Sterling Bancorp (STL) 10-Q 2008 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 0-25233

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)

Delaware	80-0091851
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer ID No.)
400 Rella Boulevard, Montebello, New York	10901
(Address of Principal Executive Office)	(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

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 twelve 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨    Accelerated Filer  x    Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

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

Classes of Common Stock	Shares Outstanding as of August 1, 2008
$0.01 per share	39,839,335

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PEROD ENDED JUNE 30, 2008

	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition (unaudited) at June 30, 2008 and September 30, 2007	3
	Consolidated Statements of Income (unaudited) for the Three Months and Nine Months Ended June 30, 2008 and June 30, 2007	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Nine months Ended June 30, 2008	5
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2008 and 2007	6
	Consolidated Statements of Comprehensive Income (loss) (unaudited) for the Three Months and Nine Months Ended June 30, 2008 and 2007.	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	34
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1.A.	Risk Factors	35
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Submission of Matters to a Vote of Security Holders	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(Dollars in thousands, except per share data)

	June 30, 2007			Sept 30, 2008
ASSETS
Cash and due from banks	$	46,208		$	47,291
Securities available for sale (including $580,923 and $563,030 pledged as collateral for borrowings and deposits at June 30, 2008 and September 30, 2007 respectively) (note 6)		777,161			794,997
Held to maturity, at amortized cost (fair value of $41,694 and $37,584 at June 30, 2008 and September 30, 2007, respectively) (note 6)		41,442			37,446
Total securities		818,603			832,443
Loans (notes 4 and 5):
One to four family residential mortgage loans		510,832			500,825
Commercial real estate, commercial business and construction loans		936,567			895,233
Consumer loans		240,452			242,000
Gross loans		1,687,851			1,638,058
Allowance for loan losses		(22,001	)		(20,389	)
Total loans, net		1,665,850			1,617,669
Federal Home Loan Bank (“FHLB”) stock, at cost		31,823			32,801
Accrued interest receivable		10,209			12,641
Premises and equipment, net		34,625			30,079
Goodwill		160,861			161,154
Core deposit and other intangible assets		8,966			11,041
Bank owned life insurance		47,135			40,818
Deferred income taxes, net		12,768			4,330
Other assets		13,506			11,832
Total assets	$	2,850,554		$	2,802,099
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits (note 7)	$	1,775,720		$	1,713,684
FHLB and other borrowings (including repurchase agreements of $259,710 and $205,073 in June 30, 2008 and September 30, 2007, respectively) (note 8)		635,596			661,242
Mortgage escrow funds		18,714			5,982
Other liabilities		19,383			16,102
Total liabilities		2,449,413			2,397,010
STOCKHOLDERS’ EQUITY :
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)		—			—
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 39,839,335 and 41,230,618 shares outstanding at June 30, 2008 and September 30, 2007, respectively)		459			459
Additional paid-in capital		352,093			348,734
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(7,760	)		(8,221	)
Treasury stock, at cost (6,090,217 and 4,698,934 shares at June 30, 2008 and September 30, 2007, respectively)		(75,347	)		(57,422	)
Retained earnings		134,691			125,743
Accumulated other comprehensive income (loss), net of taxes (notes 6 and 11)		(2,995	)		(4,204	)
Total stockholders’ equity		401,141			405,089
Total liabilities and stockholders’ equity	$	2,850,554		$	2,802,099

See accompanying notes to unaudited consolidated financial statements

3

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2008		2007		2008		2007
Interest and dividend income:
Loans	$	25,630	$	27,896	$	81,101	$	80,847
Securities		9,774		9,449		29,123		29,923
Other earning assets		662		641		2,052		1,819
Total interest and dividend income		36,066		37,986		112,276		112,589
Interest expense:
Deposits		6,187		9,010		22,895		26,985
Borrowings		5,691		6,645		19,578		23,111
Total interest expense		11,878		15,655		42,473		50,096
Net interest income		24,188		22,331		69,803		62,493
Provision for loan losses ( note 5)		1,400		400		5,100		1,200
Net interest income after provision for loan losses		22,788		21,931		64,703		61,293
Non-interest income:
Deposit fees and service charges		3,100		2,848		9,183		8,478
Net gain on sale of securities available for sale (note 6)		22		—		983		4
Title insurance fees		274		308		619		855
Bank owned life insurance		455		432		1,317		1,613
Investment management fees		750		759		2,242		2,107
Other		423		641		1,392		1,871
Total non-interest income		5,024		4,988		15,736		14,928
Non-interest expense:
Compensation and employee benefits (note 11)		9,245		8,567		26,936		24,517
Stock-based compensation plans (note 2)		973		1,433		2,893		4,286
Occupancy and office operations		3,090		2,827		9,309		8,670
Advertising and promotion		933		1,267		2,628		3,024
Professional fees		813		914		2,588		2,982
Data and check processing		646		659		1,913		1,949
Amortization of intangible assets		636		746		1,988		2,323
ATM/debit card expense		456		471		1,412		1,365
Other		2,163		2,166		6,334		6,428
Total non-interest expense		18,955		19,050		56,001		55,544
Income before income tax expense		8,857		7,869		24,438		20,677
Income tax expense (note 12)		2,551		2,433		7,155		6,199
Net Income	$	6,306	$	5,436	$	17,283	$	14,478
Weighted average common shares:
Basic		38,719,917		40,722,093		39,014,150		41,012,030
Diluted		39,110,353		41,223,958		39,402,248		41,551,464
Per common share (note 9)
Basic	$	0.16	$	0.13	$	0.44	$	0.35
Diluted	$	0.16	$	0.13	$	0.44	$	0.35

See accompanying notes to unaudited consolidated financial statements

4

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(Dollars in thousands, except share data)

	Number of Shares		Common Stock		Additional Paid-In Capital			Unallocated ESOP Shares			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at September 30, 2007	41,230,618		$	459	$	348,734		$	(8,221	)	$	(57,422	)	$	125,743		$	(4,204	)	$	405,089
Net income	—			—		—			—			—			17,283			—			17,283
Other comprehensive income	—			—		—			—			—			—			1,209			1,209
Total comprehensive income																					18,492
Deferred compensation transactions	—			—		26			—			—			—			—			26
Stock option transactions, net	173,494			—		1,309			—			1,789			(1,216	)		—			1,882
ESOP shares allocated or committed to be released for allocation ( 71,946 shares)	—			—		456			461			—			—			—			917
RRP Awards	6,000			—		(81	)		—			66			15			—			0
Vesting of RRP Awards	—			—		1,345			—			—			—			—			1,345
Purchase of treasury shares	(1,570,777	)		—		—			—			(19,780	)		—			—			(19,780	)
Cash dividends paid ($0.18 per common share)	—			—		—			—			—			(7,134	)		—			(7,134	)
Other	—			—		304			—			—			—			—			304
Balance at June 30, 2008	39,839,335		$	459	$	352,093		$	(7,760	)	$	(75,347	)	$	134,691		$	(2,995	)	$	401,141

See accompanying notes to unaudited consolidated financial statements.

5

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands, except per share data)

	For the Nine Months Ended June 30,
	2008			2007
Cash flows from operating activities:
Net income	$	17,283		$	14,478
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		5,100			1,200
Depreciation and amortization of premises and equipment		3,342			3,366
Amortization of intangibles		1,988			2,407
Gain on sales of loans held for sale		—			(154	)
Gain on sale of securities available for sale		(983	)		(4	)
Gain on sales of fixed assets		—			(212	)
Net amortization (accretion) of premium and discounts on securities		(54	)		709
Amortization of premiums on borrowings (includes calls on borrowings)		(612	)		(1,404	)
ESOP and RRP expense		2,263			3,588
ESOP forfeitures		(293	)		(250	)
Stock option compensation expense		923			948
Originations of loans held for sale		—			(20,243	)
Proceeds from sales of loans held for sale		—			27,870
Increase in cash surrender value of bank owned life insurance		(1,317	)		(1,079	)
Deferred income tax benefit		(2,580	)		(2,901	)
Net changes in accrued interest receivable and payable		944			3,170
Other adjustments (principally net changes in other assets and other liabilities)		(1,897	)		(2,959	)
Net cash provided by operating activities		24,107			28,530
Cash flows from investing activities
Purchases of securities:
Available for sale		(216,004	)		(103,871	)
Held to maturity		(14,883	)		(6,255	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		196,479			257,051
Held to maturity		10,846			25,767
Proceeds from sales of securities available for sale		39,455			846
Loan originations		(429,191	)		(470,612	)
Loan principal payments		375,910			329,613
Purchase of FHLB stock		978			3,691
Purchases of premises and equipment		(7,888	)		(3,143	)
Proceeds from the sale of premises		—			1,725
Purchase of BOLI		(5,000	)		—
Net cash (used in) provided by investing activities		(49,298	)		34,812
Cash flows from financing activities
Net increase in transaction, savings and money market deposits		85,921			21,248
Net decrease in time deposits		(23,874	)		(2,055	)
Net decrease in borrowings		(25,034	)		(85,924	)
Net increase in mortgage escrow funds		12,732			13,216
Treasury shares purchased		(19,780	)		(15,158	)
Stock option transactions		1,251			205
Other stock-based compensation transactions		26			38
Cash dividends paid		(7,134	)		(6,199	)
Net cash provided by (used in) financing activities		24,108			(74,629	)
Net decrease in cash and cash equivalents		(1,083	)		(11,287	)
Cash and cash equivalents at beginning of period		47,291			57,296
Cash and cash equivalents at end of period	$	46,208		$	46,009
Supplemental information:
Interest payments	$	43,961		$	48,914
Income tax payments		11,673			7,762
Net change in unrealized gains recorded on securities available for sale		1,999			(5,880	)
Change in deferred taxes on unrealized losses on securities available for sale		(834	)		2,406
Number of RRP shares issued		6,000			5,000

See accompanying notes to unaudited consolidated financial statements.

