds rate by 175 basis points. Comparison of 2009 and 2008 As shown~~ in ~~Table 2, net interest income for~~ the ~~year ended December 31, 2009 was $203~~portfolio.2 ~~million,~~Further andetails ~~increase~~about ofnonperforming ~~$13.1~~loans ~~million~~can ~~from~~be ~~December 31, 2008. The increase~~found ~~was due to: a) the average balances of interest-earning assets outpacing the growth~~ in ~~interest-bearing liabilities by approximately $91.5 million; b)~~ the ~~repricing~~ “Asset orQuality” ~~maturing of interest-bearing liabilities outpacing that of interest-earning assets, thereby allowing us to reduce our cost of funds at a faster pace~~ and c)“Allowance the shift in the mix of interest-bearing liabilities from higher cost time deposits and borrowings to core deposits which reduced the cost of funds by 74 basis points. The net interest margin increased seven basis points to 2.68% for ~~the~~Loan ~~year~~Losses” ~~ended~~sections ~~December~~beginning ~~31,~~on ~~2009~~page ~~as compared to the year ended December 31, 2008~~49. ~~This~~Future ~~increase~~ provisions ~~was~~may abe ~~net~~deemed ~~result~~necessary ofif ~~the~~economic ~~loss of the FHLB Boston dividend and a reduction in interest-earning~~conditions ~~asset~~do ~~yields~~not ~~that~~improve ~~were~~or ~~more~~continue ~~than offset by the reduction in the costs of interest-bearing liabilities. As a voluntary member of the FHLB, the Company is required~~ to ~~invest in stock of the FHLB in an amount based partly upon its outstanding advances from the FHLB~~deteriorate. ~~Stock~~A isprovision ~~purchased at par value. Upon redemption~~ of ~~the stock, which is at the discretion of the FHLB, the Company would receive an amount equal to the par value of the stock~~$18.0 Atmillion ~~its~~and ~~discretion, the FHLB may also declare dividends on its stock~~$13. ~~No dividends have been received for the year ended December 31, 2009~~4 ~~compared~~million towas ~~dividends~~recorded ~~of $4.5 million~~ for the ~~year~~years ended December 31, ~~2008. On February 26,~~ 2009, ~~the FHLB Boston advised its members that, while it currently meets all its regulatory capital requirements, it is focusing on preserving capital in response to ongoing market volatility,~~ and ~~accordingly~~2008, has suspended its quarterly dividend and extended the moratorium on excess stock purchases, primarily due to other-than-temporary impairment charges on its private-label mortgage-backed securities investmentsrespectively. ~~The FHLB Boston has stated that it expects and intends to~~ At ~~hold~~December ~~its private-label mortgagebacked securities to maturity. In a letter to member banks on October 29~~31, 2009, the FHLB Boston announced the filing of its quarterly report to the SEC and disclosed that the credit quality of the loans underlying the Bank’s portfolio of private-label mortgage-backed securities remains vulnerable to the housing and capital markets, which could result in additional losses. Accordingly, to protect its capital base and build retained earnings, the moratorium on excess stock repurchases and the quarterly dividend payout suspension continue. Also, the FHLB Boston has implemented a revised operating plan that includes certain revenue enhancement and expense reduction initiatives and the goal of the plan is to build retained earnings to an appropriate level so that they may eventually resume paying dividends and end the moratorium on excess stock repurchases. The Company does not anticipate a reinstatement of the FHLB Boston dividend in 2010~~. Based on these facts~~, the ~~Company~~allowance ~~evaluated its FHLB Boston capital stock~~ for potential impairment at December 31, 2009. Capital adequacy, credit ratings, the value of the stock, overall financial condition of both the Federal Home Loan Bank system (“FHLB”) and FHLB Boston as well as current economic factors were analyzed in the impairment analysis. FHLB Boston is one of the twelve individual banks within the FHLB. Although the individual banks of the FHLB operate as separate entities, the obligations of the individual home loan ~~banks~~losses ~~are~~was ~~joint and several obligations of all twelve individual banks~~$55.2 ~~Under this structure~~million, ~~there have been no defaults and no interest deferrals for any of the FHLB’s~~which ~~consolidated~~represented ~~operations~~1.08% As of ~~September~~total ~~30,~~loans ~~2009, the FHLB had regulatory capital of $60.4 billion~~ and ~~all twelve individual banks were in compliance with risk based capital rules and minimum leverage ratio requirements~~73. ~~FHLB Boston had regulatory capital of $3.86 billion, or 6.4~~75% ~~and leverage capital~~ of ~~9.6%~~nonperforming ~~at September 30, 2009, which were above the minimum requirements of 4% and 5%, respectively~~loans. ~~The~~ ~~core~~In operations of the FHLB and the FHLB Boston of issuing debt into the capital markets and making advances to their members remains a viable and profitable business. They continue to have ample access to liquidity through the capital marketscomparison, the ~~investing~~allowance ~~of fed funds, term deposits and issuing member advances. Additionally, the FHLB continues to have AAA rating from both Moody’s and Standard and Poors and is not on a watchlist~~ for ~~downgrade.~~loan ~~There~~losses iswas ~~no indication that the stock has traded at any price below its carrying value of~~ $~~100 per share~~52.5 ~~The Company therefore concluded that its position in Federal Home Loan Bank capital stock is not impaired. Interest and dividend income decreased $27.4~~ million ~~to $371.8 million~~ at December 31, 2009 ~~compared~~representing ~~to $399~~1.210% ~~million at December 31, 2008 comprising~~ of atotal ~~decrease of $40.9 million due to rate, offset by a $13.5 million increase due to volume. The decline in rate was primarily due to a) newly originated~~ loans and ~~adjustable~~103.87% orof ~~variable~~nonperforming ~~rate~~ loans. ~~that~~See ~~were reset at reduced rates due to~~ the ~~rate~~“Asset ~~cuts~~Quality” ~~imposed by the FRB throughout 2008, b) the absence of a quarterly dividend from the FHLB Boston~~ and c)“Allowance afor ~~decline in the average yield in the investment securities portfolio due to a decline in market interest rates resulting from the current economic conditions.~~ Loan ~~yields~~Losses” ~~have~~sections ~~also~~located ~~been negatively impacted to a lesser extent by the increase in nonperforming loans. Investment growth helped to mitigate the effect of the rate decline~~ on ~~interest~~pages ~~income as the average balance~~49-54 ~~increase of $302.5 million accounted~~ for ~~approximately~~further ~~$13.0~~information ~~million~~regarding of the ~~increase~~ Company’s tocredit ~~interest income~~quality.Table ~~Due~~4: ~~to the growth in core deposits the Company has expanded the securities portfolio primarily with purchases of adjustable rate mortgage~~Non-~~backed~~ Interest ~~securities. The average balance of the loan portfolio increased $10.0 million for the period, which includes an increase of $23.1 million in the average balance of loans held for sale.~~Income

	Year Ended December 31,								Change

									2010/2009						2009/2008
(Dollars in thousands)	2010		2009			2008			Amount			Percent			Amount			Percent

Depositor service charges	$	28,159	$	27,351		$	27,180		$	808			3	%	$	171			1	%
Loan and servicing income		2,348		819			968			1,529			187			(149	)		(15	)
Trust fees		6,311		5,790			6,351			521			9			(561	)		(9	)
Investment management, brokerage & insurance fees		5,639		6,723			7,893			(1,084	)		(16	)		(1,170	)		(15	)
Bank owned life insurance		5,934		3,548			4,937			2,386			67			(1,389	)		(28	)
Net gain on securities		1,159		5,917			1,843			(4,758	)		(80	)		4,074			221
Mortgage origination activity & loan sale income		3,702		5,586			1,551			(1,884	)		(34	)		4,035			260
Net gain (loss) on limited partnerships		3,979		(575	)		(30	)		4,554			792			(545	)		(1,817	)
Other		3,930		4,087			5,203			(157	)		(4	)		(1,116	)		(21	)

Total non-interest income	$	61,161	$	59,246		$	55,896		$	1,915			3	%	$	3,350			6	%

Non-Interest Income Analysis
The Company has two primary sources of non-interest income: (a) banking services related to loans, deposits and other core customer activities typically provided through the branch network as well as merchant services and (b) financial services, comprised of trust, investment and insurance products and brokerage and investment advisory services. The principal categories of non-interest income are shown in Table 4.

Comparison of 2010 and 2009
As displayed in Table 4, non-interest income increased $1.9 million to $61.2 million for the year ended December 31, 2010 from the prior year period. The drivers of the increase were depositor service charges, loan and servicing income, trust fees, BOLI and net gain on limited partnerships. These increases were partially offset by decreases in investment management, brokerage and insurance fees, net security gains and mortgage banking and loan sale income.

	•		Depositor service charges increased due to merchant services income and check card fees. Growth of fee income is attributable to an increase in consumer spending and the growth in retail and business core deposit accounts. The increase in depositor service charges was partially offset by a decline in check fees primarily due to the negative impact of the new federal banking regulations which restricted overdraft fees. These new rules, which became effective on July 1, 2010, prohibit financial institutions from charging customers fees for paying overdrafts on automated teller machine and debit card transactions, unless a consumer consents to the overdraft service for those types of transactions. The Company expects that it will have lower fees in 2011 due to the full year impact of these new rules.

	•		Loan and servicing income increased primarily as a result of a prior year write-down of approximately $520,000 on the Bank’s mortgage servicing asset as well as increased prepayment fees and an increase in fees associated with the commercial finance lending business, which was established in the fourth quarter of 2009.

	•		Trust fees increased due to the overall improvement in market conditions during the period. For the year ended December 31, 2010, average assets under management were consistently ahead of 2009, and averaged $1.03 billion compared to $942.0 million for the prior year period, a 10% overall increase, further supporting the growth in revenue year over year.

	•		BOLI income increased as the Company recorded a gain of approximately $2.6 million related to tax-exempt life insurance proceeds. This increase was partially offset by a decline in the average yield earned as a result of current market interest rates and a reduction in the BOLI asset.

~~Given~~• ~~the~~Net ~~economic~~gain ~~and~~on ~~market~~limited ~~conditions~~ partnerships ~~that~~increased have beset the industry over the last year, there have been fewer commercial originations that meet our underwriting criteria and although residential mortgage originations have been relatively strong, approximately half were originated at fixed rates and sold in the secondary market. The cost of funds for the year ended December 31, 2009 decreased $404.~~5 million, or nearly 20.0% to $168.~~6 million, ~~compared~~due toprimarily ~~$209.1 million for the same period a year ago. The Company’s continued strategy during this period was~~ to ~~reduce deposit costs and focus on~~ the ~~growth~~net ofincrease ~~core interest and non-interest-bearing deposits. The result has been a decrease of $24.0 million~~ in ~~deposit interest expense due to changes in~~ the ~~mix~~carrying ofvalue ~~deposits with net average balance growth of $451.0 million and a decrease of 85 basis points~~ on ~~the~~certain ~~average~~limited ~~rate paid~~partnerships. ~~This~~A ~~decrease in deposit interest expense was primarily in time deposits, which decreased~~ $183.46 million ~~due~~increase ~~to the declines~~ in the ~~average~~carrying ~~balances~~value and ~~average~~a ~~rate~~realized ~~paid~~gain of $~~201.9 million and 69 basis points~~529,000 ~~respectively.~~resulted ~~Through targeted marketing campaigns and migration~~ from ~~maturing time deposits as they repriced at reduced rates,~~ the ~~Company~~June ~~has~~2010 ~~been~~ initial ~~able~~public tooffering ~~grow~~(“IPO”) ~~core deposit average balances by a total~~ of ~~$652.9 million. The main driver of core deposit growth has been savings and money market accounts with~~ an ~~average~~underlying ~~balance~~portfolio ~~increase~~company ofin ~~$498.7~~a ~~million~~limited ~~$158~~partnership.8 ~~million,~~The ~~respectively.~~ realized ~~Additionally,~~gain ~~when~~represents ~~combined with~~ the ~~decline~~Company’s inallocated ~~the~~income ~~average rate paid of 95 basis points~~ on ~~savings and 63 basis points on money market, interest expense decreased by $5~~25.30% ~~million during this period for these products. A further benefit~~ of the ~~core~~shares ~~deposit~~sold ~~growth~~by ~~has~~the ~~been~~partnership ~~a substantial reduction~~ in ~~and reliance on borrowings from~~ the ~~FHLB~~IPO. ~~FHLB~~The ~~advances~~increase ~~and~~in ~~other~~the ~~borrowing~~carrying ~~costs~~value ~~decreased~~was ~~$14.1 million~~ due to the ~~decline~~year into ~~the~~date ~~average~~equity ~~balance~~method ~~and~~adjustment for the ~~average~~remaining ~~rate paid on FHLB advances of $184~~shares.6 ~~million and 29 basis points, respectively.~~ The Company ~~was~~does ~~able~~not toexpect ~~replace~~ the ~~maturing~~value ~~advances with new advances at substantially lower rates or payoff maturing advances. Comparison~~ of ~~2008 and 2007 As shown in Table 2, net interest income for~~ the ~~year~~underlying ~~ended~~portfolio ~~December~~company ~~31, 2008 was $190.1 million compared~~ to ~~$175.0~~ increase ~~million~~at ~~for~~ the ~~twelve~~2010 ~~months~~rate ~~ended~~in ~~December 31, 2007~~2011. The net increase ~~was~~in ~~due~~2010 compares to a 13net ~~basis~~loss ~~point~~and ~~increase~~an inimpairment ~~the~~write ~~net~~down ~~interest~~recorded ~~margin~~in tothe ~~2.61%~~prior atyear ~~December 31, 2008 from 2~~period.~~48%~~ ~~for~~• ~~the~~Investment ~~same~~management, ~~period~~brokerage aand ~~year~~insurance ~~ago,~~fee ~~primarily~~income decreased due to the ~~significant~~ low ~~reduction~~interest inrate ~~costs~~environment ~~associated~~as ~~with~~well ~~higher~~as ~~priced~~customer ~~certificate~~preference offor deposit ~~accounts,~~ products ~~growth~~over inother ~~the loan portfolio and the~~ investment ~~portfolio~~alternatives. ~~restructuring~~• inNet ~~2007,~~ gain ~~partially offset by the effect of the decline in yield~~ on ~~adjustable~~securities ~~and variable rate commercial and consumer loans. Interest income~~ decreased $4.18 million ~~from~~ due ~~the~~to ~~year~~higher ~~ended~~prior ~~December~~year ~~31,~~gains ~~2007~~recorded ~~and~~on ~~was~~the ~~comprised~~sale of amortgage-backed ~~$17~~securities.9 ~~million~~The ~~decrease~~net ~~due~~ gain toof ~~rate, offset by a~~ $131.82 million ~~increase~~recorded ~~due~~in to2010 ~~volume.~~was ~~The decline~~ due to ~~rate was primarily caused by~~ the ~~significant~~sale ~~rate~~of ~~cuts~~residential ~~enacted by the FRB in 2008 as average yields earned on loans and short~~mortgage-~~term~~backed ~~investments~~securities ~~decreased 42 basis points~~ and ~~273~~gains ~~basis~~recognized ~~points,~~on ~~respectively and~~ the ~~resulting~~call ~~decline~~of inU.S. ~~dividend~~ Agency ~~yields~~notes onand ~~equity~~preferred ~~securities, mainly FHLB Boston~~ stock. ~~Loan~~These ~~yields~~gains ~~have~~were ~~also~~ partially ~~been~~offset ~~negatively impacted~~ by animpairment ~~increase~~write-downs inon ~~nonperforming loans. Slightly offsetting these rate declines was~~ an ~~increase~~investment in ~~the~~a ~~average~~pooled ~~yield~~trust ~~earned~~preferred onsecurity ~~the~~based ~~securities~~ on ~~portfolio~~cash asflow ~~a result of the 2007 restructuring~~analyses. ~~Strong~~Residential ~~loan~~mortgage-backed ~~growth,~~securities ~~however,~~were ~~made~~ sold ~~the~~during ~~most substantial difference in mitigating~~ the ~~effects~~current ~~of the rate cuts as average loan balances increased $306.5 million, or 6.7% from the prior~~ year. ~~Three~~to ofreduce ~~the~~pre-payment ~~four~~buy-out ~~loan categories experienced increases in average balances, with the residential real estate loan portfolio as the main driver of the growth~~risk. ~~The~~Further ~~increase~~information inrelated ~~average balances was due~~ to ~~increased loan originations as~~ the ~~Company,~~ impairment ~~with~~can ~~ready~~be ~~liquidity~~found ~~and~~in ~~capital,~~Footnote ~~was~~4 ~~able to take advantage~~ of the ~~pricing~~Notes ~~opportunities in our lending area due~~ to ~~the~~Consolidated ~~sustained~~Financial ~~dislocations in the credit market~~Statements. We • ~~expect~~Mortgage ~~this~~origination ~~trend~~activity ~~to continue in the near term, however, as other banks regain strength after receiving infusions of capital from the EESA~~ and ~~begin~~loan ~~lending~~sale ~~again,~~income ~~competition~~ decreased ~~will~~due ~~likely increase. For the year ended December 31, 2008 as compared~~ to ~~2007, the Company experienced~~ a ~~significant~~lower ~~reduction~~number ~~in its cost~~ of ~~funds~~mortgage inloans ~~the~~originated ~~amount~~ for ofsale ~~$19.2~~and ~~million~~sold ~~as a shift~~ in the ~~mix~~secondary ofmarket ~~interest-bearing liabilities reduced the average rate paid by 45 basis points~~ and ~~helped to improve~~ the ~~net~~effect ~~interest spread by 22 basis points. The Company’s continuing strategy has been to reduce deposit costs while being mindful~~ of ~~competitor~~originations ~~pricing~~that ~~and~~were ~~focusing~~in on growth of core deposits. The shift was away from higher costing time deposits as well as from money market and NOW deposits and into savings deposits. The “free savings” product, with an attractive interest rate, has been very successful for the ~~Company.~~pipeline ~~Although~~under ~~the~~commitments ~~average~~to ~~rate~~be ~~paid~~sold onat ~~savings deposits increased by 35 basis points from the prior year, the average rate paid on all interest-bearing deposits declined a net 66 basis points. For the year ended~~ December 31, ~~2008~~2010, ~~total~~compared ~~average~~to ~~interest-bearing~~December ~~deposits declined $22.1 million~~31, ~~however, average interest-bearing core deposits increased $242~~2009.3 ~~million~~Mortgage atloans aoriginated ~~much~~for ~~lower~~sale ~~rate.~~ totaled ~~Partially offsetting the~~ $26355.38 million ~~decline~~and ~~in deposit interest expense was an increase in expense on borrowings of~~ $7475.~~1 million, principally due to an increase of $289.~~9 million infor the ~~average~~years ~~balance~~ended ofDecember ~~FHLB~~31, ~~advances~~2010 and ~~other~~2009, ~~borrowings~~respectively. ~~FHLB advances were used to fund loan growth and to counter deposit outflows that occurred primarily in the first quarter of 2008.~~

