-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BStrXJRUwLeSJwNJqWp/KFy+pZ/bsojE7mMWmtplXavogdwJv7uNw+3pviT/0ysM hIDGBadjOOhjFhoeBipp/A== 0000914317-06-001320.txt : 20060508 0000914317-06-001320.hdr.sgml : 20060508 20060508162546 ACCESSION NUMBER: 0000914317-06-001320 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060508 DATE AS OF CHANGE: 20060508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENT NEW YORK BANCORP CENTRAL INDEX KEY: 0001070154 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 800091851 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25233 FILM NUMBER: 06817082 BUSINESS ADDRESS: STREET 1: 400 RELLA BLVD CITY: MONTEBELLO STATE: NY ZIP: 10901 BUSINESS PHONE: 8453698040 MAIL ADDRESS: STREET 1: 400 RELLA BLVD CITY: MONTEBELLO STATE: NY ZIP: 10901 FORMER COMPANY: FORMER CONFORMED NAME: PROVIDENT BANCORP INC/NY/ DATE OF NAME CHANGE: 19980910 10-Q 1 form10q-76638_pbny.txt 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 March 31, 2006 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 (IRS Employer ID No.) Incorporation or Organization) 400 Rella Boulevard, Montebello, New York 10901 - ----------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) (845) 369-8040 -------------- (Registrant's Telephone Number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ] 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 ----------------------- ------------------ 42,424,255 ---------- $0.01 per share as of May 1, 2006 ----- ----------- 1
PROVIDENT NEW YORK BANCORP QUARTERLY PERIOD ENDED MARCH 31, 2006 PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition (unaudited) at March 31, 2006 and September 30, 2005 3 Consolidated Statements of Income (unaudited) for the Three and Six Months Ended March 31, 2006 and 2005 5 Consolidated Statement of Changes in Stockholders' Equity (unaudited) for the Six Months Ended March 31, 2006 6 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2006 and 2005 7 Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended March 31, 2006 and 2005 9 Notes to Consolidated Financial Statements (unaudited) 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures about Market Risk 35 Item 4. Controls and Procedures 36 PART II. OTHER INFORMATION Item 1. Legal Proceedings 37 Item 1A. Risk Factors 37 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37 Item 3. Defaults Upon Senior Securities 38 Item 4. Submission of Matters to a Vote of Security Holders 38 Item 5. Other Information 38 Item 6. Exhibits 38 Signatures 45
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in thousands, except per share data)
Assets March 31, September 30, - ------ 2006 2005 ----------- ----------- Cash and due from banks $ 55,110 $ 64,117 Securities (note 6): Available for sale, at fair value 926,037 822,952 Held to maturity, at amortized cost (fair value of $67,027 and $71,151 at March 31, 2006 and September 30, 2005, respectively) 67,364 70,949 ----------- ----------- Total securities 993,401 893,901 ----------- ----------- Loans held for sale 460 -- Gross loans (note 4) 1,405,596 1,362,073 Allowance for loan losses (note 5) (20,093) (22,008) ----------- ----------- Total loans, net 1,385,503 1,340,065 ----------- ----------- Federal Home Loan Bank ("FHLB") stock, at cost 27,260 21,333 Accrued interest receivable 12,319 10,594 Premises and equipment, net 32,461 32,101 Goodwill (note 2) 157,526 157,656 Core deposit intangible, net (note 2) 12,122 13,770 Bank owned life insurance 38,475 37,667 Deferred income taxes, net 20,834 10,596 Other assets 10,157 15,562 ----------- ----------- Total assets $ 2,745,628 $ 2,597,362 =========== ===========
See accompanying notes to unaudited consolidated financial statements. 3
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (Dollars in thousands, except per share data) Liabilities and Stockholders' Equity - ------------------------------------ March 31, September 30, 2006 2005 ----------- ----------- Liabilities: Deposits (note 7): Non-interest bearing $ 362,018 $ 385,081 Interest bearing 1,417,271 1,341,320 ----------- ----------- Total deposits 1,779,289 1,726,401 Borrowings (note 8 ) 546,210 442,203 Mortgage escrow funds 9,894 4,122 Other 22,942 29,479 ----------- ----------- Total liabilities 2,358,335 2,202,205 ----------- ----------- 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 shares issued; 42,424,255 shares and 43,505,659 shares outstanding at March 31, 2006 and September 30, 2005, respectively) 459 459 Additional paid-in capital 348,480 345,631 Unallocated common stock held by employee stock ownership plan ("ESOP") (1,128,153 shares at March 31, 2006 and 1,248,427 shares at September 30, 2005) (9,537) (10,045) Treasury stock, at cost (3,505,297 shares at March 31, 2006 and 2,423,893 shares at September 30, 2005) (40,394) (28,195) Common stock awards under recognition and retention plan ("RRP") (637,060 shares and 686,160 shares at March 31, 2006 and September 30, 2005, respectively) (7,252) (8,810) Retained earnings 109,120 104,484 Accumulated other comprehensive loss, net of taxes (13,583) (8,367) ----------- ----------- Total stockholders' equity 387,293 395,157 ----------- ----------- Total liabilities and stockholders' equity $ 2,745,628 $ 2,597,362 =========== ===========
See accompanying notes to unaudited consolidated financial statements. 4
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except share data) For the Three Months For the Six Months Ended March 31, Ended March 31, --------------- --------------- 2006 2005 2006 2005 ---- ---- ---- ---- Interest and dividend income: Loans $ 22,940 $ 19,506 $ 45,126 $ 38,919 Securities 9,267 8,641 17,896 17,027 Other earning assets 358 137 656 350 ----------- ----------- ----------- ----------- Total interest and dividend income 32,565 28,284 63,678 56,296 ----------- ----------- ----------- ----------- Interest expense: Deposits 6,096 3,494 11,354 6,913 Borrowings 5,643 3,369 10,439 6,261 ----------- ----------- ----------- ----------- Total interest expense 11,739 6,863 21,793 13,174 ----------- ----------- ----------- ----------- Net interest income 20,826 21,421 41,885 43,122 Provision for loan losses (Note 5) 300 150 600 300 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 20,526 21,271 41,285 42,822 ----------- ----------- ----------- ----------- Non-interest income: Deposit fees and service charges 2,531 2,405 5,199 4,940 Loan fees and late charges 312 248 712 631 Net gains on sales of securities available for sale -- 263 -- 317 Net gains on sales of loans 86 21 67 80 Title insurance fees 390 300 807 658 Bank owned life insurance 394 295 807 611 Other 429 309 912 629 ----------- ----------- ----------- ----------- Total non-interest income 4,142 3,841 8,504 7,866 ----------- ----------- ----------- ----------- Non-interest expense: Compensation and employee benefits 8,351 7,955 16,191 15,787 Stock-based compensation plans (Note 1) 1,670 446 3,182 1,286 Occupancy and office operations 3,015 2,459 5,652 4,607 Advertising and promotion 402 650 994 1,812 Professional fees 795 610 1,649 1,279 Data and check processing 789 1,158 1,666 2,406 Merger integration costs -- 341 -- 721 Amortization of intangible assets 811 990 1,648 2,117 ATM/debit card expense 338 304 683 630 Other 1,974 2,155 3,897 4,130 ----------- ----------- ----------- ----------- Total non-interest expense 18,145 17,068 35,562 34,775 ----------- ----------- ----------- ----------- Income before income tax expense 6,523 8,044 14,227 15,913 Income tax expense 2,118 2,864 4,663 5,718 ----------- ----------- ----------- ----------- Net income $ 4,405 $ 5,180 $ 9,564 $ 10,195 =========== =========== =========== =========== Weighted average common shares: Basic 40,939,326 43,868,765 41,069,557 44,098,312 Diluted 41,406,485 44,439,229 41,541,154 44,687,028 Per common share: (Note 9) Basic $ 0.11 $ 0.12 $ 0.23 $ 0.23 Diluted $ 0.11 $ 0.12 $ 0.23 $ 0.23
See accompanying notes to unaudited consolidated financial statements. 5
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except share and per share data) Accumulated Common Other Additional Unallocated Stock Compre- Total Number of Common Paid-In ESOP Awards Treasury Retained hensive Stockholders' Shares Stock Capital Shares Under RRP Stock Earnings Loss Equity Balance at September 30, 2005 43,505,659 $ 459 $ 345,631 $ (10,045) $ (8,810) $ (28,195) $ 104,484 $ (8,367) $ 395,157 ---------- --------- --------- ---------- --------- ---------- ---------- ---------- ---------- Net income 9,564 9,564 Other comprehensive loss (5,216) (5,216) ---------- Total comprehensive income 4,348 Deferred compensation transactions 1,404 1,404 Stock option transactions, net 62,596 592 867 (809) 650 ESOP shares allocated or committed to be released for allocation (120,279 shares) 853 508 1,361 RRP awards 4,000 (43) 51 (8) 0 Vesting of RRP shares 947 947 Other RRP transactions (33,429) 654 (412) 242 Purchase of treasury stock (1,114,571) (12,705) (12,705) Cash dividends paid ($0.10 per common share) (4,111) (4,111) ---------- --------- --------- ---------- --------- ---------- ---------- ---------- ---------- Balance at March 31, 2006 42,424,255 $ 459 $ 348,480 $ (9,537) $ (7,252) $ (40,394) $ 109,120 $ (13,583) $ 387,293 ========== ========= ========= ========== ========= ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements. 6
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands, except share amounts) For the Six Months Ended March 31 -------------- 2006 2005 ---- ---- Cash flows from operating activities: Net income $ 9,564 $ 10,195 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 600 300 Depreciation and amortization of premises and equipment 2,027 1,504 Amortization of core deposit intangible 1,647 2,117 Gain on sales of securities available for sale -- (317) Gain on sales of loans held for sale (67) (80) Net amortization of premiums and discounts on securities 1,727 2,172 ESOP and RRP expense 2,308 1,477 Stock option compensation expense 592 -- Originations of loans held for sale (5,165) (7,689) Proceeds from sales of loans held for sale 4,772 7,971 Deferred income tax benefit (6,616) (278) Net changes in accrued interest receivable and payable (543) (236) Other adjustments (principally net changes in other assets and other liabilities) (5,909) (11,673) --------- --------- Net cash provided by operating activities 4,937 5,463 --------- --------- Cash flows from investing activities: Purchases of securities: Available for sale (177,290) (310,254) Held to maturity (9,609) (6,671) Proceeds from maturities, calls and other principal payments on securities: Available for sale 63,688 59,789 Held to maturity 13,142 13,130 Proceeds from sales of securities available for sale -- 63,735 Loan originations (297,470) (213,240) Loan principal payments 253,097 198,132 Purchase of FHLB stock (net) (5,927) (2,717) Purchase of Warwick Community Bancorp, Inc. -- 164,486 Increase in bank owned life insurance (808) (611) Purchases of premises and equipment (2,387) (1,574) Other investing activities 131 (30) --------- --------- Net cash used in investing activities (163,433) (35,825) --------- ---------
See accompanying notes to unaudited consolidated financial statements. 7
