Sterling Bancorp (STL) 10-Q 2009 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, 2009

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 checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark 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, 2009
$0.01 per share	39,623,454

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PERIOD ENDED JUNE 30, 2009

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition (unaudited) at June 30, 2009 and September 30, 2008	3
	Consolidated Statements of Income (unaudited) for the Three Months and Nine Months Ended June 30, 2009 and June 30, 2008	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Nine months Ended June 30, 2009	5
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2009 and 2008	6
	Consolidated Statements of Comprehensive Income (loss) (unaudited) for the Three Months and Nine Months Ended June 30, 2009 and 2008	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	39
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1.A.	Risk Factors	39
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Other Information	40
Item 6.	Exhibits	40
	Signatures	41

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(In thousands, except share data)

	June 30, 2009			September 30, 2008
ASSETS
Cash and due from banks	$	96,836		$	125,810
Securities (note 7)
Available for sale (including $407,343 and $765,334 pledged as collateral for borrowings and deposits at June 30, 2009 and September 30, 2008 respectively)		689,286			791,688
Held to maturity, at amortized cost (fair value of $43,432 and $42,899 at June 30, 2009 and September 30, 2008, respectively)		42,790			43,013
Total securities		732,076			834,701
Loans held for sale		891			189
Loans (notes 4 and 5):
One to four family residential mortgage loans		473,838			513,381
Commercial real estate and commercial business		797,306			798,453
Acquisition, development and construction		189,920			170,979
Consumer loans		253,365			248,740
Gross loans		1,714,429			1,731,553
Allowance for loan losses		(28,027	)		(23,101	)
Total loans, net		1,686,402			1,708,452
Federal Home Loan Bank (“FHLB”) stock, at cost		23,447			28,675
Accrued interest receivable		9,784			10,881
Premises and equipment, net		40,234			36,716
Goodwill		160,861			160,861
Core deposit and other intangible assets		6,002			7,674
Bank owned life insurance		49,106			47,650
Other assets		18,717			22,762
Total assets	$	2,824,356		$	2,984,371
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits (note 8)	$	1,872,983		$	1,989,197
FHLB borrowings (including repurchase agreements of $235,011 and $260,166 at June 30, 2009 and September 30, 2008, respectively) (note 9)		436,735			566,008
Borrowings senior debt (FDIC insured) (note 9)		51,493			—
Mortgage escrow funds		20,177			7,272
Other liabilities		22,193			22,736
Total liabilities		2,403,581			2,585,213
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; 39,613,454 and 39,815,213 shares outstanding at June 30, 2009 and September 30, 2008, respectively)		459			459
Additional paid-in capital		355,245			352,882
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(7,261	)		(7,635	)
Treasury stock, at cost (6,316,098 and 6,114,339 shares at June 30, 2009 and September 30, 2008, respectively)		(76,768	)		(75,687	)
Retained earnings		150,912			138,720
Accumulated other comprehensive income (loss), net of taxes		(1,812	)		(9,581	)
Total stockholders’ equity		420,775			399,158
Total liabilities and stockholders’ equity	$	2,824,356		$	2,984,371

See accompanying notes to unaudited consolidated financial statements

3

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except share data)

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2009		2008		2009		2008
Interest and dividend income:
Loans	$	23,848	$	25,630	$	73,534	$	81,101
Taxable securities		5,460		8,048		20,886		24,058
Non-taxable securities		1,915		1,726		5,679		5,065
Other earning assets		428		662		1,009		2,052
Total interest and dividend income		31,651		36,066		101,108		112,276
Interest expense:
Deposits		4,104		6,187		15,185		22,895
Borrowings		4,821		5,691		14,516		19,578
Total interest expense		8,925		11,878		29,701		42,473
Net interest income		22,726		24,188		71,407		69,803
Provision for loan losses (note 5)		3,500		1,400		13,100		5,100
Net interest income after provision for loan losses		19,226		22,788		58,307		64,703
Non-interest income:
Deposit fees and service charges		3,083		3,100		9,256		9,183
Net gain on sale of securities		10,023		22		16,447		983
Title insurance fees		254		274		667		619
Bank owned life insurance		502		455		1,507		1,317
Gain on sale of premises and equipment		—		—		517		—
Gain on sale of loans		450		—		746		—
Investment management fees		622		750		1,829		2,242
Other		321		423		1,180		1,392
Total non-interest income		15,255		5,024		32,149		15,736
Non-interest expense:
Compensation and employee benefits (note 12)		10,058		9,245		29,626		26,936
Stock-based compensation plans (note 2)		639		973		2,321		2,893
Occupancy and office operations		3,310		3,090		9,607		9,309
Advertising and promotion		614		933		2,464		2,628
Professional fees		788		813		2,370		2,588
Data and check processing		558		646		1,721		1,913
Amortization of intangible assets		531		636		1,672		1,988
FDIC insurance and regulatory assessments		2,305		241		3,505		641
ATM/debit card expense		564		456		1,552		1,412
Other		2,150		1,922		5,990		5,693
Total non-interest expense		21,517		18,955		60,828		56,001
Income before income tax expense		12,964		8,857		29,628		24,438
Income tax expense		4,014		2,551		8,843		7,155
Net Income	$	8,950	$	6,306	$	20,785	$	17,283
Weighted average common shares:
Basic		38,536,716		38,719,917		38,582,343		39,014,150
Diluted		38,683,135		39,110,353		38,768,486		39,402,248
Per common share (note 10)
Basic	$	0.23	$	0.16	$	0.54	$	0.44
Diluted	$	0.23	$	0.16	$	0.54	$	0.44

See accompanying notes to unaudited consolidated financial statements

4

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(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, 2008	39,815,213		$	459	$	352,882		$	(7,635	)	$	(75,687	)	$	138,720		$	(9,581	)	$	399,158
Net income				—		—			—			—			20,785			—			20,785
Other comprehensive income	—			—		—			—			—			—			7,769			7,769
Total comprehensive income																					28,554
Deferred compensation transactions	—			—		100			—			—			—			—			100
Stock option transactions, net	127,192			—		1,001			—			1,573			(1,592	)		—			982
ESOP shares allocated or committed to be released for allocation (37,449 shares)	—			—		(4	)		374			—			—			—			370
Vesting of RRP Awards	—			—		1,266			—			—			—			—			1,266
Purchase of treasury shares	(328,951	)		—		—			—			(2,654	)		—			—			(2,654	)
Cash dividends paid ($0.18 per common share)	—			—		—			—			—			(7,001	)		—			(7,001	)
Balance at June 30, 2009	39,613,454		$	459	$	355,245		$	(7,261	)	$	(76,768	)	$	150,912		$	(1,812	)	$	420,775

5

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Nine Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net income	$	20,785		$	17,283
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		13,100			5,100
Write down of other real estate owned		186			—
Depreciation and amortization of premises and equipment		3,493			3,342
Amortization of intangibles		1,672			1,988
Gain on sales of loans held for sale		(746	)		—
Gain on sale of securities available for sale and held to maturity		(16,447	)		(983	)
Gain on sales of fixed assets		(517	)		—
Net amortization (accretion) of premium and discounts on securities		505			(54	)
Amortization of premiums on borrowings (includes calls on borrowings)		(340	)		(612	)
ESOP and RRP expense		1,622			2,263
ESOP forfeitures		(4	)		(293	)
Stock option compensation expense		703			923
Originations of loans held for sale		(37,699	)		—
Proceeds from sales of loans held for sale		36,997			—
Increase in cash surrender value of bank owned life insurance		(1,456	)		(1,317	)
Deferred income tax (expense)		(3,012	)		(2,580	)
Net changes in accrued interest receivable and payable		1,076			944
Other adjustments (principally net changes in other assets and other liabilities)		18,086			(1,897	)
Net cash provided by operating activities		38,004			24,107
Cash flows from investing activities
Purchases of available for sale securities		(466,331	)		(216,004	)
Purchases of held to maturity securities		(19,366	)		(14,883	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		123,594			196,479
Held to maturity		19,017			10,846
Proceeds from sales of securities available for sale and held to maturity		457,685			39,455
Loan originations		(344,906	)		(429,191	)
Loan principal payments		354,602			375,910
Redemption of FHLB stock		5,228			978
Purchases of premises and equipment		(7,212	)		(7,888	)
Proceeds from the sale of premises		718			—
Purchase of BOLI		—			(5,000	)
Net cash (used in) provided by investing activities		123,029			(49,298	)
Cash flows from financing activities
Net (decrease) increase in transaction, savings and money market deposits		(97,036	)		85,921
Net (decrease) increase in time deposits		(19,178	)		(23,874	)
Net (decrease) in short-term borrowings		(148,791	)		(187,858	)
Gross increase in Senior debt borrowings		51,493			—
Gross repayments of long-term borrowings		(2,982	)		(2,958	)
Gross proceeds from long-term borrowings		22,840			165,782
Net increase in mortgage escrow funds		12,905			12,732
Treasury shares purchased		(2,654	)		(19,780	)
Stock option transactions		297			1,251
Other stock-based compensation transactions		100			26
Cash dividends paid		(7,001	)		(7,134	)
Net cash (used in) provided by financing activities		(190,007	)		24,108
Net decrease in cash and cash equivalents		(28,974	)		(1,083	)
Cash and cash equivalents at beginning of period		125,810			47,291
Cash and cash equivalents at end of period	$	96,836		$	46,208
Supplemental information:
Interest payments	$	29,722		$	43,961
Income tax payments		7,686			11,673
Net change in unrealized gains recorded on securities available for sale		12,479			1,999
Change in deferred taxes on unrealized gains on securities available for sale		5,017			(834	)
Number of RRP shares issued		—			6,000
Real estate acquired in settlement of loans		1,774			138