Comparison of 2009 and 2008
As displayed in Table 4, non-interest income increased $3.4 million to $59.2 million for the year ended December 31, 2009 from the prior year period. The main drivers of the increase were mortgage origination activity and loan sale income and net gain on securities. These increases were partially offset by decreases in BOLI, investment management, brokerage and insurance fees, trust fees and other income.

	•		Mortgage origination activity and loan sale income increased $4.0 million due to a greater number of mortgage loans originated for sale and sold in the secondary market during the year and the effect of originations that were in the pipeline at December 31, 2009 under commitments to be sold. The increased origination activity was driven by the low interest rate environment and the continued dislocation in the credit markets which has reduced the number of competitors in the short term.

	•		Net gain on securities increased due to the gains recorded on the sale of mortgage-backed securities. These securities were sold at a premium and were sold in order to reduce prepayment risk, to reduce high price premium risk and to fund the pay-off of maturing FHLB advances primarily earlier in the year. The increase in the net gain on securities is also due to the prior year impairment charges related to an investment in a trust preferred equity security in a regional bank and two preferred equity securities issued by Freddie Mac and Lehman Brothers. Partially offsetting the net gain on the sale of investments was other-than-temporary impairments recorded against the Company’s investment in an adjustable rate mortgage mutual fund and a pooled trust preferred security.

	•		Trust fees declined primarily due to a decrease in the year-to-date average assets under management. The assets under management declined primarily as a result of the decline in the market value of the assets, which caused the reduction in the amount of management fees earned. Assets under management began to rebound in the second half of the year evidenced by the market improvement.

	•		Investment management, brokerage and insurance fees declined due to prevailing depressed market conditions and the ongoing lack of consumer confidence in longer-term investment choices.

	•		BOLI income decreased due to a decline in the average yield earned as a result of current market interest rates.

	•		Net gain on limited partnerships decreased due to the net loss of $575,000 recorded on limited partnerships during 2009 due to the decline in the fair-value of the underlying investments compared to a net loss of $30,000 recorded in 2008.

~~Rate/Volume~~• ~~Analysis~~ The ~~following~~decline ~~table presents the extent to which changes~~ in ~~interest~~ other ~~rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest~~ income ~~and~~was ~~interest~~primarily ~~expense~~due ~~during~~to ~~the~~ a ~~periods~~decrease ~~indicated.~~of ~~Information~~approximately is$380,000 ~~provided~~ in ~~each~~amounts ~~category~~earned ~~with~~on ~~respect~~the ~~to:~~ outstanding ~~(i)~~balances ~~changes~~of ~~attributable~~bank tochecks ~~changes~~processed ~~in volume (changes in volume multiplied~~ by ~~prior~~ a ~~rate);~~third-party ~~(ii)~~vendor ~~changes~~due ~~attributable~~ to ~~changes~~the indecline ~~rate (changes~~ in ~~rate~~market ~~multiplied~~ interest byrates ~~prior volume);~~ and ~~(iii)~~ the ~~net~~prior ~~change.~~year ~~The~~receipt ~~changes~~of ~~attributable~~approximately to$500,000 from the ~~combined~~ partial ~~impact~~redemption of ~~volume and rate have been allocated proportionately to~~ the ~~changes~~Company’s ~~due~~ stake toin ~~volume~~Visa ~~and~~Inc., ~~the~~following ~~changes~~Visa’s ~~due~~initial topublic ~~rate~~offering. ~~Table 3: Rate/Volume Analysis~~

	Twelve Months Ended									Twelve Months Ended
Table 5: Non-Interest Expense
	December 31, 2009									December 31, 2008
		Year Ended December 31,									Change
	Compared to									Compared to
											2010/2009								2009/2008
	Twelve Months Ended									Twelve Months Ended
(Dollars in thousands)		2010			2009			2008			Amount				Percent				Amount			Percent
	December 31, 2008									December 31, 2007
Salaries and employee benefits		$	95,642		$	89,646		$	91,687		$	5,996				7	%		$	(2,041	)		(2	)%
	Increase (Decrease)									Increase (Decrease)
Occupancy			17,632			18,202			18,091			(570	)			(3	)			111			1
	Due to									Due to
Furniture and fixtures			5,872			5,808			6,550			64				1				(742	)		(11	)
(In thousands)		Rate			Volume			Net			Rate				Volume				Net
Outside services			18,810			20,098			19,314			(1,288	)			(6	)			784			4
Interest-earning assets
Advertising, public relations, and sponsorships			6,015			5,664			6,152			351				6				(488	)		(8	)
Loans
Amortization of identifiable intangible assets			7,811			8,501			9,456			(690	)			(8	)			(955	)		(10	)
Residential real estate	$	(6,592	)	$	(294	)	$	(6,886	)	$	(783	)		$	10,994			$	10,211
Merger related charges			12,325			84			185			12,241				14,573				(101	)		(55	)
Commercial real estate		(4,201	)		777			(3,424	)		(4,938	)			4,134				(804	)
FDIC insurance premiums			7,620			10,479			721			(2,859	)			(27	)			9,758			1,353
Commercial business		(4,407	)		(1,393	)		(5,800	)		(5,979	)			(166	)			(6,145	)
Other			15,282			13,731			14,413			1,551				11				(682	)		(5	)
Consumer		(6,195	)		1,418			(4,777	)		(7,619	)			2,801				(4,818	)
Total non-interest expense		$	187,009		$	172,213		$	166,569		$	14,796				9	%		$	5,644			3	%
Total loans		(21,395	)		508			(20,887	)		(19,319	)			17,763				(1,556	)
Fed funds sold and other short-term investments		(1,477	)		655			(822	)		(1,369	)			(594	)			(1,963	)
Federal Home Loan Bank stock		(4,595	)		69			(4,526	)		(3,013	)			762				(2,251	)
Securities		(13,427	)		12,288			(1,139	)		5,779				(4,116	)			1,663
Total securities, short-term investments
and federal home loan bank stock		(19,499	)		13,012			(6,487	)		1,397				(3,948	)			(2,551	)
Total interest-earning assets	$	(40,894	)	$	13,520		$	(27,374	)	$	(17,922	)		$	13,815			$	(4,107	)
Interest-bearing liabilities
Deposits
Money market	$	(3,089	)	$	2,944		$	(145	)	$	(5,200	)		$	(2,464	)		$	(7,664	)
NOW		(282	)		(17	)		(299	)		(2,702	)			(396	)			(3,098	)
Savings		(14,360	)		9,194			(5,166	)		3,479				8,023				11,502
Time		(11,587	)		(6,794	)		(18,381	)		(16,091	)			(10,910	)			(27,001	)
Total interest bearing deposits		(29,318	)		5,327			(23,991	)		(20,514	)			(5,747	)			(26,261	)
Repurchase agreements		(1,523	)		(835	)		(2,358	)		(2,834	)			(725	)			(3,559	)
FHLB advances and other borrowings		(6,077	)		(8,039	)		(14,116	)		(2,515	)			13,149				10,634
Total interest-bearing liabilities	$	(36,918	)	$	(3,547	)	$	(40,465	)	$	(25,863	)		$	6,677			$	(19,186	)
Increase in net interest income	$	(3,976	)	$	17,067		$	13,091		$	7,941			$	7,138			$	15,079

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 chargeNon-~~offs,~~Interest ~~both~~Expense current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines. The provision is charged against earnings in order to maintain an allowance for loan losses that reflects management’s best estimate of probable losses inherent in the loan portfolio at the balance sheet date. Management performs a monthly review of the loan portfolio, and based on this review determines the level of the provision necessary to maintain an adequate allowance for loan losses. Management recorded a provision of $18.0 million for the year ended December 31, 2009. The primary factors that influenced management’s decision to record this provision were the increase in nonperforming loans of $12.2 million or 31.8%, continuing trends in delinquencies, net charge-offs of $15.5 million and the ongoing support of estimated credit losses embedded in the portfolio. Further details about nonperforming loans can be found in the “Asset Quality” and “Allowance for Loan Losses” sections beginning on page 52. Future provisions may be deemed necessary if economic conditions do not improve or continue to deteriorate. A provision of $13.4 million and $4.9 million was recorded for the years ended December 31, 2008 and 2007, respectively. At December 31, 2009, the allowance for loan losses was $52.5 million, which represented 1.10% of total loans and 103.87% of nonperforming loans. In comparison, the allowance for loan losses was $49.9 million at December 31, 2008 representing 1.01% ofAnalysis

Comparison of 2010 and 2009
As displayed in Table 5, non-interest expense increased $14.8 million to $187.0 million for the year ended December 31, 2010 from $172.2 million for the same period a year ago. The main driver of the increase was merger related charges of $12.2 million, followed by salaries and employee benefits, other expense and advertising, public relations and sponsorships, partially offset by a decrease in occupancy, outside services, amortization of identifiable intangible assets and FDIC insurance premiums.

	•		Merger related charges increased due primarily to legal, investment banking and compensation expenses associated with the proposed First Niagara acquisition of the Company. Certain existing compensation benefits for executive officers were accelerated, including severance, restricted stock and performance-based share awards. The accelerated benefits would have otherwise been paid or the awards would have vested upon the consummation of the merger.

	•		Salaries and employee benefits increased mainly as a result of a) general merit increases and increased bonus accruals, b) additions to the management team and the commercial finance lending business c) increases in restricted stock and option expense due to additional grant awards, d) increased expense for the Company’s pension due to changes in assumptions for 2010 and e) a decrease in deferred direct loan origination salary costs due to a decline in the number of residential and commercial loan originations. These increases were partially offset by severance recorded in 2009.

	•		Other expense increased in various categories including OREO expense, telephone and supplies as well as an increase in other losses and expense related to a sales and use tax audit.

	•		Advertising, public relations and sponsorships increased primarily due to advertising expenses associated with new marketing campaigns. These campaigns include expenses associated with TV commercials, radio, print and online advertising, branch merchandising and collateral pieces and select sponsorships.

	•		FDIC insurance premium expense decreased $2.9 million primarily due to the special assessment of $4.0 million during the second quarter of 2009. The decrease was partially offset by an increase of approximately one basis point in the base assessment rate for 2010, compared to 2009 based on new assessment rates implemented by the FDIC in April 2009. Additionally, the Bank was able to offset some of the first quarter 2009 assessment costs through the exhaustion of the one-time credit established by the FDIC Reform Act of 2005.