6

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2008			2007			2008			2007
Net Income:
Other Comprehensive income :	$	6,306		$	5,436		$	17,283		$	14,478
Net unrealized holding gains / (losses) arising during the period, net of tax (expense) / benefit of $5,727 $3,269, ($1,196) and $876		(8,326	)		(4,721	)		1,803			(1,239	)
Reclassification adjustment for net realized gains included in net income, net of related income tax of $9, $0, $406 and $1		(19	)		—			(594	)		(2	)
Total Comprehensive Income (Loss)	$	(2,039	)	$	715		$	18,492		$	13,237

See accompanying notes to unaudited consolidated financial statements.

7

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

1. Basis of Presentation

The consolidated financial statements and other financial information presented in this document at or for the nine months ended June 30, 2008 include the accounts of Provident New York Bancorp, a Delaware corporation (the “Company”), Provident Bank (the “Bank”), Hardenburgh Abstract Company of Orange County, Inc. (“Hardenburgh”), and Hudson Valley Investment Advisors, LLC (“HVIA”) and each subsidiary of Provident Bank: Provest Services Corp., (an inactive subsidiary), Provest Services Corp. I, Provest Services Corp. II, Provident REIT, Inc., WSB Funding, Inc., Warsave Development Corp., Provident Municipal Bank and WSB Financial Services, Inc. (an inactive subsidiary). Collectively, these entities are referred to herein as the “Company.” Provident New York Bancorp is a publicly held company and the parent company of the Bank. Provest Services Corp. I holds a limited partnership interest in a low-income housing partnership which provides certain favorable tax consequences. Warsave Development Corp. holds title to a rental property that generates rental income. Hardenburgh is a title insurance agency which generates title insurance fees and commissions. HVIA is an investment advisory firm which generates investment management fees. Provest Services Corp. II has engaged a third-party provider to sell annuities and life insurance to the customers of the Bank. Through June 30, 2008, the activities of these wholly-owned subsidiaries have had an immaterial impact on the Company’s consolidated financial condition and results of operations. Provident REIT, Inc. and WSB Funding, Inc. hold a portion of the Company’s real estate loans and are real estate investment trusts for federal income tax purposes. Provident Municipal Bank (“PMB”) is a limited purpose New York State-chartered commercial bank and is authorized to accept deposits from municipalities in the Bank’s New York business area.

The Company’s off-balance sheet activities are limited to loan origination commitments, lines of credit and letters of credit extended to customers or, in the case of letters of credit, on behalf of customers in the ordinary course of its lending activities. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three and nine months ended June 30, 2008 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2008. The unaudited consolidated financial statements presented herein should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2007.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan losses (see note 5), which reflects the application of a critical accounting policy.

Certain amounts from prior periods have been reclassified to conform to the current fiscal year presentation.

2. Stock-Based Compensation

The Company applies Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation”, and related interpretations in accounting for its stock-based compensation plans The Company’s stock-based compensation plans allow for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS No. 123R, grants issued subsequent to the adoption of SFAS 123R that are subject to such an accelerated vesting upon the recipient’s attainment of retirement age are expensed over the shorter of the time-to-retirement age or the vesting schedule in accordance with the grant. Thus, the vesting period can be far less than the plan’s five-year vesting period depending on the age of the grantee. As of June 30, 2008, 100,400 shares of the options granted were subject to this potential accelerated vesting. During the nine months ended June 30, 2008 & 2007, the Company expensed $15 and $41, respectively, for accelerated vesting of stock options.

The Company elected the modified prospective transition method in adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. Under the Company’s 2000 and 2004 stock plans there are a total of 304,455 shares available for future grant as of June 30, 2008 under both plans, options have a ten-year term and

8

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

may be either non-qualified stock options or incentive stock options. Reload options may be granted under the terms of the 2000 Stock Option Plan and provide for the automatic grant of a new option at the then-current market price in exchange for each previously owned share tendered by an employee in a stock-for-stock exercise or for the mandatory withholding of income taxes. The 2004 Plan options do not contain reload options. However, the 2004 plan allows for the grant of stock appreciation rights (none have been granted). Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value of the stock on the grant date. The Company issued 28,955 shares and 260,134 shares of stock-based option awards including reload options for the three and nine month period ended June 30, 2008, respectively. The Company recognized total non-cash stock-based compensation cost of $338 and $923 associated with stock options for the three and nine month period ended June 30, 2008, respectively. As of June 30, 2008, the total remaining unrecognized compensation cost related to non-vested stock options was $1.6 million. The following table shows information regarding outstanding and exercisable options as of June 30, 2008:

	June 30, 2008
	Outstanding				Exercisable
		Weighted-Average				Weighted-Average
	Number of Stock Options	Exercise Price		Life (in Years)	Number of Stock Options	Exercise Price		Life (in Years)
Range of Exercise Price
$3.50 to $7.31	538,505	$	3.81	1.65	538,505	$	3.81	1.65
$7.32 to $11.85	166,898		11.60	4.78	157,898		11.63	4.65
$11.86 to $15.66	1,786,760		12.94	6.39	1,246,820		12.90	6.17
	2,492,163	$	10.88	5.26	1,943,223	$	10.28	4.79

9

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

The following table summarizes the Company’s stock option activity for the nine months ended June 30, 2008:

	Number of Shares		Weighted Average Exercise Price
Outstanding at October 1, 2007	2,504,294		$	10.20
Granted	260,134			13.06
Exercised	(239,628	)		5.92
Forfeited	(32,637	)		12.85
Outstanding at June 30, 2008	2,492,163		$	10.88
Exercisable at June 30, 2008	1,943,223		$	10.28
Weighted average estimated fair value of options granted during the period			$	2.95

The fair value for grants during the nine-month period ended June 30, 2008 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate	3.32	%
Dividend yield	1.86	%
Volatility of the market price	27.42	%
Weighted-average expected life of options	5.49 yrs

The aggregate intrinsic value of options outstanding as of June 30, 2008 was $3,908. The intrinsic value represents total pre-tax intrinsic value (the difference between the Company’s’ closing stock price on the last trading date of the nine-month period ended June 30, 2008 and the exercise price, multiplied by the number of in-the-money options).

Under the Company’s 2000 and 2004 restricted stock plans, 77,033 shares of restricted stock are reserved for issuance as of June 30, 2008. The Company can also fund the restricted stock plan with treasury stock. The fair market value of the shares awarded under the restricted stock plan is being amortized to expense on a straight-line basis over the five-year vesting period of the underlying shares. Compensation expense related to the restricted stock plan was $1,345 and $1,576 for the nine months ended June 30, 2008 and 2007, respectively. The remaining unearned compensation cost was $3,121 as of June 30, 2008. On the grant date, shares awarded under the restricted stock plan were transferred from treasury stock at cost with the difference between the fair market value on the grant date and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable.

The terms of issued restricted stock allow for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS No. 123R, grants issued subsequent to adoption of SFAS 123R that are subject to such an accelerated vesting upon the recipient’s attainment of retirement age are expensed over the shorter of the time-to-retirement age or the vesting schedule in accordance with the grant. Thus, the vesting period can be shorter than the plan’s five-year vesting period depending on the age of the grantee. As of June 30, 2008, 148,500 shares of the awards granted were subject to this accelerated vesting. A summary of restricted stock award activity under the plan for the nine months ended June 30, 2008 is presented below:

10

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

	Number of Shares		Grant-Date Fair Value
Nonvested shares outstanding at October 1, 2007	340,700		$	12.87
Granted	6,000			13.46
Vested	(50	)		13.57
Forfeited	—
Nonvested shares outstanding at June 30, 2008	346,650		$	12.87

The Company expensed $45 and $252 for accelerated vesting for the nine months ended June 30, 2008 and 2007, respectively.

The Company maintains an ESOP. The Company’s first ESOP loan was paid off in December 2007. The second loan that funded the ESOP was initiated in connection with the second step public offering. The loan matures in December 2023 and results in the release of 49,932 shares annually. The ESOP expense for the shares released under the loans totaled $633 and $1,762 for the nine month periods ended June 30, 2008 and June 30, 2007, respectively. The Company reduced ESOP expense by $293 and $250 related to forfeitures from the plan during the same respective periods

3. Critical Accounting Policies

The accounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to the Company’s financial results include calculating the allowance for loan losses, accounting for goodwill and the recognition of interest income. The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. Application of assumptions different than those used by management could result in material changes in the Company’s financial position or results of operations. Accounting for goodwill is considered to be a critical policy because goodwill must be tested for impairment at least annually using a “two-step” approach that involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions utilized. Interest income on loans, securities and other interest-earning assets is accrued monthly unless management considers the collection of interest to be doubtful. In accounting for the recognition of interest income, a loan is placed on non-accrual status when management has determined that the borrower is unlikely to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income, if such unpaid interest relates to the current year. Prior years’ non-accrual interest is charged to the allowance for loan losses. Interest payments received on non-accrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower’s financial condition and payment record. Footnote 1 (Summary of Significant Accounting Policies) of the Annual Report on Form 10-K for the year ended September 30, 2007 provides additional detail regarding the Company’s accounting policies.

4. Loans

Major classifications of loans, excluding loans held for sale, are summarized below:

	June 30, 2008		September 30, 2007
Real estate - residential mortgage	$	510,832	$	500,825
Real estate - commercial mortgage		540,767		535,003
Real estate - acquisition, development and construction		157,306		153,074
Commercial and industrial		238,494		207,156
Consumer loans		240,452		242,000
Total	$	1,687,851	$	1,638,058

11

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

5. Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio. Management’s evaluations, which are subject to periodic review by the Company’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers’ ability to pay. Changes in the allowance for loan losses may be necessary in the future based on changes in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory examinations, the identification of additional problem loans, and other factors.

