10-Q

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, 2010

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE

 SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to __________

Commission File Number: 0-25233           

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)

Delaware	80-0091851
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer ID No.)

400 Rella Boulevard, Montebello, New York	10901
(Address of Principal Executive Office)	(Zip Code)

	(845) 369-8040
(Registrant’s Telephone Number including area code)

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

Yes x  No o

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

Yes o  No o

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     o     Accelerated Filer     x     Non-Accelerated Filer     o     Smaller Reporting Company     o

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

Yes o  No  x

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

Classes of Common Stock	Shares Outstanding as of  May 3 , 2010
$0.01 per share	38,861,477

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PERIOD ENDED MARCH 31, 2010

	PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition (unaudited) at March 31, 2010 and September 30, 2009	3
	Consolidated Statements of Income (unaudited) for the Three Months Ended and Six Months Ended March 31, 2010 and March 31, 2009	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Six Months Ended March 31, 2010	5
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2010 and 2009	6
	Consolidated Statements of Comprehensive Income (loss) (unaudited) for the Three Months Ended and Six Months Ended March 31, 2010 and 2009	8
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	37
	PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1.A.	Risk Factors	38
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Submission of Matters to a Vote of Security Holders	38
Item 5.	Other Information	39
Item 6.	Exhibits	39
	Signatures	40

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(In thousands, except share data)

	March 31,			September 30,
	2010			2009
ASSETS
Cash and due from banks	$	37,831		$	160,408
Securities (note 7)
Available for sale (including $480,608 and $521,228 pledged as collateral for borrowings and deposits at March 31, 2010 and September 30, 2009 respectively)		888,994			832,583
Held to maturity, at amortized cost (fair value of $44,784 and $45,739 at March 31, 2010 and September 30, 2009, respectively)		43,675			44,614
Total securities		932,669			877,197
Loans held for sale		2,566			1,213
Loans (notes 4 and 5):
One to four family residential mortgage loans		432,847			460,728
Commercial real estate and commercial business		777,400			789,396
Acquisition, development and construction		213,321			201,611
Consumer loans		243,860			251,522
Gross loans		1,667,428			1,703,257
Allowance for loan losses		(30,444	)		(30,050	)
Total loans, net		1,636,984			1,673,207
Federal Home Loan Bank (“FHLB”) stock, at cost		22,765			23,177
Accrued interest receivable		11,034			10,472
Premises and equipment, net		42,446			40,692
Goodwill		160,861			160,861
Core deposit and other intangible assets		4,524			5,489
Bank owned life insurance		49,945			49,611
Other assets		34,331			19,566
Total assets	$	2,935,956		$	3,021,893
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits (note 8)	$	2,006,953		$	2,082,282
FHLB borrowings (including repurchase agreements of $222,500 and $230,000 at March 31, 2010 and September 30, 2009, respectively) (note 9)		421,306			430,628
Borrowings senior debt (FDIC insured) (note 9)		51,495			51,494
Mortgage escrow funds		13,405			8,405
Other liabilities		20,425			21,628
Total liabilities		2,513,584			2,594,437
STOCKHOLDERS’ EQUITY :
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)		—			—
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 38,861,477 and 39,547,207 shares outstanding at March 31, 2010 and September 30, 2009, respectively)		459			459
Additional paid-in capital		356,608			355,753
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(6,887	)		(7,136	)
Treasury stock, at cost (7,068,075 and 6,382,345 shares at March 31, 2010 and September 30, 2009, respectively)		(82,127	)		(77,290	)
Retained earnings		156,925			153,193
Accumulated other comprehensive income (loss), net of taxes		(2,606	)		2,477
Total stockholders’ equity		422,372			427,456
Total liabilities and stockholders’ equity	$	2,935,956		$	3,021,893

See accompanying notes to unaudited consolidated financial statements

3

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except share data)

	For the Three Months					For the Six Months
	Ended March 31,					Ended March 31,
	2010			2009		2010			2009
Interest and dividend income:
Loans	$	22,655		$	23,859	$	46,055		$	49,686
Taxable securities		4,724			7,533		9,476			15,426
Non-taxable securities		1,901			1,910		3,796			3,764
Other earning assets		347			284		718			581
Total interest and dividend income		29,627			33,586		60,045			69,457
Interest expense:
Deposits		2,201			5,274		4,991			11,081
Borrowings		4,492			4,677		9,234			9,695
Total interest expense		6,693			9,951		14,225			20,776
Net interest income		22,934			23,635		45,820			48,681
Provision for loan losses ( note 5)		2,500			7,100		5,000			9,600
Net interest income after provision for loan losses		20,434			16,535		40,820			39,081
Non-interest income:
Deposit fees and service charges		2,744			3,035		5,737			6,173
Net gain on sale of securities		1,884			6,093		4,272			6,424
Title insurance fees		237			201		548			413
Bank owned life insurance		496			492		1,050			1,005
Gain (loss) on sale of premises and equipment		(10	)		—		(54	)		517
Gain on sale of loans		117			290		400			296
Investment management fees		776			599		1,555			1,207
Fair value loss on interest rate cap		(616	)		—		(236	)		—
Other		485			413		934			859
Total non-interest income		6,113			11,123		14,206			16,894
Non-interest expense:
Compensation and employee benefits (note 13)		10,824			9,857		21,088			19,568
Stock-based compensation plans		581			825		1,033			1,682
Occupancy and office operations		3,537			3,218		6,863			6,297
Advertising and promotion		794			1,024		1,536			1,850
Professional fees		914			876		1,748			1,582
Data and check processing		577			598		1,127			1,163
Amortization of intangible assets		472			557		965			1,141
FDIC insurance and regulatory assessments		931			769		1,715			1,200
ATM/debit card expense		536			470		1,090			988
Other		2,007			1,882		3,902			3,840
Total non-interest expense		21,173			20,076		41,067			39,311
Income before income tax expense		5,374			7,582		13,959			16,664
Income tax expense		1,207			2,038		3,626			4,829
Net Income	$	4,167		$	5,544	$	10,333		$	11,835
Weighted average common shares:
Basic		38,188,191			38,627,212		38,384,180			38,605,156
Diluted		38,237,431			38,811,114		38,402,841			38,813,879
Per common share (note 11)
Basic	$	0.11		$	0.14	$	0.27		$	0.30
Diluted	$	0.11		$	0.14	$	0.27		$	0.30

See accompanying notes to unaudited consolidated financial statements

4

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(In thousands, except share data)