	•		Outside services decreased primarily due to prior year consulting costs for a performance optimization project, partially offset by an increase in data processing fees.

total loans and 130.21% of nonperforming loans. See the “Asset Quality” and “Allowance for Loan Losses” sections located on pages 52-56 for further information regarding the Company’s credit quality.

	•		Amortization of identifiable intangible assets decreased due to less amortization on core deposit intangibles from using the accelerated method of accounting, therefore, there was more amortization expense in 2009 compared to 2010.

	•		Occupancy expenses declined primarily due to reduced maintenance costs throughout the branch network.

Table 4: Non-Interest Income
	Year Ended December 31,							Change
								2009/2008					2008/2007
(Dollars in thousands)		2009		2008		2007			Amount		Percent			Amount		Percent
Depositor service charges	$	27,351	$	27,180	$	27,941		$	171		1	%	$	(761	)	(3	)%
Loan and servicing income		819		968		2,002			(149	)	(15	)		(1,034	)	(52	)
Trust fees		5,790		6,351		6,783			(561	)	(9	)		(432	)	(6	)
Investment management, brokerage & insurance fees		6,723		7,893		6,811			(1,170	)	(15	)		1,082		16
Bank owned life insurance		3,548		4,937		6,375			(1,389	)	(28	)		(1,438	)	(23	)
Net gain (loss) on securities		5,917		1,843		(27,542	)		4,074		221			29,385		107
Mortgage origination activity & loan sale income		5,586		1,551		1,489			4,035		260			62		4
Other		3,512		5,173		7,306			(1,661	)	(32	)		(2,133	)	(29	)
Total non-interest income	$	59,246	$	55,896	$	31,165		$	3,350		6	%	$	24,731		79	%

Comparison of 2009 and 2008
As displayed in Table 5, non-interest expense increased $5.6 million to $172.2 million for the year ended December 31, 2009 from $166.6 million for the same period a year ago. The main driver of the increase was the FDIC insurance premium. There was also an increase in outside services; however, there was a reduction in expenses associated with the majority of all other non-interest expense categories.

~~Non-Interest~~• ~~Income~~FDIC ~~Analysis~~ insurance ~~The~~premium ~~Company~~expense ~~has~~increased ~~two~~$9.8 ~~primary~~million ~~sources~~from of2008 ~~non-interest~~due ~~income~~to: (a) ~~banking~~a ~~services~~seven ~~related~~basis topoint ~~loans,~~increase ~~deposits~~in the assessment rate in the first quarter of 2009 and ~~other~~an ~~core~~additional ~~customer~~two ~~activities~~ basis ~~typically~~point ~~provided~~increase ~~through~~in the ~~branch~~assessment ~~network~~rate asbringing ~~well~~the asrate ~~merchant~~to ~~services~~fourteen ~~and~~basis ~~(b)~~ points ~~financial~~for ~~services,~~the ~~comprised~~second quarter through the remainder of ~~trust~~2009, ~~investment~~b) ~~and~~the ~~insurance~~exhaustion ~~products~~of ~~and~~ the ~~brokerage~~Company’s ~~and~~one-time ~~investment~~credit ~~advisory~~established ~~services.~~by ~~The~~the ~~principal~~Federal ~~categories~~Deposit ofInsurance ~~non-interest~~ Reform ~~income~~Act ~~are~~of ~~shown~~2005 in ~~Table~~the ~~4.Comparison~~first quarter of 2009 and ~~2008As~~c) ~~displayed~~the special assessment in ~~Table~~the 4,second ~~non-interest~~quarter ~~income~~of ~~increased~~2009 of $3.49 million imposed by the FDIC to ~~$59~~provide for replenishment of the Deposit Insurance Fund.2 ~~million~~In addition, the FDIC required institutions to prepay their regular risk-based assessments for the ~~year~~ fourth ~~ended~~quarter of 2009 and for all of 2010, 2011, and 2012 on December 3130, 2009 ~~from~~which amounted to approximately $27.5 million. Included in the ~~prior~~prepaid ~~year~~assessment ~~period~~was approximately $1.7 ~~The~~million, ~~main~~which ~~drivers~~was ofrecorded ~~the~~as ~~increase~~ expense ~~were~~in ~~mortgage~~2009. ~~origination~~• ~~activity~~Outside services increased primarily due to consulting costs associated with strategic planning initiatives and ~~loan~~mortgage ~~sale~~consulting ~~income~~costs. • Salaries and ~~net~~employee ~~gain~~benefits decreased as a result of reduced stock option expense as the majority of options granted to date became fully vested on ~~securities~~December 31, 2008 and a decrease in restricted stock expense due to the retirement of executive officers in 2009 and 2008. ~~These increases~~Salary ~~were~~expense also decreased due to a prior year severance payment for an executive who is no longer with the Company, which was partially offset by current year severance payments. Partially offsetting the decreases were increased bonus accruals, an increase in ~~BOLI~~pension plan expense due to the decline in the value of the pension assets and changes in assumptions for 2009 and additional expense in 2009 related to the Supplemental Executive Retirement Plan (“SERP”) of approximately $1.9 million resulting from the retirement of an executive officer in May 2009 and an unfavorable change in the discount rate associated with the measurement of the plan at December 31, ~~investment~~2009. ~~management~~• Advertising, ~~brokerage~~ public relations and ~~insurance~~sponsorships ~~fees~~declined primarily due to a reduction in expenses related to various media advertising and bonus campaigns to promote an array of business and consumer products. • Furniture and fixture expense decreased primarily due to a decline in depreciation expenses for various hardware and software that have been fully depreciated, ~~trust~~i.e., ~~fees~~branch and corporate telephone and computer systems. • Amortization of identifiable intangible assets decreased due to less amortization on core deposit intangibles from using the accelerated method of accounting whereas there was more amortization expense in 2008 compared to 2009. • Other expenses decreased due to reductions in general operating expenses partially offset by an increase in other ~~income~~real estate owned expenses as a result of the increased number of foreclosed properties.

•Income ~~Mortgage~~Tax ~~origination~~ExpenseIncome ~~activity~~tax ~~and~~expense ~~loan~~for ~~sale~~2010, ~~income~~2009 ~~increased~~and 2008 was $433.05 million, ~~due~~$25.8 tomillion ~~a greater number of mortgage loans originated for sale~~ and ~~sold~~$20.7 ~~in the secondary market during the year and the effect of originations that were in the pipeline at December 31~~million, ~~2009 under commitments to be sold~~respectively. The ~~increased~~effective ~~origination~~tax ~~activity~~rates ~~has~~for ~~been driven by~~ the ~~low~~years ~~interest~~ended ~~rate~~2010, ~~environment~~2009 and ~~the~~2008 ~~continued~~were ~~dislocation in the credit markets which has reduced the number of competitors in the short term~~36.6%, ~~• Net gain on securities increased due to the gains recorded on the sale of mortgage-backed securities~~35. ~~These securities were sold at a premium and were sold in order to reduce prepayment risk~~7%, ~~to reduce high price premium risk~~ and ~~to fund the pay-off of maturing FHLB advances primarily earlier in the year~~31.4% respectively.The ~~increase~~change in the ~~net~~effective ~~gain~~tax onrate ~~securities~~for ~~is also due to~~ the ~~prior~~ year ~~impairment~~ended ~~charges~~December ~~related~~31, to2010 ~~an investment~~ in acomparison ~~trust~~to ~~preferred equity security in a regional bank and two preferred equity securities issued by Freddie Mac and Lehman Brothers. Partially offsetting~~ the ~~net~~year ~~gain~~ended onDecember ~~the~~31, ~~sale~~2009 ~~of investments~~ was ~~other-than-temporary impairments recorded against the Company’s investment in an adjustable rate mortgage mutual fund and a pooled trust preferred security. • Trust fees declined primarily~~ due to aan ~~decrease~~increase in ~~the~~2010 ~~year-to-date~~of ~~average~~estimated ~~assets~~non-deductible ~~under~~excess ~~management.~~remuneration ~~The~~pursuant ~~assets~~to ~~under~~Internal ~~management~~Revenue ~~declined~~Code ~~primarily~~Section as162(m), aoffset ~~result~~by of the ~~decline~~increase in ~~the~~2010 ~~market value~~ of ~~the~~favorable ~~assets~~permanent differences, ~~which~~including ~~caused~~bank-owned ~~the~~life ~~reduction~~insurance inincome ~~the~~and ~~amount~~tax ofexempt ~~management fees earned~~obligations.The ~~Assets~~change ~~under management have begun to rebound~~ in the ~~second~~effective ~~half~~tax ofrate for the year ~~evidenced~~ended byDecember ~~the recent market improvement. • Investment management~~31, ~~brokerage~~2009 ~~and~~in ~~insurance~~comparison ~~fees declined due~~ to ~~prevailing depressed market conditions and~~ the ~~ongoing~~year ~~lack~~ended ofDecember ~~consumer~~31, ~~confidence~~2008 inwas ~~longer-term investment choices. • BOLI income decreased~~ due to aan ~~decline~~additional instate ~~the~~tax ~~average~~liability ~~yield earned~~ as a result of ~~current~~new ~~market~~Massachusetts ~~interest~~legislation ~~rates.~~enacted •in ~~Other~~2008 ~~income~~but ~~decreased~~effective ~~due~~in ~~to: a) net loss of $575~~2009,~~000~~ ~~recorded~~an onincrease ~~limited~~in ~~partnerships during~~ 2009 ~~due~~of toestimated ~~the decline in the fair~~non-~~value~~deductible ofexcess ~~the~~remuneration ~~underlying~~pursuant ~~investments compared~~ to aInternal ~~net~~Revenue ~~loss~~Code ofSection ~~$30~~162(m),~~000~~ ~~recorded~~the reduction in ~~2008,~~2009 b)of afavorable ~~decrease~~permanent ofdifferences, ~~approximately~~including ~~$380,000~~bank-owned inlife ~~amounts~~insurance ~~earned~~income onand the ~~outstanding~~dividends ~~balances~~received ofdeduction, ~~bank~~and ~~checks processed by a third-party vendor~~the

~~due~~recognition toin 2008 of the ~~decline~~reversal of $991,000 of unrecognized tax benefits for tax positions of prior years resulting from the settlement of the IRS audit in ~~market~~the ~~interest~~first ~~rates~~quarter of 2008.NewAlliance continually monitors and c)evaluates the ~~prior~~potential ~~year~~impact ~~receipt~~of current events and circumstances on the estimates used in the analysis of ~~approximately~~its ~~$500~~income tax positions,~~000~~ ~~from~~and accordingly, NewAlliance’s effective tax rate may fluctuate in the ~~partial~~future. ~~redemption~~NewAlliance ofevaluates its income tax positions based on tax laws and appropriate regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the ~~Company~~status of current taxing authorities’ examinations of NewAlliance’s ~~stake~~tax returns and recent positions taken by the taxing authorities on similar transactions, if any. Accordingly, the results of these examinations may alter the timing or amount of taxable income or deductions taken by the Company. Financial Condition, Liquidity and Capital ResourcesFinancial Condition SummaryFrom December 31, 2009 to December 31, 2010, total assets increased approximately $593.5 million mainly due to increases in ~~Visa~~investments ~~Inc~~and loans. Liabilities increased $569.5 million due to increases in both deposits and borrowings. Stockholders’ equity increased $24.0 million to $1.46 billion due primarily to net income for the year ended December 31, 2010 and the impact of the release of restricted stock. These increases are partially offset by dividends declared and treasury shares acquired.Investment SecuritiesThe Company maintains an investment securities portfolio that is primarily structured to provide a source of liquidity for operating needs, to generate interest income and to provide a means to balance interest-rate sensitivity. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies. The following ~~Visa~~table sets forth certain financial information regarding the amortized cost and fair value of the Company’s ~~initial~~investment ~~public~~portfolio ~~offering~~at the dates indicated. Table 6: Investment Securities

Comparison of 2008 and 2007 As displayed in Table 4, non-interest income increased $24.7 million to $55.9 million compared to $31.2 million for the year ended December 31, 2007. The increase in non-interest income was primarily attributable to the 2007 investment portfolio restructuring that resulted in a net loss recorded in 2007 of $28.3 million. Excluding the investment restructuring, non-interest income declined $3.5 million primarily due to decreases in depositor service charges, loan and servicing income, BOLI and other income, partially offset by increases in net gain/loss on securities and investment management, brokerage and insurance fees.