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands, except share amounts) For the Six Months Ended March 31, --------------- 2006 2005 ---- ---- Cash flows from financing activities: Net decrease in transaction and savings deposits $ (64,197) $ (27,860) Net increase (decrease) in time deposits 117,156 (2,743) Net increase in borrowings 105,870 21,264 Net increase in mortgage escrow funds 5,772 816 Treasury shares purchased (12,705) (15,275) Stock option transactions 58 91 Other stock-based compensation transactions 1,646 -- Cash dividends paid (4,111) (3,463) --------- --------- Net cash provided by financing activities 149,489 (27,170) --------- --------- Net decrease in cash and cash equivalents (9,007) (57,532) Cash and cash equivalents at beginning of period 64,117 107,571 --------- --------- Cash and cash equivalents at end of period $ 55,110 $ 50,039 ========= ========= Supplemental information: Interest payments $ 20,611 $ 12,150 Income tax payments 1,516 7,970 Fair value of assets acquired (incl. intangibles) $ -- $ 806,114 Fair value of liabilities assumed -- 658,919 --------- --------- Net fair value $ -- $ 147,195 ========= ========= Cash portion of Warwick Community Bancorp Inc. purchase transaction $ -- $ 72,601 Stock portion of Warwick Community Bancorp Inc. purchase transaction -- 74,594 --------- --------- Total paid for Warwick Community Bancorp Inc. -- $ 147,195 Net change in unrealized losses recorded on securities available for sale $ (8,842) $ (13,934) Change in deferred taxes on unrealized losses on securities available for sale $ 3,626 $ 5,574 Number of RRP shares issued 4,000 762,400
See accompanying notes to unaudited consolidated financial statements. 8
PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Dollars in thousands) Three Months Six Months Ended March 31, Ended March 31, -------------------------------------- 2006 2005 2006 2005 ---- ---- ---- ---- Net Income: $ 4,405 $ 5,180 $ 9,564 $ 10,195 Other comprehensive loss: Net unrealized holding losses arising during the period, net of taxes of $2,145, $4,242, $3,477 and $5,447 (3,217) (6,370) (5,216) (8,170) Less reclassification adjustment for net realized gains included in net income, net of taxes of $0, $105, $0 and $127 -- (158) -- (190) -------- -------- -------- -------- Total comprehensive loss (3,217) (6,528) (5,216) (8,360) -------- -------- -------- -------- Total comprehensive income (loss) $ 1,188 $ (1,348) $ 4,348 $ 1,835 ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements. 9 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 1. Basis of Presentation --------------------- On June 29, 2005, the Company changed its name from Provident Bancorp, Inc. to Provident New York Bancorp in order to differentiate itself from the numerous bank holding companies with similar names. The consolidated financial statements and other financial information presented in this document as of March 31, 2006 include the accounts of Provident New York Bancorp, a Delaware corporation (the "Company"), Provident Bank (the "Bank") and Hardenburgh Abstract Company of Orange County, Inc. ("Hardenburgh"), and each subsidiary of Provident Bank: Provest Services Corp., (an inactive subsidiary), Provest Services Corp. I, Provest Services Corp. II, Provident REIT, Inc., WSB Funding, Inc., Warsave Development Corp., Provident Municipal Bank and WSB Financial Services, Inc. (an inactive subsidiary). Collectively, these entities are referred to herein as the "Company". Provident New York Bancorp is a publicly-held company and the parent of the Bank. Provest Services Corp. I holds a limited partnership interest in a low-income housing partnership that provides certain favorable tax consequences. Warsave holds an investment in a rental property that generates rental income. Hardenburgh is a title insurance agency that generates title insurance fees and commissions. Provest Services Corp. II has engaged a third-party provider to sell annuities and life insurance to the customers of the Bank. Through March 31, 2006, the activities of these wholly-owned subsidiaries have had a minor impact on the Company's consolidated financial condition and results of operations. Provident REIT, Inc. and WSB Funding, Inc. hold a portion of the Company's real estate loans and are real estate investment trusts for federal income tax purposes. Provident Municipal Bank ("PMB") is a limited purpose New York State-chartered commercial bank and is authorized to accept deposits from municipalities in the Bank's New York business area. The Company's off-balance sheet activities are limited to loan origination commitments, lines of credit and letters of credit extended to customers or, in the case of letters of credit, on behalf of customers in the ordinary course of its lending activities. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities. The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three months and six months ended March 31, 2006 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2006. 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, 2005. 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 is a critical accounting policy. 10 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 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 option plan. SFAS No. 123R, issued in December of 2004, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans, and required adoption for all publicly owned companies for fiscal periods ending after July 15, 2005. As of October 1, 2005, the Company has begun to expense these grants as required by SFAS No. 123R. Stock-based employee compensation cost pertaining to stock options is reflected in net income, as all unvested options granted under the Company's stock option plans had a value based on the fair value calculations using the Black-Scholes option pricing model, even though the exercise prices were equal to the market value of the underlying common stock on the date of the grant. Prior to October 1, 2005, the Company applied the requirements of APB Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its stock-based plans. Under APB 25, no compensation expense was recognized for the Company's stock-based plans regarding employee stock-options. The Company did, however, recognize expense for its plans which were compensatory per APB 25, and had grant-date intrinsic value (which occurs if the exercise price is less than the market value on the day of the grant) such as restricted stock grants (RRPs). 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 adoption of SFAS 123R which are subject to such an accelerated vesting upon the recipient's attainment of retirement age, are expensed over the shorter of the time to retirement age or the vesting schedule in accordance with the grant. Thus the vesting period can be far less than the plan's five-year vesting period depending on the age of the grantee. As of March 31, 2006, 779,820 grants valued under SFAS No. 123R were subject to this accelerated vesting. The Company elected the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. During the six months ended March 31, 2006, the Company issued 35,000 new stock-based option awards and recognized total non-cash stock-based compensation cost of $591,000 primarily for shares awarded during the transition period, along with the fair-value of these new grants. As of March 31, 2006, the total remaining unrecognized compensation cost related to non-vested stock options was $3.8 million. In addition to the recording requirements, the Company has disclosure requirements under SFAS No. 123 and No. 123R. The following table illustrates the effect on net income if the fair-value-based method per SFAS No. 123R had been applied to all outstanding awards for the three and six months ended March 31, 2005. 11 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) Three Months Six Months Ended Ended March 31, March 31, 2005 2005 ---- ---- Net income, as reported $ 5,180 $ 10,195 Deduct stock option expense determined under the fair-value-based method, net of related tax effects (886) (934) ---------- ---------- Pro forma net income $ 4,294 $ 9,261 ========== ========== Earnings per share: Basic, as reported $ 0.12 $ 0.23 Basic, pro forma 0.10 $ 0.21 Diluted, as reported 0.12 $ 0.23 Diluted, pro forma 0.10 $ 0.21 While the fair-value-based method prescribed by Statement No. 123R is similar to the fair-value-based method disclosed under the provisions of Statement No. 123 in most respects, there are some differences. (Generally, the amounts charged to income will be somewhat consistent with the amounts disclosed for pro-forma purposes in the past). The following table describes currently unvested grants that were used in the fair-value calculations for stock-based compensation expense during 2006, and previously vested exercisable grants that were excluded from the fair-value calculation:
March 31, 2006 ----------------------------------------------------------------------------- Stock Options Subject to SFAS No. 123R Stock Options NOT Subject to SFAS No. 123R --- --------------------------------------------- --------------------------------------------- Weighted-Average Weighted-Average ----------------------------- ----------------------------- Number of Exercise Life Number of Exercise Life Stock Options Price (in Years) Stock Options Price (in Years) ------------- ------------- ------------- ------------- ------------- ------------- Range of Exercise Price $3.50 to $6.08 -- n/a n/a 876,221 $ 3.66 3.00 $6.09 to $10.61 -- n/a n/a 74,693 7.18 3.00 $10.62 to $11.85 142,113 $ 11.58 6.13 58,000 11.85 6.75 ------------- ------------- ------------- ------------- ------------- ------------- $11.86 to $13.33 1,265,440 12.84 7.01 320,484 12.83 6.93 ------------- ------------- 1,407,553 $ 12.71 6.92 1,329,398 $ 6.42 4.11 ============= =============
As a portion of these shares were anti-dilutive as of March 31, 2006, the portion that was anti-dilutive was not included in common stock equivalents for earnings per share purposes. There were 2,265,354 shares that were anti-dilutive as of March 31, 2006. 12 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) The following table summarizes Provident's stock options for the six months ended March 31, 2006: Weighted Average Number Exercise of Shares Price ---------- ---------- Outstanding at October 1, 2005 2,922,306 $ 9.61 Granted 72,629 11.38 Exercised (100,225) 4.78 Forfeited (157,759) 12.67 ---------- Outstanding at March 31, 2006 2,736,951 $ 9.66 ========== ========== Exercisable at March 31, 2006 1,706,271 $ 7.80 ========== ========== Weighted average estimated fair value of options granted during the period $ 2.73 ========== The fair value was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate 4.48% Dividend yield 1.76% Volatility of the market price 22.53% Weighted-average expected life of options 6.5 years The following table summarizes Provident's restricted stock plan for the six month ended March 31, 2006: Weighted Average Number Grant-Date of Shares Fair Value ------------ ------------ Nonvested shares at October 1, 2005 686,160 $ 12.84 Granted 4,000 10.85 Vested (30,100) 12.84 Forfeited (23,000) 12.84 ------------ Nonvested shares at March 31, 2006 637,060 $ 12.83 ============ ============ 13 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 2. Acquisitions ------------ The Company has been active in acquisitions over the past several years. All acquisitions were accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded by the Company at their fair values at the acquisition date. On October 1, 2004 the Company completed its acquisition of Warwick Community Bancorp, Inc. ("WSB" or "Warwick"), located in Warwick, New York. WSB was the holding company for The Warwick Savings Bank, headquartered in Warwick, New York, The Towne Center Bank, headquartered in Lodi, New Jersey and Hardenburgh Abstract Company of Orange County, Inc., headquartered in Goshen, New York. On January 14, 2004, the Company completed its acquisition of E.N.B. Holding Company, Inc. ("ENB"), located in Ellenville, New York. ENB was the holding company for Ellenville National Bank. On April 23, 2002, the Company completed its acquisition of The National Bank of Florida ("NBF"), located in Florida, New York. Below is a summary of the financial transactions, including the most recent branch purchase on May 19, 2005 of an HSBC Bank USA, National Association ("HSBC") branch office in South Fallsburg New York, which has been consolidated with the Bank's existing branch in South Fallsburg.