Activity in the allowance for loan losses for the periods indicated is summarized below:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2008			2007			2008			2007
Balance at beginning of period	$	21,413		$	20,435		$	20,389		$	20,373
Charge-offs		(878	)		(731	)		(3,758	)		(1,549	)
Recoveries		66			595			270			675
Net charge-offs		(812	)		(136	)		(3,488	)		(874	)
Provision for loan losses		1,400			400			5,100			1,200
Balance at end of period	$	22,001		$	20,699		$	22,001		$	20,699
Net charge-offs to average loans outstanding (annualized)		0.20	%		0.03	%		0.28	%		0.08	%

12

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

The following table sets forth the amounts and categories of the Company’s non-performing assets at the dates indicated. At both dates, the Company had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).

	June 30, 2008					September 30, 2007
	90 days past due Still accruing		Non- Accrual			90 days past due Still accruing		Non- Accrual
Non-performing loans:
One- to four- family	$	2,968	$	1,216		$	1,899	$	—
Commercial real estate		1,610		3,838			1,487		1,099
Commercial business		—		2,130			46		1,637
Construction		—		2,112			45		644
Consumer		69		299			272		129
Total non-performing loans	$	4,647	$	9,595		$	3,749	$	3,509
Real estate owned:
One- to four-family				138					139
Total real estate owned				138					139
Total non-performing assets			$	14,380				$	7,397
Ratios:
Non-performing loans to total loans				0.84	%				0.44	%
Non-performing assets to total assets				0.50	%				0.26	%
Allowance for loan losses to total non-performing loans				154	%				281	%
Allowance for loan losses to average loans				1.33	%				1.26	%

The Company’s recorded investment in impaired loans, as defined by SFAS No. 114, was $9.3 million and $3.4 million at June 30, 2008 and September 30, 2007, respectively. The allowance for loan losses associated with impaired loans was $1.7 million and $283.6 at June 30, 2008 and September 30, 2007, respectively.

13

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

6. Securities

The following is a summary of securities available for sale at June 30, 2008 and September 30, 2007:

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
June 30, 2008
Mortgage-backed securities
Mortgage-backed pass-through securities	$	588,073	$	2,398	$	(5,022	)	$	585,449
Collateralized mortgage obligations		35,401		613		(454	)		35,560
Total mortgage-backed securities		623,474		3,011		(5,476	)		621,009
Investment securities
U.S. Government Federal Agency Securities		5,053		21		(1	)		5,073
State and municipal securities		152,035		338		(2,377	)		149,996
Equities		1,145		2		(64	)		1,083
Total investment securities		158,233		361		(2,442	)		156,152
Total available for sale	$	781,707	$	3,372	$	(7,918	)	$	777,161
September 30, 2007
Mortgage-backed securities
Mortgage-backed pass-through securities	$	536,280	$	927	$	(6,570	)	$	530,637
Collateralized mortgage obligations		41,126		272		(344	)		41,054
Total mortgage-backed securities		577,406		1,199		(6,914	)		571,691
Investment securities
U.S. Government Federal Agency Securities		84,005		118		(266	)		83,857
State and municipal securities		140,026		338		(1,026	)		139,338
Equities		105		7		(1	)		111
Total investment securities		224,136		463		(1,293	)		223,306
Total available for sale	$	801,542	$	1,662	$	(8,207	)	$	794,997

The following is a summary of securities held to maturity at June 30, 2008 and September 30, 2007:

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses			Fair Value
June 30, 2008
Mortgage-backed securities
Mortgage-backed pass-through securities	$	9,929	$	115	$	(3	)	$	10,041
Collateralized mortgage obligations		1,090		7		(30	)		1,067
Total mortgage-backed securities		11,019		122		(33	)		11,108
Investment securities
State and municipal securities		30,365		312		(151	)		30,526
Other investments		58		2		—			60
Total investment securities		30,423		314		(151	)		30,586
Total held to maturity	$	41,442	$	436	$	(184	)	$	41,694
September 30, 2007
Mortgage-backed securities
Mortgage-backed pass-through securities	$	13,086	$	78	$	(83	)	$	13,081
Collateralized mortgage obligations		1,225		31		—			1,256
Total mortgage-backed securities		14,311		109		(83	)		14,337
Investment securities
State and municipal securities		23,078		248		(139	)		23,187
Other investments		57		3		—			60
Total investment securities		23,135		251		(139	)		23,247
Total held to maturity	$	37,446	$	360	$	(222	)	$	37,584

14

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

At June 30, 2008 and September 30, 2007, the accumulated unrealized net loss on securities available for sale, net of tax benefit of $1.8 million and $2.7 million, respectively, that was included in accumulated other comprehensive loss, a separate component of stockholders’ equity, was $2.7 million and $3.9 million, respectively. There were realized gains of $983 and no realized losses for the nine months ended June 30, 2008.

Securities, including held-to-maturity securities, with carrying amounts of $302,178 and $342,873 were pledged as collateral for borrowings and securities repurchase agreements at June 30, 2008 and September 30, 2007, respectively Securities with carrying amounts of $278,745 and $220,157 were pledged as collateral for municipal deposits and other purposes at June 30, 2008 and September 30, 2007, respectively.

The following tables summarize, for all securities in an unrealized loss position at June 30, 2008 and September 30, 2007, respectively, the aggregate fair value and gross unrealized loss by length of time those securities have continuously been in an unrealized loss position:

	Less than 12 months					12 months or longer					Total
	Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value
As of June 30, 2008
Available For Sale:
Mortgage-backed securities	$	(4,775	)	$	321,555	$	(701	)	$	23,157	$	(5,476	)	$	344,712
U.S. Government agency securities		—			—		(1	)		55		(1	)		55
Municipal securities		(1,520	)		88,997		(857	)		19,890		(2,377	)		108,887
Equity securities		(63	)		978		(1	)		104		(64	)		1,082
Total available-for-sale:		(6,358	)		411,530		(1,560	)		43,206		(7,918	)		454,736
Held to Maturity:
Mortgage-backed securities		(4	)		4,372		(29	)		1,309		(33	)		5,681
State and municipal securities		(140	)		9,739		(11	)		790		(151	)		10,529
Total held to maturity:		(144	)		14,111		(40	)		2,099		(184	)		16,210
Total securities:	$	(6,502	)	$	425,641	$	(1,600	)	$	45,305	$	(8,102	)	$	470,946

15

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

	Less than 12 months					12 months or longer					Total
	Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value		Unrecognized Losses			Fair Value
As of September 30, 2007
Available For Sale:
Mortgage-backed securities	$	(631	)	$	133,490	$	(6,283	)	$	305,640	$	(6,914	)	$	439,130
U.S. Government agency securities		—			—		(266	)		53,802		(266	)		53,802
Municipal securities		(710	)		59,117		(316	)		31,292		(1,026	)		90,409
Equity securities		—			—		(1	)		104		(1	)		104
Total available-for-sale:		(1,341	)		192,607		(6,866	)		390,838		(8,207	)		583,445
Held to Maturity:
Mortgage-backed securities		—			—		(83	)		7,608		(83	)		7,608
State and municipal securities		(1	)		890		(138	)		4,879		(139	)		5,769
Total held to maturity:		(1	)		890		(221	)		12,487		(222	)		13,377
Total securities:	$	(1,342	)	$	193,497	$	(7,087	)	$	403,325	$	(8,429	)	$	596,822

Substantially all of the unrealized losses at June 30, 2008 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no individual securities with unrealized losses of significant dollar amounts at June 30, 2008. A total of 468 securities were in a continuous unrealized loss position for less than 12 months, and 102 securities for 12 months or longer. For fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment. The Company has the ability and intent to hold securities with unrealized losses until a market price recovery (which, for securities with fixed maturities, may be until maturity); therefore, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2008. The Company does not own any preferred stock with Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.

7. Deposits

Major classifications of deposits are summarized below:

	June 30 2008		September 30, 2007
Demand Deposits
Retail	$	167,956	$	162,518
Commercial and municipal		216,425		201,213
Business and municipal NOW deposits		78,045		51,679
Personal NOW deposits		121,636		110,858
Total transaction accounts		584,062		526,268
Savings		351,431		346,430
Money market		300,919		277,793
Certificates of deposit		539,308		563,193
Total deposits	$	1,775,720	$	1,713,684

Municipal deposits of $208.3 million and $176.5 million were included in total deposits at June 30, 2008 and September 30, 2007, respectively. Certificates of deposit include $16.7 million in brokered deposits at June 30, 2008 and $14.2 million at September 30, 2007.

16

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

8. FHLB and Other Borrowings

The Company’s FHLB and other borrowings and weighted average interest rates are summarized as follows:

	June 30, 2008				September 30, 2007
	Amount		Rate		Amount		Rate
By type of borrowing:
Advances	$	375,886	3.31	%	$	456,169	4.99	%
Repurchase agreements		259,710	3.86	%		205,073	4.09
Total borrowings	$	635,596	3.53	%	$	661,242	4.71	%
By remaining period to maturity:
One year or less	$	217,370	2.64	%	$	376,753	5.13	%
One to two years		58,151	3.65	%		34,766	3.68
Two to three years		32,141	3.88	%		15,745	3.91
Three to four years		22,500	4.03	%		4,677	4.23
Four to five years		36,282	3.95	%		—	—
Five years or greater		269,152	4.09	%		229,301	4.24
Total borrowings	$	635,596	3.53	%	$	661,242	4.71	%

As a member of the FHLB of New York, the Bank may borrow in the form of term and overnight borrowings up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of June 30, 2008 and September 30, 2007, the Bank had pledged mortgages totaling $387,012 and $382,502, respectively. The Bank had also pledged securities with carrying amounts of $302,178 and $342,873 as of June 30, 2008 and September 30, 2007, respectively, to secure borrowings. Based on total outstanding borrowings with the FHLB which totaled $625,213 and $650,247 as of June 30, 2008 and September 30, 2007, the bank had unused borrowing capacity under the FHLB Line of Credit of $98,900 and $46,100, respectively. As of June 30, 2008, the Bank may borrow additional amounts by pledging securities not required to be pledged for other purposes with a market value of $250,999. FHLB advances are subject to prepayment penalties if repaid prior to maturity.