See accompanying notes to unaudited consolidated financial statements

6

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands, except share data)

	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2009			2008			2009		2008
Net Income:
Other Comprehensive income:	$	8,950		$	6,306		$	20,785	$	17,283
Net unrealized holding gains (losses) on securities available for sale net of related tax expense (benefit) of $324, $(5,727), $11,711 and $1,196		494			(8,326	)		17,183		1,803
Less:
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $4,050, $9, $6,654 and $406		5,940			19		$	9,760	$	594
		(5,446	)		(8,345	)		7,423		1,209
Change in funded status of defined benefit plans, net of related income tax expense of $83, and $239		115			—			346		—
		(5,331	)		(8,345	)		7,769		1,209
Total Comprehensive Income	$	3,619		$	(2,039	)	$	28,554	$	18,492

7

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

1. Basis of Presentation

The consolidated financial statements include the accounts of Provident New York Bancorp (“Provident Bancorp” or “the Company”), Hardenburgh Abstract Title Company, which provides title searches and insurance for residential and commercial real estate, Hudson Valley Investment Advisors, LLC (“HVIA”), a registered investment advisor, Provident Bank (“the Bank”) and the Bank’s wholly owned subsidiaries. These subsidiaries are (i) Provident Municipal Bank (“PMB”) which is a limited-purpose, New York State-chartered commercial bank formed to accept deposits from municipalities in the Company’s market area, (ii) Provident REIT, Inc. and WSB Funding, Inc. which are real estate investment trusts that hold a portion of the Company’s real estate loans, (iii) Provest Services Corp. I, which has invested in a low-income housing partnership, (iv) Provest Services Corp. II, which has engaged a third-party provider to sell mutual funds and annuities to the Bank’s customers, and (v) a Limited Liability Company, which holds foreclosed properties acquired by the bank. Intercompany transactions and balances are eliminated in consolidation.

The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and for letters of credit, on behalf of customers, which all are 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 nine months ended June 30, 2009 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2009. 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, 2008.

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.

Subsequent events have been evaluated through the time of filing on August 7, 2009, which represents the date the Consolidated Condensed Financial Statements were issued

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 less than the plan’s five-year vesting period depending on the age of the grantee. As of June 30, 2009, 6,100 shares of total options granted were subject to this potential accelerated vesting. The Company expensed $8 and $15 for accelerated vesting of stock options during the nine month periods ending June 30, 2009 and 2008, respectively.

Under the Company’s incentive stock plans there are a total of 346,654 shares available for future grant as of June 30, 2009. Options have a ten-year term and 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 and for the mandatory withholding of income taxes. The 2004 Plan options do not provide for reload options, however, the 2004 plan allows for the grant of stock appreciation rights, none of which 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 42,060 and 88,861 shares of stock-

8

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

based option awards including reload options for the three and nine month periods ended June 30, 2009, respectively. The Company recognized total non-cash stock-based compensation cost of $110 and $703 associated with stock options for the three and nine month periods ended June 30, 2009 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 periods ended June 30, 2008 respectively. As of June 30, 2009, the total remaining unrecognized compensation cost related to non-vested stock options was $543. The following table shows information regarding outstanding and exercisable options as of June 30, 2009:

	June 30, 2009
	Outstanding				Exercisable
		Weighted-Average				Weighted-Average
	Number of Stock Options	Exercise Price		Life (in Years)	Number of Stock Options	Exercise Price
Range of Exercise Price
$3.50 to $7.31	316,226	$	4.03	0.7	316,226	$	4.03
$7.32 to $11.85	247,618		10.68	2.8	241,618		10.67
$11.86 to $15.66	1,748,927		12.94	5.6	1,554,027		12.90
	2,312,771	$	11.48	4.6	2,111,871	$	11.32

The following table summarizes the Company’s stock option activity for the nine months ended June 30, 2009:

	Number of Shares		Weighted Average Exercise Price
Outstanding at October 1, 2008	2,481,163		$	10.91
Granted	88,861			9.04
Exercised	(216,053	)		3.63
Forfeited	(41,200	)		13.06
Outstanding at June 30, 2009	2,312,771		$	11.48
Exercisable at June 30, 2009	2,111,871		$	11.32
Weighted average estimated fair value of options granted during the period			$	1.97

The fair value for grants during the nine month period ended June 30, 2009 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

Risk-free interest rate	1.9	%
Dividend yield	3.3	%
Volatility of the market price	61.5	%
Weighted-average expected life of options	0.91

The aggregate intrinsic value of options outstanding as of June 30, 2009 was $1,292. The intrinsic value represents total pre-tax intrinsic value (the difference between the Companies’s closing stock price on the last trading date of the nine-month period ended

9

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

June 30, 2009 and the exercise price, multiplied by the number of in-the-money options). Intrinsic value of stock options exercised during the nine month period ending June 30, 2009 was $1,237.

Under the Company’s incentive stock plan, 77,033 shares of restricted stock (RRP’s) are reserved for issuance as of June 30, 2009. 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 $1,266 and $1,345 for the nine months ended June 30, 2009 and 2008, respectively. The remaining unearned compensation cost was $1,389 and $3,121 as of June 30, 2009 and 2008, respectively. 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 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, 2009, 92,200 shares of the awards granted were subject to this accelerated vesting. Nonvested shares outstanding were 205,950 at both June 30, 2009 and September 30, 2008.

There was no additional expense recognized for accelerated vesting of restricted stock during the nine months ended June 30, 2009 and 2008, 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 $367 and $633 for the nine month periods ended June 30, 2009 and 2008, respectively. The Company reduced ESOP expense by $4 and $293 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, 2008 provides additional detail regarding the Company’s accounting policies.

10

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

4. Loans

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

	June 30, 2009		September 30, 2008
Real estate - residential mortgage	$	473,838	$	513,381
Real estate - commercial mortgage		548,823		554,811
Acquisition, development & construction loans		189,920		170,979
Commercial business loans		248,483		243,642
Consumer loans		253,365		248,740
Total	$	1,714,429	$	1,731,553

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. Modifications to the methodology used in the allowance for loan losses evaluation may be necessary in the future based on further deterioration in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory guidelines and 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,
	2009			2008			2009			2008
Balance at beginning of period	$	26,437		$	21,413		$	23,101		20,389
Charge-offs		(2,354	)		(878	)		(9,206	)	(3,758	)
Recoveries		444			66			1,032		270
Net charge-offs		(1,910	)		(812	)		(8,174	)	(3,488	)
Provision for loan losses		3,500			1,400			13,100		5,100
Balance at end of period	$	28,027		$	22,001		$	28,027		22,001
Net charge-offs to average loans outstanding (annualized)		0.44	%		0.20	%		0.63	%	0.28	%

11

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table sets forth the amounts and categories of the Company’s non-performing assets at the dates indicated. The Company had $1,563 and $0 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) at June 30, 2009 and September 30, 2008, respectively.

	June 30, 2009					September 30, 2008
	90 days past due Still accruing		Non- Accrual			90 days past due Still accruing		Non- Accrual
Non-performing loans:
One- to four- family	$	2,115	$	2,726		$	2,487	$	1,731
Commercial real estate		988		6,427			732		3,100
Commercial business		—		178			—		2,811
Acquisition, development and construction loans		43		10,627			—		5,596
Consumer		34		642			70		351
		��
Total non-performing loans	$	3,180	$	20,600		$	3,289	$	13,589
Real estate owned:
Land				1,504					—
One- to four-family				83					84
Total real estate owned				1,587					84
Total non-performing assets			$	25,367				$	16,962
Ratios:
Non-performing loans to total loans				1.39	%				0.97	%
Non-performing assets to total assets				0.90	%				0.57	%
Allowance for loan losses to total non-performing loans				118	%				137	%
Allowance for loan losses to average loans				1.63	%				1.33	%

The Company’s recorded investment in impaired loans, as defined by SFAS No. 114, was $20,542 and $13,237 at June 30, 2009 and September 30, 2008, respectively. The allowance for loan losses allocated to impaired loans was $5,903 and $2,990 at June 30, 2009 and September 30, 2008, respectively. The Company does not have any impaired loans without allocations. The provision for loan loss was $3,500 and $13,100 for the three and nine month periods ending June 30, 2009, respectively.

12

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

6. Fair value measurements

Effective October 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” for fair value measurements of certain of its financial instruments. The provisions of SFAS No. 157 that pertain to measurement of non-financial assets and liabilities have been deferred by the Financial Accounting Standards Board (“FASB”) until October 1, 2009.

The provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which permit an entity to choose to measure eligible financial instruments and other items at fair value, also became effective October 1, 2008. The Company has elected not to adopt any fair value provisions under FAS 159 for any of its financial assets or financial liabilities as of June 30, 2009.