	December 31, 2010				December 31, 2009				December 31, 2008

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


Available for sale
U.S. Treasury obligations	$	-	$	-	$	597	$	597	$	596	$	597
U.S. Government sponsored enterprise obligations		476,552		477,902		198,692		199,730		228,844		233,349
Corporate obligations		8,098		8,685		8,139		8,517		8,178		7,946
Other bonds and obligations		15,141		13,664		14,625		13,234		17,654		15,449
Auction rate certificates		-		-		27,550		24,795		28,000		23,479
Marketable equity securities		8,096		8,141		8,567		8,783		19,039		19,134
Trust preferred equity securities		47,609		35,321		48,754		33,296		47,708		31,265
Private label residential mortgage-backed securities		19,634		18,458		23,871		20,856		33,027		25,136
Residential mortgage-backed securities		1,941,276		1,989,712		1,951,297		2,018,047		1,543,403		1,572,207

Total available for sale		2,516,406		2,551,883		2,282,092		2,327,855		1,926,449		1,928,562

Held to maturity
Residential mortgage-backed securities		267,482		276,625		230,596		241,956		299,222		308,016
Other bonds		8,390		8,646		10,170		10,375		10,560		10,746

Total held to maturity		275,872		285,271		240,766		252,331		309,782		318,762

Total securities	$	2,792,278	$	2,837,154	$	2,522,858	$	2,580,186	$	2,236,231	$	2,247,324

•At ~~Depositor~~December ~~service~~31, ~~charges decreased due to a decline in overdraft fees~~2010, ~~point~~the ~~of sale fees and inactive and dormant account fees. The~~ Company ~~eliminated~~had ~~debit~~total ~~card~~investments ~~point-~~of~~-sale,~~ ~~inactive and dormant account service charges during the first quarter of 2008 for promotional and competitive reasons, while overdraft fees declined due to volume~~$2.83 ~~These decreases were partially offset by increased check card revenue resulting from expanded card usage due in part to a “rewards” program initiated in 2008~~billion, ~~which~~or ~~offers cash rewards to customers who use their check card, and an increase in merchant services income~~31. • Loan and servicing income declined largely due to a write-down on the valuation of the bank’s mortgage servicing asset and the decrease in commercial real estate prepayment fees and letter of credit fees. • Investment management3%, ~~brokerage and insurance fees increased mainly due to the sales~~ of ~~fixed~~total ~~annuity products resulting from a favorable rate environment for these products~~assets. AnThe increase ~~in the number~~ of ~~sales personnel and increased marketing efforts have contributed to the increased trading activity and the sales of investment products~~$259.1 •million, ~~BOLI~~from ~~income decreased due to a decline in the average yield earned as a result of current market interest rates~~$2.57 •billion ~~Net~~at ~~gain~~December on31, ~~securities~~2009 ~~increased~~was ~~$29.4 million~~ primarily ~~due to~~ the ~~restructuring~~result ~~in 2007 which resulted in a total charge~~ of ~~$28~~purchasing U.~~3 million~~S. ~~Excluding~~Government ~~the~~agency ~~restructuring,~~obligations ~~net~~and ~~gain~~held ~~on securities increased $1.1 million due~~ to ~~gains~~maturity ~~recorded~~residential ~~on the sale of~~ mortgage-backed securities., ~~These~~partially ~~securities~~offset ~~were~~by ~~sold at~~ a ~~premium~~decrease ~~and were sold~~ in ~~order~~available tofor ~~reduce~~sale ~~prepayment~~residential ~~and duration risk. Partially offsetting the gain on~~ mortgage-backed securities ~~were other-than-temporary impairment charges of $2~~.7 ~~million~~The ~~and~~Company’s ~~losses~~increase ~~recorded on the sale of bank stocks~~ in the ~~second~~investment ~~quarter~~portfolio ofwas ~~2008.~~funded ~~The impairment charges~~ primarily ~~relate to an investment in a trust preferred equity security issued~~ by ~~a regional bank in~~ the ~~amount~~growth ~~of $1.6 million and for preferred equity securities issued by Freddie Mac and Lehman Brothers~~ in ~~the~~deposits ~~amounts of $850,000~~ and ~~$195,000,~~short-term ~~respectively, due to their sudden loss in market value~~borrowings. ~~The~~While ~~Company did not expect~~ the ~~financial~~Company ~~position~~prefers oflending ~~the~~as ~~regional bank or~~ the ~~current~~primary ~~price~~use of its ~~security~~excess tocash ~~improve~~flows, ~~meaningfully over~~ the ~~near~~investment ~~term~~portfolio ~~and~~serves ~~also~~a ~~considered~~secondary ~~its~~role ~~market price to reflect enhanced risk~~ in ~~the~~generating ~~timely~~revenue ~~realization~~while ofmanaging ~~cashflows~~interest-rate risk and ~~it was, therefore, written down to market value through the income statement~~liquidity. The ~~Lehman~~available ~~Brothers~~for ~~preferred~~sale ~~equity~~and ~~security~~held ~~was~~to ~~deemed~~maturity ~~impaired~~securities asportfolios aare ~~result~~primarily ofcomposed ~~Lehman Brothers declaration~~ of ~~Chapter~~mortgage-backed ~~11 bankruptcy in September 2008~~securities. ~~The~~At ~~Freddie~~December ~~Mac preferred equity security was deemed impaired as a result of Freddie Mac being placed in conservatorship by the U.S. Treasury~~31, ~~FRB and the Federal Housing Finance Agency. Additionally~~2010, ~~dividends~~mortgage-backed ~~were halted on existing common and preferred~~ securities ~~and~~comprised ~~the U~~78.S.0% ~~Treasury~~and ~~invested $1~~97.0% ~~billion~~of in the ~~form~~total ofavailable ~~senior~~for ~~preferred~~sale ~~equity,~~and ~~which~~held ~~has~~to ~~priority~~maturity ~~over the Company’s preferred equity~~ securities. •portfolios, ~~Other~~respectively, ~~income~~the ~~decreased~~majority ~~mainly as a result~~ of ~~a prior year net gain on limited partnerships~~ which ~~resulted~~are ~~from~~issued ~~the~~by ~~sale~~Fannie ofMae ~~an underlying investment compared to a net loss on limited partnerships in the current year period~~ and aFreddie ~~decrease~~Mac. inThe ~~amounts~~duration ~~earned~~of on the ~~outstanding~~mortgage-backed ~~balances~~securities ofportfolio ~~bank~~was ~~checks~~2.34 ~~processed~~years byat aDecember ~~third-party~~31, ~~vendor~~2010 ~~due~~compared to ~~the~~1.62 ~~decline~~years inat ~~market~~December ~~interest~~31, ~~rates~~2009.

Table 5: Non-Interest Expense
	Year Ended December 31,						Change
							2009/2008					2008/2007
(Dollars in thousands)		2009		2008		2007		Amount		Percent			Amount		Percent
Salaries and employee benefits	$	89,646	$	91,687	$	84,513	$	(2,041	)	(2	)%	$	7,174		8	%
Occupancy		18,202		18,091		17,338		111		1			753		4
Furniture and fixtures		5,808		6,550		6,874		(742	)	(11	)		(324	)	(5	)
Outside services		20,098		19,314		17,142		784		4			2,172		13
Advertising, public relations,
and sponsorships		5,664		6,152		7,667		(488	)	(8	)		(1,515	)	(20	)
Amortization of identifiable
intangible assets		8,501		9,456		11,682		(955	)	(10	)		(2,226	)	(19	)
Merger related charges		84		185		2,523		(101	)	(55	)		(2,338	)	(93	)
FDIC insurance premiums		10,479		721		549		9,758		1,353			172		31
Other		13,731		14,413		14,158		(682	)	(5	)		255		2
Total non-interest expense	$	172,213	$	166,569	$	162,446	$	5,644		3	%	$	4,123		3	%

The Company’s underlying investment strategy has been to purchase FNMA and FHLMC short-term sequential collateralized mortgage obligations, agency hybrid adjustable rate mortgage backed securities and seasoned 15 and 20 year Government Sponsored Enterprise (“GSE”) fixed rate mortgage-backed securities. The Company has focused on the purchases of these securities due to their attractive spreads versus funding costs and for their monthly cash flows that provide the Company with liquidity. This strategy is also supplemented with select purchases of bullet, callable and step-up coupon agency debentures. The average life for mortgage-backed securities, when purchased, would range between two and four years and the maturity dates for Agency obligations would range between one and seven years depending upon the rate structure of the bond.

FASB guidance requires the Company to designate its securities as held to maturity, available for sale or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of December 31, 2010, $2.55 billion, or 90.2% of the portfolio, was classified as available for sale and $275.9 million of the portfolio was classified as held to maturity. The Company believes that the high concentration of securities available for sale allows flexibility in the day-to-day management of the overall investment portfolio, consistent with the objectives of optimizing profitability and mitigating interest rate risk. Securities available for sale are carried at estimated fair value. Additional information about fair value measurements can be found in Note 15 of the Notes to Consolidated Financial Statements.

During the three months ended December 31, 2010, September 30, 2010 and June 30, 2010, a pooled trust preferred security, which had a previous credit related impairment charge during 2009, was deemed to have additional credit related OTTI loss in the amounts of $250,000, $378,000 and $552,000, respectively. These credit related impairments were based on further declines in expected cash flows and were reclassified from other comprehensive income as they were previously recognized as non-credit related. Management utilizes nine cash flow scenarios received quarterly from the underwriter to analyze this security for potential OTTI. The nine scenarios cover various default rates, recovery rates and prepayment options over different time periods. Two of the nine cash flow analyses continue to indicate impairment over the life of the security, the driver of which is the recovery rate, modeled at 0%. Past history of the security indicates that there have not been any recoveries to date from securities that have defaulted. Based on these factors, management recorded a credit related impairment totaling $1.2 million during 2010. The credit impairments represent the average loss of the two negative cash flow analyses at each period. At December 31, 2010, the pooled trust preferred security had an amortized cost and fair value of approximately $247,000 and $221,000, respectively. There is no intent to sell nor is it more likely than not that the Company will be required to sell this security.

The net unrealized gain on securities classified as available for sale as of December 31, 2010 was $35.5 million compared to an unrealized gain of $45.8 million as of December 31, 2009. The depreciation in the market value of securities available for sale was primarily due to the decrease in the fair value of mortgage-backed securities due to the increase in LIBOR/Swap rates and treasury rates and the tightening in mortgage spreads. Partially offsetting the decrease in the fair value of the mortgage-backed securities was an increase in the fair value of the auction rate certificates as they were tendered at par and the trust preferred equity securities which have experienced improvement in market value. The changes in unrealized gains and losses on the investment portfolio were also due to credit spreads, liquidity and fluctuations in market interest rates during the period.

The net unrealized gain on residential mortgage-backed securities is primarily from agency mortgage-backed securities issued by FNMA and FHLMC resulting from the general decline in interest rates and the tightening in mortgage-backed security spreads since date of purchase. Although the Federal Reserve Bank mortgage-backed securities purchase program ended on March 31, 2010, mortgage rates and spreads continue to remain at relatively low levels.

The unrealized loss on private label residential mortgage-backed securities is primarily concentrated in one BBB rated private-label mortgage-backed security which is substantially paid down, well seasoned and of an earlier vintage that has not been significantly affected by high delinquency levels or vulnerable to lower collateral coverage as seen in later issued pools. Widening in non-agency mortgage spreads since the date purchased is the primary factor for the unrealized losses reported on private label residential mortgage-backed securities. None of the securities are backed by subprime mortgage loans and none have suffered losses. Other than the BBB rated security, there is one security rated AA and the remaining securities are AAA rated. Management’s review concluded that the private-label mortgage-backed securities are not other-than-temporarily impaired.

The unrealized losses on other bonds and obligations primarily relates to a position in an adjustable rate mortgage mutual fund. During 2009, the Company recorded an OTTI loss of $816,000 on this adjustable rate mortgage mutual fund due to a decrease in the credit quality of the security coupled with a loss recognized by the fund. As of December 31, 2010, the investment carries a market value to book value ratio of 82.66%, a weighted average underlying investment credit rating of AAA and it continues to pay normal monthly dividends. There is no intent to sell nor is it more likely than not that the Company will be required to sell this security and management has therefore concluded that the fund experienced no further OTTI in the twelve months ended December 31, 2010.

Non-Interest Expense Analysis Comparison of 2009 and 2008 As displayed in Table 5, non-interest expense increased $5.6 million to $172.2 million for the year ended December 31, 2009 from $166.6 million for the same period a year ago. The main driver of the increase was the FDIC insurance premium. There was also an increase in outside services; however, there was a reduction in expenses associated with the majority of all other non-interest expense categories.

• FDIC insurance premium expense increased $9.8 million from last year due to: a) a seven basis point increase in the assessment rate in the first quarter of 2009 and an additional two basis point increase in the assessment rate bringing the rate to fourteen basis points for the second quarter through the remainder of 2009, b) the exhaustion of the Company’s one-time credit established by the Federal Deposit Insurance Reform Act of 2005 in the first quarter of 2009 and c) the special assessment in the second quarter of 2009 of $3.9 million imposed by the FDIC to provide for replenishment of the Deposit Insurance Fund. In addition, the FDIC required institutions to prepay their regular risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012 on December 30, 2009 which amounted to approximately $27.5 million. Included in the prepaid assessment was approximately $1.7 million, which was recorded as expense in 2009. • Outside services increased primarily due to consulting costs associated with strategic planning initiatives and mortgage consulting costs. • Salaries and employee benefits decreased as a result of reduced stock option expense as the majority of options granted to date became fully vested on December 31, 2008 and a decrease in restricted stock expense due to the retirement of executive officers in 2009 and 2008. Salary expense also decreased due to a prior year severance payment for an executive who is no longer with the Company, which was partially offset by current year severance payments. Partially offsetting the decreases were increased bonus accruals, an increase in pension plan expense due to the decline in the value of the pension assets and changes in assumptions for 2009 and additional expense in 2009 related to the Supplemental Executive Retirement Plan (“SERP”) of approximately $1.9 million resulting from the retirement of an executive officer in May 2009 and an unfavorable change in the discount rate associated with the measurement of the plan at December 31, 2009. We expect to record additional SERP expense in 2010 of approximately $1.3 million due to the retirement of an executive officer in January 2010 and pension expense is expected to increase approximately $1.0 million due to a decline in the discount rate for 2010. • Advertising, public relations and sponsorships declined primarily due to a reduction in expenses related to various media advertising and bonus campaigns to promote an array of business and consumer products. During the second half of 2009, advertising has picked up and we expect this trend to continue into 2010 due to planned media campaigns. • Furniture and fixture expense decreased primarily due to a decline in depreciation expenses for various hardware and software that have been fully depreciated, i.e. branch and corporate telephone and computer systems.

•		Amortization of identifiable intangible assets decreased due to less amortization on core deposit intangibles from using the accelerated method of accounting whereas there was more amortization expense in 2008 compared to 2009.
•		Other expenses decreased due to reductions in general operating expenses partially offset by an increase in other real estate owned expenses as a result of the increased number of foreclosed properties.

Trust preferred securities are comprised of two pooled trust preferreds with an amortized cost of $4.9 million, one of which is rated BB and the other is rated CC at December 31, 2010. During 2009, the Company recorded a credit related impairment of $581,000 on the CC rated pooled trust preferred security based on a cash flow analysis and subsequent credit related impairments of $1.2 million during the twelve months ended December 31, 2010 as discussed above. The remaining $42.7 million of trust preferred securities are comprised of twelve “individual names” issues with the following ratings: $15.6 million rated A- to A, $25.6 million rated BBB- to BBB+ and $0.5 million rated BB. The unrealized losses reported for trust preferred securities relate to the financial and liquidity stresses in the fixed income markets and in the banking sector and are not reflective of individual stresses in the individual company names. The ratings on all of the issues with the exception of the CC rated pooled security have improved or remained the same since December 31, 2009. Additionally, there have not been any disruptions in the cash flows of these securities and all are currently paying the contractual principal and interest payments. A detailed review of the two pooled trust preferreds and the “individual names” trust preferred equity securities was completed by management. This review included an analysis of collateral reports, cash flows, stress default levels and financial ratios of the underlying issuers. Management concluded that after the OTTI loss recorded on the CC rated pooled trust preferred security, these securities are not other-than-temporarily impaired.

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

The following table sets forth certain information regarding the carrying value, weighted average yield and contractual maturities of the Company’s investment portfolio as of December 31, 2010. In the case of mortgage-backed securities, the table shows the securities by their contractual maturities; however, there are scheduled principal payments and there will be unscheduled prepayments prior to their contractual maturity. Income on obligations of states and political subdivisions are taxable and no yield adjustment for dividend receivable deduction is made because it is not material.