The Bank had $176,100 in overnight and floating rate borrowings that reprice daily, as of June 30, 2008. During the nine months ended June 30, 2008 no borrowings were called. Of the $418,226 in borrowings due in greater than one year, $249,500 are callable quarterly after an initial lockout period through their respective maturities. Premium recorded, but not accreted into income at June 30, 2008 was $819.

17

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

9. Earnings Per Common Share

The number of shares used in the computation of basic earnings per share excludes unallocated ESOP shares, shares held to fund deferred compensation plans, and unvested shares of restricted stock that have not been released to participants.

Common stock equivalent shares are incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options and unvested RRP shares were exercised or became vested during the periods.

Basic earnings per common share is computed as follows:

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2008		2007		2008		2007
Weighted average common shares outstanding (basic), in ‘000s		38,720		40,722		39,014		41,012
Net Income	$	6,306	$	5,436	$	17,283	$	14,478
Basic earnings per common share	$	0.16	$	0.13	$	0.44	$	0.35

Diluted earnings per common share is computed as follows:

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2008		2007		2008		2007
Weighted average common shares outstanding (basic), in ‘000s		38,720		40,722		39,014		41,012
Effect of common stock equivalents		390		502		388		539
Total diluted shares		39,110		41,224		39,402		41,551
Net Income	$	6,306	$	5,436	$	17,283	$	14,478
Diluted earnings per common share	$	0.16	$	0.13	$	0.44	$	0.35

As of June 30, 2008, 816,515 weighted average shares were anti-dilutive on a fiscal year-to-date basis and 918,652 weighted average shares on quarter to date basis and therefore were not included in common stock equivalents for diluted earnings per share purposes.

10. Guarantor’s Obligations Under Guarantees

Most letters of credit issued by, or on behalf of the Company are standby letters of credit. Standby letters of credit are commitments issued by the Company on behalf of its customer/obligor in favor of a beneficiary that specify an amount the Company can be called upon to pay upon the beneficiary’s compliance with the terms of the letter of credit. These commitments are primarily issued in favor of local municipalities to support the obligor’s completion of real estate development projects. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of June 30, 2008, the Company had $29.4 million in outstanding letters of credit, of which $14.4 million were secured by cash collateral.

18

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

11. Pension and Other Post-Retirement Plans

Net post-retirement cost, which is recorded within salaries and employee benefits expense in the consolidated statements of income, is comprised of the following:

	Pension Plans						Other Post Retirement Plans
	Three months Ended June 30,						Three months Ended June 30,
	2008			2007			2008			2007
Service Cost	$	—		$	—		$	—		$	1
Interest Cost		382			452			24			28
Expected return on plan assets		(518	)		(570	)		—			—
Amortization net transition obligation		—			—			13			13
Amortization of prior service cost		—			—			1			1
Amortization of (gain) or loss		—			27			(26	)		(25	)
	$	(136	)	$	(91	)	$	12		$	18
	Pension Plans						Other Post Retirement Plans
	Nine months Ended June 30,						Nine months Ended June 30,
	2008			2007			2008			2007
Service Cost	$	—		$	—		$	10		$	14
Interest Cost		1,176			1,284			40			59
Expected return on plan assets		(1,593	)		(1,716	)		—			—
Amortization net transition obligation		—			—			18			18
Amortization of prior service cost		—			—			4			6
Amortization of (gain) or loss		—			27			(65	)		(99	)
	$	(417	)	$	(405	)	$	7		$	(2	)

No contributions are expected to be made in fiscal 2008 for the pension plan.

On July 27, 2006 the Board of Directors of the Company approved a curtailment to the Provident Bank Defined Benefit Pension Plan (“the Plan”) as of September 30, 2006. At that time, benefit accruals for future service ceased and no new participants may enter the Plan. The service cost component of pension expense for the year ended September 30, 2006 was $1.2 million.

In addition, the Provident Bank 401(k) Plan and Profit Sharing Plan was amended. The amendment to the 401(k) plan added a profit sharing contribution for employees which have been 3% of eligible compensation for fiscal 2007 and 2008. In 2008, it is anticipated that the annual cost of the profit sharing contribution will be approximately $800.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”(“SFAS 158”). The standard calls for the balance sheet to fully recognize the funded status of a benefit plan, such as a pension plan. The Company adopted SFAS 158 effective September 30, 2007 and recorded the unrecognized components of defined benefit pension plans and other post retirement plans on the balance sheet at September 30, 2007. As a result of adoption of SFAS 158, the Company recorded $287, net of taxes of $193 as an adjustment to accumulated other comprehensive loss with an offset to Pension Funded Status.

19

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

12. Income Taxes

Effective October 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes the accounting method to be applied to measure uncertainty in income taxes recognized under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48 established a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. At the adoption date of October 1, 2007, the Company had approximately $1.2 million of unrecognized tax benefits, all of which would have an immaterial effect upon our effective tax rate if recognized. During the third quarter of fiscal 2008, the statute of limitations expired for various federal and state tax returns. The effect of these expirations resulted in a decrease of $596 of unrecognized tax benefits that did not affect the effective tax rate, but rather reduced the carrying value of goodwill associated with past acquisitions and increased capital from the Company’s previous initial public offering. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. Such accrued interest payable was approximately $145 as of October 1, 2007 and $88 as of June 30, 2008. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. The Company’s Federal, New York State and New Jersey tax returns for fiscal years ended after 2004 are currently subject to examination. The adoption of FIN 48 did not result in any change to the Company’s liability for uncertain tax positions or impact our financial position and results of operations as of October 1, 2007.

20

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

Forward-Looking Statements

We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other matters regarding or affecting Provident New York Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.

Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made. We do not assume any duty and do not undertake to update our forward-looking statements. Because forward-looking statements are subject to assumptions and uncertainties, actual results or future events could differ, possibly materially, from those that we anticipated in our forward-looking statements and future results could differ materially from our historical performance.

Our forward-looking statements are subject to the following principal risks and uncertainties. We provide greater detail regarding some of these factors elsewhere in other documents filed with the SEC. Our forward-looking statements may also be subject to other risks and uncertainties, including those discussed elsewhere in this Report or in our other filings with the SEC.

• Our business and operating results are affected by business and economic conditions generally or specifically in the principal markets in which we do business. We are affected by changes in our customers’ and counterparties’ financial performance, as well as changes in customer preferences and behavior, including as a result of changing business and economic conditions.

• The values of our assets and liabilities, as well as our overall financial performance, are also affected by changes in interest rates or in valuations in the debt and equity markets. Actions by the Federal Reserve and other government agencies, including those that impact money supply and market interest rates, can affect our activities and financial results.

• Competition can have an impact on customer acquisition, growth and retention, as well as on our credit spreads and product pricing, which can affect market share, deposits and revenues.

• Our ability to implement our business initiatives and strategies could affect our financial performance over the next several years.

• Our ability to grow successfully through acquisitions is impacted by a number of risks and uncertainties related both to the acquisition transactions themselves and to the integration of the acquired businesses into our Company after closing.

• Legal and regulatory developments could have an impact on our ability to operate our businesses or our financial condition or results of operations or our competitive position or reputation. Reputational impacts, in turn, could affect matters such as business generation and retention, our ability to attract and retain management, liquidity and funding. These legal and regulatory developments could include: (a) the unfavorable resolution of legal proceedings or regulatory and other governmental inquiries; (b) increased litigation risk from recent regulatory and other governmental developments; (c) the results of the regulatory examination process, our failure to satisfy the requirements of agreements with governmental agencies, and regulators’ future use of supervisory and enforcement tools; (d) legislative and regulatory reforms, including changes to laws and regulations involving tax, pension, and the protection of confidential customer information; and (e) changes in accounting policies and principles.

• Our business and operating results are affected by our ability to identify and effectively manage risks inherent in our businesses, including, where appropriate, through the effective use of third-party insurance and capital management techniques.

• Our ability to anticipate and respond to technological changes can have an impact on our ability to respond to customer needs and to meet competitive demands.

• Our business and operating results can be affected by widespread natural disasters, terrorist activities or international hostilities, either as a result of the impact on the economy and financial and capital markets generally or on us or on our customers, suppliers or other counterparties specifically.

21

Overview

The Company provides financial services to individuals and businesses in New York and New Jersey. The Company’s business is primarily accepting deposits from customers through its banking centers and investing those deposits, together with funds generated from operations and borrowings, in commercial real estate loans, commercial business loans, residential mortgages, consumer loans, and investment securities. Additionally, the Company offers investment management and other financial services.

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Non-interest income consists primarily of banking fees and service charges, and net increases in the cash surrender value of bank-owned life insurance (“BOLI”) contracts and investment management fees. Our non-interest expense consists primarily of salaries and employee benefits, stock-based compensation, occupancy and office expenses, advertising and promotion expense, professional fees, intangible assets amortization and data processing expenses. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities.