-------------------------------------------------------------------- HSBC WSB ENB NBF Total ---- --- --- --- ----- At Acquisition Date - ------------------- Number of shares issued -- 6,257,896 3,969,676 -- 10,227,572 Loans acquired $ 2,045 $ 284,522 $ 213,730 $ 23,112 $ 523,409 Deposits assumed 23,319 475,150 327,284 88,182 913,935 Cash paid/(received) (18,938) 72,601 36,773 28,100 118,536 Core deposit intangible 1,690 10,395 6,624 1,787 20,496 At March 31, 2006 - ----------------- Goodwill $ -- $ 91,007 $ 53,183 $ 13,336 $ 157,526 Accumulated core deposit amortization 322 2,789 3,930 1,333 8,374 Net core deposit intangible 1,368 7,606 2,694 454 12,122
Goodwill is not amortized to expense, but is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit intangible asset is recognized apart from goodwill and amortized to expense over its estimated useful life and evaluated, at least annually, for impairment. 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 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 14 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) could result in changes to the amount of the allowance for loan losses considered necessary. 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. A loan is placed on nonaccrual status when management has determined that the borrower may be unable 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 nonaccrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower's financial condition and payment record. Application of assumptions different than those used by management could result in material changes in the Company's financial position or results of operations. Footnote 2 (Summary of Significant Accounting Policies) of the Annual Report on Form 10-K for the year ending September 30, 2005 provides detail with regard to the Company's accounting for the allowance for loan losses. With the exception of the adoption of SFAS 123R (accounting for stock-based compensation), on October 1, 2005, and the resulting expensing of stock options, there have been no significant changes in the application of accounting policies since September 30, 2005. 4. Loans ----- Major classifications of loans, excluding loans held for sale, are summarized below:
March 31, 2006 September 30, 2005 -------------- ------------------ Real estate - residential mortgage $ 463,003 $ 456,794 Real estate - commercial mortgage 518,742 497,936 Real estate - construction 75,434 66,710 Commercial and industrial 144,100 148,825 Consumer loans 204,317 191,808 ---------- ---------- Total $1,405,596 $1,362,073 ========== ==========
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 loan losses inherent in the existing portfolio. Management's evaluations, which are subject to periodic review by the Company's regulators, are made using a consistently-applied methodology that takes into consideration such factors as the Company's past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers' ability to pay. Changes in the allowance for loan losses may be necessary in the future based on changes in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory examinations, the identification of additional problem loans, and other factors. Non-performing loans increased $2.5 million from September 30, 2005 primarily due to two commercial loan relationships from the acquired ENB portfolio. The Bank charged off $770,000 of one of those relationships. The Bank acquired $5,750,000 in allowance for loan losses in connection with the ENB acquisition. 15 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) Activity in the allowance for loan losses for the periods indicated is summarized below:
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 2006 2005 2006 2005 ---- ---- ---- ---- Balance at beginning of period $ 21,819 $ 22,165 $ 22,008 $ 17,353 Allowance acquired through acquisition -- -- -- 4,880 Transfer to reserve for contingent loan commitments (1,034) -- (1,034) -- Charge-offs (1,023) (119) (1,537) (385) Recoveries 31 53 56 101 -------- -------- -------- -------- Net charge-offs (992) (66) (1,481) (284) -------- -------- -------- -------- Provision for loan losses 300 150 600 300 -------- -------- -------- -------- Balance at end of period $ 20,093 $ 22,249 $ 20,093 $ 22,249 ======== ======== ======== ======== Net charge-offs to average loans outstanding (annualized) 0.28% 0.02% 0.22% 0.04%
The following table sets forth the amounts and categories of the Company's non-performing assets at the dates indicated. At both dates, the Company had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).
March 31, 2006 September 30, 2005 ------------------------------ ------------------------------- (Dollars in thousands) (Dollars in thousands) 90 days past due Non- 90 days past due Non- Still accruing Accrual Still accruing Accrual -------------- ------------ -------------- ------------ Non-performing loans: One- to four- family $ 1,461 $ -- $ 1,337 $ 65 Commercial real estate 808 1,330 92 -- Commercial business -- 416 -- 120 Consumer 129 -- -- 27 ------------ ------------ ------------ ------------ Total non-performing loans $ 2,398 1,746 $ 1,429 212 ------------ ------------ ------------ ------------ Real estate owned: One- to four family 90 92 ------------ ------------ Total real estate owned 90 92 ------------ ------------ Total non-performing assets $ 4,234 $ 1,733 ============ ============ Ratios: Non-performing loans to total loans 0.29% 0.12% Non-performing assets to total assets 0.15% 0.07% Allowance for loan losses to total non-performing loans 485% 1,341% Allowance for loan losses to total loans 1.43% 1.62%
16 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 6. Securities ---------- The following is a summary of securities available for sale at March 31, 2006 and September 30, 2005:
Available for Sale Portfolio March 31, 2006 =================================================== Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =================================================== Mortgage-backed securities Mortgage-backed securities $ 555,173 $ 64 $ (14,774) $ 540,463 Collateralized mortgage obligations 30,128 -- (668) 29,460 ---------- ---------- ---------- ---------- Total mortgage-backed and SBA securities 585,301 64 (15,442) 569,923 ---------- ---------- ---------- ---------- Investment Securities U.S. Government and federal agency securities 300,036 -- (5,762) 294,274 State and municipal securities 62,344 29 (1,458) 60,915 Equity securities 6 (28) 925 ---------- ---------- ---------- ---------- 947 Total investment securities 363,327 35 (7,248) 356,114 ---------- ---------- ---------- ---------- Total available for sale $ 948,628 $ 99 $ (22,690) $ 926,037 ========== ========== ========== ========== Available for Sale Portfolio September 30, 2005 =================================================== Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value =================================================== Mortgage-backed securities Mortgage-backed securities $ 500,844 $ 108 $ (7,956) $ 492,996 Collateralized mortgage obligations 21,965 -- (183) 21,782 ---------- ---------- ---------- ---------- Total mortgage-backed and SBA securities 522,809 108 (8,139) 514,778 ---------- ---------- ---------- ---------- Investment securities U.S. Government and federal agency securities 262,769 -- (5,144) 257,625 State and municipal securities 50,176 87 (572) 49,691 Equity securities 947 5 (94) 858 ---------- ---------- ---------- ---------- Total investment securities 313,892 92 (5,810) 308,174 ---------- ---------- ---------- ---------- Total available for sale $ 836,701 $ 200 $ (13,949) $ 822,952 ========== ========== ========== ==========
17 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) The following is a summary of securities held to maturity at March 31, 2006 and September 30, 2005:
Held to Maturity Portfolio March 31, 2006 ================================================== Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ================================================== Mortgage-backed securities Mortgage-backed securities $ 22,089 $ 117 $ (421) $ 21,785 Collateralized mortgage obligations 1,693 44 -- 1,737 ---------- ---------- ---------- ---------- Total mortgage-backed securities 23,782 161 (421) 23,522 ---------- ---------- ---------- ---------- Investment securities State and municipal securities 43,326 275 (356) 43,245 Other investments 256 6 (2) 260 ---------- ---------- ---------- ---------- Total investment securities 43,582 281 (358) 43,505 ---------- ---------- ---------- ---------- Total held to maturity $ 67,364 $ 442 $ (779) $ 67,027 ========== ========== ========== ========== Held to Maturity Portfolio September 30, 2005 ================================================== Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ================================================== Mortgage-backed securities Mortgage-backed securities $ 24,758 $ 293 $ (295) $ 24,756 Collateralized mortgage obligations 1,953 40 -- 1,993 ---------- ---------- ---------- ---------- Total mortgage-backed securities 26,711 333 (295) 26,749 ---------- ---------- ---------- ---------- Investment securities State and municipal securities 43,931 482 (321) 44,092 Other 307 7 (4) 310 ---------- ---------- ---------- ---------- Total investment securities 44,238 489 (325) 44,402 ---------- ---------- ---------- ---------- Total held to maturity $ 70,949 $ 822 $ (620) $ 71,151 ========== ========== ========== ==========
18 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) At March 31, 2006 and September 30, 2005, the accumulated unrealized net loss on securities available for sale (net of tax of $9,191 and $5,565 respectively) that was included in accumulated other comprehensive loss, a separate component of stockholders' equity, was $(13,400) and $(8,184) respectively. Gross realized gains were $0 and $859, respectively and gross realized losses were $0 and $542 for the six months ended March 31, 2006 and 2005, respectively. Securities with a carrying amount of $513,415 and $297,359 were pledged as collateral for municipal deposits, borrowings and other purposes at March 31, 2006 and September 30, 2005, respectively. The following table summarizes, for all securities in an unrealized loss position at March 31, 2006, 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 Fair Unrealized Fair Unrealized Fair Losses Value Losses Value Losses Value ----------- ----------- ----------- ----------- ----------- ----------- Available For Sale: Mortgage-backed securities $ (5,002) $ 260,368 $ (10,440) $ 298,565 $ (15,442) $ 558,933 U.S. Government Agency securities (329) 54,484 (5,433) 239,790 (5,762) 294,274 Municipal securities (1,247) 51,965 (211) 7,698 (1,458) 59,663 Equity securities (28) 918 -- -- (28) 918 ----------- ----------- ----------- ----------- ----------- ----------- Total available-for-sale: (6,606) 367,735 (16,084) 546,053 (22,690) 913,788 ----------- ----------- ----------- ----------- ----------- ----------- Held to Maturity: Mortgage-backed securities (58) 5,271 (363) 9,784 (421) 15,055 State and municipal securities (149) 21,005 (207) 5,128 (356) 26,133 Other securities -- -- (2) 100 (2) 100 ----------- ----------- ----------- ----------- ----------- ----------- Total held to maturity: (207) 26,276 (572) 15,012 (779) 41,288 ----------- ----------- ----------- ----------- ----------- ----------- Total securities: $ (6,813) $ 394,011 $ (16,656) $ 561,065 $ (23,469) $ 955,076 =========== =========== =========== =========== =========== ===========