																		Accumulated
	Number					Additional			Unallocated									Other			Total
	of			Common		Paid-In			ESOP			Treasury			Retained			Comprehensive			Stockholders’
	Shares			Stock		Capital			Shares			Stock			Earnings			Income (Loss)			Equity
Balance at September 30, 2009		39,547,207		$	459	$	355,753		$	(7,136	)	$	(77,290	)	$	153,193		$	2,477		$	427,456
Net income		—			—		—			—			—			10,333			—			10,333
Other comprehensive income		—			—		—			—			—			—			(5,083	)		(5,083	)
Total comprehensive income																						5,250
Deferred compensation transactions		—			—		42			—			—			—			—			42
Stock option transactions, net		249,953			—		4			—			3,016			(2,035	)		—			985
ESOP shares allocated or committed to be released for allocation ( 24,966 shares)		—			—		(35	)		249			—			—			—			214
Vesting of RRP Awards		—			—		844			—			—			—			—			844
Other RRP transactions		(16,760	)		—		—			—			(159	)		—			—			(159	)
Purchase of treasury shares		(918,923	)		—		—			—			(7,694	)		—			—			(7,694	)
Cash dividends paid ($0.12 per common share)		—			—		—			—			—			(4,566	)		—			(4,566	)
Balance at March 31, 2010		38,861,477		$	459	$	356,608		$	(6,887	)	$	(82,127	)	$	156,925		$	(2,606	)	$	422,372

5

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Six Months
	Ended March 31,
	2010			2009
Cash flows from operating activities:
Net income	$	10,333		$	11,835
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		5,000			9,600
Write down of other real estate owned		7			—
Depreciation and amortization of premises and equipment		2,532			2,372
Amortization of intangibles		965			1,141
Net gain on sales of loans held for sale		(400	)		(296	)
Net realized gain on sale of securities available for sale		(4,272	)		(6,424	)
Fair value loss on interest rate cap		236			—
(Gain) loss on sales of fixed assets		54			(517	)
Net amortization of premium on securities		2,108			148
Amortization of premiums on borrowings		(165	)		(230	)
ESOP and RRP expense		1,032			1,093
ESOP forfeitures		(2	)		(4	)
Stock option compensation expense		4			593
Originations of loans held for sale		(23,934	)		(16,661	)
Proceeds from sales of loans held for sale		22,581			13,228
Increase in cash surrender value of bank owned life insurance		(334	)		(1,004	)
Deferred income tax (expense)		(7,261	)		(4,067	)
Net changes in accrued interest receivable and payable		(1,241	)		164
Other adjustments (principally net changes in other assets and other liabilities)		(2,666	)		(736	)
Net  cash provided by operating activities		4,577			10,235
Cash flows from investing activities
Purchases of available for sale securities		(425,529	)		(216,669	)
Purchases of held to maturity securities		(15,619	)		(14,756	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		130,954			85,199
Held to maturity		16,547			7,119
Proceeds from sales of securities available for sale and held to maturity		231,019			205,087
Loan originations		(197,708	)		(225,675	)
Loan principal payments		229,331			215,457
Purchase of interest rate derivative		(1,368	)		—
Redemption of FHLB stock, net		412			5,268
Purchases of premises and equipment		(4,388	)		(3,616	)
Proceeds from the sale of premises		48			718
Net cash (used) in / provided by investing activities		(36,301	)		58,132

6

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Six Months
	Ended March 31,
	2010			2009
Cash flows from financing activities
Net decrease in transaction, savings and money market deposits		(62,116	)		(122,600	)
Net (decrease) increase in time deposits		(13,213	)		142,169
Net decrease in short-term borrowings		(7,100	)		(145,154	)
Net increase in senior debt borrowings		—			51,493
Gross repayments of long-term borrowings		(2,056	)		(1,978	)
Gross proceeds from long-term borrowings		—			20,000
Net increase in mortgage escrow funds		5,000			5,452
Treasury shares purchased		(7,694	)		(129	)
Stock option transactions		850			315
Other stock-based compensation transactions		42			55
Cash dividends paid		(4,566	)		(4,610	)
Net cash used in financing activities		(90,853	)		(54,987	)
Net (decrease) increase in cash and cash equivalents		(122,577	)		13,380
Cash and cash equivalents at beginning of period		160,408			125,810
Cash and cash equivalents at end of period	$	37,831		$	139,190
Supplemental information:
Interest payments	$	15,899		$	20,939
Income tax payments		4,810			6,850
Net change in net unrealized gains recorded on securities available for sale		(9,320	)		21,652
Change in deferred taxes on net unrealized gains on securities available for sale		3,782			(8,783	)
Real estate acquired in settlement of loans		143			1,774

See accompanying notes to unaudited consolidated financial statements

7

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (unaudited)

(In thousands, except share data)

	For the Three Months				For the Six Months
	Ended March 31,				Ended March 31,
	2010		2009		2010			2009
Net Income:	$	4,167	$	5,544	$	10,333		$	11,835
Other Comprehensive income :
Net unrealized holding gains (losses) on securities available for sale net of related tax expense (benefit)  of $1,878, $2,200, ($2,050) and $11,387		2,744		4,002		(2,998	)		16,689
Less:
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $763, $2,470, $1,733 and $2,604		1,121		3,623		2,539			3,820
		1,623		379		(5,537	)		12,869
Change in funded status of defined benefit plans, net of related income tax expense of $147, $78, $301 and $156		230		116		454			231
		1,853		495		(5,083	)		13,100
Total Comprehensive Income	$	6,020	$	6,039	$	5,250		$	24,935

8

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

1.   Basis of Presentation

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

The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and for letters of credit, on behalf of customers, which all are in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50.0 million during the first quarter of fiscal 2010.    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 six months ended March 31, 2010 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2010.  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, 2009.

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 loss (see note 5), which reflects the application of a critical accounting policy.

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

2.   Recent  Accounting Standards, Not Yet Adopted

Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (Topic 860)-Accounting for Transfers of Financial Assets has been issued.  ASU 2009-16 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets.  This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s financial statements.

ASC 2009-17, Consolidations (Topic 810)-Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities has been issued. ASU 2009-17 changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This standard is effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s financial statements.

ASC 2010-06, Fair Value Measurements and Disclosures (Topic 820):Improving Disclosures about Fair Value Measurements has been issued.  ASU 2010-06 requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. This standard is generally effective for the Company October 1, 2010 and is not expected to have a material effect on the Company’s financial statements.