Comparison of 2008 and 2007 As displayed in Table 5, non-interest expense increased $4.1 million to $166.6 million for the year ended December 31, 2008 from $162.4 million for the year ended December 31, 2007. The main drivers of the increase were salaries and employee benefits and outside services, 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 a) severance recorded in the first quarter of 2008 for an executive who is no longer with the Company b) increased employee incentive accruals, including incentive payouts due to the increased sales of investment products c) general merit increases d) a decrease in capitalized salaries primarily due to the decline in commercial loan originations and e) increased expense on the Company’s supplemental executive retirement plan compared to the twelve months ended December 31, 2007 due to changes in assumptions. These increases were partially offset by a decrease in charges associated with the 2005 Long-Term Compensation Plan (“LTCP”) for executives that are no longer with the Company and a decrease in Employee stock ownership plan expense due to the decline in the Company’s average year-to-date stock price. • Outside services increased due to consulting costs associated with the implementation of a performance optimization project in an effort to enhance the overall effectiveness and revenue performance of the Company. During 2008 consulting costs for this project were approximately $1.7 million. Outside services also increased due to charges incurred for outsourcing general internal audit work, legal and consulting costs related to human resources, 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 and amortization of non-compete agreements due to the expiration of all agreements in the third quarter of 2007. • Conversion and merger related charges decreased mainly due to charges for legal, consulting, advertising and data processing expense associated with the Westbank acquisition that occurred in 2007.

Income Tax Expense Income tax expense for 2009, 2008 and 2007 was $25.8 million, $20.7 million and $15.1 million, respectively. The effective tax rates for the years ended 2009, 2008 and 2007 were 35.7%, 31.4%, and 38.8% respectively. The change in the effective tax rate for the year ended December 31, 2009 in comparison to the year ended December 31, 2008 was due to an additional state tax liability as a result of new Massachusetts legislation enacted in 2008 but effective in 2009, an increase in 2009 of estimated non-deductible excess remuneration pursuant to Internal Revenue Code Section 162(m), the reduction in 2009 of favorable permanent differences, including bank-owned life insurance income and the dividends received deduction, and the recognition in 2008 of the reversal of $991,000 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 change in the effective tax rate for the year ended December 31, 2008 in comparison to the year ended December 31, 2007 was primarily due to the $3.6 million increase in the valuation allowance required for the charitable contribution carryforward in 2007 and the reduction of $991,000 of unrecognized tax benefits for tax positions of prior years resulting from the settlement of the IRS audit in the first quarter of 2008. NewAlliance continually monitors and evaluates the potential impact of current events and circumstances on the estimates used in the analysis of its income tax positions, and accordingly, NewAlliance’s effective tax rate may fluctuate in the future. NewAlliance evaluates its income tax positions based on tax laws and appropriate regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current taxing authorities’ examinations of NewAlliance’s tax returns and recent positions taken by the taxing authorities on similar transactions, if any. Accordingly, the results of these examinations may alter the timing or amount of taxable income or deductions taken by the Company.

Financial Condition, Liquidity and Capital Resources Financial Condition Summary From December 31, 2008 to December 31, 2009, total assets increased approximately $134.8 million mainly due to an increase in investments, partially offset by a decline in loans. Liabilities increased $81.1 million due to increases in deposits, partially offset by a decrease in borrowings. Stockholders’ equity increased $53.7 million to $1.43 billion due primarily to net income for the year ended December 31, 2009 and an increase in accumulated other comprehensive income due to the increase in the net unrealized gains on the investment portfolio, net of tax and an increase to recognize the year-over-year change in the funded position of the Company’s pension plans. These increases are partially offset by dividends declared and treasury shares acquired. Investment Securities The Company maintains an investment securities portfolio that is primarily structured to provide a source of liquidity for operating needs, to generate interest income and to provide a means to balance interest-rate sensitivity. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies. The following table sets forth certain financial information regarding the amortized cost and fair value of the Company’s investment portfolio at the dates indicated. Table 67: Investment ~~Securities~~Maturities Schedule

	December 31, 2009						December 31, 2008					December 31, 2007
							Over one year				Over five years
		Amortized			Fair			Amortized		Fair			Amortized			Fair
		One year or less					through five years				through ten years						Over ten years				Total
(In thousands)		cost			value			cost		value			cost			value
					Weighted				Weighted					Weighted					Weighted				Weighted
Available for sale
		Amortized			average		Amortized		average		Amortized			average			Amortized		average		Amortized		average
U.S. Treasury obligations	$	597		$	597		$	596	$	597		$	1,092		$	1,095
(Dollars in thousands)		cost			yield		cost		yield		cost			yield			cost		yield		cost		yield
U.S. Government sponsored enterprise obligations		198,692			199,730			228,844		233,349			201,408			202,059
Available for sale
Corporate obligations		8,139			8,517			8,178		7,946			22,531			22,515
U.S. Treasury obligations		$	-		-	%	$	-	-	%	$	-		-	%		$	-	-	%	$	-	-	%
Other bonds and obligations		14,625			13,234			17,654		15,449			19,853			19,634
U.S. Government sponsored enterprise obligations			17,645		2.67			87,505	2.23			368,943		2.55				2,459	3.15			476,552	2.50
Auction rate certficates		27,550			24,795			28,000		23,479			33,000			33,000
Corporate obligations			1,001		4.35			7,097	5.20			-		-				-	-			8,098	5.09
Marketable equity securities		8,567			8,783			19,039		19,134			36,204			35,634
Other bonds and obligations			9,081		3.12			2,325	5.06			3,735		2.94				-	-			15,141	3.37
Trust preferred equity securities		48,754			33,296			47,708		31,265			50,339			47,832
Auction rate certificates			-		-			-	-			-		-				-	-			-	-
Private label residential mortgage-backed securities		23,871			20,856			33,027		25,136			45,415			45,519
Marketable equity securities			8,096		0.68			-	-			-		-				-	-			8,096	0.68
Residential mortgage-backed securities		1,951,297			2,018,047			1,543,403		1,572,207			1,661,551			1,679,973
Trust preferred equity securities			-		-			-	-			-		-				47,609	1.41			47,609	1.50
Total available for sale		2,282,092			2,327,855			1,926,449		1,928,562			2,071,393			2,087,261
Private label residential mortgage backed securities			-		-			-	-			-		-				19,634	4.18			19,634	4.18
Held to maturity
Residential mortgage-backed securities			-		-			45	3.60			4,738		5.15				1,936,493	3.76			1,941,276	3.77
Residential mortgage-backed securities		230,596			240,956			299,222		308,016			282,887			286,968
Total available for sale			35,823		2.38			96,972	2.52			377,416		2.59				2,006,195	3.71			2,516,406	3.48
Other bonds		10,170			10,375			10,560		10,746			7,585			7,577
Held to maturity
Total held to maturity		240,766			251,331			309,782		318,762			290,472			294,545
Residential mortgage-backed securities			-		-			2,417	4.62			56,114		5.51				208,951	3.52			267,482	3.94
Total securities	$	2,522,858		$	2,579,186		$	2,236,231	$	2,247,324		$	2,361,865		$	2,381,806
Other bonds			2,205		4.47			5,185	4.84			-		-				1,000	4.68			8,390	4.72
Total held to maturity			2,205		4.47			7,602	4.77			56,114		5.51				209,951	3.53			275,872	3.96
Total securities		$	38,028		2.50	%	$	104,574	2.68	%	$	433,530		2.96	%		$	2,216,146	3.69	%	$	2,792,278	3.53	%

At December 31, 2009, the Company had total investments of $2.57 billion, or 30.4%, of total assets. The increase of $330.3 million, from $2.24 billion at December 31, 2008 was primarily the result of purchasing mortgage-backed securities. The Company’s increase in the investment portfolio was funded primarily by the growth in deposits and loan principal repayments. While the Company prefers lending as the primary use of its excess cash flows, the investment portfolio serves a secondary role in generating revenue while managing interest-rate risk and liquidity. The available for sale and held to maturity securities portfolios are primarily composed of mortgage-backed securities. At December 31, 2009, mortgage-backed securities comprised 87.6% and 95.8% of the total available for sale and held to maturity securities portfolios, respectively, the majority of which are issued by Fannie Mae and Freddie Mac. The duration of the mortgage-backed securities portfolio was 1.62 years at December 31, 2009 compared to 1.55 years at December 31, 2008. The Company’s underlying investment strategy has been to purchase FNMA and FHLMC hybrid adjustable rate mortgage-backed securities, and seasoned 15 and 20 year Government Sponsored Enterprise (“GSE”) fixed rate mortgage-backed securities. The Company has focused on the purchases of these securities due to their attractive spreads versus funding costs and for their monthly cash flows that provide the Company with liquidity. This strategy is also supplemented with select purchases of bullet and callable agency securities. The average life for mortgage-backed securities, when purchased, would range between two and four years and the maturity dates for Agency obligations would range between one and five years.

~~FASB~~Lending ~~guidance~~ActivitiesThe ~~requires the~~ Company ~~to designate~~ ~~its~~originates ~~securities~~residential asreal ~~held~~estate toloans ~~maturity,~~secured ~~available~~by ~~for~~one- sale or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of December 31, 2009, $2.33 billion, or 90.6% of the portfolio, was classified as available for sale and $240.8 million of the portfolio was classified as held to ~~maturity. The Company believes that the high concentration of securities available for sale allows flexibility in the day~~four-~~to-day~~family ~~management of the overall investment portfolio~~residences, ~~consistent~~commercial ~~with~~real ~~the~~estate objectives of optimizing profitability and mitigating interest rate risk. Securities available for sale are carried at estimated fair value. Additional information about fair value measurements can be found in Note 3 of the Notes to Consolidated Financial Statements. During the second quarter of 2009 new other-than-temporary impairment (“OTTI”) guidanceloans, ~~FASB~~residential ~~ASC 320-10, Recognition~~ and ~~Presentation~~ ofcommercial ~~Other-Than-Temporary~~construction ~~Impairments~~loans, ~~was adopted and, for debt securities,~~commercial requires that credit related OTTI be recognized in earnings while non-credit related OTTI be recognized in other comprehensive income (“OCI”) unless there is intent to sell or are required to sell. The new guidance also requires that previously recorded impairment charges that do not relate to a credit loss be reclassified from retained earnings to accumulated other comprehensive income (“AOCI”). Thereforeloans, ~~during the quarter ended June 30, 2009, the Company reclassified the non~~multi-~~credit~~family ~~related portion of a previously recorded OTTI loss~~loans, ashome ~~described~~equity ~~below.~~lines ~~Also during 2009, the Company recorded current OTTI losses on two securities in accordance with this new guidance, both~~ of ~~which~~credit ~~are described below. During 2008, one of the “individual name” trust preferred securities was deemed to be other-than-temporarily impaired~~ and afixed charge of $1.6 million was recorded in the third quarter. Upon the adoption of the OTTI guidance discussed above, the Company recorded a cumulative effect adjustment that increased retained earnings and decreased AOCI by $1.6 million, or $1.0 million, net of tax. A credit related OTTI loss in the amount of $816,000 was recorded against the Company’s position in an adjustable rate ~~mortgage~~loans ~~mutual fund that holds positions in non-agency mortgage-backed securities. During the second quarter of 2009, the fund experienced its first realized loss on a mortgage investment~~ and ~~management determined that~~ ~~the~~other ~~dollar~~consumer ~~amount~~loans ofthroughout ~~securities carrying a rating of CCC or lower had increased. This decrease in~~ the ~~credit~~States ~~quality~~ of ~~the~~Connecticut ~~securities coupled with the loss recognized by the fund, resulted in management’s determination that the fund was other-than-temporarily impaired~~ and ~~a credit impairment of $626,000 was recorded~~Massachusetts. ~~The credit-related impairment was determined by applying the midpoint of the estimated default rates of CCC~~Additionally, ~~CC and C rated securities to the investments in the portfolio and adjusting~~ ~~the~~within ~~par value downward by these estimated losses. A white paper written by one of~~ the ~~rating agencies outlining estimated default ranges on~~ residential ~~private~~ real ~~mortgage-backed~~estate ~~securities~~loan ~~based~~category ~~upon~~are ~~credit~~loans ~~rating~~with ~~was~~property ~~utilized by the Company~~locations ~~for~~spread ~~its~~throughout ~~analysis. The non-credit related OTTI was $1.9 million, or $1.2 million, net of tax, and was recognized in OCI. In December 2009, an additional credit impairment was recorded in~~ the ~~amount~~United ~~of $190~~States,~~000~~ ~~and~~as ~~was determined using the same methodology. As of December 31, 2009, the fund has~~ a ~~current~~result ~~book value~~ of ~~$8.1 million. There is no intent to sell nor is it more likely than not that~~ the Company’s ~~will be required to sell~~residential ~~these~~real ~~securities.~~estate Aloan credit related OTTI loss in the amount of $581,000 was recorded on a pooled trust preferred security in December 2009 based on cash flow analyses. The Company received nine cash flow scenarios from the underwriter which were utilized by management to analyze this security for potential OTTI. The nine scenarios covered various default rates, recovery rates and prepayment options over different time periods. Two of the nine cash flow analyses indicated impairment over the life of the security. The driver of the indicated impairment was the recovery rate, which was modeled at 0% in these two cash flow scenarios. As the severity of the estimated loss in these two cash flow scenarios doubled since the prior OTTI analysis in the third quarter of 2009 and due to the fact that the past history of the security indicates that there have not been any recoveries to date from securities that have defaulted, the Company recorded a credit-related impairment charge. The credit impairment represents the average loss of the two negative cash flow analyses. The non-credit related impairment of $1.2 million, or $748,000, net of tax, was recognized in OCI. After the write-down, the cost basis of the security was $1.4 million at December 31, 2009. There is no intent to sell nor is it more likely than not that the Company will be required to sell this security. The net unrealized gain on securities classified as available for sale as of December 31, 2009 was $45.8 million compared to an unrealized gain of $2.1 million as of December 31, 2008. The appreciation in the market value of securities available for sale was primarily due to the increase in the fair value of mortgage-backed securities and the unrealized gains on the mortgage backed securities purchased during the year, partially offset by gains on securities sold. The net unrealized gain on the available for sale investment portfolio, that is primarily within the mortgage-backed securities, is partially offset by unrealized losses on trust preferred equity securities and privately issued mortgage-backed securities. The changes in unrealized gains and losses on the investment portfolio are primarily due to credit spreads, liquidity and fluctuations in market interest rates during the period. The net unrealized gain on mortgage-backed securities is primarily from agency mortgage-backed securities issued by FNMA and FHLMC, partially offset by unrealized losses on mortgage-backed securities issued by private institutions. The unrealized gain on agency mortgage-backed securities is due to the general decline in interest rates and the tightening in mortgage-backed security spreads. Spreads have tightened in part due to programs initiated by the Federal Reserve to purchase ~~the direct obligations of housing-related~~program.