Substantially all of the unrealized losses at March 31, 2006 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 March 31, 2006. A total of 283 securities were in a continuous unrealized loss position for less than 12 months, and 252 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. Because the Company has the ability and intent to hold securities with unrealized losses until a market price recovery (which, for securities with fixed maturities, may be until maturity) the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2006, except for an investment in 19 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) Freddie Mac perpetual preferred stock, previously determined to have other than temporary impairment loss of $94 on a recorded basis of $935. 7. Deposits -------- Major classifications of deposits are summarized below: March 31, 2006 September 30, 2005 -------------- ------------------ Demand deposits: Retail $ 168,340 $ 170,434 Commercial and municipal 193,678 214,647 Business NOW deposits 47,468 60,214 Personal NOW deposits 112,077 105,730 ---------- ---------- Total transaction accounts 521,563 551,025 Money market deposits 235,652 222,091 Savings deposits 433,306 481,674 Certificates of deposit 588,768 471,611 ---------- ---------- Total deposits $1,779,289 $1,726,401 ========== ========== 8. FHLB and Other Borrowings ------------------------- The Company's FHLB and other borrowings and weighted average interest rates are summarized as follows:
------------------- -------------------- March 31, 2006 September 30, 2005 ------------------- -------------------- Amount Rate Amount Rate -------- -------- -------- -------- By type of borrowing: Advances $374,799 4.64% $296,636 3.86% Repurchase agreements 171,411 4.11 145,567 3.62 -------- -------- Total borrowings $546,210 4.48% $442,203 3.78% ======== ======== By remaining period to maturity: One year or less $370,514 4.82% $235,212 3.84% One to two years 33,859 3.84 18,115 3.62 Two to three years 38,946 3.88 51,719 3.65 Three to four years 27,251 3.38 52,450 3.73 Four to five years 29,746 3.81 16,313 3.78 Five years or greater 45,894 3.75 68,394 3.73 -------- -------- Total borrowings $546,210 4.48% $442,203 3.78% ======== ========
20 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) Of the $171.4 million in repurchase agreements, $108.7 million are callable quarterly through their respective maturities. 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 that have been pledged as collateral under a blanket security agreement. As of March 31, 2006 and September 30, 2005, the Bank had pledged mortgages with collateral value totaling $343,357 and $301,154 respectively. Based on outstanding borrowings under the line totaling $218,568 and $269,529 as of March 31, 2006 and September 30, 2005, the Bank had unused borrowing capacity under the FHLB of New York line of credit of $124,789 and $31,625 respectively. The Bank may borrow additional amounts by pledging securities not required to be pledged for other purposes with a market value of $473,579 as of March 31, 2006. 9. Earnings Per Common Share ------------------------- The number of shares used in the computation of both basic and diluted earnings per share excludes unallocated ESOP shares held to fund deferred compensation plans, and unallocated restricted stock shares that have not been released to participants. Common stock equivalent shares are incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options and unvested RRP shares were exercised or became vested during the periods. Basic earnings per common share is computed as follows:
For the Three Months For the Six Months Ended March 31, Ended March 31, --------------- --------------- 2006 2005 2006 2005 ---- ---- ---- ---- Weighted average common shares outstanding (basic), in `000s 40,939 43,869 41,070 44,098 ------- ------- ------- ------- Net income $ 4,405 $ 5,180 $ 9,564 $10,195 Basic earnings per common share $ 0.11 $ 0.12 $ 0.23 $ 0.23 Diluted earnings per common share is computed as follows: For the Three Months For the Six Months Ended March 31, Ended March 31, --------------- --------------- 2006 2005 2006 2005 ---- ---- ---- ---- Weighted average common shares outstanding (basic), in `000s 40,939 43,869 41,070 44,098 Effect of common stock equivalents 467 570 471 589 ------- ------- ------- ------- Total diluted shares 41,406 44,439 41,541 44,687 Net income $ 4,405 $ 5,180 $ 9,564 $10,195 Diluted earnings per common share $ 0.11 $ 0.12 $ 0.23 $ 0.23
21 PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share amounts) 10. Pension and Other Post Retirement Plans --------------------------------------- Net post retirement cost, which is recorded within salaries and employee benefits expense in the consolidated statements of income, is comprised of the following:
Pension Plans Other Post Retirement Plans ------------------ ------------------ Six Months Ended Six Months Ended March 31, March 31, ------------------ ------------------ 2006 2005 2006 2005 ------------------ ------------------ Service cost $ 656 $ 645 $ 18 $ 51 Interest cost 660 806 39 75 Expected return on plan assets (843) (895) -- -- Unrecognized net transition obligation -- 5 5 5 Amortization of prior service cost (6) (5) 3 3 Amortization of gain or loss 163 167 (52) (1) ------------------ ------------------ Net periodic cost $ 630 $ 723 $ 13 $ 133 ======= ======= ======= =======
The contribution expected to be made to all plans in fiscal 2006 is $1,631. As of March 31, 2006, the Company has contributed $1,631. As part of the acquisition of WSB, the Company assumed the WSB Pension Plan, a defined benefit plan. The WSB plan was frozen on April 30, 2002. As part of the acquisition of ENB, the Company assumed the ENB Pension Plan, a defined benefit plan. The ENB plan was frozen in connection with the merger of ENB into the Company. On April 1, 2006 the Company approved merging both the ENB and WSB pension plans into the Provident Bank Pension Plan. 11. Guarantor's Obligations Under Guarantees ---------------------------------------- Nearly all 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 March 31, 2006, the Company had $15.7 million in outstanding letters of credit, of which $7.0 million were secured by cash collateral. 12. Subsequent Event ---------------- On April 13, 2006, the Company entered into a definitive agreement to acquire substantially all the assets of Hudson Valley Investment Advisors, Inc. for which it will pay $5 million, 50% of which will be in stock. We expect this acquisition to enhance our non-interest income. The transaction is expected to close during the third quarter of the Company's fiscal year. 22 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements -------------------------- The Company has made, and may continue to make, various forward-looking statements with respect to earnings, credit quality and other financial and business matters for 2006 and, in certain instances, subsequent periods. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements for subsequent periods are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements. In addition to those factors previously disclosed by the Company and those factors identified elsewhere herein, the following factors could cause actual results to differ materially from such forward-looking statements; pricing pressures on loan and deposit products; changes in local and national economic conditions; the extent and timing of actions of the Company's regulators; customer deposit disintermediation; changes in customers' acceptance of the Company's products and services; general actions of competitors, other normal business risks such as credit losses, litigation and increases in the levels of non-performing assets. The Company's forward-looking statements speak only as of the date on which such statements are made. The Company assumes no duty to update forward-looking statements to reflect new, changing or unanticipated events or circumstances. The Company's significant accounting policies are summarized in Note 2 to the consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2005. An accounting policy considered particularly critical to the Company's financial results is the allowance for loan losses. The methodology for assessing the appropriateness of the allowance for loan losses and non-performing loans is considered a critical accounting policy by management 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 in the necessary allowance. As discussed in Note 2 to the consolidated financial statements included in Item 1 of this quarterly report, the Company completed its acquisition of WSB on October 1, 2004. The acquisition was accounted for as a purchase and, accordingly, amounts attributable to Warwick have been included in the Company's consolidated financial statements from the date of acquisition. Comparison of Financial Condition at March 31, 2006 and September 30, ----------------------------------------------------------------------- 2005 ---- Total assets as of March 31, 2006 were $2.7 billion, an increase of $148.3 million, or 5.7%, from September 30, 2005. The increase from September 30, 2005 was primarily due to an increase in securities, and to a lesser extent, loans. Securities increased $99.5 million, or 11.1%, and loans increased $43.5 million, or 3.2%. Net deferred income taxes increased from $10.6 million at September 30, 2005 to $20.8 million at March 31, 2006, an increase of $10.2 million, or 96.6%. The change in deferred income taxes is primarily attributable to the tax effects of the increase in unrealized loss on our available-for-sale securities portfolio and the distribution of earnings from the Company's REIT. Core deposit intangibles decreased by $1.6 million in net amortization from September 30, 2005. Net loans as of March 31, 2006 were $1.4 billion, an increase of $45.4 million, or 3.4%, over net loan balances of $1.3 billion at September 30, 2005. Commercial loans, primarily commercial mortgage loans, increased by $24.8 million, or 3.5%, over balances at September 30, 2005. Consumer loans 23 increased by $12.5 million, or 6.5%, during the six-month period ended March 31, 2006, while residential loans increased by $6.2 million, or 1.4%. Total loan originations, excluding loans originated for sale, were $297.5 million for the six months ended March 31, 2006. However, repayments were $253.1 million for the six months ended March 31, 2006. Non-performing loans increased $2.5 million from September 30, 2005, in addition to net charge-offs of $1.0 million, due primarily to two commercial loan relationships from the acquired ENB portfolio. The Bank also charged off $770,000 of one of those relationships. (The Bank acquired $5,750,000 in allowance for loan losses in connection with the ENB acquisition.) In spite of this, net charge-offs to average loans outstanding, on an annualized basis, was only 0.22% for the six months ended March 31, 2006. Loan quality continues to be strong. At $4.1 million, non-performing loans as a percentage of total loans was 0.29%, as compared to 0.12% at September 30, 2005 and 0.21% at March 31, 2005. Total securities increased by $99.5 million, or 11.1%, to $993.4 million at March 31, 2006 from $893.9 million at September 30, 2005. Investments were made primarily in mortgage-backed securities, which increased by $51.7 million, or 9.8%. Government and federal agency securities and municipal securities also increased, by $37.3 million, or 14.2%, and $11.6 million, or 12.3%, respectively. This increase was partially offset by mark-to-market adjustments on available for sale securities due to changes in market interest rates. Deposits as of March 31, 2006 were $1.8 billion, a growth of $52.9 million, or 3.1%, from September 30, 2005. As of March 31, 2006 retail and commercial transaction accounts were 29.3% of deposits compared to 31.9% at September 30, 2005. The decrease of $29.5 million, or 5.3%, in demand deposits is seasonal and the decrease in savings and money market deposits of $34.8 million, or 4.9%, was largely due to the migration of the lower-yielding non-transaction accounts to our certificate of deposit products or, in some cases, to other institutions offering higher yields. These decreases were offset by an increase of $117.2 