9

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

3.   Critical Accounting Policies

The accounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry.  Accounting policies considered critical to the Company’s financial results include calculating the allowance for loan losses, accounting for goodwill and the recognition of interest income.  The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary.  Application of assumpt ions different than those used by management could result in material changes in the Company’sfinancial position or results of operations.  Accounting for goodwill is considered to be a critical policy because goodwill must be tested for impairment at least annually using a “two-step” approach that involves the identification of reporting units and the estimation of fair values.  The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions utilized.  Interest income on loans, securities and other interest-earning assets is accrued monthly unless management considers the collection of interest to be doubtful. In accounting for the recognition of interest income, a loan is placed on non-accrual status when management has determined that the borrower is unlikely to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection.  Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income, if such unpaid interest relates to the current year. Prior years’ non-accrual interest is charged to the allowance for loan losses. Interest payments received on non-accrual loans, including impaired loans, are not recognized as income unless warranted based on the borrower’s financial condition and payment record.  Footnote 1 (Summary of Significant Accounting Policies) of the Annual Report on Form 10-K for the year ended September 30, 2009 provides additional detail regarding the Company’s accounting policies.

4.   Loans

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

	March 31, 2010		September 30, 2009
Real estate - residential mortgage	$	432,847	$	460,728
Real estate - commercial mortgage		542,580		546,767
Acquisition, development & construction loans		213,321		201,611
Commercial business loans		234,820		242,629
Consumer loans		243,860		251,522
Total	$	1,667,428	$	1,703,257

5.   Allowance for Loan Losses and Non-Performing Assets

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

10

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

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

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Balance at beginning of period	$	29,967		$	23,645		$	30,050		$	23,101
Charge-offs		(2,447	)		(4,848	)		(5,224	)		(6,852	)
Recoveries		424			540			618			588
Net charge-offs		(2,023	)		(4,308	)		(4,606	)		(6,264	)
Provision for loan losses		2,500			7,100			5,000			9,600
Balance at end of period	$	30,444		$	26,437		$	30,444		$	26,437
Net charge-offs to average loans outstanding (annualized)		0.48	%		0.99	%		0.55	%		0.72	%

The following table sets forth the amounts and categories of the Company’s non-performing assets at the dates indicated.  The Company  had  a total $797 and $674  troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) at March 31, 2010 and September 30, 2009, respectively.  There were $381 and $0 in troubled debt restructurings included in non performing loans at March 31, 2010 and September 30, 2009, respectively.

	March 31, 2010					September 30, 2009
	90 days past due		Non-			90 days past due		Non-
	Still accruing		Accrual			Still accruing		Accrual
Non-performing loans:
One- to four- family	$	2,716	$	4,589		$	2,932	$	4,425
Commercial real estate		2,750		4,891			977		5,826
Commercial business		—		1,350			—		457
Acquisition, development and construction loans		606		9,830			440		10,830
Consumer		392		550			211		371
Total non-performing loans	$	6,464	$	21,210		$	4,560	$	21,909
Real estate owned:
Land				1,496					1,504
One- to four-family				970					208
Total real estate owned				2,466					1,712
Troubled Debt Restructures not included in non-performing loans				416					674
Total non-performing assets			$	30,556				$	28,855
Ratios:
Non-performing loans to total loans				1.66	%				1.55	%
Non-performing assets to total assets				1.04	%				0.95	%
Allowance for loan losses to total non-performing loans				110	%				114	%
Allowance for loan losses to average loans				1.81	%				1.77	%

The Company’s recorded investment in impaired loans was $21,767 and $22,101 at March 31, 2010 and September 30, 2009, respectively.  The allowance for loan losses allocated to impaired loans was $3,076 and $2,349 at March 31, 2010 and September 30, 2009, respectively.  The Company does not have any impaired loans without allocations.  The provision for loan losses was $5,000 for the six month period ending March 31, 2010.Substandard assets (including loans) at March 31, 2010 were $98,332 compared to $89,874 at September 30, 2009, while special mention assets were $52,411 and $47,825, respectively.

11

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

 6. Fair value measurements

Effective October 1, 2008, the Company adopted provisions of FASB Codification Topic 820: Fair Value Measurements and Disclosure.  This topic establishes a hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.   The fair values hierarchy is as follows:

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

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

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

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

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

Investment securities available for sale

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

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

As of June 30, 2009, the Company adopted the provisions of FASB ASC Topic 820 “Fair Value Measurements and Disclosure.  As a result of adoption, the Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume.  Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities.  The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level.  Be cause of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3.  As of March 31, 2010 these five securities have an amortized cost of $10,130 and a fair value of  $9,358  and were transferred by the Company from Level 2 to Level 3 valuations at a fair value of $9,534 on April 1, 2009.  In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market.  Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of March 31, 2010. These securities have a weighted average coupon rate of 4.5%, a weighted average life of 5.4 years, a weighted average 1 month prepayment history of 12.7 years and a weighted average twelve month default rate of .9.  Two of the five securities are below investment grade and have an amortized cost of $5,738 and a fair value of $5,159 at March 31, 2010.  The remaining three securities are rated at or above Aa3.

12

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Derivatives

The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the period ending March 31, 2010:

	Privately
	issued
	CMOS
Balance at September 30, 2009	$	10,411
Pay downs		(1,022	)
(Amortization) and accretion		2
Total loss in other comprehensive income		(33	)
Balance at March 31, 2010	$	9,358

Commitments to sell real estate loans:

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

A summary of assets and liabilities at March 31, 2010 measured at estimated fair value on a recurring basis were as follows:

	Fair Value
	Measurements
	at
	March 31,
	2010		Level 1		Level 2		Level 3
Investment securities available for sale:
U.S. Treasury and federal agencies	$	301,548	$	301,548	$	—	$	—
Obligations of states and political subdivisions		180,252		—		180,252		—
Government issued or guaranteed mortgage-backed securities		364,642		—		364,642		—
Privately issued collateralized mortgage obligation		9,358		—		—		9,358
Corporate debt securities		32,330		—		32,330		—
Equities		864		—		864		—
Total investment securities available for sale		888,994		301,548		578,088		9,358
Other assets 1		1,155		—		1,155		—
Total assets	$	890,149	$	301,548	$	579,243	$	9,358
Other liabilities2	$	23	$	—	$	23	$	—
Total Liabilities	$	23	$	—	$	23	$	—

1 Interest rate caps and swaps

2 Swaps

13

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

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

Loans and Loans Held for Sale

These assets are not generally recorded at fair value on a recurring basis.  Loans held for sale are subject to a fair value adjustment only when the fair value of the loans is less than their cost basis. Loans held for sale have a fair value of $2,586 and are carried at $2,566.  There was no adjustment necessary to this category as of March 31, 2010.  The Company may record nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans.  Nonrecurring adjustments also include certain impairment amounts for collateral dependant loans calculated in accordance FASB ASC Topic  310 – Receivables, when establishing the allowance for credit losses.  Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan.  Real estate collateral is valued using independent appraisals or other indications of value based upon recent comparable sales of similar properties.  Any fair value adjustments for loans categorized here are classified as Level 2.  Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the market place and therefore such valuations have been classified as Level 3.  Loans subject to nonrecurring fair value measurements were $18,690 which equals the carrying value less the allowance for loan losses allocated to these loans at March 31, 2010, of which all have been classified as Level 2. Changes in fair value recognized on partial charge-offs on loans held by the Company for the six months ended March 31, 2010 were $1,122.