Management Strategy

We operate as an independent community bank that offers a broad range of customer-focused financial services as an alternative to large regional, multi-state and international banks in our market area. Management has invested in the infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market area. We focus our efforts on core deposit generation, especially transaction accounts and quality loan growth with emphasis on growing commercial loan balances. We maintain a disciplined pricing strategy on deposit generation allowing us to compete for the highest quality loans, while maintaining an appropriate spread over funding assets.

Comparison of Financial Condition at June 30, 2008 and September 30, 2007

Total assets as of June 30, 2008 were $2.9 billion, relatively unchanged from September 30, 2007 levels. Provident Bank does not originate or hold subprime mortgage loans, which we consider to be loans to borrowers with subprime credit scores combined with either high loan-to-value or high debt-to-income ratios. We also hold no subprime loans through our investment portfolio.

Net Loans as of June 30, 2008 were $1.7 billion, an increase of $48.2 million, or 3.0%, over net loan balances of $1.6 billion at September 30, 2007. Commercial loans increased by $41.3 million, or 4.6%, over balances at September 30, 2007, as the Company has increased its emphasis on commercial and industrial (“C&I”) lending. Consumer loans decreased by $1.5 million, or 0.6%, during the nine-month period ended June 30, 2008, while residential loans increased by $10.0 million, or 2.0%. Total loan originations, excluding loans originated for sale, were $429.2 million for the nine months ended June 30, 2008 and repayments were $375.9 million during the same time period. Non-performing loans increased $7.0 million from September 30, 2007, primarily due to the current economic slow down.

Net charge-offs of $3.5 million for the nine months ended June 30, 2008 represent 0.28% of average loans outstanding on an annualized basis. At $14.2 million, non-performing loans as a percentage of total loans was 0.84%, as compared to 0.44% at September 30, 2007, and 0.48% at June 30, 2007. The allowance for loan losses represents 1.33% of average loans and 154% of non-performing loans, at June 30, 2008 compared to 1.26% of average loans and 281% of non-performing loans at September 30, 2007.

Total securitiesdecreased by $13.8 million, or 1.7%, to $818.6 million at June 30, 2008 net of improvements in market value of $1.9 million from $832.4 million at September 30, 2007. Mortgage-backed securities increased by $46.0 million, or 7.9% net of maturities and pay-downs totaling $94.2 million and sales of $39.5 million. U.S. Government federal agency securities decreased $78.8 million, or 94.0%. These decreases were partially offset by increases in state and municipal securities of $18.0 million, or 11.1% primarily due to purchases.

Depositsas of June 30, 2008 were $1.8 billion, an increase of $62.0 million, or 3.6%, from September 30, 2007. Retail and commercial transaction accounts were 32.9% of deposits at June 30, 2008 and 30.7% at September 30, 2007. The increase in demand deposits of $20.7 million, or 5.7%, and retail and commercial NOW accounts of $37.1 million or 22.9% were offset by a decrease in certificate of deposit accounts of $23.9 million. Money Market accounts increased by $23.1 million, or 8.3% and savings accounts increased by $5.0 million or 1.4%. Within the categories above municipal transaction accounts increased by $33.9 million, municipal money market increased by $21.8 million, municipal savings accounts decreased by $222,000 and municipal certificates of deposits decreased by $23.6 million. We added staff resources to our municipal business, which has resulted in increased municipal relationships and a lower reliance on municipal certificates of deposits, which are subject to competitive bidding.

Borrowingsdecreased by $25.6 million, or 3.9%, from September 2007, to $635.6 million. The decrease was due to the Company being able to fund the increases in loans previously noted and the purchases of treasury stock of $19.8 million through deposit growth and maturing investment securities.

22

Stockholders’ equitydecreased by $3.9 million, or 1.0%, to $401.1 million at June 30, 2008, compared to $405.1 million at September 30, 2007. The decrease was primarily due to purchases of treasury stock and payment of dividends. Treasury stock repurchases during the third quarter of fiscal 2008 totaled 306,443 shares and 1,570,757 shares fiscal year-to-date, at a cost of $3.9 million and $19.8 million, respectively. These purchases were partially offset the Company’s net income of $17.3 million less dividends of $7.1 million, stock based compensation credits of $4.1 million and an improvement in other comprehensive income (loss) of $1.2 million. The Company has a remaining authorization to repurchase 1,165,901 additional shares, subject to market conditions.

Bank Tier I capital to adjusted total assets stands at 8.3% at June 30, 2008. Tangible capital at the holding company level is 8.63% of tangible assets.

Credit Quality

Provident Bank continued to build an allowance for loan losses for the last two quarters in light of the current slowing economy. Net charge-offs for the quarter were $812,000 down from $1.9 million in the prior linked quarter and up from $136,000 for the quarter ended June 30, 2007. Net charge-offs year-to-date are $3.5 million, or an annualized 0.28% of the average loan portfolio, compared to $874,000 or .08% annualized for the same period in the prior year. For fiscal year to date the allowance for loan losses increased $1.6 million as we recorded a provision of $5.1 million during the period. The main factors driving the increase in the Allowance were growth in the loan portfolio, particularly in the C&I loan category; an increase criticized loans, primarily C&I loans; and generally weakened economic conditions. Non-performing loans increased $7.0 million from $7.3 million at September 30, 2007 to $14.2 million at June 30, 2008, primarily due to the slowdown in the economy. The ratio of non performing loans to total loans is 0.84% of outstanding loans.

Comparison of Operating Results for the Three Months Ended June 30, 2008 and June 30, 2007

Net income for the three months ended June 30, 2008 was $6.3 million, an increase of $0.9 million, compared to $5.4 million for the same period in fiscal 2007. Net interest income before provision for loan losses for the three months ended June 30, 2008 increased by $1.9 million, or 8.3%, to $24.2 million, compared to $22.3 million for the same period in the prior year. The provision for loan losses for the three months ended June 30, 2008 increased $1.0 million, or 250%, to $1.4 million, compared to $400,000 for the same period in the prior year due to weaker economic conditions and recent loss experience in the portfolios. Net interest margin on a tax equivalent basis for the three months ended June 30, 2008 increased 24 basis points compared to the same period last year from 3.80% to 4.04%, primarily due to increases in loans funded by maturing lower rate investments, and significant reductions in the average cost of deposits and borrowings. The third quarter of fiscal 2007 included a $500,000 reduction in interest expense associated with repayment of borrowings connected to prior acquisitions. Non-interest income remained relatively unchanged at $5.0 million for the three months ended June 30, 2008, compared to the three months ended June 30, 2007. Non-interest expense decreased $95,000, or 0.5%, to $19.0 million for the three months ended June 30, 2008, compared to $19.1 million for the same period in the prior year primarily due to the maturity of the Company’s first step ESOP loan in December 2007, in addition to lower advertising and promotion expense. Compensation and employee benefits increased due to employee related benefits and additional employees hired during fiscal 2008, as the Company added resources to its municipal business and opened a branch location in Tarrytown, Westchester County, New York. Occupancy expense increased as the Company invested in branch relocations and recorded closure costs of $175,000.

The relevant operating results performance measures follow:

	Three Months Ended June 30,
	2008			2007
Per common share:
Basic earnings	$	0.16		$	0.13
Diluted earnings		0.16			0.13
Dividends declared		0.06			0.05
Return on average (annualized):
Assets		0.90	%		0.78	%
Equity		6.25	%		5.32	%

23

The following table sets forth the consolidated average balance sheets for the Company for the periods indicated. Also set forth is information regarding weighted average yields on interest-earning assets and weighted average rates paid on interest-bearing liabilities (dollars in thousands).

	Three Months Ended June 30,
	2008								2007
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	891,870		$	14,893		6.72	%	$	847,627		$	16,552		7.83	%
Consumer loans		239,484			3,239		5.44			231,082			4,086		7.09
Residential mortgage loans		505,926			7,498		5.96			485,481			7,258		6.00
Total loans1		1,637,280			25,630		6.30			1,564,190			27,896		7.15
Securities-taxable		653,292			8,048		4.95			695,016			7,952		4.59
Securities-tax exempt2		177,933			2,655		6.00			149,125			2,305		6.20
Other earning assets		34,499			662		7.72			32,705			641		7.86
Total securities and other earning assets		865,724			11,365		5.28			876,846			10,898		4.98
Total interest-earning assets		2,503,004			36,995		5.94			2,441,036			38,794		6.37
Non-interest-earning assets		319,881								331,630
Total assets	$	2,822,885							$	2,772,666
Interest bearing liabilities:
NOW Checking	$	189,629			259		0.55	%	$	160,187			144		0.36	%
Savings, clubs and escrow		364,763			252		0.28			383,955			477		0.50
Money market accounts		311,120			1,161		1.50			256,541			1,723		2.69
Certificate accounts		545,413			4,515		3.33			589,733			6,657		4.53
Total interest-bearing deposits		1,410,925			6,187		1.76			1,390,416			9,001		2.60
Borrowings		629,325			5,691		3.64			593,467			6,654		4.50
Total interest-bearing liabilities		2,040,250			11,878		2.34			1,983,883			15,655		3.16
Non- interest bearing deposits		357,515								348,698
Other non-interest-bearing liabilities		19,428								30,557
Total liabilities		2,417,193								2,363,138
Stockholders’ equity		405,692								409,528
Total liabilities and equity	$	2,822,885							$	2,772,666
Net interest rate spread							3.60	%							3.21	%
Net earning assets	$	462,754							$	457,153
Net interest margin					25,117		4.04	%					23,139		3.80	%
Less tax equivalent adjustment2					(929	)							(808	)
Net interest income				$	24,188							$	22,331
Ratio of average interest-earning assets to average interest bearing liabilities		122.68	%							123.04	%

¹ Includes non-accrual loans

² Reflects tax equivalent adjustment for tax exempt income based on a 35% federal rate

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The table below details the changes in interest income and interest expense for the periods indicated due to both changes in average outstanding balances and changes in average interest rates (dollars in thousands):

	Three Months Ended June 30, 2008 vs. 2007 Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	819		$	(2,478	)	$	(1,659	)
Consumer loans		143			(990	)		(847	)
Residential mortgage loans		291			(51	)		240
Securities-taxable		(501	)		597			96
Securities-tax exempt2		428			(78	)		350
Other earning assets		33			(12	)		21
Total interest income		1,213			(3,012	)		(1,799	)
Interest-bearing liabilities
NOW checking		29			86			115
Savings		(23	)		(202	)		(225	)
Money market		313			(875	)		(562	)
Certificates of deposit		(473	)		(1,669	)		(2,142	)
Borrowings		381			(1,344	)		(963	)
Total interest expense		227			(4,004	)		(3,777	)
Net interest margin		986			992			1,978
Less tax equivalent adjustment2		(152	)		31			(121	)
Net interest income	$	834		$	1,023		$	1,857

¹ Changes due to increases in both rate and volume have been allocated proportionately to rate and volume.