The definition of fair value is clarified by SFAS No. 157 to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value excludes incremental direct selling or transfer costs but considers the condition and/or location of the asset or liability and any restrictions on the use of the asset as of the measurement date. SFAS No. 157 establishes a three-level hierarchy for fair value measurements based upon the inputs to the valuation of an asset or liability.

LEVEL 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.

LEVEL 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based techniques in which all significant inputs are observable in the market.

LEVEL 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that the market participants would use to value the asset or liability.

When available, the Company attempts to use quoted market prices in active markets to determine fair value and classifies such items as Level 1 or Level 2. If quoted market prices in active markets are not available, fair value is often determined using model-based techniques incorporating various assumptions including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input that is considered significant to the overall valuation.

The following is a description of the valuation methodologies used for the Company’s assets and liabilities that are measured on a recurring basis at estimated fair value.

Investment securities available for sale

The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. Certain investments are actively traded and therefore have been classified as Level 1 valuations (U.S. Treasuries and certain government sponsored agencies).

The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of market data information and compares them to dealer indicative bids from the Company’s external investment advisor. For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.

As of June 30, 2009, the Company adopted the provisions of FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). As a result of adoption, the Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. The Company determined that there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities, and as such determined that such transactions were deemed to be not orderly. These five securities, with an amortized

13

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

cost of $12,071 at June 30, 2009, were transferred by the Company from Level 2 to Level 3 valuations at a fair value of $10,196, in order to determine fair value. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of June 30, 2009. The Company considered this information to be both reasonable and the best available without undue effort and cost.

The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows:

	Privately issued MBS
Net transfers into Level 3 at April 1, 2009	$	9,534
Maturities and pay downs		(771	)
(Amortization) and Accretion		4
Total net gains (losses) for the quarter included in:
Other Comprehensive income		1,429
Purchases		—
Balance at June 30, 2009	$	10,196

The transfers into Level 3 from Level 2 represent securities for which significant inputs to the valuation became unobservable as well as there being limited trading activity.

Commitments to sell real estate loans:

The Company enters into various commitments to sell real estate loans within the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The estimated fair values of these commitments were generally calculated by reference to quoted prices in secondary markets for commitments to sell to certain government sponsored agencies. The fair values of these commitments generally result in a Level 2 classification. The fair values of these commitments are not considered material.

A summary of assets and liabilities at June 30, 2009 measured at estimated fair value on a recurring basis were as follows:

	Fair Value Measurements at June 30, 2009		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury and federal agencies	$	133,080	$	133,080	$	—	$	—
Obligations of states and political subdivisions		158,518				158,518		—
Government issued or guaranteed mortgage-backed securities		369,740				369,740
Privately issued mortgage-backed securities		10,196						10,196
Corporate debt securities		16,809				16,809
Equities		943				943
Total Assets	$	689,286	$	133,080	$	546,010	$	10,196

14

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following categories of financial assets, are not measured at fair value on an on-going basis, but are subject to fair value adjustments in certain circumstances:

Loans and Loans Held for Sale

These assets are not generally recorded at fair value on a recurring basis. Loans held for sale are subject to a fair value adjustment only when the fair value of the loans is less than their cost basis. There was no adjustment necessary to this category as of June 30, 2009. The Company may record nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependant loans calculated in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”, when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based upon recent comparable sales of similar properties. Any fair value adjustments for loans categorized here are classified as Level 2. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the market place and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurements were $14,697 which equals the carrying value less the allowance for loan losses allocated to these loans at June 30, 2009, of which all have been classified as Level 2. Changes in fair value recognized on partial charge-offs on loans held by the Company for the nine months ended June 30, 2009 were $703.

Mortgage servicing rights

The Company utilizes the amortization method to subsequently measure the carrying value of its servicing asset. In accordance with Statement of Financial Accounting Standard No. 156, “Accounting for Servicing of Financial Assets – an amendment to FASB No. 140” (“SFAS 156”), the Company must record impairment charges on a nonrecurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights the Company utilizes a third party vendor, which considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights is considered a Level 3 valuation. At June 30, 2009, $735 of mortgage servicing rights had a carrying value equal to their fair value. Changes in fair value of mortgage servicing rights recognized for the nine months ended June 30, 2009 was a decrease of $80.

15

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

7. Securities

The following is a summary of securities available for sale at June 30, 2009 and September 30, 2008:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2009
Mortgage-backed securities
Mortgage-backed pass-through securities	$	363,935	$	4,297	$	(499	)	$	367,733
Collateralized mortgage obligations		14,024		54		(1,875	)		12,203
Total mortgage-backed securities		377,959		4,351		(2,374	)		379,936
Investment securities
U.S. Treasury Notes		26,008		89		—			26,097
U.S. Government Federal Agency Securities		107,009		208		(234	)		106,983
State and municipal securities		157,736		2,122		(1,340	)		158,518
Corporate debt securities		16,835		43		(69	)		16,809
Equities		1,146		—		(203	)		943
Total investment securities		308,734		2,462		(1,846	)		309,350
Total available for sale	$	686,693	$	6,813	$	(4,220	)	$	689,286
September 30, 2008
Mortgage-backed securities
Mortgage-backed pass-through securities	$	576,551	$	3,427	$	(3,017	)	$	576,961
Collateralized mortgage obligations		34,521		636		(1,102	)		34,055
Total mortgage-backed securities		611,072		4,063		(4,119	)		611,016
Investment securities
U.S. Treasury Notes		—		—		—			—
U.S. Government Federal Agency Securities		30,022		19		—			30,041
State and municipal securities		159,334		125		(9,858	)		149,601
Corporate debt securities		—		—		—			—
Equities		1,146		—		(116	)		1,030
Total investment securities		190,502		144		(9,974	)		180,672
Total available for sale	$	801,574	$	4,207	$	(14,093	)	$	791,688

16

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following is a summary of securities held to maturity at June 30, 2009 and September 30, 2008:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2009
Mortgage-backed securities
Mortgage-backed pass-through securities	$	6,247	$	149	$	—		$	6,396
Collateralized mortgage obligations		912		7		—			919
Total mortgage-backed securities		7,159		156		—			7,315
Investment securities
State and municipal securities		34,571		612		(145	)		35,038
Other investments		1,060		19		—			1,079
Total investment securities		35,631		631		(145	)		36,117
Total held to maturity	$	42,790	$	787	$	(145	)	$	43,432
September 30, 2008
Mortgage-backed securities
Mortgage-backed pass-through securities	$	9,313	$	133	$	(35	)	$	9,411
Collateralized mortgage obligations		1,038		—		(1	)		1,037
Total mortgage-backed securities		10,351		133		(36	)		10,448
Investment securities
State and municipal securities		32,604		236		(449	)		32,391
Other investments		58		2		—			60
Total investment securities		32,662		238		(449	)		32,451
Total held to maturity	$	43,013	$	371	$	(485	)	$	42,899

Management does not believe that any individual unrealized loss as of June 30, 2009 included in the table above represents an other-than-temporary impairment as the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges. As of June 30, 2009 the Company does not intend to sell nor is it anticipated that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.

At June 30, 2009 the accumulated unrealized net gain on securities available for sale, net of tax expense of $1,047 was $1,530. At September 30, 2008, the accumulated unrealized net loss on securities available for sale, net of tax benefit of $3,970 was $5,892. There were realized gains of $16,414 and no realized losses on available for sale securities for the nine months ended June 30, 2009. There were realized gains of $33 and no realized losses on the four securities sold in the held to maturity portfolio with an amortized value of $592. The securities sold in both available for sale and held to maturity categories were identified in the Bank’s sale program put into place in February 2009 to realize a portion of the recent appreciation in its security portfolio and reduce prepayment risk. These securities can be considered maturities per SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, as the sale of the securities occurred after at least 85 percent of the principal outstanding had been collected since acquisition.

Securities, including held-to-maturity securities, with carrying amounts of $243,993 and $342,873 were pledged as collateral for borrowings and securities repurchase agreements at June 30, 2009 and September 30, 2008, respectively. Securities with carrying amounts of $163,350 and $220,157 were pledged as collateral for municipal deposits and other purposes at June 30, 2009 and September 30, 2008, respectively.