Mortgage servicing rights

The Company utilizes the amortization method to subsequently measure the carrying value of its servicing asset.  In accordance  with FASB ASC Topic 860-Transfers and Servicing, the Company must record impairment charges on a nonrecurring basis, when the carrying value exceeds the estimated fair value.  To estimate the fair value of servicing rights the Company utilizes a third party vendor, which considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights.  Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds.  The determination of fair value of servicing rights is considered a Level 3 valuation.  At March 31, 2010, $1,011 of mortgage servicing rights had a carrying value equal to their fair value.  Changes in fair value of mortgage servicing rights recognized for the six months ended in the fiscal year ended March 31, 2010 was an increase of $170.  A valuation allowance of  $62 is recorded at March 31, 2010 reflecting the lower of amortized cost or fair market value.

Assets taken in foreclosure of defaulted loans

Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset.  The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place, and the related nonrecurring fair value measurements adjustments have generally been classified as Level 2.  Assets taken in foreclosure of defaulted loans subject  to nonrecurring fair value measurement were $2,466 at March 31, 2010. There were no changes in fair value recognized for those foreclosed assets held by the Co mpany at March 31, 2010.

Fair values of financial instruments

FASB Codification Topic 825: Financial Instruments, requires disclosure of fair value information for those financial instruments for which it is practicable to estimate fair value, whether or not such financial instruments are recognized in the consolidated statements of financial condition for interim and annual periods. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.

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

14

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with FASB Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

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

	March 31						September 30
	2010						2009
	Carrying			Estimated			Carrying			Estimated
	amount			fair value			amount			fair value
Financial assets:
Cash and due from banks	$	37,831		$	37,831		$	160,408		$	160,408
Securities available for sale		888,994			888,994			832,583			832,583
Securities held to maturity		43,675			44,784			44,614			45,739
Loans		1,636,984			1,638,591			1,673,207			1,674,490
Loans held for sale		2,566			2,586			1,213			1,242
Accrued interest receivable		11,034			11,034			10,472			10,472
FHLB of New York stock		22,765			22,765			23,177			23,177
Derivatives - interest rate caps		1,132			1,132			—			—
Swaps		23			23			—			—
Financial liabilities:
Non-maturity deposits		(1,525,205	)		(1,525,205	)		(1,587,321	)		(1,587,321	)
Certificates of Deposit		(481,748	)		(484,091	)		(494,961	)		(498,105	)
FHLB and other borrowings		(472,801	)		(520,756	)		(482,122	)		(524,187	)
Mortgage escrow funds		(13,405	)		(13,403	)		(8,405	)		(8,405	)
Accrued interest payable		(2,566	)		(2,566	)		(3,246	)		(3,246	)
Swaps		(23	)		(23	)		—			—

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

(a)   Securities

The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, live trading levels, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other items.  For certain securities, for which the inputs used by independent pricing services were derived from unobservable market information, the Company evaluated the appropriateness of each price.  In accordance with adoption of FASB Codification Topic 820, the Company reviewed the volume and level of activity for its different classes of securities to determine whether transactions were not considered orderly.  For these securities, the quoted prices received from independent pricing services may be adjusted, as necessary, to estimate fair value in accordance with FASB Codification Topic 820.  If applicable, adjustments to fair value were based on averaging present value cash flow model projections with prices obtained from independent pricing services.

(b)   Loans

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

15

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

(c) FHLB of New York Stock

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

(d) Deposits and Mortgage Escrow Funds

In accordance with FASB Codification Topic 825, deposits with no stated maturity (such as savings, demand and money market deposits) were assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds were segregated by account type and original term, and fair values were estimated by discounting the contractual cash flows. The discount rate for each account grouping was equivalent to the current market rates for deposits of similar type and maturity.

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

(e) Borrowings

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

(f) Other Financial Instruments

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

The fair values of the Company’s off-balance-sheet financial instruments described in Note 15 (“Off Balance Sheet Financial Instruments”) were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At March 31, 2010 and September 30, 2009, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.

The estimated fair value of interest rate derivatives used for interest rate risk management represents the amount the Company would have expected to receive to terminate such agreements.

16

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

7. Securities

The following is a summary of securities available for sale at March 31, 2010 and September 30, 2009:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
March 31, 2010
Mortgage-backed securities- Residential
Mortgage-backed pass-through securities	$	310,847	$	3,294	$	(334	)	$	313,807
Collateralized mortgage obligations		60,426		539		(772	)		60,193
Total mortgage-backed securities		371,273		3,833		(1,106	)		374,000
Investment securities
U.S. Treasury Notes		85,903		155		(36	)		86,022
U.S. Government Federal Agency Securities		215,589		500		(563	)		215,526
State and municipal securities		177,097		3,840		(685	)		180,252
Corporate debt securities		31,292		1,038		—			32,330
Equities		1,146		—		(282	)		864
Total investment securities		511,027		5,533		(1,566	)		514,994
Total available for sale	$	882,300	$	9,366	$	(2,672	)	$	888,994
September 30, 2009
Mortgage-backed securities-Residential
Mortgage-backed pass-through securities	$	358,194	$	6,585	$	(281	)	$	364,498
Collateralized mortgage obligations		66,784		174		(941	)		66,017
Total mortgage-backed securities		424,978		6,759		(1,222	)		430,515
Investment securities
U.S. Treasury Notes		20,893		183		—			21,076
U.S. Government Federal Agency Securities		186,301		678		(279	)		186,700
State and municipal securities		158,007		9,591		(14	)		167,584
Corporate debt securities		25,245		579		(1	)		25,823
Equities		1,145		—		(260	)		885
Total investment securities		391,591		11,031		(554	)		402,068
Total available for sale	$	816,569	$	17,790	$	(1,776	)	$	832,583

The following is a summary of the amortized cost and fair value of investment securities available for sale (other than equity securities), by remaining period to contractual maturity. Actual maturities may differ because certain issuers have the right to call or prepay their obligations.