million, or 24.8%, in certificates of deposit. As of January 2006, we have begun to offer certain new products that offer higher, market-sensitive interest rates and others that offer transaction account incentives. Borrowings increased by $104.0 million from September 2005, or 23.5%, to $546.2 million. Much of the increase is related to the borrowings used to fund the increases in securities and loans and for repurchases of shares of the Company's common stock. Stockholders' equity decreased by $7.9 million, or 2.0%, to $387.3 million at March 31, 2006 compared to $395.2 million at September 30, 2005. The decrease is largely attributable to the purchase of 1.1 million treasury shares at a cost of $12.7 million, and an increase of $5.2 million in other comprehensive loss for unrealized losses on available for sale securities, as well as dividend payments of $4.1 million. This decrease was partially offset by $9.6 million in current earnings for the six-month period, a $2.8 million increase in additional paid in capital for stock-based compensation, and $1.6 million in RRP transactions. Since September 2005, we have purchased a total of 1,114,571 shares of common stock, which are held as treasury shares. During the second quarter of fiscal 2006, the Company neared completion of its second stock repurchase program and announced a third repurchase plan for up to 2.1 million shares. Repurchases under the authorized plan for the current quarter totaled 641,400 shares at a purchase price of $7.4 million. As of March 31, 2006 the Company had authorization to purchase up to an additional 2,292,829 shares of common stock. Also during the first six months of fiscal 2006, 4,000 shares of restricted stock were granted from treasury shares. Bank Tier I capital to assets stands at 7.4% at March 31, 2006. Tangible capital at the holding company level is 8.4%. 24 Comparison of Operating Results for the Three Months Ended March 31, 2006 and March 31, 2005 Net Income. For the three months ended March 31, 2006 net income was $4.4 million, a decrease of $775,000 compared to $5.2 million for the same period in fiscal 2005. Net interest income after provision for loan losses for the three months ended March 31, 2006 decreased by $745,000, or 3.5%, to $20.5 million compared to $21.3 million for the same period in the prior year. Non-interest income increased $301,000, or 7.8%, to $4.1 million for the three months ended March 31, 2006 compared to $3.8 million for the three months ended March 31, 2005. Non-interest expense increased $1.1 million, or 6.3%, to $18.1 million for the three months ended March 31, 2006 compared to $17.1 million for the same prior-year period. The relevant performance measures follow: Three Months Ended March 31, 2006 2005 ---- ---- Per common share: Basic earnings $ 0.11 $ 0.12 Diluted earnings 0.11 0.12 Dividends declared 0.05 0.04 Return on average (annualized): Assets 0.67% 0.83% Equity 4.57% 5.00% 25 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 March 31, ---------------------------- 2006 2005 ---- ---- Average Average Outstanding Average Outstanding Average Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- Interest earning assets: Commercial and commercial mortgage loans(1) $ 724,425 $ 13,098 7.33% $ 677,753 $ 11,223 6.72% Consumer loans(1) 197,232 3,145 6.47 163,041 2,046 5.09 Residential mortgage loans(1) 452,513 6,697 6.00 430,670 6,237 5.87 ---------- ---------- ---------- ---------- Total loans 1,374,170 22,939 6.77 1,271,464 19,506 6.22 ---------- ---------- ---------- ---------- Securities-taxable 825,284 8,321 4.09 874,647 8,160 3.78 Securities-tax exempt(2) 100,693 1,455 5.86 50,687 740 5.92 Other earning assets 30,675 357 4.72 20,881 137 2.66 ---------- ---------- ---------- ---------- Total securities and other earning assets 956,652 10,134 4.30 946,215 9,037 3.87 ---------- ---------- ---------- ---------- Total interest-earning assets 2,330,822 33,073 5.75 2,217,679 28,543 5.22 ---------- ---------- ---------- ---------- Non-interest-earning assets 333,952 315,161 ---------- ---------- Total assets $2,664,774 $2,532,840 ========== ========== Interest bearing liabilities: NOW checking $ 141,064 $ 137 0.39% $ 156,838 $ 127 0.33% Savings, clubs and escrow 448,084 564 0.51 553,936 786 0.58 Money market accounts 222,169 909 1.66 234,592 605 1.05 Certificate accounts 521,399 4,485 3.49 393,508 1,976 2.04 ---------- ---------- ---------- ---------- Total interest-bearing deposits 1,332,716 6,095 1.86 1,338,874 3,494 1.06 Borrowings 556,201 5,643 4.11 417,952 3,369 3.27 ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,888,917 11,738 2.52 1,756,826 6,863 1.58 ---------- ---------- ---------- ---------- Non-interest bearing liabilities: Non-interest-bearing checking 362,955 337,793 Other non-interest-bearing liabilities 21,944 17,802 ---------- ---------- Total non-interest bearing liabilities 384,899 355,595 ---------- ---------- Total liabilities 2,273,816 2,112,421 Stockholder's equity 390,958 420,419 ---------- ---------- Total liabilities and equity $2,664,774 $2,532,840 ========== ========== Net interest rate spread 3.23% 3.64% ========== ========== Net earning assets $ 441,905 $ 460,853 ========== ========== Net interest margin 21,335 3.71% 21,680 3.96% ========== ========== ========== ========== Less tax equivalent adjustment(2) (508) (259) ---------- ---------- Net interest income $ 20,826 $ 21,421 ========== ========== Ratio of average interest-earning assets to average interest-bearing liabilities 123.39% 126.23% ========== ==========
- ----------------------------- (1) Includes non-accrual loans. (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. 26 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 (in thousands): Three Months Ended March 31, 2006 vs. 2005 Increase/(Decrease) Due to -------------------------- Volume(1) Rate(1) Total --------- ------- ----- Interest-earning assets Commercial and commercial mortgage loans $ 809 $ 1,066 $ 1,875 Consumer loans 480 619 1,099 Residential mortgage loans 320 140 460 Securities-taxable (487) 648 161 Securities-tax exempt(2) 723 (8) 715 Other earning assets 83 137 220 ------- ------- ------- Total interest income 1,928 2,602 4,530 ------- ------- ------- Interest-bearing liabilities NOW checking (13) 23 10 Savings (136) (86) (222) Money market (35) 339 304 Certificates of deposit 787 1,722 2,509 Borrowings 1,279 995 2,274 ------- ------- ------- Total interest expense 1,882 2,993 4,875 ------- ------- ------- Net interest margin 46 (391) (345) ------- ------- ------- Less tax equivalent adjustment(2) 253 (3) 250 ------- ------- ------- Net interest income $ (207) $ (388) $ (595) ======= ======= ======= - ---------------------------- (1) Changes due to increases in both rate and volume have been allocated proportionately to rate and volume. (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. Net interest income for the three months ended March 31, 2006 decreased by $595,000, or 2.8%, to $20.8 million compared to $21.4 million for the quarter ended March 31, 2005. Gross interest income on a tax-equivalent basis increased by $4.5 million, or 15.9%, to $33.0 million for the quarter ended March 31, 2006, compared to $28.5 million for the same three months in 2005. The increase in interest income was largely due to a $113.1 million increase in average earning assets, at higher yields, to $2.3 billion during the quarter ended March 31, 2006, as compared to $2.2 billion for the same quarter in the prior year. The increase is primarily due to the increase in loans, with the highest concentration coming from commercial loans, followed by consumer loans. The increase in average earning assets was also enhanced by an increase in average yield of 53 basis points from 5.22% to 5.75%, on a fully taxable equivalent basis. The average yields on the loan portfolio increased by 55 basis points. The average yields on investments and other earning assets increased by 43 basis points. Interest expense increased by $4.9 million for the quarter compared to the same quarter in 2005, as average interest-bearing liabilities increased by $132.1 million and the average cost of interest-bearing liabilities increased by 94 basis points. The increase in liabilities was used to fund loan and securities growth and stock repurchases. The 27 tax equivalent net interest margin declined by 25 basis points to 3.71%, while net interest spread declined by 41 basis points to 3.23%. This was primarily the result of the increase in borrowings as previously mentioned, along with the impact of the increase in the cost of interest-bearing liabilities resulting from the 275 basis point increase in the target federal funds rate since September of 2004. 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 to absorb probable loan losses inherent in the existing portfolio. The Company recorded $300,000 in loan loss provisions for the three months ended March 31, 2006 compared to $150,000 for the three months ended March 31, 2005. Net charge-offs for the three months ended March 31, 2006 were $992,000 compared to $66,000 for the same period in 2005. (See Note 5 in Item 1 for further detail). Non-interest income was $4.1 million for the three months ended March 31, 2006 compared to $3.8 million for the three months ended March 31, 2005, an increase of $301,000, or 7.8%. Deposit fees and service charges increased by $126,000 or 5.2%, which was primarily due to volume-driven increases in uncollected funds and debit card fees. Income derived from the Company's bank owned life insurance ("BOLI") investments increased by $99,000 or 33.6% due to additional BOLI investments of $10 million made subsequent to March 2005. Title insurance fee income derived from the Company's wholly-owned title insurance agency subsidiary, Hardenburgh, was $390,000 for the quarter, up $90,000, or 30% from the prior year. There were no sales of securities this quarter and thus no gains or losses, compared to the $263,000 in gains for the same period last year. During the three-month period ended March 31, 2006, the Company also recorded gains on sales of loans totaling $86,000 compared to $21,000 in gains for the same period last year. Non-interest expense for the three months ended March 31, 2006 increased by $1.1 million, or 6.3%, primarily as the result of an increase of $1.2 million in stock-based compensation (discussed below). Compensation and employee benefits expense increased by $396,000, or 5.0%, this period as compared to the same period last year. The increase was due to annual salary increases, as well as the movement of our data processing services in house, which shifted certain data and check processing costs to salaries and benefits. There was an increase in the cost of stock-based compensation benefits of $1.2 million primarily due to the adoption of SFAS No. 123R, the amortization of a greater number of restricted stock shares, the expensing of ESOP shares at an increased cost due to appreciation in the Company's stock price and the expense due to additional ESOP shares released. These increases totaled $232,000, $348,000, $42,000 and $388,000, respectively. Occupancy and office operations increased by $556,000 or 22.6%, to $3.0 million for the three months ended March 31, 2006, due to the increased office space required to accommodate the increase in the Bank's size subsequent to the acquisitions, as well as space necessary to fulfill the requirements of our new in-house data center, completed November 2005. We chose to move our data services in house, to (1) achieve greater efficiencies and security, (2) maintain a fixed level of operational costs, and (3) be in the position to accommodate an increase in volume, such as from an acquisition, without adding incremental costs. Advertising and promotion decreased $248,000 or 38.2%, primarily as a result of the completion of our new brand identity initiative in fiscal 2005. Data and check processing fees decreased $369,000, or 31.9%, primarily due to the new in-house data center, which decreased our reliance on outside services. Merger and integration costs decreased $341,000, or 100.0% from the same quarter last year, as there was no acquisition-related activity during the quarter. Other non-interest expense decreased $181,000, or 8.4%, due to the gains in efficiency previously mentioned. 