17

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following tables summarize, for all securities in an unrealized loss position at June 30, 2009 and September 30, 2008, 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
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
As of June 30, 2009
Available For Sale:
Mortgage-backed securities	$	(498	)	$	76,922	$	(1	)	$	48	$	(499	)	$	76,970
Collateralized mortgage obligations		(81	)		838		(1,794	)		9,358		(1,875	)		10,196
U.S. Government agency securities		(233	)		69,247		(1	)		43		(234	)		69,290
Municipal securities		(685	)		40,024		(655	)		14,657		(1,340	)		54,681
Corporate debt securities		(69	)		6,166		0			—		(69	)		6,166
Equity securities		(193	)		848		(10	)		95		(203	)		943
Total available-for-sale:		(1,759	)		194,045		(2,461	)		24,201		(4,220	)		218,246
Held to Maturity:
State and municipal securities		(139	)		3,257		(6	)		331		(145	)		3,588
Total held to maturity:		(139	)		3,257		(6	)		331		(145	)		3,588
Total securities:	$	(1,898	)	$	197,302	$	(2,467	)	$	24,532	$	(4,365	)	$	221,834
	Less than 12 months					12 months or longer					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
As of September 30, 2008
Available For Sale:
Mortgage-backed securities	$	(2,575	)	$	245,362	$	(442	)	$	22,492	$	(3,017	)	$	267,854
Collateralized mortgage obligations		(1,100	)		13,885		(2	)		250		(1,102	)		14,135
U.S. Government agency securities		—			—		—			47		—			47
Municipal securities		(7,535	)		113,509		(2,323	)		19,241		(9,858	)		132,750
Equity securities		(115	)		926		(1	)		104		(116	)		1,030
Total available-for-sale:		(11,325	)		373,682		(2,768	)		42,134		(14,093	)		415,816
Held to Maturity:
Mortgage-backed securities		(4	)		2,617		(31	)		1,282		(35	)		3,899
Collateralized mortgage obligations		(1	)		1,037		—			—		(1	)		1,037
State and municipal securities		(420	)		13,136		(29	)		540		(449	)		13,676
Total held to maturity:		(425	)		16,790		(60	)		1,822		(485	)		18,612
Total securities:	$	(11,750	)	$	390,472	$	(2,828	)	$	43,956	$	(14,578	)	$	434,428

18

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The Company, as of June 30, 2009 adopted FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP 115-2”). FSP FAS 115-2 requires a forecast of recovery of cost basis through cash flow collection on all debt securities with a fair value less than its amortized cost less any current period credit loss with an assertion on the lack of intent to sell (or be required to sell prior to recovery of cost basis).

Based on a review of each of the securities in the investment portfolio in accordance with FSP 115-2 at June 30, 2009, the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges. As of June 30, 2009 the Company does not intend to sell nor is it anticipated that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.

Substantially all of the unrealized losses at June 30, 2009 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, 2009. A total of 174 securities were in a continuous unrealized loss position for less than 12 months, and 62 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.

Within the collateralized mortgage-backed securities (CMO’s) category of the available for sale portfolio there are five individual private label CMO’s that have an amortized cost of $12,071 and a fair value (carrying value) of $10,196 as June 30, 2009. These securities were all performing as of June 30, 2009 and are expected to perform based on current information. In determining whether there existed other than temporary impairment on these securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no losses are expected. The Company will continue to evaluate its portfolio in this manner on a quarterly basis.

The Company does not own any preferred stock of Federal National Mortgage Association or Federal Home Loan Mortgage Corporation. The Company owned 120 shares of Federal National Mortgage Association common stock as of June 30, 2009.

8. Deposits

Major classifications of deposits are summarized below:

	June 30, 2009		September 30, 2008
Demand Deposits
Retail	$	160,151	$	162,161
Business		220,260		203,682
Municipal		10,443		122,047
Retail NOW deposits		127,662		115,442
Business NOW deposits		31,311		20,881
Municipal NOW deposits		64,478		196,581
Total transaction accounts		614,305		820,794
Savings		369,424		335,986
Money market		383,579		306,504
Certificates of deposit		505,675		525,913
Total deposits	$	1,872,983	$	1,989,197

Municipal deposits of $252,313 and $460,820 were included in total deposits at June 30, 2009 and September 30, 2008, respectively. Certificates of deposit include $34,159 (including certificates of deposit account registers service (CDAR’s) reciprocal CDs of $14,373) in brokered deposits at June 30, 2009 and $16,582 at September 30, 2008.

19

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

9. Borrowings

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

	June 30, 2009				September 30, 2008
	Amount		Rate		Amount		Rate
By type of borrowing:
FHLB advances	$	201,724	4.15	%	$	305,842	3.20	%
FHLB Repurchase agreements		235,011	4.04	%		260,166	3.85	%
Senior Debt (FDIC insured)		51,493	2.74	%		—	—
Total borrowings	$	488,228	3.95	%	$	566,008	3.50	%
By remaining period to maturity:
One year or less	$	57,759	4.87	%	$	153,893	2.16	%
One to two years		44,933	3.44	%		52,961	3.62	%
Two to three years		83,993	3.12	%		32,129	3.88	%
Three to four years		32,533	3.97	%		22,500	4.03	%
Four to five years		25,233	4.14	%		35,424	3.96	%
Five years or greater		243,777	4.09	%		269,101	4.09	%
Total borrowings	$	488,228	3.95	%	$	566,008	3.50	%

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, 2009 and September 30, 2008, the Bank had pledged mortgages totaling $364,461 and $385,279 respectively. The Bank had also pledged securities with carrying amounts of $243,993 and $323,694 as of June 30, 2009 and September 30, 2008, respectively, to secure borrowings. Based on total outstanding borrowings with the FHLB, which totaled $436,735 and $555,252 as of June 30, 2009 and September 30, 2008, the bank had unused borrowing capacity under the FHLB overnight line of credit of $200,000 and $142,000, respectively. The Bank also has an Unsecured Discretionary Federal Funds Line with a bank in the amount of $50,000. As of June 30, 2009, the Bank may borrow additional amounts by pledging securities not required to be pledged for other purposes with a market value of $267,776. FHLB advances are subject to prepayment penalties, if repaid prior to maturity.

The Bank did not have any overnight and floating rate borrowings that reprice daily, as of June 30, 2009. The Bank issued $51,493 in senior unsecured debt under the FDIC’s Temporary Liquidity Guarantee Program (“TLGP”) in February 2009. We recorded a fee of 1% per annum to the FDIC to guarantee the TLGP debt. The expense is amortized over its maturity and is recorded as interest expense. Of the $430,469 in borrowings due in greater than one year, $227,550 are callable quarterly after an initial lockout period through their respective maturities and $40,000 have a one time call on a specified date. During the nine months ended June 30, 2009 no borrowings were called. The remaining premium recorded from prior acquisitions, but not accreted into income at June 30, 2009 was $352.

20

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

10. 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 are computed as follows:

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2009		2008		2009		2008
Weighted average common shares outstanding (basic), in ‘000s		38,537		38,720		38,582		39,014
Net Income	$	8,950	$	6,306	$	20,785	$	17,283
Basic earnings per common share	$	0.23	$	0.16	$	0.54	$	0.44

Diluted earnings per common share are computed as follows:

	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2009		2008		2009		2008
Weighted average common shares outstanding (basic), in ‘000s		38,537		38,720		38,582		39,014
Effect of common stock equivalents		146		390		186		388
		38,683		39,110		38,768		39,402
Net Income	$	8,950	$	6,306	$	20,785	$	17,283
Diluted earnings per common share	$	0.23	$	0.16	$	0.54	$	0.44

As of June 30, 2009, 1,941,409 and 1,958,761 weighted average shares were anti-dilutive for the nine month and three month periods, respectively. Anti-dilutive shares are not included in the determination of earnings per share.

11. 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, 2009, the Company had $24,104 in outstanding letters of credit, of which $9,695 were secured by cash collateral. The carrying values of these guarantees are considered immaterial.

21

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

12. 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 Plan						Other Post Retirement Plans
	Three months Ended June 30,						Three months Ended June 30,
	2009			2008			2009			2008
Service Cost	$	—		$	—		$	5		$	—
Interest Cost		405			382			23			24
Expected return on plan assets		(445	)		(518	)		—			—
Amortization of net transition obligation		—			—			3			13
Amortization of prior service cost		—			—			12			1
Amortization of (gain) or loss		207			—			(29	)		(26	)
	$	167		$	(136	)	$	14		$	12
	Pension Plan						Other Post Retirement Plans
	Nine months Ended June 30,						Nine months Ended June 30,
	2009			2008			2009			2008
Service Cost	$	—		$	—		$	15		$	10
Interest Cost		1,211			1,176			69			40
Expected return on plan assets		(1,334	)		(1,593	)		—			—
Amortization of net transition obligation		—			—			9			18
Amortization of prior service cost		—			—			36			4
Amortization of (gain) or loss		620			—			(87	)		(65	)
	$	497		$	(417	)	$	42		$	7

As of June 30, 2009, a contribution of $5,200 had been deposited into the pension plan. The Company anticipates no additional contributions during the 2009 fiscal year.

The Company has also established a non-qualified Supplemental Executive Retirement Plan (“SERP”) to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $54 and $46 for the nine months ended June 30, 2009 and 2008, respectively. As of June 30, 2009, $2,100 in contributions were deposited to fund benefit payments related to the SERP.

13. Fair Values of Financial Instruments

SFAS No. 107-1, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information for those financial instruments for which it is practicable to estimate fair value, whether or not such financial instruments are recognized in the consolidated statements of financial condition for interim and annual periods. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values

22

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

disclosed in accordance with SFAS No. 107 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

The following is a summary of the carrying amounts and estimated fair values of financial assets and liabilities (none of which were held for trading purposes):

	June 30, 2009						September 30, 2008
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Financial assets:
Cash and due from banks	$	96,836		$	96,836		$	125,810		$	125,810
Securities available for sale		689,286			689,286			791,688			791,688
Securities held to maturity		42,790			43,432			43,013			42,899
Loans		1,686,402			1,716,174			1,708,452			1,721,499
Loans held for sale		891			917			189			189
Accrued interest receivable		9,784			9,784			10,881			10,881
FHLB of New York stock		23,447			23,447			28,675			28,675
Financial liabilities:
Non-maturity deposits		(1,367,308	)		(1,367,308	)		(1,463,285	)		(1,463,285	)
Certificates of Deposit		(505,675	)		(508,899	)		(525,912	)		(525,595	)
FHLB and other borrowings		(488,228	)		(518,102	)		(566,008	)		(550,213	)
Mortgage escrow funds		(20,177	)		(20,173	)		(7,272	)		(7,155	)
Accrued interest payable		(4,219	)		(4,219	)		(4,240	)		(4,240	)

The following paragraphs summarize the principal methods and assumptions used by management to estimate the fair value of the Company’s financial instruments.