	March 31, 2010
	Amortized		Fair
	Cost		Value
Remaining period to contractual maturity
Less than one year	$	6,741	$	6,820
One to five years		286,495		288,666
Five to ten years		276,817		279,744
Greater than ten years		311,101		312,900
Total	$	881,154	$	888,130

17

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following is a summary of securities held to maturity at March 31, 2010 and September 30, 2009:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
March 31, 2010
Mortgage-backed securities-Residential
Mortgage-backed pass-through securities	$	4,863	$	224	$	—		$	5,087
Collateralized mortgage obligations		788		19		—			807
Total mortgage-backed securities		5,651		243		—			5,894
Investment securities
State and municipal securities		37,024		907		(78	)		37,853
Other investments		1,000		37		—			1,037
Total investment securities		38,024		944		(78	)		38,890
Total held to maturity	$	43,675	$	1,187	$	(78	)	$	44,784
September 30, 2009
Mortgage-backed securities-Residential
Mortgage-backed pass-through securities	$	5,547	$	192	$	—		$	5,739
Collateralized mortgage obligations		905		6		—			911
Total mortgage-backed securities		6,452		198		—			6,650
Investment securities
State and municipal securities		37,162		940		(47	)		38,055
Other investments		1,000		34		—			1,034
Total investment securities		38,162		974		(47	)		39,089
Total held to maturity	$	44,614	$	1,172	$	(47	)	$	45,739

The following is a summary of the amortized cost and fair value of investment securities held to maturity, by remaining period to contractual maturity. Actual maturities may differ because certain issuers have the right to call or prepay their obligations.

	March 31, 2010
	Amortized		Fair
	Cost		Value
Remaining period to contractual maturity
Less than one year	$	19,517	$	19,642
One to five years		11,149		11,625
Five to ten years		3,415		3,641
Greater than ten years		9,594		9,876
Total	$	43,675	$	44,784

Management does not believe that any individual unrealized loss as of March 31, 2010 included in the above tables  represents an other-than-temporary impairment as the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges.  As of March 31, 2010 the Company does not intend to sell nor is it  more likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.  At March 31, 2010 the accumulated unrealized net gain on securities available for sale, net of tax expense of $2,718 was $3,976. At September 30, 2009, the accumulated unrealized net gain on securities available for sale, net of tax expense of $6,50 3 was $9,511.

Proceeds from sales of securities available for sale during the six months ended March 31, 2010 and 2009 totaled $231,019 and $205,087, respectively. These sales resulted in realized gains of $4,408 and realized losses of $136 on available for sale securities for the six months ended March 31, 2010. The securities sold at a loss were part of a package of securities that had an overall gain associated with the sale.  Sales from the six months ended March 31, 2009 resulted in realized gains of $6,424 on available for sale securities.

18

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Securities, including held-to-maturity securities, with carrying amounts of $224,487 and $231,190 were pledged as collateral for borrowings and securities repurchase agreements at March 31, 2010 and September 30, 2009, respectively.   Securities with carrying amounts of $256,121 and $290,038 were pledged as collateral for municipal deposits and other purposes at March 31, 2010 and September 30, 2009, respectively.

The following tables summarize, for all securities in an unrealized loss position at March 31, 2010 and September 30, 2009, respectively, the aggregate fair value and gross unrealized loss by length of time those securities have continuously been in an unrealized loss position:

	Less than 12 months							12 months or longer							Total
	Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value
As of March 31, 2010
Available For Sale:
Mortgage-backed securities		$	(333	)		$	70,075		$	(1	)			27		$	(334	)		$	70,102
Collateralized mortgage obligations			—				—			(772	)			9,358			(772	)			9,358
U.S. Government agency securities			(424	)			89,226			(139	)			9,902			(563	)			99,128
U.S. Treasury notes			(36	)			25,498			—				—			(36	)			25,498
Municipal securities			(681	)			44,926			(4	)			277			(685	)			45,203
Corporate debt securities			—				—			—				—			—				—
Equity securities			—				—			(282	)			863			(282	)			863
Total available-for-sale:			(1,474	)			229,725			(1,198	)			20,427			(2,672	)			250,152
Held to Maturity:
State and municipal securities			(5	)			265			(73	)			992			(78	)			1,257
Total held to maturity:			(5	)			265			(73	)			992			(78	)			1,257
Total securities:		$	(1,479	)		$	229,990		$	(1,271	)		$	21,419		$	(2,750	)		$	251,409

19

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

	Less than 12 months							12 months or longer							Total
	Unrealized Losses				Fair Value			Unrealized Losses				Fair Value			Unrealized Losses				Fair Value
As of September 30, 2009
Available For Sale:
Mortgage-backed securities		$	(280	)		$	25,107		$	(1	)			45		$	(281	)		$	25,152
Collateralized mortgage obligations			(214	)			38,858			(727	)			9,606			(941	)			48,464
Corporate bonds			(1	)			2,185			—				—			(1	)			2,185
U.S. Government agency securities			(278	)			64,689			(1	)			42			(279	)			64,731
Municipal securities			(14	)			1,710			—				—			(14	)			1,710
Equity securities			—				—			(260	)			885			(260	)			885
Total available-for-sale:			(787	)			132,549			(989	)			10,578			(1,776	)			143,127
Held to Maturity:
State and municipal securities			(47	)			1,019			0				—			(47	)			1,019
Total held to maturity:			(47	)			1,019			0				0			(47	)			1,019
Total securities:		$	(834	)		$	133,568		$	(989	)		$	10,578		$	(1,823	)		$	144,146

The Company, as of June 30, 2009 adopted the provisions under FASB ASC Topic 320 – Investments- Debt and Equity Securities which requires a forecast of recovery of cost basis through cash flow collection on all debt securities with a fair value less than its amortized cost less any current period credit loss with an assertion on the lack of intent to sell (or be required to sell prior to recovery of cost basis).

Based on a review of each of the securities in the investment portfolio in accordance with FASB ASC 320 at March 31, 2010, the Company concluded that it expects to recover the amortized cost basis of its investments and therefore there were no impairment charges.  As of March 31, 2010 the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period credit loss.

Substantially all of the unrealized losses at March 31, 2010 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, 2010.  A total of 111 securities were in a continuous unrealized loss position for less than 12 months, and 23 securities for 12 months or longer.  For fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.

Within the collateralized mortgage-backed securities (CMO’s) category of the available for sale portfolio there are five individual private label CMO’s that have an amortized cost of $10,130 and a fair value (carrying value) of $9,358 as March 31, 2010.  These securities were all performing as of March 31, 2010 and are expected to perform based on current information.  In determining whether there existed other than temporary impairment on these securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no losses are expected.  The Company will continue to evaluate its portfolio in this manner on a quarterly basis.

The Company does not own any preferred stock of Federal National Mortgage Association or Federal Home Loan Mortgage Corporation.  The Company owned 120 shares of Federal National Mortgage Association common stock as of March 31, 2010.