² Reflects tax equivalent adjustment for tax-exempt income based on a 35% federal rate.

Net interest income for the three months ended June 30, 2008 increased by $1.9 million, or 8.3%, to $24.2 million, compared to $22.3 million for the quarter ended June 30, 2007. Net interest income on a tax-equivalent basis increased by $2.0 million, or 8.5%, to $25.1 million for the quarter ended June 30, 2008, compared to $23.1 million for the same three months in 2007. The target fed funds rate averaged 2.08% for the quarter ended June 30, 2008 versus an average of 5.25% for the same quarter in the prior year. Comparable declines were experienced in the prime rate to which $445.3 million in loans reprice and $176.1 million in overnight and floating rate borrowings reprice. Interest expense decreased by $3.8 million, or 24.1% to $11.9 million, for the quarter, compared to $15.7 million for the same quarter in 2007. Interest expense for the three months ended June 30, 2007 included a benefit of approximately $500,000 for the accretion of premiums recorded related to called borrowings assumed from a prior acquisition. Average interest-bearing liabilities increased by $56.4 million and the average cost of interest-bearing liabilities decreased by 82 basis points. The average yields on the loan portfolio decreased by 85 basis points. Average yields on investment securities and other earning assets on a tax-equivalent basis increased by 30 basis points as low yielding investments matured and were either replaced with higher yielding securities or used to fund loan growth. Interest-bearing deposit accounts decreased 84 basis points primarily in the certificate of deposit category. The Company employs a disciplined pricing strategy which allows us to compete effectively in the market place without matching competitors’ promotional rates or terms in order to retain deposit balances. Average borrowings costs decreased 86 basis points primarily due to floating rate borrowings repricing downward in response to the Federal Reserves’ lowering of the target federal funds rate. The tax equivalent net interest margin, therefore, increased by 24 basis points to 4.04%, while net interest spread increased by 39 basis points as compared to 2007 to 3.60%.

Provision for Loan Losses. The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio. The Company recorded $1.4 million in loan loss provisions for the quarter ended June 30, 2008, and recognized net charge-offs of $812,000 in the quarter. This compares to $400,000 in loan loss provisions and $136,000 in net charge-offs for the quarter ended June 30, 2007. The primary driver of the increased charge-offs in the current quarter is the performance of the small business credit-scored portfolio. Net charge-offs for this portfolio were $731,800

25

of the $99.2 million of average outstanding balances for the quarter. We continued to increase reserves in the quarter due to increases in the total loans outstanding, particularly commercial and industrial loans and construction loans and weakened economic conditions.

Non-interest incomefor the three months ended June 30, 2008 increased by $36,000, or 0.8% to $5.0 million. Deposit fees and service charges increased of $252,000, or 8.8%, primarily in overdraft fees and debit card fees. This increase offset a decline in title insurance fees and lower “other” non-interest income, due to $235,000 in interest recorded on an IRS refund settled in the third quarter of fiscal 2007.

Non-interest expensefor the three months ended June 30, 2008 decreased by $95,000, or 0.5%, to $19.0 million, primarily due to the maturity of the Company’s first step ESOP loan in December 2007, in addition to lower advertising and promotion expense. Compensation and employee benefits increased $678,000 or 7.9% due to increased incentive accruals of $306,000 employee related benefits and additional employees hired during fiscal 2008, as the Company added resources to its municipal business and opened a branch location in Tarrytown, Westchester County, New York. Occupancy expense increased as the Company invested in branch relocations and recorded closure costs of $175,000.

Income Tax expense increased $118,000 to $2.6 million for the three months ended June 30, 2008, as compared to $2.4 million for June 30, 2007. The effective tax rates were 28.8% and 30.9%, respectively. The decrease was due to increased investment in tax-exempt securities as compared to the prior period and the expiration of the first step ESOP loan which was primarily a non-deductible expense.

Comparison of Operating Results for the Nine Months Ended June 30, 2008 and June 30, 2007

Net income for the nine months ended June 30, 2008 was $17.3 million, an increase of $2.8 million, compared to $14.5 million for the same period in fiscal 2007. Net interest income before provision for loan losses for the nine months ended June 30, 2008 increased by $7.3 million, or 11.7%, to $69.8 million, compared to $62.5 million for the same period in the prior year. Net interest margin on a tax equivalent basis for the nine months ended June 30, 2008 increased 37 basis points compared to the same period last year from 3.52% to 3.89%, primarily due to increases in loans funded by maturing lower rate investments, as well as reductions in the average cost of interest bearing liabilities. Provision for loan losses for the nine months ended June 30, 2008 increased by $3.9 million, or 325%, compared to $1.2 million for the same period in the prior year due to weaker economic conditions and recent loss experience in the portfolios. Non-interest income increased $808,000, or 5.4%, to $15.7 million for the nine months ended June 30, 2008, compared to $14.9 million for the nine months ended June 30, 2007, as a death benefit of $350,000 on bank owned life insurance, $330,00 related to the sale of student loans and $235,000 in interest recorded on an IRS refund received in fiscal 2007 was offset by increases in deposit fees, investment management fees and gains on sales of securities of $983,000. Non-interest expense increased $457,000, or 0.8%, to $56.0 million for the nine months ended June 30, 2008, compared to $55.5 million for the same period in the prior year primarily due to increases in compensation and employee benefits and occupancy expense from indexed increases in rental costs and the costs of branch relocations and closures. These categories were partially offset by decreases in stock based compensation (the ESOP loan maturity), professional fees, intangible amortization and advertising and promotion.

The relevant operating results performance measures follow:

	Nine Months Ended June 30,
	2008			2007
Per common share:
Basic earnings	$	0.44		$	0.35
Diluted earnings		0.44			0.35
Dividends declared		0.18			0.15
Return on average (annualized):
Assets		0.82	%		0.69	%
Equity		5.70	%		4.73	%

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The following table sets forth the consolidated average balance sheets for the Company for the periods indicated. Also set forth is information regarding weighted average yields on interest-earning assets and weighted average rates paid on interest-bearing liabilities (dollars in thousands).

	Nine Months Ended June 30,
	2008								2007
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	888,756		$	47,779		7.18	%	$	814,331		$	47,501		7.80	%
Consumer loans		241,367			10,995		6.08			234,479			12,472		7.11
Residential mortgage loans		499,252			22,327		5.97			470,129			20,874		5.94
Total loans1		1,629,375			81,101		6.65			1,518,939			80,847		7.12
Securities-taxable		653,161			24,058		4.92			761,860			25,683		4.51
Securities-tax exempt2		170,325			7,793		6.11			143,325			6,523		6.08
Other earning assets		35,587			2,052		7.70			34,192			1,819		7.11
Total securities and other earning assets		859,073			33,903		5.27			939,377			34,025		4.84
Total interest-earning assets		2,488,448			115,004		6.17			2,458,316			114,872		6.25
Non-interest-earning assets		316,843								346,359
Total assets	$	2,805,291							$	2,804,675
Interest bearing liabilities:
NOW Checking	$	186,310			794		0.57	%	$	154,187			411		0.36	%
Savings, clubs and escrow		351,936			944		0.36			375,843			1,413		0.50
Money market accounts		279,382			4,208		2.01			248,278			4,693		2.53
Certificate accounts		562,918			16,949		4.02			605,581			20,447		4.51
Total interest-bearing deposits		1,380,546			22,895		2.22			1,383,889			26,964		2.61
Borrowings		656,650			19,578		3.98			629,475			23,132		4.91
Total interest-bearing liabilities		2,037,196			42,473		2.78			2,013,364			50,096		3.33
Non- interest bearing deposits		342,858								343,659
Other non-interest-bearing liabilities		20,142								38,311
Total liabilities		2,400,196								2,395,334
Stockholders’ equity		405,095								409,341
Total liabilities and equity	$	2,805,291							$	2,804,675
Net interest rate spread							3.39	%							2.92	%
Net earning assets	$	451,252							$	444,952
Net interest margin					72,531		3.89	%					64,776		3.52	%
Less tax equivalent adjustment2					(2,728	)							(2,283	)
Net interest income				$	69,803							$	62,493
Ratio of average interest-earning assets to average interest bearing liabilities		122.15	%							122.10	%

¹ Includes non-accrual loans

² Reflects tax equivalent adjustment for tax exempt income based on a 35% federal rate

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The table below details the changes in interest income and interest expense for the periods indicated due to both changes in average outstanding balances and changes in average interest rates (dollars in thousands):

	Nine Months Ended June 30, 2008 vs. 2007 Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	4,199		$	(3,921	)	$	278
Consumer loans		361			(1,838	)		(1,477	)
Residential mortgage loans		1,343			110			1,453
Securities-taxable		(3,855	)		2,230			(1,625	)
Securities-tax exempt2		1,238			32			1,270
Other earning assets		77			156			233
Total interest income		3,363			(3,231	)		132
Interest-bearing liabilities
NOW checking		101			282			383
Savings		(87	)		(382	)		(469	)
Money market		549			(1,034	)		(485	)
Certificates of deposit		(1,376	)		(2,122	)		(3,498	)
Borrowings		971			(4,525	)		(3,554	)
Total interest expense		158			(7,781	)		(7,623	)
Net interest margin		3,205			4,550			7,755
Less tax equivalent adjustment2		(434	)		(11	)		(445	)
Net interest income	$	2,771		$	4,539		$	7,310

¹ Changes due to increases in both rate and volume have been allocated proportionately to rate and volume.