(a) Securities

The fair value measurements consider observable data that may include dealer quote, market spreads, cash flows, live trading levels, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other items. For certain securities, for which the inputs used by independent pricing services were derived from unobservable market information, the Company evaluated the appropriateness of each price. In accordance with adoption of FAS No. 157-4, the Company reviewed the volume and level of activity for its different classes of securities to determine whether transactions were not considered orderly. For these securities, the quoted prices received from independent pricing services may be adjusted, as necessary, to estimate fair value in accordance with FAS No. 157. If applicable, adjustments to fair value were based on averaging present value cash flow model projections with prices obtained from independent pricing services. See note six for further discussion on determination of fair value.

(b) Loans

Fair values were estimated for portfolios of loans with similar financial characteristics. For valuation purposes, the total loan portfolio was segregated into adjustable-rate and fixed-rate categories. Fixed-rate loans were further segmented by type, such as residential mortgage, commercial mortgage, commercial business and consumer loans. Loans were also segmented by maturity dates. Fair values were estimated by discounting scheduled future cash flows through estimated maturity using a discount rate equivalent to the current market rate on loans that are similar with regard to collateral, maturity and the type of borrower. The discounted value of the cash flows was reduced by a credit risk adjustment based on loan categories. Based on the current composition of the Company’s loan portfolio, as well as past experience and current economic conditions and trends, the future cash flows were adjusted by prepayment assumptions that shortened the estimated remaining time to maturity and therefore affected the fair value estimates.

23

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

(c) FHLB of New York Stock

The redeemable carrying amount of these securities with limited marketability approximates their fair value.

(d) Deposits and Mortgage Escrow Funds

In accordance with SFAS No. 107, deposits with no stated maturity (such as savings, demand and money market deposits) were assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds were segregated by account type and original term, and fair values were estimated by discounting the contractual cash flows. The discount rate for each account grouping was equivalent to the current market rates for deposits of similar type and maturity.

These fair values do not include the value of core deposit relationships that comprise a significant portion of the Company’s deposit base. Management believes that the Company’s core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.

(e) Borrowings

Fair values of FHLB and other borrowings were estimated by discounting the contractual cash flows. A discount rate was utilized for each outstanding borrowing equivalent to the then-current rate offered on borrowings of similar type and maturity.

(f) Other Financial Instruments

The other financial assets and liabilities listed in the preceding table have estimated fair values that approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities and present relatively low credit risk and interest rate risk.

The fair values of the Company’s off-balance-sheet financial instruments described in Note 15 (“Off Balance Sheet Financial Instruments”) were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At June 30, 2009 and September 30, 2008, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.

24

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, customer preferences and behavior, values of real estate and other collateral, and levels of economic and business activity, among other things.

• 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 financial institutions, 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 and asset/liability 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.

• Recent and future legislation and regulatory actions responding to instability and volatility in the credit market may significantly affect our operations, financial condition and earnings. Future legislative or regulatory actions could impair our rights against borrowers, result in increased credit losses, and significantly increase our operating expenses.

• The current levels of volatility in the market are unprecedented and have adversely affected us and the financial services industry as a whole. The market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on businesses and consumers and lack of confidence in the financial markets have affected and further affect our business, financial condition and results of operations.

25

Overview

The Company provides financial services to individuals and businesses in New York State, primarily in the lower Hudson Valley. 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 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. Results of operations are also significantly affected by general economic and competitive conditions, as well as changes in market interest rates, government policies and actions of regulatory authorities.

For the nine months ended June 30, 2009 the major items in net income consisted of net interest income on a tax equivalent basis which increased $1.9 million, however net interest margin on a tax equivalent basis declined 5 basis points. Provision for loan losses increased $8.0 million due to continued effects of the slow down in the economy. Offsetting the provisions for loan losses were $16.4 million in gains on sales of securities as the Company monetized a significant portion of the appreciation in the portfolio since September 30, 2008. Expenses remained relatively unchanged with the exception of regulatory assessments, as the FDIC insurance premiums increased significantly by $2.9 million, including a special assessment of $1.4 million.

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 seek to maintain a disciplined pricing strategy on deposit generation that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs.

Comparison of Financial Condition at June 30, 2009 and September 30, 2008

Total assets as of June 30, 2009 were $2.8 billion, a decrease of $160.0 million or 5.4% compared to September 30, 2008 levels. Decreases were experienced in most categories with the greatest decrease of $103.0 million in securities due to the sale program initiated by the Company in February of 2009 to realize a portion of the unrealized gains and reduce prepayment risk.

Net Loans as of June 30, 2009 were $1.7 billion, unchanged from September 30, 2008. Acquisition, Development and Construction (“ADC”) increased by $18.9 million, or 11.1%, over balances at September 30, 2008, primarily due to activity on newly approved loans. Commercial real estate and commercial business loans remained flat decreasing $1.1 million, or 0.1%, over balances at September 30, 2008. Consumer loans increased by $4.6 million, or 1.9%, during the nine month period ended June 30, 2009, while residential mortgage loans decreased by $39.5 million or 7.7% primarily due to new conforming fixed rate loan originations being sold in the secondary market. Total loan originations were $344.9 million for the nine months ended June 30, 2009 and repayments were $354.6 million during the same time period. While loan demand is softer than a year ago due to the economic slowdown, commercial loan originations during the nine months ending June 30, 2009 were $175.1 million. 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. See footnote four.

Total securitiesdecreased by $102.6 million, or 12.3%, to $732.1 million at June 30, 2009, compared to September 30, 2008 due to sales of securities. The Company executed a planned sale program beginning in February of 2009 of approximately $350 million in mortgage backed securities to realize a portion of the recent appreciation in its securities portfolio and reduce prepayment risk. Mortgage-backed securities at amortized cost decreased by $236.3 million primarily due to sales of $376.5 million and pay downs of $90.8 million, partially offset by purchases totaling $231.3 million. US Treasury notes increased $26.0 million and U.S. Government federal agency securities increased $77.0 million. The Company owns $12.1 million at cost of private label CMO’s with a carrying value of $10.2 million. See note six for further discussion on determination of fair value for these securities.

Depositsas of June 30, 2009 were $1.9 billion, a decrease of $116.2 million, or 5.8%, from September 30, 2008. Retail and commercial transaction accounts were 28.8% of deposits at June 30, 2009 and 25.2% at September 30, 2008. An increase in retail and commercial transaction deposits of $37.2 million was offset by a decrease in municipal demand and NOW accounts of $243.7 million. Savings and Money market deposits increased by $33.4 million and $77.1 million, respectively. Certificates of Deposits decreased $20.2 million due to decreases in municipal certificates of deposits of $55.2 million. The increase experienced in retail deposits is due to seasonality. The decline in municipal deposits of $208.5 million results from seasonal tax collections at September 30, 2008.

26

Borrowings decreasedby $77.8 million, or 13.7%, from September 30, 2008, to $488.2 million as the Company paid down $151.8 million in advances and its overnight line of credit with the FHLB. The Bank issued $51.5 million in senior unsecured debt under the FDIC Temporary Liquidity Guarantee Program during the second quarter of fiscal 2009.

Stockholders’ equityincreased $21.6 million from September 30, 2008 to $420.8 million at June 30, 2009, primarily due to a $13.8 million increase in the Company’s retained earnings and a $7.8 million improvement in accumulated other comprehensive income, after realizing securities gains in the fiscal year of $16.4 million. Stock based compensation transactions of $2.6 million added to the overall increase in capital. The Company resumed open market stock repurchases during the third fiscal quarter and has purchased a total of 328,951 shares for the fiscal year 2009 totaling $2.7 million. As of June 30, 2009, 836,950 shares remain available for repurchase under the Company’s current stock repurchase program.

27

Credit Quality (Also see Note 5)

Net charge-offs for the quarter were $1.9 million (0.44% of average loans, on an annualized basis), down $2.4 million compared to $4.3 million (0.99% of average loans, on an annualized basis) in the prior linked quarter ended March 31, 2009. Net charge-offs for the quarter were up $1.1 million when compared to net charge-offs of $812,000 in the same period ending June 30, 2008. Net charge-offs of $1.3 million were in the community business loan portfolio which continues to be impacted by the ongoing sluggishness of the economy, on average outstandings of $101.9 million. The community business portfolio is showing signs of stabilization but the Company is experiencing further weakness in the ADC portfolio. Net charge- offs during the third fiscal quarter in the ADC portfolio and commercial real estate totaled $400,000 on average outstandings of $190.8 million.