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

Table 8: Loan Portfolio Analysis

	December 31, 2010				December 31, 2009				December 31, 2008				December 31, 2007				December 31, 2006

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

Residential real estate	$	2,517,118	49.4	%	$	2,382,514	50.0	%	$	2,524,638	50.9	%	$	2,360,921	49.9	%	$	1,916,551	50.1	%
Residential real estate construction		17,942	0.4			13,789	0.3			21,380	0.4			29,023	0.6			8,097	0.2

Total residential real estate		2,535,060	49.8			2,396,303	50.3			2,546,018	51.3			2,389,944	50.5			1,924,648	50.3

Commercial real estate		1,250,992	24.6			1,100,880	23.1			1,077,200	21.7			947,185	20.1			785,811	20.5
Commercial real estate construction		110,486	2.2			132,370	2.8			143,610	2.9			247,428	5.2			174,813	4.6

Total commercial real estate		1,361,478	26.8			1,233,250	25.9			1,220,810	24.6			1,194,613	25.3			960,624	25.1
Commercial business		396,760	7.8			409,312	8.5			458,952	9.2			457,745	9.7			350,507	9.2
Commercial finance		113,739	2.2			1,899	0.1			-	-			-	-			-	-
Home equity and equity lines of credit		672,337	13.2			705,673	14.9			714,444	14.4			652,107	13.8			570,493	14.9
Other consumer		11,842	0.2			15,608	0.3			22,561	0.5			33,560	0.7			16,604	0.5

Total consumer loans		684,179	13.4			721,281	15.2			737,005	14.9			685,667	14.5			587,097	15.4

Total loans		5,091,216	100.0	%		4,762,045	100.0	%		4,962,785	100.0	%		4,727,969	100.0	%		3,822,876	100.0	%

Allowance for loan losses		(55,223)				(52,463)				(49,911)				(43,813)				(37,408)

Loans, net	$	5,035,993			$	4,709,582			$	4,912,874			$	4,684,156			$	3,785,468

As ~~GSE’s,~~shown ~~Fannie~~in ~~Mae,~~Table ~~Freddie Mac~~8, ~~and~~gross ~~the~~loans ~~FHLB’s,~~were ~~and mortgage-backed securities~~$5.09 ~~issued~~billion, byup ~~Fannie~~$329.2 ~~Mae~~million, ~~Freddie~~at ~~Mac~~December 31, ~~and~~2010 ~~Ginnie~~from ~~Mae~~year-end 2009. The ~~goal~~Company ofexperienced ~~these~~an ~~purchases~~ increase ~~has~~in ~~been~~most toloan ~~maintain~~categories ~~lower~~due ~~long-term~~to ~~fixed~~reduced ~~mortgage~~interest ~~rates~~rate tolevels. Residential ~~stimulate~~real ~~the~~estate ~~housing~~ loans ~~market~~continue ~~and~~to ~~improve~~represent the ~~overall~~largest ~~conditions~~segment inof ~~private~~the ~~credit~~Company’s ~~markets.~~loan ~~These~~portfolio ~~programs~~ as ~~consist~~ of ~~the~~December ~~FRB~~31, ~~purchasing~~2010, acomprising ~~total of $1~~49.258% ~~trillion~~ of ~~agency mortgage-backed~~total ~~securities~~loans. ~~and~~The upincrease ~~to $175 billion~~ of ~~agency debt~~$138.8 ~~The~~million ~~unrealized~~from ~~loss~~December on31, ~~mortgage-backed~~ 2009 ~~securities~~was primarily ~~relates~~due to ~~securities~~origination ~~issued~~volume bypartially ~~private~~offset ~~institutions~~by ~~and~~the is net ~~primarily~~impact ~~concentrated~~of inprepayments. ~~one~~The ~~BBB rated private-label mortgage-backed security~~Company ~~which~~had issignificant ~~substantially~~originations ~~paid~~of ~~down,~~both ~~well~~adjustable ~~seasoned~~ and offixed anrate ~~earlier~~mortgages ~~vintage~~of ~~that~~$1.3 ~~has~~billion ~~not~~during ~~been~~the ~~significantly~~year, ~~affected~~with byapproximately ~~high~~$946.6 ~~delinquency~~million ~~levels~~originated orfor ~~vulnerable to~~portfolio ~~lower~~and ~~collateral~~the ~~coverage~~remainder assold ~~seen~~ in ~~later~~the ~~issued~~secondary ~~pools~~market. ~~Widening~~The inCompany ~~non-agency~~ currently ~~mortgage~~sells ~~spreads is~~ the ~~primary factor for the unrealized losses reported on private~~ ~~label~~majority ~~mortgage-backed securities. None~~ of ~~the~~all ~~securities~~originated ~~are~~fixed ~~backed~~rate byresidential ~~subprime~~ real ~~mortgage~~estate loans ~~and~~with ~~none~~terms ~~have suffered losses. One~~ of ~~the private issue securities~~ ~~was~~15 ~~downgraded~~years toor ~~BBB~~more. ~~during~~During the third quarter of 2009 ~~and~~ the ~~remaining~~Company ~~securities~~ began ~~are~~to ~~rated~~retain ~~AAA.~~in ~~All~~its ~~are~~portfolio ~~still~~30 ~~paying~~year ~~principal~~jumbo ~~and~~fixed ~~interest~~rate ~~and~~residential ~~are~~mortgage ~~expected~~originations toand in ~~continue~~2010 tothe ~~pay their contractual cash flows. The~~ Company ~~does~~originated ~~not~~and ~~have~~retained ~~any commercial mortgage-backed securities~~$135.8 ~~Management’s~~million ~~review~~ of ~~the~~these ~~above~~mortgages. ~~factors~~The ~~and~~strong ~~issuer~~mortgage ~~specific~~origination ~~data~~activity ~~concluded~~resulted ~~that~~from ~~these~~low ~~private-label~~market ~~mortgage-backed~~interest ~~securities~~rates, competitive ~~are~~pricing ~~not~~and ~~other-than-temporarily~~increased ~~impaired~~marketing campaigns. The ~~unrealized~~residential ~~losses~~real onestate ~~other~~loan ~~bonds~~portfolio ~~and~~has ~~obligations~~a ~~primarily~~weighted ~~relates~~average toFICO ~~the~~score ~~non-credit~~of ~~related~~750 ~~OTTI~~and ~~loss on~~ a ~~position~~ current inestimated anweighted ~~adjustable~~loan ~~rate~~to ~~mortgage~~value ~~mutual~~ratio ~~fund~~of ~~that~~62%. ~~holds~~Included ~~positions~~ in ~~non-agency~~ residential ~~mortgage-backed~~real ~~securities~~estate ~~that~~is ~~are~~a ~~facing~~purchased ~~negative~~portfolio, ~~mark~~which tois ~~market~~made ~~pressures~~ up ~~due~~of toprime ~~widening~~loans ~~spreads~~individually ~~in non~~re-~~agency~~underwritten ~~mortgage~~by ~~products. Although~~ the ~~fund~~Company ~~has~~to ~~experienced~~our ~~declines~~underwriting incriteria, ~~credit~~and ~~ratings~~includes ~~since~~adjustable-rate ~~the~~and ~~beginning~~10 ofand ~~the~~15 year, itfixed-rate ~~was~~residential ~~not~~real ~~due~~estate to loans ~~customer~~with ~~redemptions~~property orlocations ~~forced~~throughout ~~selling of~~ the ~~investments.~~United ~~The fund recorded~~States ~~its~~with ~~first~~no ~~loss~~significant ~~which~~exposure ~~factored~~in ~~into~~any ~~management’s~~particular ~~determination that the fund was other-than-temporarily impaired~~state. AsAt ~~discussed~~December ~~above~~31, a2010 ~~credit~~the ~~related~~Company’s ~~OTTI~~ purchased ~~loss~~portfolio ofhad ~~$816,000~~an ~~was~~outstanding ~~recorded~~balance ~~through~~of ~~earnings~~approximately ~~during~~$352.5 ~~the year ended December 31,~~million ~~2009.~~with ~~The~~the ~~fund~~largest ~~carries~~concentration ain ~~market~~our ~~value~~footprint toof ~~book~~Connecticut ~~value~~and ~~ratio~~Massachusetts ofat 8119.210%, afollowed ~~weighted~~ by ~~average~~New ~~underlying~~York ~~investment~~at ~~credit~~14.4% ~~rating of A+~~ and itCalifornia ~~continues~~at ~~to pay normal~~12.4%.Commercial ~~monthly~~real ~~dividends.~~estate ~~There~~loans isincreased no$128.2 ~~intent~~million tofrom ~~sell~~December ~~nor~~31, is2009, itas ~~more~~the ~~likely~~Bank ~~than not that~~has ~~the~~experienced ~~Company~~increased ~~will~~demand bein ~~required~~refinancing tocommercial ~~sell~~real ~~these~~estate ~~securities~~loans. ~~The unrealized losses~~Mid-sized onbusinesses ~~auction~~continue ~~rate~~to ~~certificates~~look ~~relate~~ to ~~certificates~~regional ~~issued~~community bybanks anfor ~~investment~~relationship banking ~~firm~~ and ~~are~~personalized ~~pools~~lending ofservices. ~~government-guaranteed~~The ~~student~~commercial ~~loans~~construction ~~that~~portfolio ~~are~~of ~~issued by~~$110.5 ~~state~~million ~~student~~includes ~~loan departments~~$23.6 Inmillion ~~the first half~~ of ~~2008,~~loans ~~the~~to ~~auction~~commercial ~~process~~borrowers for residential ~~auction~~housing ~~rate~~development, ~~certificates~~of ~~began~~which toapproximately ~~freeze resulting from the problems in the credit markets~~$9.0 ~~These~~million ~~securities~~ are ~~currently~~for ~~rated~~condominium ~~AAA and are still paying~~projects. ~~their~~The ~~contractual~~decrease ~~cash~~in ~~flows~~commercial ~~and~~construction ~~are~~is ~~expected~~mainly tothe ~~continue~~result toof ~~pay~~transfers ~~their~~of ~~contractual~~construction ~~cash~~to ~~flows.~~permanent ~~Management~~loans ~~has~~to ~~concluded~~the ~~that~~commercial noreal ~~other-than-temporary~~estate ~~impairment~~ portfolio ~~exists~~ as ofwell ~~December~~as ~~31,~~a ~~2009.~~drop ~~There~~in isresidential nohousing ~~intent~~development toloans.The ~~sell~~Company ~~nor~~originates isloans ~~it more likely~~with ~~than~~interest ~~not~~reserves ~~that~~on ~~the~~certain ~~Company~~commercial ~~will~~construction becredits ~~required~~depending toon ~~sell~~various ~~these~~factors ~~securities. In 2008~~including, ~~the~~but ~~underwriter~~not ~~entered~~limited ~~into~~to, aquality ~~settlement~~of ~~agreement~~credit, ~~with~~interest ~~several~~rate ~~state~~and ~~regulatory~~project ~~agencies,~~type. ~~whereby~~At ~~they~~December ~~have~~31, ~~agreed~~2010 tothe ~~repurchase~~Company ~~these~~has ~~certificates~~five ~~from~~performing ~~both~~commercial ~~their~~construction ~~retail~~loan ~~and~~relationships ~~institutional~~representing ~~customers~~approximately ~~at par~~4.0% ~~The institutional buy-back~~ of ~~these~~ the ~~securities~~total iscommercial ~~scheduled on or around June 30, 2010. Trust preferred securities~~real ~~are~~estate ~~comprised~~portfolio ofbalance ~~two pooled trust preferreds~~ with anoutstanding ~~amortized~~interest ~~cost~~reserves of approximately $6.1.5 million, .Commercial ~~one~~business ofloans ~~which~~decreased is$12.6 ~~rated~~million BBfrom ~~and~~December ~~the~~31, ~~other~~2009 iswhile ~~rated~~commercial ~~BBB-.~~finance ~~The~~loans ~~remaining~~increased $42111.68 million ~~are~~from ~~comprised~~December ~~of twelve “individual names” issues with the following~~31, ~~ratings:~~ $62009.0 ~~million~~As ~~rated~~of ADecember to31, A-2010, ~~$14.5~~the ~~million~~asset ~~rated~~based ~~BBB+~~lending ~~and~~portfolio was $22113.17 million ~~rated~~ BBor ~~to BB+~~2.2% ~~Except~~of ~~for~~total ~~the~~loans. BBThe ~~rated~~Company ~~pooled~~remains ~~trust~~an ~~preferred~~active ~~security,~~commercial ~~the~~lender ~~unrealized~~and will ~~losses~~continue ~~reported~~promoting ~~for~~strong ~~trust~~business ~~preferred~~development ~~equity~~efforts ~~securities relate~~ to ~~the~~obtain ~~financial~~new ~~and~~business banking ~~liquidity~~relationships, ~~stresses~~while inmaintaining ~~the~~strong ~~fixed~~credit ~~income~~quality ~~markets~~and profitability. ~~Although~~We ~~the ratings on some~~believe ~~issues~~that ~~have~~our ~~been~~status ~~reduced~~as ~~since~~a ~~December~~healthy ~~31,~~regional ~~2008,~~community ~~all~~bank ~~are~~focused ~~currently~~on ~~paying~~relationship ~~the~~banking ~~contractual~~bodes ~~principal~~well ~~and~~for ~~interest~~us ~~payments.~~to Aretain ~~detailed~~customers ~~review of the two pooled trust preferreds~~ and ~~the~~to ~~“individual~~be ~~names”~~a ~~trust~~potential ~~preferred~~source ~~equity securities was completed which included an analysis~~ of ~~collateral~~credit ~~reports, cash~~for ~~flows,~~new ~~stress~~businesses.Home ~~default~~equity ~~levels~~loans and ~~financial~~lines ~~ratios~~ of ~~the~~credit ~~underlying~~decreased ~~issuers~~$33.3 million Asfrom ~~discussed~~December ~~above~~31, a2009 ~~credit~~to ~~related~~December ~~OTTI loss of $581~~31,~~000~~ ~~was~~2010. ~~recorded~~The ~~through~~ Company ~~earnings~~continues ~~during~~to ~~the~~offer ~~year~~competitive ~~ended~~pricing ~~December~~and ~~31,~~is ~~2009~~committed onto ~~one~~growing ofthis ~~the~~loan ~~pooled~~segment ~~trust~~while ~~preferred~~maintaining ~~securities~~credit quality. ~~Management~~However, ~~has~~as ~~performed~~ a ~~review~~result of ~~all~~the ~~investments~~continuing ~~with~~interest ~~unrealized~~rate ~~losses~~environment and ~~determined~~general ~~that no other investments had credit related other-than-temporary~~economic ~~impairment.~~conditions, ~~The~~consumer ~~Company~~demand has noshifted ~~intent~~ to ~~sell~~residential ~~nor~~mortgages isand itaway ~~more~~from ~~likely than not that~~home ~~the~~equity ~~Company~~products, ~~will~~contributing ~~be required~~ to ~~sell any of these securities within~~ the ~~time necessary~~ year-to-date ~~recover~~decline in the ~~unrealized losses which may be until maturity~~portfolio. The ~~Company~~ ~~does~~weighted ~~not~~average ~~plan~~FICO onscore ~~investing~~and incurrent ~~securities~~estimated ~~backed~~weighted bycombined ~~subprime~~loan ~~mortgage~~to ~~collateral.~~value ~~The~~ratio ~~following~~for ~~table~~home ~~sets~~equity ~~forth~~loans ~~certain~~and ~~information~~lines ~~regarding~~of ~~the~~credit ~~carrying~~is ~~value~~749 and 67%, ~~weighted~~respectively. ~~average~~Lending ~~yield~~has ~~and~~been ~~contractual~~from ~~maturities~~organic oforiginations in the Company’s ~~investment~~ market ~~portfolio~~area, asnone of ~~December~~which ~~31,~~is ~~2009~~subprime.Selected InLoan ~~the case of mortgage-backed securities, the~~MaturitiesThe following table shows the ~~securities by their~~ contractual ~~maturities; however, there are scheduled principal payments and there will be unscheduled prepayments prior to their contractual~~ maturity. ~~Income on obligations~~ of ~~states~~the ~~and~~Company’s ~~political subdivisions~~construction ~~are taxable~~ and nocommercial ~~yield~~business ~~adjustment~~loan ~~for~~portfolios ~~dividend~~at ~~receivable~~December ~~deduction~~31, ~~is made because it is not material~~2010.