28 The efficiency ratio increased to 72.7% for the current quarter from 67.6% for the quarter ending March 31, 2005. The change reflects the increase in interest expense relative to interest income, partially offset by an increase in non interest-related income, creating a lower income base for the current period. As discussed, the non-interest expenses comprising the numerator of the ratio have increased as they include the increase in stock-based compensation. Income Taxes. Income tax expense was $2.1 million for the three months ended March 31, 2006, compared to $2.9 million for the same period in 2005. The effective tax rates were 32.5% and 35.6%, respectively. The reduction in the effective rate is primarily due to higher utilization of tax-advantaged assets such as tax-exempt securities and bank-owned life insurance. Comparison of Operating Results for the Six Months Ended March 31, 2006 and March 31, 2005 Net Income. For the six months ended March 31, 2006 net income was $9.6 million, a decrease of $631,000 compared to $10.2 million for the same period in fiscal 2005. Net interest income after provision for loan losses for the six months ended March 31, 2006 decreased by $1.5 million, or 3.6%, compared to the same period in fiscal 2005. Non-interest income increased $638,000, or 8.1% to $8.5 million for the six months ended March 31, 2006 compared to $7.9 million for the six months ended March 31, 2005. Non-interest expense increased $787,000, or 2.3%, to $35.6 million for the six months ended March 31, 2006 compared to $34.8 million for the same period in fiscal 2005. The relevant performance measures follow: Six Months Ended March 31, 2006 2005 ---- ---- Per common share: Basic earnings $0.23 $0.23 Diluted earnings 0.23 0.23 Dividends declared 0.10 0.08 Return on average (annualized): Assets 0.73% 0.81% Equity 4.90% 4.84% 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).
Six Months Ended March 31, -------------------------- 2006 2005 ---- ---- Average Average Outstanding Average Outstanding Average Balance Interest Yield/Rate Balance Interest Yield/Rate ------- -------- ---------- ------- -------- ---------- Interest earning assets: Commercial and commercial mortgage loans(3) $ 713,142 $ 25,772 7.25% $ 670,034 $ 22,321 6.68% Consumer loans(1) 194,057 6,018 6.22 161,713 3,930 4.87 Residential mortgage loans(1) 450,485 13,336 5.94 432,633 12,668 5.87 ---------- ---------- ---------- ---------- Total loans 1,357,684 45,126 6.67 1,264,380 38,919 6.17 ---------- ---------- ---------- ---------- Securities-taxable 811,046 16,063 3.97 850,550 16,093 3.79 Securities-tax exempt(4) 97,473 2,818 5.80 49,354 1,437 5.84 Other earning assets 28,626 656 4.60 30,980 350 2.27 ---------- ---------- ---------- ---------- Total securities and other earning assets 937,145 19,538 4.18 930,884 17,880 3.85 ---------- ---------- ---------- ---------- Total interest-earning assets 2,294,829 64,663 5.65 2,195,264 56,799 5.19 ---------- ---------- Non-interest-earning assets: 338,079 326,380 ---------- ---------- Total assets $2,632,908 $2,521,644 ========== ========== Interest bearing liabilities: NOW checking $ 139,654 268 0.38% $ 149,671 259 0.35% Savings, clubs and escrow 463,207 1,184 0.51 556,635 1,658 0.60 Money market accounts 218,509 1,613 1.48 258,573 1,197 0.93 Certificate accounts 504,778 8,289 3.29 398,847 3,799 1.91 ---------- ---------- ---------- ---------- Total interest-bearing deposits 1,326,148 11,354 1.72 1,363,726 6,913 1.02 Borrowings 520,614 10,439 4.02 386,379 6,261 3.25 ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,846,762 21,793 2.37% 1,750,105 13,174 1.51% ---------- ---------- ---------- ---------- Non-interest-bearing liabilities: Non-interest-bearing checking 372,586 336,652 Other non-interest-bearing liabilities 22,057 12,675 ---------- ---------- Total non-interest-bearing liabilities 394,643 349,327 ---------- ---------- Total liabilities 2,241,405 2,099,432 Stockholders' equity 391,503 422,212 ---------- ---------- Total liabilities and equity $2,632,908 $2,521,644 ========== ========== Net interest rate spread 3.28% 3.68% ========== ========== Net earning assets $ 448,067 $ 445,159 ========== ========== Net interest margin 42,870 3.75% 43,625 3.99% ========== ========== ========== ========== Less tax equivalent adjustment(2) (985) (503) ---------- ---------- Net interest income $ 41,885 $ 43,122 ========== ========== Ratio of average interest-earning assets to average interest- bearing liabilities 124.26% 125.44% ========== ==========
- ----------------------- (1) Includes non-accrual loans (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. 30 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 (in thousands): Six Months Ended March 31, 2006 vs. 2005 Increase/(Decrease) Due to -------------------------- Volume (1) Rate (1) Total ---------- -------- ----- Interest-earning assets Commercial and commercial mortgage loans $ 1,483 $ 1,968 $ 3,451 Consumer loans 875 1,213 2,088 Residential mortgage loans 519 149 668 Securities-taxable (772) 742 (30) Securities-tax exempt(2) 1,391 (10) 1,381 Other earning assets (29) 335 306 ------- ------- ------- Total interest income 3,467 4,397 7,864 ------- ------- ------- Interest-bearing liabilities Savings (250) (224) (474) Money market (209) 625 416 NOW checking (16) 25 9 Certificates of deposit 1,207 3,283 4,490 Borrowings 2,484 1,694 4,178 ------- ------- ------- Total interest expense 3,216 5,403 8,619 ------- ------- ------- Net interest margin 251 (1,006) (755) ------- ------- ------- Less tax equivalent adjustment(2) 484 (2) (482) ------- ------- ------- Net interest income $ (233) $(1,004) $(1,237) ======= ======= ======= - ---------------------------------------------------------- (1) Changes due to increases in both rate and volume have been allocated proportionately to rate and volume. (2) Tax equivalent adjustment for tax exempt income is based on a 35% federal rate. Net Interest Income. Net interest income for the six months ended March 31, 2006 was $41.9 million, compared to $43.1 million for the six months ended March 31, 2005, a decrease of $1.2 million, or 2.9%. The increase in interest income was largely due to a $99.6 million increase in average earning assets with higher yields to $2.3 billion during the period ended March 31, 2006, as compared to $2.2 billion for the same period in the prior fiscal year. The increase was primarily due to continued internal growth. The increase in average earning assets was further enhanced by an improvement in average yield of 46 basis points, from 5.19% to 5.65%, on a fully taxable equivalent basis. Interest expense increased by $8.6 million for the six months ended March 31, 2006 from $13.2 million for the same period in fiscal 2005 to $21.8 million, as average interest-bearing liabilities increased by $96.7 million and the average cost of interest-bearing liabilities increased 86 basis points. The tax-equivalent net interest margin declined by 24 basis points to 3.75%, while the net interest spread declined by 40 basis points to 3.28%, due to the increase in short-term market interest rates. The Board of Governors of the Federal Reserve has increased short term rates 11 times since September 2004, increasing the target federal funds rate from 2.0% to 4.75%. However, longer term interest rates (10-year treasury) have only increased from an average of 4.23% for the six months ended March 31, 2005 to 4.52% for the six months ended March 31, 2006. 31 As the yield has increased on short-term rates faster than longer term rates, the Bank's average cost of interest-bearing liabilities has increased faster than the average increase in asset yields. Should the yield curve continue to remain flat, a continued decline in net interest margin may occur, offsetting a portion of gains in net interest income arising from increasing volume of assets generated. 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 to absorb probable loan losses inherent in the existing portfolio. The Company recorded $600,000 and $300,000, respectively, in loan loss provisions during the six months ended March 31, 2006 and 2005. Net charge-offs for the six months ended March 31, 2006 were $1.5 million compared to net charge-offs of $284,000 for the same period in 2005. (See Note 5 for further discussion). Non-Interest Income was $8.5 million for the six months ended March 31, 2006 compared to $7.9 million for the six months ended March 31, 2005. Deposit fees and service charges increased by $259,000, or 5.2%, which was primarily due to volume-driven increases in uncollected fees and debit card fees. Income derived from the Company's BOLI investments increased by $196,000, or 32.1%, due to the additional BOLI investment previously discussed. Title insurance fee income derived from Hardenburgh was $807,000, an increase of $149,000, or 22.6%. There were no sales of securities during the current six-month period, compared to $317,000 in net gains on securities sales for the same period in the prior fiscal year. During the six-month period ended March 31, 2006, the Company also recorded net gains on sales of loans totaling $67,000 compared to $80,000 for the same period last year. Non-Interest Expense for the six months ended March 31, 2006 increased by only $787,000, or 2.3%, to $35.6 million, compared to $34.8 million for the six months ended March 31, 2005. Despite an increase of $1.9 million in stock-based compensation plans expense, which was generated from a rising stock price, the acceleration of certain restricted stock grants and a change in accounting rules, the Company was able to hold expenses relatively stable as a result of our continued efforts towards efficiency, as well as the full integration of our acquisitions. In addition, as a result of our integration efforts, we closed three branches and combined them with other larger branches. As mentioned in the discussion for the three-month period, the movement of our data center in house resulted in the reclassification of certain expenses, primarily into compensation and employee benefits and occupancy and office operations, and out of data and check processing expense. As a result, compensation and employee benefits, which was also impacted by annual merit raises, increased by $404,000, or 2.6%. Occupancy and office operations, which was also impacted by increased real estate taxes, grew by $1.0 million, or 22.7%. Partially offsetting these increases was a decrease in data and check processing expense of $740,000, or 30.8%. The completion of our branding project in 2005 resulted in a decrease of $818,000, or 45.1%, in advertising and promotion costs. Professional fees increased by $370,000, or 28.9%, as additional services were required. The full integration of all acquisitions allowed us to reduce stationery and office supplies by $100,000, or 19.6%, while the lack of acquisition activity in the current fiscal year served to reduce merger integration costs by 100%, or $721,000, compared to the six-month period last year. Other expenses decreased by $133,000, or 3.7%, due to the gains in efficiency and branch closings previously mentioned. Income Taxes. Income tax expense was $4.7 million for the six months ended March 31, 2006 compared to $5.7 million expense for the same period in 2005. The effective tax rates were 32.8% and 35.9%, respectively. As mentioned, the Company's strategies for utilization of tax-advantaged investments has had a positive impact on its income tax liabilities. 