20

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

8. Deposits

Major classifications of deposits are summarized below:

	March 31,		September 30,
	2010		2009
Demand Deposits
Retail	$	164,515	$	169,122
Business		246,624		236,516
Municipal		15,743		86,596
NOW Deposits
Retail		133,922		127,595
Business		32,507		36,972
Municipal		102,603		188,074
Total transaction accounts		695,914		844,875
Savings		383,941		357,814
Money market		445,350		384,632
Certificates of deposit		481,748		494,961
Total deposits	$	2,006,953	$	2,082,282

Municipal deposits of $360,341 and $470,170 were included in total deposits at March 31, 2010 and September 30, 2009, respectively.  Certificates of deposit include $59,580 and $20,578 (including certificates of deposit account registers service (CDAR’s) reciprocal CDs of $6,214 and $10,558) in brokered deposits at March 31, 2010 and September 30, 2009, respectively.

9.     Borrowings

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

	March 31, 2010					September 30, 2009
	Amount		Rate			Amount		Rate
By type of borrowing:
FHLB advances	$	198,806		3.72	%	$	200,628		4.16	%
FHLB Repurchase agreements		222,500		3.98	%		230,000		3.95	%
Senior Debt (FDIC insured)		51,495		2.74	%		51,494		2.74	%
Total borrowings	$	472,801		3.74	%	$	482,122		3.91	%
By remaining period to maturity:
Less than one year	$	85,332		3.15	%	$	62,677		4.09	%
One to two years		88,995		3.14	%		44,921		3.79	%
Two to three years		24,626		3.97	%		73,994		3.14	%
Three to four years		30,208		4.12	%		31,639		3.98	%
Four to five years		20,000		2.96	%		25,159		4.14	%
Greater than five years		223,640		4.19	%		243,732		4.09	%
Total borrowings	$	472,801		3.74	%	$	482,122		3.91	%

As a member of the FHLB of New York, the Bank may borrow in the form of term and overnight borrowings up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of March 31, 2010 and September 30, 2009, the Bank had pledged mortgages totaling $372,672 and $350,538 respectively.  The Bank had also pledged securities with carrying amounts of $224,487 and $231,190 as of March 31, 2010 and September 30, 2009, respectively, to secure borrowings.  The bank had unused borrowing capacity under the FHLB overnight line of credit of $174,600 and $200,000, at March 31, 2019 and September 30, 2009, respectively.  The Bank also has an Unsecured Discretionary Federal Funds Line with a bank in the amount of $50,000.  As of March 31, 2010, the Bank may borrow additional amounts by pledging securities not required to be pledged for other purposes with a market value of $375,843.  FHLB advances are subject to prepayment penalties, if repaid prior to maturity.

21

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The Bank had $25,400 in overnight borrowings that reprice daily, as of March 31, 2010. The Bank issued $51,495 in senior unsecured debt under the FDIC’s Temporary Liquidity Guarantee Program (“TLGP”) in February 2009.  We recorded a fee of 1% per annum to the FDIC to guarantee the TLGP debt.  The expense is amortized over its maturity and is recorded as interest expense.  Of the $387,469 in borrowings due in greater than one year, $225,000 are callable quarterly after an initial lockout period through their respective maturities and $40,000 have a one time call on a specified date. During the six months ended March 31, 2010 no borrowings were called.  The remaining premium recorded from prior acquisitions, but not accreted into income at March 31, 2010 was $902.

10.   Derivatives

The Company purchased two interest rate caps with notional amounts of $25,000 each in the first quarter of fiscal 2010 to assist in offsetting a portion of interest rate exposure should short term rate increases lead to rapid increases in general levels of market interest rates on deposits.   These caps are linked to LIBOR and have strike prices of 3.50% and 4.0%. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings.  At March 31, 2010, summary information regarding these caps is presented below:

Notional amounts	$ 50,000
Weighted average strike price	3.75%
Weighted average maturity	4.7 years
Fair value of interest rate caps	$1,132

The fair value of the interest rate caps at March 31, 2010 is reflected in other assets with a corresponding credit (charge) to income recorded as a gain (loss) to non-interest income.

The Company acts as an interest rate swap counterparty with certain commercial customers and manage this risk by entering into corresponding and offsetting interest rate risk agreements with third parties.  At March 31, 2010 the Company had one interest rate swap with a notional value of $1,107.  Interest rate swaps are recorded on our consolidated statements of condition as an asset or liability at estimated fair value.  If an interest rate swap qualifies for hedge accounting, any changes in estimated fair value are recognized in either other comprehensive income or earnings depending on the designation as either a cash flow or fair value hedge instrument, respectively.  We formally document our risk management objectives, strategy, and the relationship between the hedging instrument and the hed ged items.  We evaluate the effectiveness of the hedge relationship both at inception of the hedge and on an ongoing basis.  If the interest rate swap does not qualify as a hedge, gains or losses reflecting changes in fair value are reported in earnings.

11.   Earnings Per Common Share

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

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

Basic earnings per common share are computed as follows:

	For the Three Months				For the Six Months
	Ended March 31,				Ended March 31,
	2010		2009		2010		2009
Weighted average common shares outstanding (basic), in ‘000s		38,188		38,627		38,384		38,605
Net Income	$	4,167	$	5,544	$	10,333	$	11,835
Basic earnings per common share	$	0.11	$	0.14	$	0.27	$	0.30

22

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Diluted earnings per common share are computed as follows:

	For the Three Months				For the Six Months
	Ended March 31,				Ended March 31,
	2010		2009		2010		2009
Weighted average common shares outstanding (basic), in ‘000s		38,188		38,627		38,384		38,605
Effect of common stock equivalents		49		184		19		209
		38,237		38,811		38,403		38,814
Net Income	$	4,167	$	5,544	$	10,333	$	11,835
Diluted earnings per common share	$	0.11	$	0.14	$	0.27	$	0.30

As of March 31, 2010, 1,824,368 and 1,879,534 weighted average shares were anti-dilutive for the three month period and six month period, respectively.  As of March 31, 2009, 1,945,716 and 1,940,994 weighted average shares were anti-dilutive for the three month period and six month period, respectively.  Anti-dilutive shares are not included in the determination of earnings per share.

12.   Guarantor’s Obligations Under Guarantees

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

As of March 31, 2010, the Company had $20,627 in outstanding letters of credit, of which $3,201 was secured by cash and $4,971 were secured by collateral.  The carrying values of these obligations are considered immaterial.

23

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

13.   Pension and Other Post Retirement Plans

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

	Pension Plan						Other Post Retirement Plans
	Three months Ended						Three months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Service Cost	$	—		$	—		$	8		$	5
Interest Cost		384			408			27			23
Expected return on plan assets		(462	)		(444	)		—			—
Amortization of net transition obligation		—			—			6			3
Amortization of prior service cost		—			—			12			12
Amortization of (gain) or loss		377			206			(23	)		(29	)
	$	299		$	170		$	30		$	14

	Pension Plan						Other Post Retirement Plans
	Six months Ended						Six months Ended
	March 31,						March 31,
	2010			2009			2010			2009
Service Cost	$	—		$	—		$	16		$	10
Interest Cost		777			806			54			46
Expected return on plan assets		(945	)		(889	)		—			—
Amortization of net transition obligation		—			—			12			6
Amortization of prior service cost		—			—			24			24
Amortization of (gain) or loss		755			413			(46	)		(58	)
	$	587		$	330		$	60		$	28

As of March 31, 2010, no contributions had been deposited into the pension plan.  The Company anticipates additional contributions during the 2010 fiscal year of less than $1.0 million.