Table 79: ~~Investment~~Contractual Maturities ~~Schedule~~and Interest Rate Sensitivity of Selected Loan Categories

		One year or less						Over one yearthrough five years						Over five yearsthrough ten years				Over ten years				Total
	Real Estate		Commercial			Commercial
				Weighted							Weighted				Weighted				Weighted				Weighted
(In thousands)	Construction		Business			Finance			Total
		Amortized		average				Amortized			average			Amortized	average			Amortized	average			Amortized	average
Amounts due
(Dollars in thousands)		cost		yield				cost			yield			cost	yield			cost	yield			cost	yield
One year or less	$	74,401	$	139,781		$	107,739		$	321,921
Available for sale
Over one year through five years		54,027		164,362			6,000			224,389
U.S. Treasury obligations	$	597		0.29	%		$	-			-	%	$	-	-	%	$	-	-	%	$	597	0.29	%
Over five years		-		92,617			-			92,617
U.S. Government sponsored enterprise obligations		44,404		3.07				96,379			2.26			55,273	3.95			2,636	3.15			198,692	2.91
Total	$	128,428	$	396,760		$	113,739		$	638,927
Corporate obligations		-		-				8,139			5.09			-	-			-	-			8,139	5.09
Interest rate terms on amounts due after one year
Other bonds and obligations		1,590		3.64				2,690			4.93			2,269	5.82			8,076	3.04			14,625	3.88
Fixed	$	32,015	$	151,576		$	6,000		$	189,591
Auction rate certificates		27,550		1.47				-			-			-	-			-	-			27,550	1.47
Adjustable		22,012		105,403			-			127,415
Marketable equity securities		8,567		0.72				-			-			-	-			-	-			8,567	0.72
Total	$	54,027	$	256,979		$	6,000		$	317,006
Trust preferred equity securities		-		-				-			-			-	-			48,754	1.49			48,754	1.49
Private label residential mortgage backed securities		-		-				-			-			-	-			23,871	4.15			23,871	4.15
Residential mortgage-backed securities		-		-				65			3.60			-	-			1,951,232	4.46			1,951,297	4.46
Total available for sale		82,708		2.28				107,273			2.54			57,542	4.02			2,034,569	4.37			2,282,092	4.20
Held to maturity
Residential mortgage-backed securities		-		-				-			-			54,132	5.66			176,464	5.00			230,596	5.16
Other bonds		1,780		4.56				6,840			4.66			550	5.55			1,000	5.15			10,170	4.74
Total held to maturity		1,780		4.56				6,840			4.66			54,682	5.66			177,464	5.00			240,766	5.15
Total securities	$	84,488		2.33	%		$	114,113			2.67	%	$	112,224	4.82	%	$	2,212,033	4.42	%	$	2,522,858	4.29	%

Higher-Risk Loans
The loan portfolio segments that we consider to be higher risk are construction loans to commercial developers for residential development and a small segment of our residential real estate loans. The Company has a carrying value of $23.6 million of commercial construction loans for residential development. All of these loans are collateralized and carry a reserve allocation of $2.0 million. This segment has total delinquencies of $2.4 million, all of which are in the over 90 day category.

Within the residential portfolio, management uses an early warning technique to more closely monitor credit deterioration and potential nonperforming loans. The Company uses a matrix to identify where the concentration of outstanding loans fall in the risk continuum. This matrix is constructed using estimated current loan-to-value ranges (current balance LTV adjusted for estimated appreciation or depreciation in the appraised value) and the latest available FICO score ranges (rescored quarterly). The Company considers loans with an estimated current loan-to-value ratio above 80% and a FICO score less than 620 to be higher-risk. Once identified, the higher-risk loans are then reviewed by the Special Assets department to determine what, if any, action should be taken to mitigate possible loss exposure. At December 31, 2010, higher-risk loans comprised approximately $59.6 million, or 2.4% of the residential real estate portfolio.

Additionally, the Company also tracks loans that have a FICO score that has declined 20 points or more and are below 660. As of December 31, 2010 loans meeting this criteria represent approximately $55.0 million, or 2.4% of the residential portfolio.

The estimated current LTV is determined using several methods including the Case-Schiller composite home price index, the National Association of Realtors quarterly report on MSA-level house price averages, and an automated valuation random sampling across vintages and regions. Updated appraisals are generally obtained at 90 days past due or at any point management determines that full repayment of the loan is unlikely.

Asset Quality
Loans are placed on nonaccrual if collection of principal or interest in full is in doubt, if the loan has been restructured, or if any payment of principal or interest is past due 90 days or more. A loan may be returned to accrual status if it has demonstrated sustained contractual performance or if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period.

As displayed in Table 10, nonperforming assets at December 31, 2010 increased to $78.4 million compared to $54.2 million at December 31, 2009. The increase is primarily due to loans secured by residential one-to-four family loans and commercial real estate loans, partially offset by a decline in commercial business and commercial construction loans.

The increase in nonperforming residential loans of $15.5 million was due to current economic conditions including factors such as continued high unemployment rates and softness in the real estate market impacting customer’s ability to make loan payments. There are 218 loans in the residential nonperforming category totaling $46.6 million, representing 1.84% of the total residential portfolio, just over half of which have property locations in Connecticut and Massachusetts. The Company routinely updates FICO scores and LTV ratios and continues to originate loans with superior credit characteristics. Through continued heightened account monitoring, collections and workout efforts, the Bank is committed to mortgage solution programs to assist homeowners to remain in their homes. As has been its practice historically, the Company does not originate subprime loans. Included in nonperforming residential loans are approximately $5.2 million in restructured loans which have been modified from their original contractual terms.

~~Lending~~In ~~Activities~~the course of resolving nonperforming ~~The~~ ~~Company~~loans, ~~originates~~the ~~residential~~Bank may choose to restructure the contractual terms of certain real estate loans. ~~secured~~Contractual byterms ~~one-~~may be modified to ~~four-family~~fit the ability of the borrower ~~residences~~to repay in line with their current financial status which may be a reduction in interest rate to market rate or below, ~~commercial~~a ~~real~~change ~~estate~~in ~~loans~~the term, movement of the past due amounts to the back end of the loan or refinance. Loans are placed on nonaccrual status upon being restructured, even if they were not previously on nonaccrual status. The Bank’s policy to restore a loan to performing status includes the receipt of regular payments, generally for a period of six months. Over the past two years, the Company has restructured approximately 30 residential and six commercial ~~construction~~real estate loans.General adverse economic pressure, including softness in the real estate markets, continues to be the main driver of the increase in nonperforming commercial real estate loans,. ~~multi-family~~This increase primarily relates to four loans, ~~home~~totaling ~~equity~~$10.2 ~~lines~~million ofwhich ~~credit~~have been restructured and ~~fixed~~are performing in accordance with ~~rate~~restructured terms. These loans ~~and~~are ~~other~~expected ~~consumer~~to return to full performing status by mid-2011. As of December 31, 2010, the construction to permanent segment of commercial construction loans ~~throughout~~had no delinquencies or nonaccruals.While the ~~States~~economic data indicates the worst of ~~Connecticut~~the recession is over, if unfavorable general economic, employment and ~~Massachusetts.~~real estate market conditions persist or deteriorate further, there ~~Additionally~~will be added stress on our loan portfolios. The Company believes, ~~within~~however, that its historical practice of prudent underwriting, the relatively modest size of its residential ~~real~~construction ~~estate~~portfolio and strong average FICO scores combined with low weighted average loan ~~category~~to ~~are~~value ~~loans~~ratios associated with ~~property~~its residential portfolio ~~locations~~are ~~spread~~significant ~~throughout~~advantages ~~the~~in ~~United~~keeping ~~States,~~asset quality manageable. Nonperforming loans as a ~~result~~percent of ~~the~~total ~~Company’s~~loans outstanding at December 31, 2010 were 1.47%, compared ~~residential~~to ~~real~~1.06% ~~estate~~at ~~loan~~December ~~purchase~~31, ~~program~~2009.

~~The following table summarizes the composition of the Company’s total loan portfolio as of the dates presented:~~Table 810: ~~Loan~~Nonperforming ~~Portfolio Analysis~~Assets

		December 31, 2009					December 31, 2008							December 31, 2007					December 31, 2006					December 31, 2005
	At December 31,
					Percent						Percent					Percent					Percent					Percent
(Dollars in thousands)	2010			2009			2008			2007			2006
(Dollars in thousands)		Amount			of Total			Amount			of Total			Amount		of Total			Amount		of Total			Amount		of Total
Nonaccruing loans (1)
Residential real estate	$	2,382,514			50.0	%	$	2,524,638			50.9	%	$	2,360,921		49.9	%	$	1,916,551		50.1	%	$	1,638,409		50.0	%
Real estate loans
Residential real estate construction		13,789			0.3			21,380			0.4			29,023		0.6			8,097		0.2			12,118		0.4
Residential (one- to four-family)	$	46,633		$	31,140		$	12,634		$	4,837		$	1,716
Total residential real estate		2,396,303			50.3			2,546,018			51.3			2,389,944		50.5			1,924,648		50.3			1,650,527		50.4
Commercial real estate		18,803			6,136			8,201			3,414			2,815
Commercial real estate		1,100,880			23.1			1,077,200			21.7			947,185		20.1			785,811		20.5			670,719		20.4
Commercial construction		2,398			2,459			10,234			2,382			4,091
Commercial real estate construction		132,370			2.8			143,610			2.9			247,428		5.2			174,813		4.6			97,863		3.0
Total real estate loans		67,834			39,735			31,069			10,633			8,622
Total commercial real estate		1,233,250			25.9			1,220,810			24.6			1,194,613		25.3			960,624		25.1			768,582		23.4
Commercial business		4,158			8,497			5,863			4,912			3,337
Commercial business		411,211			8.6			458,952			9.2			457,745		9.7			350,507		9.2			314,562		9.6
Consumer loans
Home equity and equity lines of credit		~~705~~2,~~673~~846			~~14.9~~2,187			~~714~~1,~~444~~304			~~14.4~~606			~~652,107~~467		~~13.8~~			~~570,493~~		~~14.9~~			~~520,290~~		~~15.9~~
Other consumer		~~15,608~~45			~~0.3~~88			~~22,561~~95			~~0.5~~235			~~33,560~~42		~~0.7~~			~~16,604~~		~~0.4~~			~~22,745~~		~~0.7~~
Total consumer loans		721,281			15.2			737,005			14.9			685,667		14.5			587,097		15.4			543,035		16.6
Total consumer		2,891			2,275			1,399			841			509
Total loans		4,762,045			100.0	%		4,962,785			100.0	%		4,727,969		100.0	%		3,822,876		100.0	%		3,276,706		100.0	%
Total nonaccruing loans		74,883			50,507			38,331			16,386			12,468
Allowance for loan losses		(52,463	)					(49,911	)					(43,813	)				(37,408	)				(35,552	)
Real estate owned		3,541			3,705			2,023			897			-
Loans, net	$	4,709,582					$	4,912,874					$	4,684,156				$	3,785,468				$	3,241,154
Total nonperforming assets	$	78,424		$	54,212		$	40,354		$	17,283		$	12,468
Allowance for loan losses as a percent of total loans (2)		1.08%			1.10%			1.01%			0.93%			0.98%
Allowance for loan losses as a percent of nonperforming loans		73.75%			103.87%			130.21%			267.38%			300.03%
Nonperforming loans as a percent of total loans (2)		1.47%			1.06%			0.77%			0.35%			0.33%
Nonperforming assets as a percent of total assets		0.87%			0.64%			0.49%			0.21%			0.17%
Troubled debt restructured loans included in nonaccruing loans above	$	15,370		$	3,294		$	-		$	-		$	-

(1)	Nonperforming loans include all loans 90 days or more past due, restructured loans due to a weakening in the financial condition of the borrower and other loans for which have been identified by the Company as presenting uncertainty with respect to the collectability of principal or interest. The Company’s nonperforming loans do not accrue interest.
(2)	Total loans are stated at their principal amounts outstanding, net of deferred loan fees and costs and net unamortized premium on acquired loans.