Net charge-offs on a year to date basis were $8.2 million for fiscal 2009 compared to $3.5 million for fiscal 2008. Of the $8.2 million in net charge-offs experienced on a year to date basis $5.9 million were attributable to the small business loan portfolio on average outstandings of $105.9 million.

The Company’s loan-loss provision was $3.5 million in the third quarter, $1.6 million in excess of net charge-offs. On a year to date basis loan loss provisions were $13.1 million for fiscal 2009 compared to $5.1 million for fiscal year to date 2008. This resulted in an increase in the allowance for loan losses to $28.0 million, or 1.63% of loans outstanding, and 118% of non-performing loans. The primary reasons for increasing the allowance for loan losses continues to be related to the general economic slowdown and overall declining values of land in our market area. As a result of declining land values, the Company’s net realizable value estimates on collateral dependent non performing loans have had to be decreased as new appraisals show lower property values.

Nonperforming loans decreased $2.6 million in the third quarter to $23.8 million compared to $26.4 million at March 31, 2009. On a year to date basis non-performing loans increased $6.9 million compared to year end 2008 levels. ADC loans accounted for $5.1 million of this increase. This rise is primarily due to ongoing stress in the Bank’s construction portfolio resulting from the stagnant housing and real estate markets. The Bank’s coverage ratio of nonperforming loans declined from 137% at September 31, 2008, to 118% at June 30, 2009. Non-performing loans as a percent of total loans increased from 0.97% at September 30, 2008 to 1.39% at June 30, 2009.

Of the non-performing loans of $23.8 million, $956,000 was not mortgage secured and $22.8 million were secured by mortgages. Of the loans that were mortgage secured the weighted average loan to value ratio was 81% and after specific reserves was 72%.

The table below outlines those non-performing loans, at June 30, 2009, by category and collateral with the related weighted average loan to value ratios and specific reserves against such loans:

	Book Value		WLTV*		Specific Reserve		WLTV after Specific Reserve
Loans with Specific Reserves
ADC	$	9,524	98	%	$	1,601	81	%
Commercial mortgage		1,303	70			122	64
Residential mortgage		1,653	87			276	72
Loans with out Specific Reserves
ADC		1,103	73			—	73
Commercial mortgage		5,392	65			—	65
Residential Mortgage		3,849	64			—	64
Total Mortgage secured		22,824	81			1,999	72
Loans not Mortgage Secured
Loans with specific reserves		121				24
Loans without specific reserves		835				—
Total non-performing loans		23,780				2,023
General reserves						26,004
Total allowance for loan losses					$	28,027
ORE balance		1,587
Total non-performing assets	$	25,367

* Weighted average LTV is the gross loan value plus negative escrows (before specific reserves) divided by appraised value of the collateral securing the loan. Appraised values are adjusted based on market conditions.

28

Comparison of Operating Results for the Three Months Ended June 30, 2009 and June 30, 2008

Net income for the three months ended June 30, 2009 was $9.0 million, an increase of $2.6 million, compared to $6.3 million for the same period in fiscal 2008. Net interest income before provision for loan losses for the three months ended June 30, 2009, decreased by $1.5 million or 6.0%, to $22.7 million, compared to $24.2 million for the same period in the prior year. The provision for loan losses for the three months ended June 30, 2009 increased $2.1 million, or 150.0%, to $3.5 million, compared to $1.4 million for the same period in the prior year due to growth in the loan portfolio, 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, 2009, decreased 30 basis points compared to the same period last year from 4.04% to 3.74%. The year-over-year comparison reflects the impact of the cuts in the federal funds target rate totaling 2.0%. The Company executed on its planned sale program, starting in February 2009, of approximately $350 million in mortgage backed securities with a book yield of 5.15% and an average life of 4.1 years, which were reinvested in securities having a yield of 3.34% and an average life of 3.2 years. As a result, the yield on total interest-earning assets declined 80 basis points. For the same period, the cost of interest-bearing deposits decreased 72 basis points to 1.04%, and the cost of borrowings increased 32 basis points to 3.96%, reflecting the carrying cost of term borrowings outstanding and repayment of short-term borrowings. The tax-equivalent yield on investments decreased 48 basis points compared to the same quarter in 2008. Non-interest income for the three months ended June 30, 2009, was $15.3 million, an increase of $10.2 million, compared to $5.0 million for the same period in fiscal 2008 due to increases in gains on sales of securities of $10.0 million. Non-interest expense increased $2.6 million, or 13.52%, to $21.5 million for the three months ended June 30, 2009, compared to $19.0 million for the same period in the prior year primarily due to increased FDIC assessments of $2.1 million ($1.4 million representing a special assessment) and higher salary and benefit costs of $813,000.

The relevant operating results performance measures follow:

	Three Months Ended June 30,
	2009			2008
Per common share:
Basic earnings	$	0.23		$	0.16
Diluted earnings		0.23			0.16
Dividends declared		0.06			0.06
Return on average (annualized):
Assets		1.25	%		0.90	%
Equity		8.52	%		6.25	%

29

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,
	2009								2008
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	960,553		$	13,876		5.79	%	$	891,870		$	14,893		6.72	%
Consumer loans		254,221			2,907		4.59			239,484			3,239		5.44
Residential mortgage loans		480,121			7,065		5.90			505,926			7,498		5.96
Total loans1		1,694,895			23,848		5.64			1,637,280			25,630		6.30
Securities-taxable		520,948			5,459		4.20			653,292			8,048		4.95
Securities-tax exempt2		196,385			2,947		6.02			177,933			2,655		6.00
Federal Reserve excess reserves		112,540			73		0.26			—			—		—
Other earning assets		24,469			355		5.82			34,499			662		7.72
Total securities and other earning assets		854,342			8,834		4.15			865,724			11,365		5.28
Total interest-earning assets		2,549,237			32,682		5.14			2,503,004			36,995		5.94
Non-interest-earning assets		326,762								319,881
Total assets	$	2,875,999							$	2,822,885
Interest bearing liabilities:
NOW Checking	$	227,039			128		0.23	%	$	189,629			259		0.55	%
Savings, clubs and escrow		378,263			163		0.17			364,763			252		0.28
Money market accounts		394,628			487		0.49			311,120			1,161		1.50
Certificate accounts		575,713			3,326		2.32			545,413			4,515		3.33
Total interest-bearing deposits		1,575,643			4,104		1.04			1,410,925			6,187		1.76
Borrowings		488,846			4,821		3.96			629,325			5,691		3.64
Total interest-bearing liabilities		2,064,489			8,925		1.73			2,040,250			11,878		2.34
Non- interest bearing deposits		373,252								357,515
Other non-interest-bearing liabilities		16,729								19,428
Total liabilities		2,454,470								2,417,193
Stockholders’ equity		421,529								405,692
Total liabilities and equity	$	2,875,999							$	2,822,885
Net interest rate spread							3.41	%							3.60	%
Net earning assets	$	484,748							$	462,754
Net interest margin					23,757		3.74	%					25,117		4.04	%
Less tax equivalent adjustment2					(1,031	)							(929	)
Net interest income				$	22,726							$	24,188
Ratio of average interest-earning assets to average interest bearing liabilities		123.48	%							122.68	%

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, 2009 vs. 2008 Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	1,119		$	(2,136	)	$	(1,017	)
Consumer loans		194			(526	)		(332	)
Residential mortgage loans		(361	)		(72	)		(433	)
Securities-taxable		(1,481	)		(1,108	)		(2,589	)
Securities-tax exempt2		283			9			292
Federal Reserve excess reserves		73			—			73
Other earning assets		(156	)		(151	)		(307	)
Total interest income		(329	)		(3,984	)		(4,313	)
Interest-bearing liabilities
NOW checking		43			(174	)		(131	)
Savings		9			(98	)		(89	)
Money market		256			(930	)		(674	)
Certificates of deposit		242			(1,431	)		(1,189	)
Borrowings		(1,848	)		978			(870	)
Total interest expense		(1,298	)		(1,655	)		(2,953	)
Net interest margin		969			(2,329	)		(1,360	)
Less tax equivalent adjustment2		(98	)		(4	)		(102	)
Net interest income	$	871		$	(2,333	)	$	(1,462	)

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, 2009 decreased by $1.5 million, or 6.04%, to $22.7 million, compared to $24.2 million for the quarter ended June 30, 2008. Net interest income on a tax-equivalent basis decreased by $1.4 million, or 5.41%, to $23.8 million for the quarter ended June 30, 2009, compared to $25.1 million for the same three months in 2008.General market interest rates have declined significantly from the prior period. As a result the general levels of yields in the asset and liability structure of the Company’s balance sheet have declined. Further, as the Company restructured a large portion of its investment portfolio, the reinvestment of proceeds from sales into generally lower yielding securities resulted in additional declines in investment income. The timing of reinvestment and the improved liquidity by keeping a sizable portion of funds liquid assets further reduced the yield on average earning assets.

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. We continued to build reserves as a percentage of total loans to reflect the decline in land values, increasing unemployment in our market area, and other weak economic indicators. We recorded $3.5 million in loan loss provisions for the quarter ended June 30, 2009, or $1.6 million in excess of net charge-offs, compared to $1.4 million in loan loss provision, or $588,000 in excess of net charge-offs for the same period in the prior year. Refer to the credit quality section for a discussion on net charge-offs and nonperforming loans.

