[Letterhead of Provident New York Bancorp]
February 28, 2006
Via EDGAR and Facsimile
- -----------------------
Ms. Joyce Sweeney
Accounting Branch Chief
Securities and Exchange Commission
100 F Street, NW
Washington, D.C. 20549
Re: Provident New York Bancorp
Form 10-K for the Fiscal Year Ended September 30, 2005
File No. 0-25233
------------------------------------------------------
Dear Ms. Sweeney:
Set forth below are the responses of Provident New York Bancorp (the
"Company") to your letter dated February 9, 2006 (copy enclosed by facsimile).
1. The E.N.B. Holding Company, Inc. ("ENB") acquisition increased the proportion
of commercial loans due to the greater concentration in commercial mortgage and
commercial and industrial loans compared to the Provident Bank portfolio. In
addition, the proportion of criticized loans (loans that rated special mention,
substandard or doubtful) in both the retail and commercial portfolios in the
acquired portfolio was higher than in the Provident portfolio. As a result of
the greater proportion of commercial loans and a higher proportion of criticized
loans, asset quality was modestly reduced. The table below reflects the impact
of ENB on asset quality.
ENB Acauisition
---------------
Retail Comm'l Total
Criticized Criticized Criticized
Provident Bank pre-acquisition 0.23 % 0.70 % 0.93 %
ENB 0.55 % 1.52 % 2.07 %
------ ------ ------
Provident Bank post-acquisition 0.30 % 0.90 % 1.20 %
====== ====== ======
Percentage point change 0.07 % 0.20 % 0.27 %
====== ====== ======
The acquisition of Warwick Community Bancorp, Inc. ("WCBI") increased the
proportion of commercial loans due to a higher concentration of commercial
mortgage loans in the WCBI portfolio compared to the Provident portfolio. The
acquired portfolio had a lower proportion of criticized loans in the retail and
commercial portfolios than the Provident portfolio, which provided an
improvement in that measure of asset quality. This resulted in an overall
neutral effect on asset quality, as the increase in commercial loans (which are
Ms. Joyce Sweeney
February 28, 2006
Page 2
considered riskier than retail loans) was offset by a reduction in the
proportion of criticized loans. The table below reflects the impact of WCBI on
asset quality.
WCBI Acquisition
----------------
Retail Comm'l Total
Criticized Criticized Criticized
Provident Bank pre-acquisition 0.28 % 0.65 % 0.93 %
WCBI 0.07 % 0.10 % 0.17 %
------ ------ ------
Provident Bank post-acquisition 0.27 % 0.59 % 0.85 %
====== ====== ======
Percentage point change (0.01)% (0.07)% (0.08)%
======= ======= =======
The Company will summarize this information in future filings.
Following is the chart of the allocation of the allowance for loan losses for
the acquired portfolios:
Impact of ENB Acquisition on Allowance Account
----------------------------------------------
Retail Retail Commercial Commercial Total Total
$000's % $ 000's % $ 000's %
Provident before $4,525 40% $ 6,724 60% $11,249 100%
ENB 690 12% 5,060 88% 5,750 100%
------ --- ------- --- ------- ----
Provident after $5,215 31% $11,784 69% $16,999 100%
====== ======= ======= ----
Impact of WCBI Acquisition on Allowance Account
-----------------------------------------------
Retail Retail Commercial Commercial Total Total
$000's % $ 000's % $ 000's %
------ - ------ - ------- -
Provident before $6,290 36% $11,062 64% $17,352 100%
WCBI 373 8% 4,507 92% 4,880 100%
------ ------- -------
Provident after $6,663 30% $15,569 70% $22,232 100%
======= ======= =======
As a result of the ENB acquisition, $5.8 million in loan loss reserve was
recorded, and $4.9 million was recorded with respect to the WCBI acquisition. As
permitted by then applicable accounting rules, these allowances were brought
over to Provident. In this regard, please note that Provident has a September 30
fiscal year end. These represent the amounts, which in the opinion of
management, were necessary to absorb the losses inherent in the acquired
portfolios in accordance with the same standards as then applied to the
Provident loan portfolio.
In the Appendix following this letter are tables that provide greater detail
about the nature of the portfolios acquired and the impact on overall portfolio
concentrations.
Ms. Joyce Sweeney
February 28, 2006
Page 3
The Company will summarize this information in future filings, as appropriate.