32 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 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, residential one- to four-family mortgage loans, commercial and industrial loans, second mortgages and home equity loans and the purchase of investment securities and mortgage-backed securities. During the six months ended March 31, 2006 and March 31, 2005, loan originations, excluding loans originated for sale, totaled $297.5 million and $213.2 million, respectively, and purchases of securities totaled $177.3 million and $310.3 million, respectively. The decrease in security purchases for the six-month period ended March 31, 2006, as compared to the same period last year, reflects our focus to increase our loan portfolio, which increased $103.4 million from March 31, 2005. For the six-month periods ended March 31, 2006, these investing activities were funded primarily by principal repayments on loans, by proceeds from sales and maturities of securities, by increased deposit balances, and by short-term borrowings. Loan origination commitments and undrawn lines of credit totaled $356.7 million at March 31, 2006. The Company anticipates that it will have sufficient funds available to meet current loan commitments. At March 31, 2006 the Company had investments of $38.5 million in BOLI contracts. Such investments are illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, the appeal of non-deposit investments, and other factors. The net increase in total deposits for the six months ended March 31, 2006 was $53.0 million, compared to a $30.6 million decrease during the same period last year. In 2006, certificates increased $117.2 million, while transaction, savings and money market accounts decreased by $64.2 million. The Company monitors its liquidity position on a daily basis. We generally remain fully invested and utilize additional sources of funds through Federal Home Loan Bank of New York advances and repurchase agreements, of which $533.3 million was outstanding at March 31, 2006. At March 31, 2006 we had the ability to borrow an additional $124.8 million under our credit facilities with the Federal Home Loan Bank. The Bank may borrow an additional $473.6 by pledging securities not required to be pledged for other purposes as of March 31, 2006. At March 31, 2006, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $191.8 million, or 7.4% of adjusted assets (which is above the required level of $103.2 million, or 4.0%, minimum requirement) and a total risk-based capital level of $211.9 million, or 11.9% of risk-weighted assets (which is above the required level of $142.2 million, or 8.0%). Regulations require leverage and total risk-based capital ratios of 5.0% and 10.0%, respectively, in order to be classified as well-capitalized. In performing this calculation, the intangible assets recorded as a result of acquisitions are deducted from capital and from total adjusted assets for purposes of regulatory capital measures. At March 31, 2006, the Bank exceeded all capital requirements for the well-capitalized classification. These capital requirements, which are applicable to the Bank only, do not consider additional capital retained at the holding company level. 33 The following table sets forth the Bank's regulatory capital position at March 31, 2006 and September 30, 2005, compared to OTS requirements.
OTS Requirements Minimum Capital For Classification as Bank Actual Adequacy Well Capitalized ----------- -------- ---------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in thousands) March 31, 2006 - -------------- Tangible Capital $191,775 7.4% $ 38,699 1.5% $ -- --% Tier 1 (core) capital 191,775 7.4 103,197 4.0 128,996 5.0 Risk-based capital: Tier 1 191,775 10.8 -- -- 106,677 6.0 Total 211,868 11.9 142,236 8.0 177,795 10.0 September 30, 2005 - ------------------ Tangible Capital $198,828 8.2% $ 36,389 1.5% -- --% Tier 1 (core) capital 198,828 8.2 97,038 4.0 121,298 5.0 Risk-based capital: Tier 1 198,828 11.7 -- -- 102,223 6.0 Total 220,122 12.9 136,298 8.0 170,373 10.0
Recent Accounting Standards In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB Statement No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effects of the method used on reported results. The provisions of this statement did not have a material impact on the consolidated financial statements. In December 2004, the FASB Issued SFAS No. 123R ("SFAS" No. 123R), "Share-Based Payments", the provisions of which became effective for the Company beginning in fiscal 2006. This Statement eliminates the alternative to use APB No. 25's intrinsic value method of accounting that was provided in Statement No. 123 as originally issued. SFAS No. 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. While the fair-value-based method prescribed by Statement No. 123R is similar to the fair-value-based method disclosed under the provisions of Statement No. 123 in most respects, there are some differences. The effects of SFAS No. 123R for the six months ending March 31, 2006 were a $591,000 charge to pretax income and a $383,000 reduction of net income. Effective March 31, 2004 Emerging Issues Task Force Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1") was issued. EITF 03-1 provides guidance for determining the meaning of "other-than-temporarily impaired" and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt 34 and Equity Securities" ("SFAS 115") and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates ("other than temporary impairment") must be recorded for as are loans under the AICPA's Statement of Position 03-3 ("SOP 03-3") on purchased loans, which provides guidance on the treatment of potential credit losses (unrecoverable principle) and decreased, or lower then expected yields. There were no additional securities considered impaired during the six months ended March 31, 2006. In May 2005, the FASB Issued Statement of Financial Accounting Standards No. 154 ("SFAS 154"), "Accounting Changes and Error Corrections,' replacing APB Opinion No. 20 and FASB Statement No.3, which changes the treatment and reporting requirements for both accounting errors and changes of accounting principles, and provides guidance on determining the treatment of the retrospective application of a change. This Statement applies to all voluntary changes in accounting principles. At this time management believes this statement will have no impact on the reporting of our operations or financial condition. In December 2003, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. The SOP applies to loans acquired in business combinations but does not apply to loans originated by the Company. Management does not believe the provision of this standard will have a material impact on the results of future operations. In March 2006, the FASB issued Statement No. 156, "Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140" ("SFAS 156"). SFAS 156 amends FASB Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-a replacement of FASB Statement No. 125" ("SFAS 140"). SFAS 156 permits entities to subsequently measure servicing rights at fair value and report changes in fair value in earnings rather than amortize servicing rights in proportion to and over the estimated net servicing income or loss and assets the rights for impairment or the need for an increased obligation as required under SFAS 140. Entities that elect to subsequently measure their servicing rights at fair value may no longer find it necessary to qualify for and apply the provisions of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," to achieve an income statement effect similar to the application of hedge accounting for instruments used to manage the effect of interest rate changes on servicing rights. SFAS 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. Earlier adoption of the Statement is permitted as of the beginning of an entity's fiscal year, provided the entity has not yet issued financial statements for any interim period of that fiscal year. Management does not expect the adoption to have a material impact on the Company's financial condition, results of operations or cash flows. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's most significant form of market risk is interest rate risk, as the majority of its assets and liabilities are sensitive to changes in interest rates. The Bank's interest rates risk profile has become more "liability" sensitive since September 30, 2005. Quantitative and qualitative disclosure about market risk is presented at September 30, 2005 in Item 7A of the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 12, 2005. The following is an update of the discussion provided therein. The table below sets forth, as of March 31, 2006, the estimated changes in our net portfolio value and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. 35
NPV Net Interest Income ----------------------------------------------------- -------------------------------------------------- Estimated Increase (Decrease) in Change in Estimated Increase (Decrease) in NPV Estimated Net Interest Income Interest Rates Estimated -------------------------------------- Net Interest --------------------------------- (basis points) NPV Amount Percent Income Amount Percent - --------------- ------------- ---------------- -------------------- --------------- --------------- ---------------- (Dollars in thousands) +300 $231,663 $(119,803) (34.09)% $77,548 $(10,837) (12.26)% +200 270,161 (81,304) (23.13)% 81,251 (7,134) (8.07)% +100 311,158 (40,307) (11.47)% 84,941 (3,444) (3.90)% 0 351,465 -- -- 88,385 -- -- -100 378,124 26,659 7.59% 89,886 1,501 1.70% -200 392,054 40,589 11.55% 89,590 1,205 1.36%
The table set forth above indicates that at March 31, 2006, in the event of an immediate 100 basis point decrease in interest rates, we would be expected to experience a 7.59% increase in Net Portfolio Value (NPV) and a 1.70% increase in net interest income. In the event of an immediate 200 basis point increase in interest rates, we would be expected to experience a 23.13% decrease in NPV and an 8.07% decrease in net interest income. Since September 30, 2005 the Bank's liabilities have moved from an average duration of 2.06 years to 1.46 years as of March 31, 2006. This is primarily a result of a shortening in average duration of its borrowings, which has decreased from 1.79 years of September 30, 2005 to 0.62 years as of March 31, 2006. The Company has chosen to shorten the duration of its borrowings. Management believes that general market interest rates levels are nearing a peak as the Federal Reserve Board will end its cycle of Federal Funds Rate increases. Further, savings accounts, which have a longer duration than money market accounts or certificates of deposit, declined $46 million while certificates of deposit increased $113 million. This shift in the interest rate sensitivity of the Bank's liabilities, without a commensurate decrease in the duration of assets, has caused the Bank to become "liability sensitive". The yield curve remains relatively "flat" with the federal funds rates having risen from 3.75% to 4.75% during the six-month period ending March 31, 2006 and the ten year treasury having risen just over 50 basis points during the period. As a result of this the Bank's average cost of interest bearing liabilities has increased faster than the average increase in asset yields, resulting in a compression of the Bank's net interest margin. Should the yield curve remain "flat", a continued decline in net interest margin may occur until a sufficient amount of shorter term assets reprice to reflect current market yields. This could offset a portion of gains in net interest income arising from increasing the volume of assets generated. Conversely, should market interest rates fall below today's level, the Company's net interest margin could also be negatively affected, as competitive pressures could keep the Bank from lowering rates on its deposits, and prepayments and curtailments on assets may be reinvested at lower than current rates. Such movements may cause a decrease in the interest rate spread and net interest margin. The Company's largest component of market risk continues to be interest rate risk. The Company is not subject to foreign currency exchange or commodity price risk. At March 31, 2006, neither the Company nor the Bank owned any trading assets, nor did they utilize hedging transactions such as interest rate swaps and caps. The Bank continues to monitor the impact of interest rate volatility upon net interest income and net portfolio value in the same manner as at September 30, 2005. There have been no changes in the board approved limits of acceptable variances in net interest income and net portfolio value change through March 31, 2006 compared to September 30, 2005, and the impact of possible changes within the Company's models continues to fall within all board approved limits for potential interest rate volatility. Item 4. Controls and Procedures The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) (the "Exchange Act") as of the end of the period covered by this report. Based upon that evaluation, the Company's management, including the Chief Executive Officer and Chief 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 36 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 has materially affected, or is 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 other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, management believes to be material to the consolidated financial condition and operations of the Company. Item 1A. Risk Factors Not applicable. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) - (d) Not applicable. (e) Issuer Purchases of Equity Securities -------------------------------------
Total Number of Maximum Number (or Shares (or Units) Approximate Dollar Total Number Average Purchased as Part Value) of Shares (or of Shares (or Price Paid of Publicly Units) that may yet be Units) per Share Announced Plans Purchased Under the Period (2006) Purchased (1) (or Unit) or Programs (2) Plans or Programs (2) ------------- --------- --------------- --------------------- Jan. 1 - Jan. 31 117,027 $11.29 95,100 739,129 Feb. 1 - Feb. 28 361,900 11.32 361,900 2,477,229 Mar. 1 - Mar 31 184,400 12.15 184,400 2,292,829 ------- ------ ------- Total 663,327 $11.54 641,400 ======= ====== =======
The total number of shares purchased during the periods indicated includes shares deemed to have been received from employees who exercised stock options (14,727) by submitting previously acquired shares of common stock in satisfaction of the exercise price, as is permitted under the Company's stock benefit plans and shares repurchased as part of a previously authorized repurchase program. It also includes restricted shares forfeited during the period (7,200) which, under the terms of the plan, have been purchased by the issuer. (2) The Company announced in February 2006 that it authorized the repurchase of 2,100,000 shares, or approximately 5% of common shares currently outstanding, having neared the completion of its second repurchase program of 2,200,000 shares. 37 Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders On February 16, 2006, the Company held its annual meeting of stockholders for the purpose of the election of five Directors to three year terms and the ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending September 30, 2006. The number of votes cast at the meeting as to each matter acted upon was as follows: 1. ELECTION OF DIRECTORS: VOTES FOR % VOTES WITHHELD % Judith Hershaft 37,120,464 98.7 485,567 1.3 Thomas F. Jauntig, Jr. 37,128,637 98.7 477,394 1.3 Thomas G. Kahn 36,984,195 98.3 621,836 1.7 Richard A. Nozell 37,109,900 98.7 496,131 1.3 Carl J. Rosenstock 37,041,440 98.5 564,591 1.5 2. The ratification of the appointment of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending September 30, 2006. FOR % AGAINST % ABSTAIN % 36,973,361 98.3 479,655 1.3 153,015 0.4 Item 5. Other Information None Item 6. Exhibits Exhibit Number Description -------------- ----------- 10.1 Form of Amendment to Deferred Compensation Agreement 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief 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 38 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Provident New York Bancorp (Registrant) By: /s/ George Strayton George Strayton President and Chief Executive Officer Date: May 8, 2006 By: /s/ Paul A. Maisch Paul A. Maisch Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 8, 2006 39 EX-10.1 2 ex10-1.txt EXHIBIT 10.1 Form of Amendment to Deferred Compensation Agreement 40 AMENDMENT NUMBER ONE TO DEFERRED COMPENSATION AGREEMENT This Amendment Number One (the "Amendment") is hereby made to the Deferred Compensation Agreement dated ________ (the "Agreement") between Provident Bank, a savings association having its principal offices at 400 Rella Boulevard, Montebello, New York 10901 (the "Bank") and ___________________. (the "Director"). WHEREAS, Section 5.1(a) of the Agreement provides that the Bank and the Director may, by a written instrument signed by both parties, amend the Agreement at any time, except that no amendment may accelerate distributions of the Director's Deferral Account (as defined in the Agreement); and WHEREAS, the parties desire to amend the Agreement in order to provide that amounts deemed invested in common stock of Provident New York Bancorp (the "Company") shall remain invested in such stock and shall be distributed in the form of stock unless a change in control (as defined in the Agreement) occurs; NOW THEREFORE, in consideration of the mutual covenants and obligations set forth in this Amendment, the Bank and the Director hereby agree as follows: 1. A new section 3.3(g) is hereby added as follows: (g) Notwithstanding any provision of this Agreement to the contrary, the following provisions shall apply with respect to deemed investments in Company Stock. (1) As of March 31, 2006, amounts deemed invested in Company stock in accordance with the Director's investment recommendations shall continue to be deemed invested in Company stock until such amount is distributed, unless, within 60 days after the effective date of a Change in Control of the Bank, the Director requests that all or a portion of his Deferral Account balance be reinvested in a deemed investment other than Company Stock. (2) Any amounts deferred on or after March 31, 2006 that are deemed to be invested in Company stock in accordance with the Director's recommendations shall continue to be deemed invested in Company stock until such amounts are distributed, unless, within 60 days after the effective date of a Change in Control of the Bank, the Director requests that all or a portion of his Deferral Account balance be reinvested in a deemed investment other than Company Stock. (3) Effective March 31, 2006, all amounts deemed invested in Company stock shall be distributed solely in the form of Company stock, unless, within 60 days after the effective date of a Change in Control of the Bank, the Director requested that all or a portion of his Deferral Account balance be reinvested in a deemed investment other than Company Stock, in which case the distribution of that amount shall be made in cash. 2. A new section 4.1(c) is hereby added as follows: 41 (c) Distribution in Company Stock. Notwithstanding any -------------------------------- provision of this Agreement to the contrary, effective March 31, 2006, all amounts deemed invested in Company stock shall be distributed solely in the form of Company stock, unless, within 60 days after the effective date of a Change in Control of the Bank, the Director requested that all or a portion of his Deferral Account balance be reinvested in a deemed investment other than Company Stock, in which case the distribution of that amount shall be made in cash. 3. Section 4.2 is hereby amended as follows: 4.2 Death Prior to Complete Distribution of Deferral Account. --------------------------------------------------------- Upon the death of the Director prior to the commencement of the distribution of the amounts credited to his Deferral Account, the balance of such Account shall be distributed to his Beneficiary in the manner set forth under Section 4.1 hereof beginning on the first day of the first calendar quarter coincident with or next following the date the Director dies. In the event of the death of the Director after the commencement of such distribution, but prior to the complete distribution of his Deferral Account, the balance of the amounts credited to his Deferral Account shall be distributed to his Beneficiary over the remaining period during which such amounts were distributable to the Director under Section 4.1 hereof. Notwithstanding the above, the Board of Directors, in its sole discretion, may accelerate the distribution of the Deferral Account upon the Beneficiary's petition for acceleration based upon his incurring a Hardship, in accordance with Section 4.5. Notwithstanding any provision of this Agreement to the contrary, effective March 31, 2006, all amounts deemed invested in Company stock shall be distributed solely in the form of Company stock, unless, within 60 days after the effective date of a Change in Control of the Bank, the Director requested that all or a portion of his Deferral Account balance be reinvested in a deemed investment other than Company Stock, in which case the distribution of that amount shall be made in cash. 4. Section 4.3 is hereby amended as follows: 4.3 Accelerated Distribution Following a Change in Control. -------------------------------------------------------- Notwithstanding any other provision of this Agreement, upon the written request of the Director within sixty (60) days after a Change in Control, the Director shall be paid a cash lump sum distribution of the Director's vested Deferral Account balance. The amount payable shall be the fair market value of the Deferral Account balance on the date of distribution. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PROVIDENT BANK By: ------------------------------------------- Name: -------------------------------------- Title: -------------------------------------- DIRECTOR ----------------------------------------------- 42 EX-31.1 3 ex31-1.txt Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, George Strayton, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Provident New York Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 8, 2006 /s/ George Strayton ------------------- George Strayton President and Chief Executive Officer 43 EX-31.2 4 ex31-2.txt Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Paul A. Maisch, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Provident New York Bancorp; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 8, 2006 /s/ Paul A. Maisch ------------------ Paul A. Maisch Executive Vice President and Chief Financial Officer 44 EX-32.1 5 ex32-1.txt Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 George Strayton, Chief Executive Officer and Paul A. Maisch, Chief Financial Officer of Provident New York Bancorp (the "Company") each certify in his capacity as an officer of the Company that he has reviewed the quarterly report on Form 10-Q for the quarter ended March 31, 2006 and that to the best of his knowledge: (1) the report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 8, 2006 /s/ George Strayton ------------------- George Strayton Chief Executive Officer Date: May 8, 2006 /s/ Paul A. Maisch ------------------ Paul A. Maisch Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Provident New York Bancorp and will be retained by Provident New York Bancorp and furnished to the Securities and Exchange Commission or its staff upon request. 45 -----END PRIVACY-ENHANCED MESSAGE-----