The Company has also established a non-qualified Supplemental Executive Retirement Plan (“SERP”) to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $44 and $47 for the six months ended March 31, 2010 and 2009, respectively. There were $0 and $2,100  in contributions were deposited to fund benefit payments related to the SERP as of  March 31, 2010 and 2009, respectively.

24

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

Forward-Looking Statements

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

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

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

● Our business and operating results are affected by business and economic conditions generally or specifically in the principal markets in which we do business. We are affected by changes in our customers’ and counterparties’ financial performance, customer preferences and behavior, values of real estate and other collateral, and levels of economic and business activity, among other things.

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

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

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

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

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

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

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

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

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

● While the degree of volatility in the financial markets has abated from the levels experienced in 2008 – 2009, uncertainty persists that may adversely affect us and the financial services industry as a whole. A sluggish economy and high unemployment continue to impact commercial and consumer delinquencies dampening consumer confidence while the high level of mortgage foreclosures continue to press on the real estate markets. The continued economic pressure on businesses and consumers has affected and will likely further affect our business, financial condition and results of operations.

25

Overview

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

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Results of operations are also significantly affected by general economic and competitive conditions, as well as changes in market interest rates, government policies and actions of regulatory authorities.

For the six months ended March 31, 2010, net income was $10.3 million or $0.27 per diluted share, compared to $11.8 million or $0.30 per diluted share for the same period ended March 31, 2009.  Net interest income of $45.8 million decreased $2.9 million from the same period in the prior year.   Provision for loan losses was $5.0 million, down from $9.6 million in the same period of the prior year.  Gains on sales of securities totaled $4.3 million as the Company continues to monetize a portion of the appreciation in the portfolio compared to $6.4 million for the six months ended March 31, 2009.  Non interest income decreased $2.7 million due mostly to the decrease in gains on sales of securities and the cumulative loss on interest rate caps.  Expenses are up slightly from the same period in 2009 due to increases in employee benefits and incentive accruals, occupancy and equipment expenses and FDIC assessments.

Management Strategy

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

Comparison of Financial Condition at March 31, 2010 and September 30, 2009

Total assets as of March 31, 2010 were $2.9 billion, a decrease of $85.9 million or 2.8% compared to September 30, 2009 levels.   The decrease in assets is primarily due to a $122.6 million decrease in cash and due from banks as a result of a large deferred cash letter in the amount of $102.1 million received on September 30, 2009.  Net loans decreased $36.2 million to $1.64 billion from September 30, 2009.    Partially offsetting these decreases was an increase in securities of $55.5 million, as the company invested excess cash in the investment portfolio.  Other assets increased $14.8 million due mostly to an increase in prepaid FDIC insurance as well as an increase in the Company’s deferred tax ass ets.

Net Loans as of March 31, 2010 were $1.64 billion, down $36.2 million from September 30, 2009.  Acquisition, Development and Construction loans (“ADC”) increased by $11.7 million, or 5.8%, over balances at September 30, 2009, primarily due to activity on newly approved loans.  Commercial real estate and commercial business loans declined by $12.0 million, or 1.5%, from September 30, 2009 balances. Consumer loans decreased by $7.7 million, or 3.0%, during the six month period ended March 31, 2010, while residential mortgage loans decreased by $27.9 million or 6.1% primarily due to new conforming fixed rate loan originations of $23.9 million being sold in the secondary market.  Total loan originations were $221.6 million for the six months ended March 31, 2010and repayments were $229.3 million.   While loan demand remains weak due to the economic slowdown, commercial loan originations during the six months ending March 31, 2010 were $119.0 million compared to $102.9 million for the six months ended March 31, 2009.

Total securities increased by $55.5 million, or 6.3%, to $932.7 million at March 31, 2010, compared to September 30, 2009 due to purchases of securities as the company invested excess cash.  Total mortgage-backed securities at amortized cost decreased by $54.5 million primarily due to sales of $165.0 million and pay downs of $41.2 million, partially offset by purchases totaling $152.7 million.  US Treasury notes increased $65.0 million and U.S. Government federal agency securities increased $29.3 million.  The Company owns private label CMO’s at amortized cost of $10.1 million and a carrying value of $9.4 million. See note six to the consolidated financial statements for further discussion on determination of fair value for t hese securities.

Deposits as of March 31, 2010 were $2.01 billion, a decrease of $75.3 million, or 3.6%, from September 30, 2009, as municipal tax deposits of $201 million as of year end were utilized by the individual municipalities.  Commercial and personal transaction accounts continued to grow by $7.4 million from $570.2 million to $577.6 million at March 31, 2010.  Other categories showing major changes were as follows: savings accounts increased $26.1 million, money market accounts increased $60.7 million and certificates of deposits decreased $13.2 million over September 30, 2009 balances.

26

Borrowings decreased by $9.3 million, or 1.9%, from September 30, 2009, to $472.8 million as $34.6 million of FHLBNY advances matured or paid down offset by the Company’s utilization of the overnight line of credit with the FHLB of $25.4 million. The Bank issued $51.5 million in senior unsecured debt under the FDIC Temporary Liquidity Guarantee Program during the second quarter of fiscal 2009.

Stockholders’ equity decreased $5.1 million from September 30, 2009, to $422.4 million at March 31, 2010, due to a net increase of $3.7 million  in the Company’s retained earnings, an increase of $4.0 million due to stock based compensation items and offset by a $5.1 million decrease in accumulated other comprehensive income.  In addition the Company repurchased 918,923 common shares, at a cost of $7.7 million during the fiscal year.

Credit Quality (Also see Note 5 to the consolidated financial statements)

Net charge-offs for the quarter were $2.0 million (0.48% of average loans, on an annualized basis) compared to $2.6 million (0.61% of average loans, on an annualized basis) in the prior linked quarter ended December 31, 2009.   Net charge-offs for the quarter were down $2.3 million when compared to net charge-offs of $4.3 million in the three month period ending March 31, 2009.  Net charge-offs have declined in the community business loan portfolio during the current quarter to $698,000 compared to $1.6 million in the first quarter of fiscal 2010.