2. Presentation of Operating Efficiency Ratio. As noted in footnote 11 to Item
6, Selected Financial Data, management has presented a supplemental operating
efficiency ratio because management believes this additional information more
accurately reflects the operations of the Company than the GAAP efficiency ratio
presented in the table. The supplemental ratio subtracts merger integration
costs and amortization of intangible assets, as these costs are directly
associated with acquisition activity and do not reflect the core earnings of the
Company. The Company notes that it has not executed an agreement to consummate a
merger since October 1, 2004, when it completed the acquisition of WCBI. In
addition, the establishment of the Charitable Foundation in connection with the
Company's stock offering in fiscal 2004 was a one-time event and does not
reflect the core business of the Company.
On the revenue side of the efficiency ratio the Company excluded securities
transactions as it believes, that although securities transactions recur, such
transactions are highly dependent upon the general levels of interest rates in
specific market circumstances. Further, the income effect recorded represents
the impact of decisions made at a specific point in time and can cause
significant fluctuations in non interest income. The Company's notes that in
discussions with analysts, who research the Company, securities transactions are
routinely excluded from their analyses. Additionally, the income associated with
the low income housing limited liability partnership was a one-time event and
does not represent a core earnings item, nor is it expected to recur. The
Company adds to revenue the income tax benefits associated with tax exempt
obligations, as this reflects the economic substance of its investment in tax
exempt obligations, that are not captured in the consolidated statements of
income but do represent core earnings on an equivalent basis to taxable
investment alternatives.
Further, as management believes that, although merger integration expenses
occurred in both fiscal 2004 and 2005, it is probable that the financial impact
of such items will disappear as a result of no pending significant acquisitions.
Also, core deposit amortization is expected to significantly decline over the
next several periods. Management believes that highlighting these items gives an
investor an understanding of the effects of acquisitions on the efficiency of
the Company. Question 8 from the SEC staff views on frequently asked questions
states that "it is permissible and may well be necessary to identify, discuss
and analyze material restructuring changes and other items, whether they are
recurring or non-recurring... " Further, question 8 states that "whether a
non-GAAP financial measure that eliminates a recurring item or items from the
most directly comparable GAAP financial measure is acceptable depends on all of
the facts and circumstances. Such measures more likely would be permissible if
management reasonably believes it is probable that the financial impact of the
item will disappear or become immaterial within a near-term finite period."
Management believes that its disclosure is consistent with the requirements
outlined in question 8.
Ms. Joyce Sweeney
February 28, 2006
Page 4
3. Usefulness of Non GAAP Operating Efficiency Ratio. Management utilizes the
non- GAAP operating efficiency ratio, as presented, in its ongoing internal
evaluation of its operating efficiency. Management believes that such analysis
reflects a more accurate portrayal of the operations of the Company than a GAAP
efficiency ratio. Management also includes the tax benefits related to purchases
of tax-exempt securities in the denominator of the operating efficiency ratio.
The non-GAAP operating efficiency ratio disclosed in Item 6, Selected Financial
Data, is presented in addition to the comparable GAAP efficiency ratio.
Management notes the following data:
GAAP Efficiency Non GAAP
Year ended September 30, Ratio Year over year Operating Year over Year
Variance Efficiency Ratio Variance
2001 67.02% 66.54%
2002 66.79% -0.23% 65.28% -1.26%
2003 66.55% -0.22% 67.74% +2.46%
2004 76.81% +10.23% 67.68% -0.06%
2005 68.01% -10.80% 63.02% -4.66%
While the variance from year to year between fiscal 2001 and 2003 was less than
0.25% it should be noted that the primary factors that eliminated larger
variances were impacts of merger integration costs in fiscal 2002 and the large
increase in securities gains in 2003. Management believes that the non-GAAP
operating efficiency ratio more accurately reflects its efficiency during that
period. Please note that the non-GAAP operating efficiency ratio increased in
2003, whereas the GAAP efficiency ratio had shown a modest decline. Further,
fiscal 2004 reflects the impact of the acquisition of ENB and the establishment
of a charitable foundation in the same year, which was partially offset by an
increase in security gains. The net effect of such items resulted in an increase
in the GAAP efficiency ratio to 76.81% from 66.55%. Eliminating these items and
reflecting the additional tax efficiency generated from tax exempt securities
alternatively presents a modest improvement in the non-GAAP efficiency ratio,
which management believes is a more accurate reflection of its operations for
2004. Further, in fiscal 2005 the GAAP efficiency declines back to 68.01% but is
higher than each of the fiscal years ended 2001, 2002 or 2003. Management
believes that the non-GAAP efficiency properly indicates the efficiencies
achieved from the acquisition of three financial institutions.