² Reflects tax equivalent adjustment for tax-exempt income based on a 35% federal rate.

Net interest income for the nine months ended June 30, 2008 increased by $7.3 million, or 11.7%, to $69.8 million, compared to $62.5 million for the nine months ended June 30, 2007. Net interest income on a tax-equivalent basis increased by $7.8 million, or 12.0%, to $72.5 million for the nine months ended June 30, 2008, compared to $64.8 million for the same nine months in 2007. The target fed funds rate averaged 2.85% for the nine month period ended June 30, 2008 versus an average of 5.25% for the same period in the prior year. Comparable declines were experienced in the prime rate to which $445.3 million in loans reprice and $176.1 million in overnight and floating rate borrowings reprice. Interest expense decreased by $7.6 million, or 15.2% to $42.5 million, for the period, compared to $50.1 million for the same period in 2007. Average interest-bearing liabilities increased by $23.8 million and the average cost of interest-bearing liabilities decreased by 55 basis points. The average yields on the loan portfolio decreased by 47 basis points. Average yields on investment securities and other earning assets on a tax-equivalent basis increased by 43 basis points as low yielding investments matured and were either replaced with higher yielding securities or used to fund loan growth. Interest-bearing deposit accounts decreased 39 basis points, primarily from lower cost certificates of deposits as the company maintained a disciplined pricing strategy. Average borrowings costs decreased 93 basis points primarily due to floating rate borrowings repricing downward in response to the Federal Reserves’ lowering of the target federal funds rate. The tax equivalent net interest margin, therefore, increased by 37 basis points to 3.89%, while net interest spread increased by 47 basis points as compared to 2007 to 3.39%.

Provision for Loan Losses. The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio. The Company recorded $5.1 million in loan loss provisions for the nine months ended June 30, 2008, and recognized net charge-offs of $3.5 million in the same period. This compares to loan loss provisions of $1.2 million and net charge-offs of $874,000 for the nine months ended June��30, 2007. The primary driver of the increased charge-offs in the current period is the performance of the small business credit-scored portfolios. Net charge-offs for this portfolio were $3.1 million of the $94.5 million of average outstanding balances for the period In addition, we have experienced growth in the loan portfolio, particularly in the C&I loan category, and an increase in criticized loans, primarily C&I, as

28

of June 30, 2008. Overall economic conditions have weakened as well. Thus, the provision we recorded resulted in an increase of $1.6 million in the Allowance for Loan Losses from $20.4 million at September 30, 2007 (1.2% of loans outstanding) to $22.0 million at June 30, 2008 (1.3% of loans outstanding).

Non-interest incomefor the nine months ended June 30, 2008 increased by $808,000, or 5.4%, to $15.7 million compared to $14.9 million for the same period in 2007. The largest increases were seen in deposit fees and service charges which increased $705,000 or 8.3% due to higher collection of overdraft fees and increased revenue from debit cards. Gains on sales of securities increased by $979,000 as the Company was able to shorten the average lives of certain mortgage backed securities and realize appreciation on the securities sold. Declines were seen in title insurance fees, and bank owned life insurance (due to a death benefit received in 2007) and “other” non-interest income (due to Internal Revenue Service interest refund and exiting the student loan business in 2007).

Non-interest expenseincreased $457,000, or 0.8%, to $56.0 million for the nine months ended June 30, 2008, compared to $55.5 million for the same period in the prior year primarily due to increases in compensation and employee benefits and occupancy expense from indexed increases in rental costs and the costs of branch relocations and closures. Compensation and benefits increased by $2.4 million or 9.9% primarily due to increased incentive accruals of $550,000, higher benefit costs of $882,000 due to increases in medical costs, payroll taxes and profit sharing expenses and $503,000 due to lower levels of salary deferrals on loan originations and $507,000 in staff increases and new positions for our Westchester location and our municipal deposits division. These categories were partially offset by decreases in stock based compensation (the ESOP loan maturity), professional fees, amortization of intangibles and advertising and promotion.

Income Taxes.Income tax expense was $7.2 million for the nine months ended June 30, 2008, compared to $6.2 million for the same period in 2007. The effective tax rates were 29.3% and 30.0%, respectively. The lower effective rate in 2008 reflects the increased utilization of tax-exempt securities and the maturity of the first step ESOP loan, which expense was primarily non deductible for tax purposes, partially offset by the non taxable BOLI death benefit received in 2007.

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Liquidity and Capital Resources

The objective of the Company’s liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for expansion. Liquidity management addresses the Company’s ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

The Company’s primary sources of funds, in addition to net income, are deposits, proceeds from principal and interest payments on loans and securities, wholesale borrowings, the proceeds from maturities of securities and short-term investments, and proceeds from sales of loans originated for sale and securities available for sale. Maturities and scheduled amortization of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows and mortgage prepayments are greatly influenced by market interest rates, economic conditions and competition.

The Company’s primary investing activities are the origination of commercial mortgage loans, acquisition, development and construction loans, commercial and industrial loans, one- to four-family residential mortgage loans, home equity loans and the purchase of investment and mortgage-backed securities. During the nine months ended June 30, 2008 and 2007, loan originations, excluding loans originated for sale, totaled $429.2 million and $470.6 million, respectively, and purchases of securities totaled $230.9 million and $110.1 million, respectively. Paydowns, maturities and sales on securities totaled $246.8 million and therefore afforded the opportunity to reduce higher cost borrowings for the nine month period ending June 30, 2008. Loan origination commitments and undrawn lines of credit totaled $506.9 million at June 30, 2008. The Company anticipates that it will have sufficient funds available to meet current loan commitments based upon past experiences of funding such commitments. The Company invested in an additional $5.0 million in BOLI during the third quarter of fiscal 2008 and at June 30, 2008, the Company had investments totaling $47.1 million in BOLI contracts. Such investments are illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any.

Deposit flows are generally affected by the level of interest rates, the products and interest rates offered by local competitors, the appeal of non-deposit investments, and other factors. During the nine-month period ended June 30, 2008 short-term interest rates were significantly reduced. The target federal funds rate at 2.00% has dropped 275 basis points since September 2007, after remaining at 5.25% for almost all of the prior year. The interest rate yield curve has finally regained a positive slope as the ten-year US Treasury yield at 3.97% was higher than the two-year note with a 2.62% yield.

Total deposits increased by $62.0 million for the nine months ended June 30, 2008. Within the deposit categories, transaction accounts increased by $57.8 million, commercial and municipal transaction accounts increased $41.6 million or 16.4%. Certificates of deposit decreased $23.9 million with municipal certificates decreasing $23.6 and non municipal certificates decreasing $253,800. Savings accounts increased by $5.0 million. The trends seen in deposit categories as of June 30, 2008 are consistent with those that the Company historically experiences in the first nine months of the fiscal year, although municipal deposit growth, especially transaction accounts, had grown faster due to the additional resources employed in this business unit. Municipal deposits in New York State are required to be collateralized for amounts in excess of FDIC insurance limits.

The Company monitors its liquidity position on a daily basis. It generally remains fully invested and utilizes additional sources of funds through Federal Home Loan Bank of New York advances and repurchase agreements, of which $635.6 million was outstanding at June 30, 2008. At June 30, 2008, we had additional borrowing capacity of $251.0 million under all credit facilities with the Federal Home Loan Bank. The Company may utilize brokered certificates of deposit as well, and as of June 30, 2008 there was $16.7 million outstanding. Management believes that the Company’s available sources of liquidity are adequate to meet its anticipated funding needs.

At June 30, 2008, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $223.4 million, or 8.3% of adjusted assets (which is above the minimum required level of $105.9 million, or 4.0%) and a total risk-based capital level of $245.4 million, or 13.0% of risk-weighted assets (which is above the required level of $147.8 million, or 8.0%). Regulations require leverage and total risk-based capital ratios of 5.0% and 10.0%, respectively, in order to be classified as well-capitalized. In performing this calculation, the intangible assets recorded as a result of acquisitions are deducted from capital and from total adjusted assets for purposes of regulatory capital measures. At June 30, 2008, the Bank exceeded all capital requirements for the well-capitalized classification. These capital requirements, which are applicable to the Bank only, do not consider additional capital retained at the holding company level.

The Company declared a dividend of $0.06 per share payable on August 21, 2008 to stockholders of record on August 7, 2008.