Non-interest incomefor the three months ended June 30, 2009 increased by $10.2 million, or 203.6% to $15.3 million. The increase was due to additional gains on sales of securities of $10.0 million resulting from the Company’s decision to realize a portion of the recent appreciation in its securities portfolio and thereby reducing prepayment risk. The Company may realize further gains from its security holdings, if conditions allow and warrant such action. The increase also was due to gains on the sale of loans in the third quarter of $450,000. The Bank has been selling new conforming fixed rate residential mortgage loan originations in the secondary market to control interest rate risk. Fee income was stable in the second quarter.

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Non-interest expensefor the three months ended June 30, 2009 increased by $2.6 million, or 13.5%, to $21.5 million, primarily due to increased FDIC assessments of $2.1 million, including $1.4 million for the special assessment based upon 5 basis points on total assets less Tier 1 Capital. The increases stated above were only partially offset by decreases in professional fees due to decreased consulting and administration fees, stock based compensation plans (ESOP loan maturity and lower stock option expense), amortization of intangible assets and advertising and promotion expense due to seasonal declines in advertising.

Income Tax expense increased $1.5 million to $4.0 million for the three months ended June 30, 2009, as compared to $2.6 million for the three month ended June 30, 2008. The effective tax rate was 30.9% and 28.8%, respectively.

Comparison of Operating Results for the Nine Months Ended June 30, 2009 and June 30, 2008

Net income for the nine months ended June 30, 2009 was $20.8 million, an increase of $3.5 million, compared to $17.3 million for the same period in fiscal 2008. Net interest income before provision for loan losses for the nine months ended June 30, 2009 increased by $1.6 million, or 2.3%, to $71.4 million, compared to $69.8 million for the same period in the prior year. Net interest margin on a tax equivalent basis for the nine months ended June 30, 2009 decreased 5 basis points compared to the same period last year from 3.89% to 3.84%, primarily due to sales of investments offset in part by reductions in the average cost of interest bearing liabilities. Provision for loan losses for the nine months ended June 30, 2008 increased by $8.0 million, or 156.9% to $13.1 million, compared to $5.1 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 $16.4 million, or 104.3%, to $32.1 million for the nine months ended June 30, 2009, compared to $15.7 million for the nine months ended June 30, 2008 due to increased gains on sales of securities, sales of premises and equipment and sales of loans. Non-interest expense increased $4.8 million or 8.6%, to $60.8 million for the nine months ended June 30, 2009, compared to $56.0 million for the same period in the prior year primarily due to increases in compensation and employee benefits (primarily pension expense increases) and FDIC assessments partially offset by decreases in stock based compensation, professional fees and intangible amortization.

The relevant operating results performance measures follow:

	Nine Months Ended June 30,
	2009			2008
Per common share:
Basic earnings	$	0.54		$	0.44
Diluted earnings		0.54			0.44
Dividends declared		0.18			0.18
Return on average (annualized):
Assets		0.95	%		0.82	%
Equity		6.72	%		5.70	%

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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,
	2009								2008
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	960,989		$	42,653		5.93	%	$	888,756		$	47,779		7.18	%
Consumer loans		252,230			8,965		4.75			241,367			10,995		6.08
Residential mortgage loans		495,438			21,916		5.91			499,252			22,327		5.97
Total loans1		1,708,657			73,534		5.75			1,629,375			81,101		6.65
Securities-taxable		597,365			20,886		4.67			653,161			24,058		4.92
Securities-tax exempt2		194,465			8,737		6.01			170,325			7,793		6.11
Federal Reserve excess reserves		61,558			114		0.25			—			—		—
Other earning assets		27,935			895		4.28			35,587			2,052		7.70
Total securities and other earning assets		881,323			30,632		4.65			859,073			33,903		5.27
Total interest-earning assets		2,589,980			104,166		5.38			2,488,448			115,004		6.17
Non-interest-earning assets		325,068								316,843
Total assets	$	2,915,048							$	2,805,291
Interest bearing liabilities:
NOW Checking	$	233,311			554		0.32	%	$	186,310			794		0.57	%
Savings, clubs and escrow		359,416			650		0.24			351,936			944		0.36
Money market accounts		367,695			2,257		0.82			279,382			4,208		2.01
Certificate accounts		605,759			11,724		3.57			562,918			16,949		4.02
Total interest-bearing deposits		1,566,181			15,185		1.30			1,380,546			22,895		2.22
Borrowings		543,489			14,516		3.41			656,650			19,578		3.98
Total interest-bearing liabilities		2,109,670			29,701		1.88			2,037,196			42,473		2.78
Non-interest bearing deposits		373,133								342,858
Other non-interest-bearing liabilities		18,877								20,142
Total liabilities		2,501,680								2,400,196
Stockholders’ equity		413,368								405,095
Total liabilities and equity	$	2,915,048							$	2,805,291
Net interest rate spread							3.50	%							3.39	%
Net earning assets	$	480,310							$	451,252
Net interest margin					74,465		3.84	%					72,531		3.89	%
Less tax equivalent adjustment2					(3,058	)							(2,728	)
Net interest income				$	71,407							$	69,803
Ratio of average interest-earning assets to average interest bearing liabilities		122.77	%							122.15	%

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, 2009 vs. 2008 Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	3,672		$	(8,798	)	$	(5,126	)
Consumer loans		475			(2,505	)		(2,030	)
Residential mortgage loans		(177	)		(234	)		(411	)
Securities-taxable		(1,989	)		(1,183	)		(3,172	)
Securities-tax exempt2		1,076			(132	)		944
Federal Reserve excess reserves		114			—			114
Other earning assets		(347	)		(810	)		(1,157	)
Total interest income		2,824			(13,662	)		(10,838	)
Interest-bearing liabilities
NOW checking		167			(407	)		(240	)
Savings		20			(314	)		(294	)
Money market		1,056			(3,007	)		(1,951	)
Certificates of deposit		1,207			(6,432	)		(5,225	)
Borrowings		(3,893	)		(1,169	)		(5,062	)
Total interest expense		(1,443	)		(11,329	)		(12,772	)
Net interest margin		4,267			(2,333	)		1,934
Less tax equivalent adjustment2		(382	)		52			(330	)
Net interest income	$	3,885		$	(2,281	)	$	1,604

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, 2009 increased by $1.6 million, or 2.3%, to $71.4 million, compared to $69.8 million for the nine months ended June 30, 2008. Net interest income on a tax-equivalent basis increased by $1.9 million, or 2.7%, to $74.5 million for the nine months ended June 30, 2009, compared to $72.5 million for the same nine months in 2008. General market interest rates have declined significantly from the prior period. As a result the general levels of yields in the asset and liability structure of the Company’s balance sheet have declined. Further, as the Company restructured a large portion of its investment portfolio, the reinvestment of proceeds from sales into generally lower yielding securities resulted in additional declines in investment income. The timing of reinvestment and the improved liquidity by keeping a sizable portion of funds in liquid assets further reduced the yield on average earning assets.

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. Charge-offs has been driven primarily by defaults in the small business loan portfolio. We recorded $13.1 million in loan loss provisions for the nine months ended June 30, 2009, and recognized net charge-offs of $8.2 million in the same period. This compares to loan loss provisions of $5.1 million and net charge-offs of $3.5 million for the nine months ended June 30, 2008. We have built reserves during this period due to weak economic conditions and weakness in the value of land that serves as collateral for our Acquisition, Development and Construction loan portfolio. Refer to the credit quality section for a discussion on net charge-offs and nonperforming loans.

Non-interest incomefor the nine months ended June 30, 2009 increased by $16.4, or 104.3%, to $32.1 million compared to $15.7 million for the same period in 2008. This increase is attributable to gains on sales of securities of $16.4 million, gains on sales of loans of $746,000 and gains on sale of premises and equipment of $517,000, as well as smaller contributions from deposit fees and service charges and bank owned life insurance offset in part by modest declines in investment management fees as the market value of assets under management declined.

Non-interest expensefor the nine months ended June 30, 2009 increased by $4.8 million, or 8.6%, to $60.8 million, from $56.0 million for the same period in 2008 primarily due to FDIC assessment increases of $2.8 million, including $1.4 million for the special assessment based upon 5 basis points on total assets less Tier 1 capital, as well as, compensation (normal salary increases

34

and staffing of Westchester offices) and benefits, especially pension expense of $946,000 and medical premium expenses increases of 9.4% or $185,000.

Income tax expense was $8.8 million for the nine months ended June 30, 2009, compared to $7.2 million for the same period in 2008. The effective tax rates were 29.8% and 29.3%, respectively.

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, 2009 and 2008, loan originations, including loans held for sale, totaled $382.6 million and $429.2 million, respectively, and purchases of securities totaled $485.7 million and $230.9 million, respectively. Paydowns, maturities and sales on securities totaled $600.3 million and $246.8 million during the nine months ended June 30, 2009 and 2008, respectively. Loan origination commitments and undrawn lines of credit totaled $429.7 million at June 30, 2009. 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 had investments totaling $49.1 million in BOLI contracts at June 30, 2009. 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, 2009 short-term interest rates were significantly reduced. The target federal funds rate at 0% to 0.25% has dropped 175 basis points since September 2008, and was an average of 0.53% for the nine months ending June 30, 2009 (2.95% for the prior fiscal year). The interest rate yield curve has a significantly steeper positive slope as the ten-year US Treasury yield at 3.54% was higher than the two-year note with a 1.11% yield.