The material limitation associated with the use of a non-GAAP measure is that in
any specific year certain revenues and expenses are recorded that are not
Ms. Joyce Sweeney
February 28, 2006
Page 5
reflected in the non-GAAP ratio. As these items are excluded, the portrayal of
the Company's specific overall efficiency is not portrayed relative to its
effect on the capital position of the Company.
Management believes that using the non-GAAP operating efficiency ratio provides
information that allows an investor or other reader of the Company's financial
information to understand the operating efficiencies and trends in the Company's
operating expenses and operating revenues on a more meaningful basis.
We confirm that we will summarize the above information in future filings as
relevant.
4. Non-GAAP Net Operating Income. As noted in Item 7, Management Discussion and
Analysis of Financial Condition and Results of Operations, Management presented
"Supplemental Reporting of Non-GAAP Results of Operations" to reflect the impact
of the establishment of the charitable foundation and merger integration
expenses. Management noted that it believes disclosure of this information helps
investors understand the effect of acquisition activity and the establishment of
the charitable foundation in reported results. Management believes that the
disclosure is permissible for the following reasons: the establishment of the
charitable foundation in fiscal 2004 is clearly expected to be a nonrecurring
item as was the income relating to the investment in a low income housing
partnership in fiscal 2005. Additionally, management believes that although
merger integration expenses occurred in both fiscal 2004 and 2005, it believes
that it is probable that the financial impact of such items would disappear as a
result of no new pending acquisitions and that highlighting such items gives an
investor an understanding of the effect of acquisition activity on the reported
results of operations.
Management does not intend to continue this presentation in future filings.
5. Non-GAAP Diluted Net Operating Earnings Per Share. For future filings,
management will exclude the presentation of the per share impact of these
expenses as well as the overall non-GAAP measures on a per share basis, as
requested.
* * * * *
In connection with these responses, and as requested by the Commission, the
Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the filing;
and
Ms. Joyce Sweeney
February 28, 2006
Page 6
o the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of
the United States.
* * * *
We trust that the above information is responsive to the staff's comments.
Please direct any additional comments or questions to the undersigned at (845)
369-8087, or to our attorney, Ned Quint, at (202) 274-2007.
Sincerely,
/s/ Paul A. Maisch
Paul A. Maisch
Executive Vice President and
Chief Financial Officer
cc: David Irving, Securities and Exchange Commission
George Strayton, President and Chief Executive Officer
Ned Quint, Esq.
Ms. Joyce Sweeney
February 28, 2006
Page 7
APPENDIX
The tables below reflect the nature of acquired portfolios and their impact on
the combined portfolio composition and portfolio concentration:
Total Comm'l Const & Total
ENB Acquisition Res Mtg Consumer Retail C & I Mtg land Comm'l
--------------- ------- -------- ------ ----- --- ---- ------
Provident Bank before
1/14/04 acquisition 52% 11% 63% 7% 28% 2% 37%
ENB 6% 24% 30% 17% 53% 0% 70%
-------- ------- ------- ------- ------ ------- ------
Provident Bank after
1/14/04 acquisition 41% 15% 55% 9% 34% 1% 45%
======== ======= ======= ======= ====== ======= ======
Percentage point change (10.75)% +2.95% (7.80)% +2.54% +5.72% (0.46)% +7.80%
Total Comm'l Const & Total
WCBI Acquisition Res Mtg Consumer Retail C & I Mtg land Comm'l
----------------- ------- -------- ------ ----- --- ---- ------
Provident Bank before
10/1/04 acquisition 38% 13% 51% 11% 33% 5% 49%
WCBI 23% 10% 34% 10% 57% 0% 66%
------- ------- ------ ------- ------ ------- ------
Provident Bank after
10/1/04 acquisition 35% 12% 47% 10% 38% 4% 53%
======= ======= ======= ======= ====== ======= ======
Percentage point change (3.38)% (0.56)% (3.94)% (0.16)% +5.32% (1.22)% +3.94%