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The following table sets forth the Bank’s regulatory capital position at June 30, 2008 and September 30, 2007, compared to OTS requirements:

					OTS requirements
	Bank actual				Minimum capital adequacy				Classification as well capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2008:
Tangible capital	$	223,391	8.3	%	$	39,718	1.5	%	$	—	—
Tier 1 (core) capital		223,391	8.3			105,916	4.0			132,395	5.0	%
Risk-based capital:
Tier 1		223,391	11.8			—	—			110,870	6.0
Total		245,392	13.0			147,827	8.0			184,784	10.0
September 30, 2007:
Tangible capital	$	212,497	8.1	%	$	39,578	1.5	%	$	—	—
Tier 1 (core) capital		212,497	8.1			105,541	4.0			131,926	5.0	%
Risk-based capital:
Tier 1		212,497	11.6			—				109,656	6.0
Total		232,886	12.7			146,208	8.0			182,760	10.0

Recent Accounting Standards

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). This statement requires enhanced disclosures regarding an entity’s derivative and hedging activities. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2008. The adoption of SFAS 161 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110, which permits the use of the “simplified” method for developing an estimate of expected term of share options. The Company has elected to utilize the simplified method. The Bulletin is effective for grants issued after December 31, 2007. The implementation of this bulletin did not have a material impact on the consolidated earnings or financial position of the Company.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, “The Fair Value Option of Financial Assets and Financial Liabilities” (“SFAS No. 159”). The fair value option established by this statement permits entities to choose to measure eligible items at fair value at specified election dates. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted under certain conditions. The Company is currently assessing the financial statement impact of implementing SFAS 159.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”). For defined benefit post-retirement plans, SFAS 158 requires that the funded status be recognized in the statement of financial position, that assets and obligations that determine funded status be measured as of the end of the employer’s fiscal year and that changes in funded status be recognized in comprehensive income in the year the changes occur. SFAS 158 does not change the amount of net periodic benefit cost included in net income or address measurement issues related to defined benefit post-retirement plans. The requirement to recognize funded status is effective for fiscal years ending after December 15, 2006. The requirement to measure assets and obligations as of the end of the employer’s fiscal year is effective for fiscal years ending after December 15, 2008. The unrecognized components of defined benefit pension plans and retiree medical plans in the amount of $287, net of taxes of $193, were recorded as an adjustment to accumulated other comprehensive income with an offset to Pension Funded Status as of September 30, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

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At its September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 06-04, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under SFAS No. 106 or Accounting Principles Board Opinion (“APB”) No. 12, “Omnibus Opinion – 1967.” The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04 is effective for annual reporting periods beginning after December 15, 2007. The provisions of Issue 06-04 should be applied through either a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption or retrospective application. The Company has one endorsement split-dollar life insurance policy that it inherited through certain acquisitions that are associated with employees who are no longer active. The Company is currently evaluating the impact of adoption of Issue 06-04.

Effective October 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes the accounting method to be applied to measure uncertainty in income taxes recognized under Statement of Financial Accounting Standards No. 109,” Accounting for Income Taxes.” FIN 48 established a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. At the adoption date of October 1, 2007, the Company had approximately $1.2 million of unrecognized tax benefits, all of which would have an immaterial effect upon our effective tax rate if recognized. During the third quarter of fiscal 2008, the statute of limitations expired for various federal and state tax returns. The effect of these expirations resulted in a decrease of $596 of unrecognized tax benefits that did not affect the effective tax rate, but rather reduced the carrying value of goodwill associated with past acquisitions and increased capital from the Company’s previous initial public offering. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. Such accrued interest payable was approximately $145,000 as of October 1, 2007 and $88,400 as of June 30, 2008. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. We are unable to estimate a range of reasonably possible changes in the level of unrecognized tax benefits that may occur due to a challenge. The Company’s Federal, New York State and New Jersey tax returns for fiscal year ended after 2004 are currently subject to examination. The adoption of FIN 48 did not result in any change to the Company’s liability for uncertain tax positions or impact our financial position and results of operation as of October 1, 2007.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Management believes that our most significant form of market risk is interest rate risk. The general objective of our interest rate risk management is to determine the appropriate level of risk given our business strategy, and then manage that risk in a manner that is consistent with our policy to limit the exposure of our net interest income to changes in market interest rates. Provident Bank’s Asset/Liability Management Committee (“ALCO”), which consists of certain members of senior management, evaluates the interest rate risk inherent in certain assets and liabilities, our operating environment, and capital and liquidity requirements, and modifies our lending, investing and deposit gathering strategies accordingly. A committee of the Board of Directors reviews the ALCO’s activities and strategies, the effect of those strategies on our net interest margin, and the effect that changes in market interest rates would have on the economic value of our loan and securities portfolios as well as the intrinsic value of our deposits and borrowings.

We actively evaluate interest rate risk in connection with our lending, investing, and deposit activities. We emphasize the origination of commercial mortgage loans, commercial business loans and residential fixed-rate mortgage loans that are repaid monthly and bi-weekly, fixed-rate commercial mortgage loans, adjustable-rate residential loans and consumer loans. Depending on market interest rates and our capital and liquidity position, we may retain all of the fixed-rate, fixed-term residential mortgage loans that we originate or we may sell all, or a portion of such longer-term loans, generally on a servicing-retained basis. We also invest in short-term securities, which generally have lower yields compared to longer-term investments. In addition, the Company invests in long-term municipal bonds when market conditions are favorable due to the tax advantaged nature of such securities somewhat offsetting the longer duration of such assets. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.

Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in the Company’s and the Bank’s net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected

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cash flows from assets, liabilities and off-balance sheet contracts. Both models assume estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.

Estimated Changes in NPV and NII.The table below sets forth, as of June 30, 2008, the estimated changes in our NPV and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Quarterly Report - Quantitative Analysis - NPV June 30, 2008
	NPV							Net Interest Income
	Estimated		Estimated Increase (decrease) NPV					Estimated Net Interest		Estimated Increase (Decrease) in Net Interest Income
Change in Interest Rates	NPV		Amount			Percent		Income		Amount			Percent
300	$	329,093	$	(126,033	)	-27.7	%	$	99,663	$	(1,211	)	-1.2	%
200		370,943		(84,183	)	-18.5	%		100,338		(536	)	-0.5	%
100		408,192		(46,934	)	-10.3	%		101,003		129		0.1	%
0		455,126		—		0.0	%		100,874		—		0.0	%
-100		463,028		7,902		1.7	%		99,123		(1,751	)	-1.7	%

The table set forth above indicates that at June 30, 2008, in the event of an immediate 100 basis point decrease in interest rates, we would be expected to experience a 1.7% increase in NPV and a 1.7% decrease in net interest income. In the event of an immediate 100 basis point increase in interest rates, we would be expected to experience a 10.3% decrease in NPV and a 0.1% increase in net interest income.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table presented above assumes that the composition of our interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions management may undertake in response to changes in interest rates. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the NPV and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

The federal funds target rate remained constant the first 11 months of fiscal 2007 at 5.25% and was decreased 50 basis points from 5.25% to 4.75% in September 2007. During the first nine months of fiscal 2008, the Federal Open Market Committee (“FOMC”) decreased the target fed funds rate an additional 275 basis points ending the period at 2.00%. During the same period, U.S. Treasury rates in the five year maturities have decreased 92 basis points from 4.25% to 3.33% and U.S. Treasury 10 year notes have decreased 62 basis points from 4.59% to 3.97%. The disproportional lower rate of decrease on longer term maturities has somewhat normalized the inverted yield curve, which had been flat to inverted on the short end of the treasury curve at various times in the prior year. The flat-to-inverted yield curve effectively increased the rate paid on interest-bearing deposits at a faster pace than the rate earned on term investments and fixed rate loans in the Bank’s portfolio. The positively sloped yield curve would normally reduce the rates paid on deposits and for short term borrowings; however, the market has not completely reacted to these changes due to concerns created by the sub-prime collateral uncertainties, which have put pressures on general credit market liquidity.

With the instability of the liquidity markets, many competitors have increased deposit rates through promotional specials or “bonus” rates. Competition for deposits may intensify, causing the Company to defend its deposit base by increasing its deposit rates paid without a commensurate increase in asset yields. This has left short-term funding rates higher than some intermediate U.S. Treasury yields. Should the credit markets stabilize, the Federal Reserve could reverse direction and increase the federal funds rate to reduce inflationary risks. This could cause the yield curve to rise and steepen, potentially reducing the NPV resulting from asset value declines.

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Item 4. Controls and Procedures

The Company’s management, including the Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended the “Exchange Act”) as of the end of the period covered by this report. Based upon that evaluation, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time frames specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings which, in the aggregate, management believes to be material to the consolidated financial condition and operations of the Company.

Item 1A. Risk Factors

There have been no material changes in risk factors described in the Company’s Annual Report on Form 10-K for the year ended September 30, 2007.

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

(a) Not applicable.

(b) Not applicable

(c) Issuer Purchases of Equity Securities

	Total Number of shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximated Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs (2)
April 1 - April 30	—				1,472,344
May 1 - May 31	255,398		12.97	226,443	1,245,901
June 1 - June 30	80,000		12.34	80,000	1,165,901
Total	335,398	$	12.82	306,443

¹ The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options( 28,955) by submitting previously acquired shares of common stock in satisfaction of the exercise price, as is permitted under the Company’s stock benefit plans.

² The Company announced its fourth repurchase program on August 24, 2007 authorizing the repurchase of 2,000,000 shares.

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

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Item 6. Exhibits

Exhibit Number	Description
10.1	Provident amended and restated 1995 Supplemental Executive Retirement Plan*
10.2	Provident 2005 Supplemental Executive Retirement Plan*
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, Provident New York Bancorp has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

		Provident New York Bancorp
Date: August 8, 2008	By:	/s/ George Strayton
		George Strayton
		President, Chief Executive Officer and Director (Principal Executive Officer)
Date: August 8, 2008	By:	/s/ Paul A. Maisch
		Paul A. Maisch
		Executive Vice President
		Chief Financial Officer
		Principal Accounting Officer
		(Principal Financial Officer)

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