Total deposits decreased by $116.2 million for the nine months ended June 30, 2009. Within the deposit categories, total transaction accounts decreased by $206.4 million, of which municipal transaction accounts decreased $243.7 million or 76.5%. Certificates of deposit decreased $20.2 million with municipal certificates decreasing $55.2 million. Savings accounts increased by $33.4 million. The trends seen in deposit categories as of June 30, 2009 are consistent with those that the Company historically experiences in the first nine months of the fiscal year. The overall decrease in deposits is due to a decline in municipal deposits of $208.5 million resulting from seasonal tax collections of $242.3 million at September 30, 2008. 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 $436.7 million was outstanding at June 30, 2009. At June 30, 2009, the Company had additional borrowing capacity of $267.8 million under all credit facilities with the Federal Home Loan Bank. As of June 30, 2009, the Bank had cash balances at the Federal Reserve of $62.4 million. The Bank also has an Unsecured Discretionary Federal Funds Line with a bank, in the amount of $50.0 million. The Bank may utilize brokered certificates of deposit as well, and as of June 30, 2009 there was $34.2 million outstanding. Management believes that the Company’s available sources of liquidity are adequate to meet its anticipated funding needs.

At June 30, 2009, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $240.4 million, or 9.0% of adjusted assets (which is above the minimum required level of $106.4 million, or 4.0%) and a total risk-based capital level of $264.1 million, or 14.0% of risk-weighted assets (which is above the required level of $151.2 million, or 8%). 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, 2009, the Bank exceeded all capital

35

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.

As of June 30, 2009, the Company’s tangible capital as a percent of tangible assets increased to 9.55%, while its tangible book value improved to $6.41 from $5.78 at September 30, 2008. As a result of the dislocation in the credit markets, the Bank focused on increasing its liquidity, which has strengthened the balance sheet and resulted in a minor compression of 16 basis points on net interest margin in the current quarter. The Bank issued $51.5 million in senior unsecured debt under the FDIC’s Temporary Liquidity Guarantee Program. In addition to supporting the Company’s strong capital and liquidity positions, it enables the Bank to better serve its local communities through increased lending to creditworthy borrowers. As of June 30, 2009, the Bank maintained $62.4 million in cash at the Federal Reserve Bank compared to $6.7 million at September 30, 2008 for enhanced liquidity purposes. Further, the Bank had no outstanding overnight borrowings under its $200 million line of credit facility with the Federal Home Loan Bank. Although, the Bank applied and received approval from US Treasury, the Bank did not accept a capital infusion from the capital purchase program of the Troubled Asset Relief Program (“TARP”).

The Company declared a dividend of $0.06 per share payable on May 21, 2009 to stockholders of record on May 11, 2009.

The following table sets forth the Bank’s regulatory capital position at June 30, 2009 and September 30, 2008, compared to OTS requirements:

					OTS requirements
	Bank actual				Minimum capital adequacy				Classification as well capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2009:
Tangible capital	$	240,392	9.0	%	$	39,907	1.5	%	$	—	—
Tier 1 (core) capital		240,392	9.0			106,419	4.0			133,024	5.0	%
Risk-based capital:
Tier 1		240,392	12.7			—	—			113,421	6.0
Total		264,076	14.0			151,228	8.0	%		189,035	10.0
September 30, 2008:
Tangible capital	$	226,053	8.0	%	$	42,357	1.5	%	$	—	—
Tier 1 (core) capital		226,053	8.0			112,952	4.0			141,191	5.0	%
Risk-based capital:
Tier 1		226,053	11.6			—				116,709	6.0
Total		249,154	12.8			155,612	8.0			194,515	10.0

Recent Accounting Standards

In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification TM (“Codification”) and the “Hierarchy of Generally Accepted Accounting Principles”(FAS No. 168). The Codification will become the source of authoritative U.S. generally accepted accounting principles. On the effective date of this statement (financial statements issued for interim and annual periods ending after September 15, 2009), the Codification will supersede all then-existing non-SEC accounting and reporting standards. The adoption of the Codification will not have any effect on the consolidated earnings or financial position of the Company.

In May 2009, the FASB issued SFAS No. 165 ,”Subsequent Events” (FAS No. 165), which is effective for interim or annual financial periods ending after June 15, 2009. This pronouncement requires Companies to evaluate post balance sheet events for potential disclosure in the financial statements, as well as other disclosure requirements surrounding this evaluation. As of June 30, 2009 the Company adopted the disclosure requirements of FAS No. 165.

In April 2009, the FASB issued three related Staff Positions to clarify the application of SFAS No. 157, Fair Value Measurement, to fair value measurements in the current economic environment, modify the recognition of other-than-temporary impairments of debt securities, and require companies to disclose the fair values of financial instruments in interim periods. The final Staff Positions are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, if all three Staff Positions or both the fair-value measurements and other-than-temporary impairment Staff Positions are adopted simultaneously.

36

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 SFAS 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 did not have a material impact on the consolidated earnings or financial position of the Company.

FASB Staff Position (FSP) 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased. It also provides guidance on identifying circumstances that indicate that a transaction is not orderly. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale), between market participants at the measurement date under market conditions. The adoption of FSP 157-4 did not have a material impact on the consolidated earnings or financial position of the Company.

FSP 115-2 and FSP 124-2 amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The adoption of FSP 115-2 and 124-2 did not have a material impact on the consolidated earnings or financial position of the Company.

FAS 107-1 and APB 28-1 amend SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized information in interim reporting periods. As of June 30, 2009 the Company provided the required disclosures in its Form 10-Q.

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. Upon adoption of SFAS 161, the Company will include the required applicable disclosures.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No. 160). SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to establish accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the consolidated condensed financial statements, rather than in the liability or mezzanine section between liabilities and equity. SFAS No. 160 also requires consolidated net income be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The impact of SFAS No. 160 will not have a material impact on our current consolidated condensed financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.

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 became effective October 1, 2008. The Company has elected not to adopt any fair value provisions under SFAS 159 for any of its financial assets or financial liabilities as of June 30, 2009.

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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 generally 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 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, 2009, 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 or Federal Home Loan Bank advance rates, as applicable. 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.

	NPV							Net Interest Income
Basis Point Increase	Estimated		Estimated Increase (decrease) NPV					Estimated Net Interest		Estimated Increase (Decrease) in Net Interest Income
	NPV		Amount			Percent		Income		Amount		Percent
	dollars in thousands
300	$	289,273	$	(73,275	)	-20.2	%	$	92,650	$	7,079	8.3	%
200		326,090		(36,458	)	-10.1	%		91,793		6,222	7.3	%
100		353,997		(8,551	)	-2.4	%		90,383		4,812	5.6	%
0		362,548		—		0.0	%		85,571		—	0.0	%

The table set forth above indicates that at June 30, 2009, in the event of an immediate 100 basis point increase in interest rates, we would be expected to experience a (-2.4%) decrease in NPV and a 5.6% increase in net interest income. Due to the current level of interest rates management is unable to model the impact of decreases in interest rates on NPV and 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

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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 fluctuated during the fiscal year 2009. The average rate during the first three quarters of fiscal 2009 was 0.53%. During this period, the Federal Open Market Committee (“FOMC”) decreased the target fed funds rate from 2.00% to a target range of 0% - 0.25%. During the same period, U.S. Treasury rates in the two year maturities have decreased 151 basis points from 2.62% to 1.11% and U.S. Treasury 10 year notes have decreased 31 basis points from 3.85% to 3.54%.

The positively sloped yield curve has caused a reduction in rates paid on deposits and short-term borrowings as well as rates charged on loans and other assets tied to the prime rate and similar indices. Further, the gradual improvement in the credit markets has finally enabled financial institutions to lower deposit rates significantly in accordance with the FOMC’s rate reductions. To fight the financial crisis, the FOMC indicated a willingness to keep the fed funds rate low for an “extended” period. When the Fed is no longer willing to hold rates low there may be a rapid upward movement of interest rates. This could cause the shorter end of the yield curve to rise disproportionally more than the longer end thereby resulting in margin compression.

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 Rules 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.

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, 2008 as discussed under “Forward-Looking Statements” and except that the Company elected not to participate in the U.S. Treasury Department Capital Purchase Program. Accordingly, the risk factor discussed in the Annual Report on Form 10-K under the Caption “Participants in the US Treasury Department Capital Purchase Program (“CCP”) are subject to certain restrictions on Dividends, Repurchases of Common Stock and executive compensation” does not apply to the Company.

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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	—	$	—	—	1,152,600
May 1 - May 31	322,510	$	8.02	280,450	872,150
June 1 - June 30	35,200		8.04	35,200	836,950
Total	357,710	$	8.03	315,650

¹ The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options( 42,060) 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 up to 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

Item 6. Exhibits

Exhibit Number	Description
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

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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 7, 2009	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
Date:	August 7, 2009	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

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