The following tables set forth delinquencies for 30–89 days and 90 days or more in the Company’s loan portfolio as of the dates indicated:

~~As shown in~~ Table 8, gross loans were $4.76 billion, down $200.7 million, at December 31, 2009 from year-end 2008. The Company experienced a decrease in most loan categories due to higher levels of residential mortgage prepayments and reduced business and consumer loan demand.Residential real estate loans continue to represent the largest segment of the Company’s loan portfolio as of December 31, 2009, comprising over fifty percent of total loans. The decrease of $149.7 million from December 31, 2008 was primarily due to prepayments outweighing new originations for the portfolio during the year. This is attributable to the decline in interest rates to historically low levels resulting in customer refinancing to lock-in fixed rate mortgages. Although the Company had record originations of both adjustable and fixed rate mortgages of $1.04 billion during the year, approximately $567.7 million was originated for portfolio and the remainder was sold in the secondary market. The Company currently sells the majority of all originated fixed rate residential real estate loans with terms of 15 years or more. During the third quarter of 2009, the Company began to retain in its portfolio 30 year jumbo fixed rate residential mortgage originations and for 2009 these originations totaled approximately $7.4 million. The Company anticipates that mortgage origination activity will continue to be robust while interest rates remain low, but likely not at the 2009 levels. The residential real estate loan portfolio has a weighted average FICO score of 748 and a current estimated weighted loan to value ratio of 59%. Included in residential real estate is a purchased portfolio, which is made up of prime loans individually re-underwritten by the Company to our underwriting criteria, and includes adjustable-rate and 10 and 15 year fixed-rate residential real estate loans with property locations throughout the United States with no significant exposure in any particular state. At December 31, 2009 the Company’s purchased portfolio had an outstanding balance of approximately $498.7 million with the largest concentration in our footprint of Connecticut and Massachusetts at 18.7%, followed by California and New York, which each make up approximately 13.5%. NewAlliance plans on resuming purchases when loan pools are available that meet its criteria.Commercial real estate loans increased $12.4 million and commercial business loans decreased $47.7 million from December 31, 2008. In general, loan growth has slowed due to current economic conditions. Originations, especially during the first half of 2009, were dominated by financing requests from current customers and less from new customers. This was due, in part, to fewer opportunities that met our underwriting and credit quality standards. More opportunities are emerging in the form of refinances away from larger national banks as they have been internally focused or are targeting an up market customer base. This has led mid-sized businesses to look to regional community banks for relationship banking and personalized lending services.The commercial construction portfolio of $132.4 million includes approximately $29.3 million of loans to commercial borrowers for residential housing development, $11.5: ~~million~~Loan of which are for condominium projects. The decrease in commercial construction of $11.2 million is due to a decrease in residential housing development loans through a negotiated settlement, paydowns and further charge-offs on nonperforming condominium projects, partly offset by originations of commercial construction to permanent loans.Although the Company’s commercial portfolios have declined, our long term strategy continues to be that of building a larger percentage of the Company’s assets in commercial loans including real estate and other business loans. In the fourth quarter of 2009, the Company formed an asset-based lending business. Asset-based lending expands the Bank’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets. An asset-based loan is collateralized with a customer’s balance sheet assets, which are considered the primary source of loan repayment. This type of financing is particularly attractive to start-up and growth companies, as well as those in restructuring, turn-around, or other financially distressed situations that result in the inability to secure traditional commercial lending. We remain an active commercial lender and will continue promoting strong business development efforts to obtain new business banking relationships, while maintaining strong credit quality and profitability. We believe that our status as a healthy regional community bank focused on relationship banking bodes well for us to retain customers and to be a source for new businesses.Home equity loans and lines of credit decreased $8.8 million from December 31, 2008 to December 31, 2009. The Company continues to offer competitive pricing and is committed to growing this loan segment while maintaining credit quality. However, as a result of the interest rate environment during 2009, consumer demand shifted to residential mortgages and away from home equity products, attributing to the year over year decline in the portfolio. The weighted average FICO score and current estimated weighted combined loan to value ratio for home equity loans and lines of credit is 748 and 65%, respectively. Lending has been from organic originations in the Company’s market area, none of which is subprime.Delinquencies

	At December 31,

	2010				2009				2008

	30-89 Days				30-89 Days				30-89 Days

	Number	Principal			Number	Principal			Number	Principal
	of	Balance			of	Balance			of	Balance
(Dollars in thousands)	Loans	of Loans			Loans	of Loans			Loans	of Loans

Real estate loans
Residential	71	$	13,219		76	$	15,924		70	$	12,913
Commercial	7		1,636		5		1,181		7		2,993
Commercial construction	-		-		1		1,309		-		-

Total real estate loans	78		14,855		82		18,414		77		15,906

Commercial business	26		2,113		23		1,167		32		3,203

Consumer
Home equity	38		1,948		48		2,679		49		2,885
Other consumer	81		308		94		460		61		489

Total consumer	119		2,256		142		3,139		110		3,374

Total	223	$	19,224		247	$	22,720		219	$	22,483

Delinquent loans to total loans			0.38	%			0.48	%			0.45	%

	At December 31,

	2010				2009				2008

	90 Days or More				90 Days or More				90 Days or More

	Number	Principal			Number	Principal			Number	Principal
	of	Balance			of	Balance			of	Balance
(Dollars in thousands)	Loans	of Loans			Loans	of Loans			Loans	of Loans

Real estate loans
Residential	218	$	46,633		168	$	31,140		63	$	12,634
Commercial	21		18,803		17		6,136		7		8,201
Commercial construction	3		2,398		5		2,459		10		10,234

Total real estate loans	242		67,834		190		39,735		80		31,069

Commercial business	41		4,158		73		8,498		46		5,863

Consumer
Home equity	51		2,846		38		2,187		22		1,304
Other consumer	8		45		11		88		20		95

Total consumer	59		2,891		49		2,275		42		1,399

Total	342	$	74,883		312	$	50,508		168	$	38,331

Delinquent loans to total loans			1.47	%			1.06	%			0.77	%

(1)

The table of delinquencies does not include guaranteed U.S. Government Certificates totaling $902,000 and $3.2 million at December 31, 2010 and 2009, respectively. At December 31, 2010, total delinquencies were in the 30-89 day category, where as $2.8 million was 30– 89 days delinquent and $477,000 was delinquent 90 days or more and non-accruing at December 31, 2009. The delinquent loans to total loans ratio, including these loans would be 0.40% for 30-89 days at December 31, 2010 and 0.54% and 1.07%, for the 30 - 89 days and 90 days or more categories, respectively, at December 31, 2009.

Other Real Estate Owned
The Company classifies property acquired through foreclosure or acceptance of a deed-in-lieu of foreclosure as other real estate owned in its financial statements. When a property is placed in other real estate owned, the excess of the loan balance over the estimated fair market value of the collateral, based on a recent appraisal, is charged to the allowance for loan losses. Estimated fair value usually represents the sales price a buyer would be willing to pay on the basis of current market conditions, including normal loan terms from other financial institutions, less the estimated costs to sell the property. Management inspects all other real estate owned properties periodically. Subsequent writedowns in the carrying value of other real estate owned are charged to expense if the carrying value exceeds the estimated fair value. At December 31, 2010, the Company had $3.5 million in other real estate owned. Due to current market conditions the Company does expect foreclosure activity to increase moderately in 2011.

~~Selected~~Classification of Assets and Loan ~~Maturities~~ReviewAn internal risk rating system is used to monitor and evaluate the credit risk inherent in the commercial, commercial real estate and commercial construction loan portfolios. Under our internal risk rating system, we currently identify criticized loans as “special mention,” “substandard,” “doubtful” or “loss”. On a quarterly basis, a Criticized Asset Committee composed of senior officers meets to review Criticized Asset Reports on commercial, commercial real estate and commercial construction loans that are risk rated special mention, substandard, or doubtful. The ~~following~~reports ~~table~~and ~~shows~~the committee focus on the ~~contractual~~current ~~maturity~~status, strategy, financial data, and appropriate risk rating of the ~~Company~~criticized loan. The internal risk ratings are subject to change based on the committee’s ~~construction~~review and approval. In addition to the internal review, semi-annually, the Bank engages a third party to conduct a review of the commercial, ~~business~~commercial real estate and commercial construction loan portfolios. The primary purpose of the third party review is to evaluate the loan portfolio with respect to the risk rating profiles. Differences between the third party review and the internal risk ratings are discussed and rating classifications are adjusted accordingly. At December 31, 2010, commercial, commercial real estate and commercial construction loans classified as substandard (both accruing and nonaccruing) totaled $73.5 million, and consisted of $39.9 million in commercial real estate loans, $19.0 million in construction lines and $14.6 million in commercial loans. Included in loans classified as substandard are $23.8 million of loans that are considered impaired and carry a specific reserve of $1.8 million. Impaired loans are measured based on either collateral values supported by appraisals, observed market prices or where potential losses have been identified and reserved accordingly. Special mention loans totaled $130.6 million, and consisted of $64.1 million of commercial real estate loans, $12.3 million in construction lines and $54.2 million of commercial loans. There were three loans totaling $647,000 classified as doubtful at December 31, 2010. At December 31, 2009, loans classified as substandard (both accruing and nonaccruing) totaled $75.5 million, and consisted of $32.1 million in commercial real estate loans, $22.3 million in construction lines and $21.1 million in commercial loans. Special mention loans totaled $148.7 million, and consisted of $88.7 million of commercial real estate loans, $16.7 million in construction lines and $43.3 million of commercial loans. There were no loans classified as doubtful at December 31, 2009.The Company evaluates its nonperforming residential real estate loans for impairment based on a review of current collateral values. At December 31, 2010, the Company’s nonperforming residential real estate loans were evaluated and of the $46.6 million nonperforming loans, $19.4 million were identified as requiring a specific reserve allocation which totaled $1.7 million. The Company also monitors credit deterioration in potential nonperforming residential real estate loans using current estimated loan-to-value ranges and the latest available FICO scores as described above in the Higher Risk Loans section.Allowance For Loan LossesThe Board of Directors and management of the Company are committed to the establishment and maintenance of an adequate allowance for loan losses, determined in accordance with GAAP. Our approach is to follow the most recent guidelines that have been provided by our regulators. Management believes that the methodology it employs to develop, monitor and support the allowance for loan losses is consistent with those guidelines.While management believes that it has established adequate specific and general allowances for probable losses on loans, there can be no assurance that the regulators, in reviewing the Company’s loan portfolio, will not request an increase in the allowance for losses, thereby negatively affecting the Company’s financial condition and earnings. Moreover, actual losses may be dependent upon future events and, as such, further additions to the allowance for loan losses may become necessary.The allowance for loan losses is established through provisions for loan losses based on management’s on-going evaluation of the risks inherent in the Company’s loan portfolio. Charge-offs against the allowance for loan losses are taken on loans when it is determined that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.The allowance for loan losses and the provision are determined based upon a detailed evaluation of the portfolio and sub-portfolios through a process which considers numerous factors, including levels and direction of delinquencies, nonperforming loans, risk ratings, estimated credit losses using both internal and external portfolio reviews, current economic and market conditions, concentrations, industry data, peer comparisons, portfolio volume and mix, changes in underwriting, experience of staff, and historical loss rates over the business cycle.The Bank evaluates the allowance for loan loss requirements through an analysis of all impaired loans in accordance with impairment guidance within FASB ASC 310 -Receivables, with the balance of the portfolios, not impaired, analyzed under the guidelines of FASB ASC 450 – Contingencies, using a measurement of estimated credit losses based on historical loss rates adjusted for qualitative and environmental factors. The qualitative and environmental factors include but are not limited to 1) estimated embedded losses in non-performing loans and criticized loans not impaired 2) estimated losses in high risk residential mortgages and home equity loans

Table 9: Contractual Maturities and Interest Rate Sensitivity of Selected Loan Categories

		Real Estate		Commercial
(In thousands)		Construction		Business		Total
Amounts due
One year or less	$	118,447	$	159,377	$	277,824
Over one year through five years		27,712		152,626		180,338
Over five years		-		99,208		99,208
Total	$	146,159	$	411,211	$	557,370
Interest rate terms on amounts due after one year
Fixed	$	1,072	$	145,137	$	146,209
Adjustable		26,640		106,697		133,337
Total	$	27,712	$	251,834	$	279,546

Higher-Risk LoansThe loan portfolio segments that we consider to have the highest risk are construction loans to commercial developers for residential development and a small segment of our residential real estate loans, $11.5 million of which are for condominium projects. The Company has a carrying value of $29.3 million of commercial construction loans for residential development. All of these loans are collateralized and carry a reserve allocation of approximately $3.8 million. This segment has total delinquencies of $2.5 million, all of which are in the over 90 day category.Within the residential portfolio, management uses two main early warning techniques to more closely monitor credit deterioration. The Company uses a matrix to identify where the concentration of outstanding loans fall in the risk continuum. This matrix is constructed using estimated current loan-to-value ranges (current balance LTV adjusted for estimated appreciation or depreciation in the appraised value) and the latest available FICO score ranges (rescored quarterly). The Company considers loans with an estimated current loan-to-value ratio above 80% and a FICO score less than 620 to be higher-risk. Once identified, the higher-risk loans are then reviewed by the Special Assets department to determine what, if any, action should be taken to mitigate possible loss exposure. At December 31, 2009, higher-risk loans comprised approximately $41.0 million, or 1.7% of the residential real estate portfolio. The Company also tracks loans that have a FICO score that has declined 20 points or more and are below 660. As of December 31, 2009 loans meeting this criteria represent approximately $60.0 million, or 2.5% of the residential portfolio.The estimated current LTV is determined using several methods including the Case-Schiller composite home price index, the National Association of Realtors quarterly report on MSA-level house price averages, and an automated valuation random sampling across vintages and regions. Updated appraisals are generally obtained at 90 days past due or at any point management determines that full repayment of the loan is unlikely.Asset QualityLoans are placed on nonaccrual if collection of principal or interest in full is in doubt, if the loan has been restructured, or if any payment of principal or interest is past due 90 days or more. A loan may be returned to accrual status if it has demonstrated sustained contractual performance or if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period.As displayed in Table 10, nonperforming assets at December 31, 2009 increased to $54.2 million compared to $40.4 million at December 31, 2008. The increase is primarily due to loans secured by residential one-to-four family loans and commercial business loans, partially offset by a decline in commercial real estate and commercial construction loans.The increase in nonperforming residential loans of $18.5 million was due to current economic conditions including factors such as the rise in unemployment rates reaching a twenty-six year high and the continued softness in the real estate market. The residential nonperforming category totaled $31.1 million, representing 1.30% of the total residential portfolio, just over half of which have property locations in Connecticut and Massachusetts. The Company routinely updates FICO scores and LTV ratios and continues to

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