Nonperforming loans remained relatively unchanged at $27.7 million at March 31, 2010 compared to $26.7 million at December 31, 2009.   On a year to date basis nonperforming loans increased $1.2 million compared to year end 2009 levels. The Bank’s coverage ratio of nonperforming loans declined slightly from 114 basis points from September 30, 2009, to 110 basis points at March 31, 2010 as the allowance for loan losses remained flat $30.4 million compared to $30.1 million at September 30, 2009.  Non-performing loans as a percent of total loans increased from 1.55% at September 30, 2009 to 1.66% at March 31, 2010 due to a decline in total outstanding loans.

Of the non-performing loans of $27.7 million, $25.6 million were secured by mortgages.  Of the loans that were mortgage secured the weighted average loan to value ratio was 74% and after specific reserves was 68%.  The table below outlines those non-performing assets, at March 31, 2010, by category and collateral with the related weighted average loan to value ratios and specific reserves against such loans:

								WLTV after
	Book					Specific		Specific
	Value		WLTV*			Reserve		Reserve
Loans with Specific Reserves
ADC	$	2,183		81	%	$	1,139		74	%
Commercial mortgage		2,420		100			571		68
Residential mortgage		3,729		89			737		78
Loans without Specific Reserves
ADC		8,254		75			—		75
Commercial mortgage		4,742		99			—		99
Residential Mortgage		4,269		62			—		62
Total Mortgage secured		25,597		82			2,447		77
Loans not Mortgage Secured
Loans with specific reserves		1006					629
Loans without specific reserves		1,071
Total non-performing loans		27,674					3,076
General reserves							27,368
Troubled debt restructures not included in non performing loans		416
Total allowance for loan losses						$	30,444
ORE balance		2,466
Total non-performing assets	$	30,556

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

The Company actively reviews the loan portfolio and works with the borrowers, including several significant ADC relationships that are in performing status but not progressing as originally planned, which may impact criticized and classified loan totals.  Based on the Company’s analysis a $5.0 million provision was added to the allowance for loan loss after recording $4.6 million in net charge offs for the six months ended March 31, 2010.

27

Comparison of Operating Results for the Three Months Ended March 31, 2010 and March 31, 2009

Net income for the three months ended March 31, 2010 was $4.2 million, a decrease of $1.4 million compared to $5.5 million for the same period in fiscal 2009.  Excluding net securities gains and the fair value adjustment of interest rate caps earnings was $0.09 per diluted share for the three months ended March 31, 2010 compared to $0.05 for the same period in fiscal 2009.  Net interest income before provision for loan losses for the three months ended March 31, 2010, decreased by $701,000 or 2.3%, to $22.9 million, compared to $23.6 million for the same period in the prior year.  The provision for loan losses for the three months ended March 31, 2010 was $2.5 million, a decrease of $4.6 million, compared to $7.1 million for the sa me period in the prior year.  Net interest margin on a tax equivalent basis for the three months ended March 31, 2010, decreased 4 basis points compared to the same period last year from 3.80% to 3.76%.  Non-interest income for the three months ended March 31, 2010, was $6.1 million, a decrease of $5.0 million, compared to $11.1 million for the same period in fiscal 2009 due to decreases in gains on sales of securities of $4.2 million and $616,000 fair value loss on interest rate caps.  Non-interest expense increased $1.1 million, or 5.5%, to $21.2 million for the three months ended March 31, 2010, compared to $20.1 million for the same period in the prior year primarily due to increased medical and pension expense, FDIC insurance and occupancy expense.

Earnings excluding securities gains and the fair value adjustment of interest rate caps are presented below.  The Company presents earnings excluding theses factors so that investors can better understand the results of the Company’s core banking operations and to better align with the views of the investment community.

(In thousands, except share data)
	Three months ended
	March 31,
	2010			2009
Net Income
Net Income	$	4,167		$	5,544
Securities gains1		(1,119	)		(3,619	)
Fair value loss on interest rate caps1		366			—
Net adjusted income	$	3,414		$	1,925
Earnings per common share
Diluted Earnings per common share	$	0.11		$	0.14
Securities gains1		(0.03	)		(0.09	)
Fair value loss on interest rate caps1		0.01			—
Diluted adjusted earnings per common share	$	0.09		$	0.05
Non-interest income
Total non-interest income	$	6,113		$	11,123
Securities gains		(1,884	)		(6,093	)
Fair value loss on interest rate caps		616			—
Adjusted non interest-income	$	4,845		$	5,030

1 After marginal tax effect 40.61%

Relevant operating results performance measures follow:

	Three Months Ended
	March 31,
	2010			2009
Per common share:
Basic earnings	$	0.11		$	0.14
Diluted earnings		0.11			0.14
Dividends declared		0.06			0.06
Return on average (annualized):
Assets		0.58	%		0.76	%
Equity		4.00	%		5.38	%

28

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,
	2010									2009
	Average Outstanding Balance			Interest			Average Yield Rate			Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	958,513		$	13,607			5.76	%	$	964,584		$	13,657			5.74	%
Consumer loans		248,622			2,771			4.52			253,597			2,922			4.67
Residential mortgage loans		435,163			6,277			5.85			500,143			7,280			5.90
Total loans 1		1,642,298			22,655			5.59			1,718,324			23,859			5.63
Securities-taxable		694,815			4,724			2.76			623,470			7,533			4.90
Securities-tax exempt 2		203,153			2,924			5.84			197,786			2,939			6.02
Federal Reserve excess reserves		15,257			10			0.27			66,360			38			0.23
Other earning assets		26,031			337			5.27			26,410			246			3.78
Total securities and other earning assets		939,256			7,995			3.45			914,026			10,756			4.77
Total interest-earning assets		2,581,554			30,650			4.82			2,632,350			34,615			5.33
Non-interest-earning assets		337,399									329,369
Total assets	$	2,918,953								$	2,961,719
Interest bearing liabilities:
NOW Checking	$	298,935			156			0.21	%	$	241,190			90			0.15	%
Savings, clubs and escrow		380,600			95			0.10			352,199			213			0.25
Money market accounts		428,605			374			0.35			405,221			771			0.77
Certificate accounts		446,301			1,576			1.43			646,527			4,200			2.63
Total interest-bearing deposits		1,554,441			2,201			0.57			1,645,137			5,274			1.30
Borrowings		500,226			4,492			3.64			511,340			4,677			3.71
Total interest-bearing liabilities		2,054,667			6,693			1.32			2,156,477			9,951			1.87
Non- interest bearing deposits		419,389									365,971
Other non-interest-bearing liabilities		22,768									21,619
Total liabilities		2,496,824									2,544,067
Stockholders’ equity		422,129									417,652
Total liabilities and equity	$	2,918,953								$	2,961,719
Net interest rate spread								3.49	%								3.46	%
Net earning assets	$	526,887								$	475,873
Net interest margin					23,957			3.76	%					24,664			3.80	%
Less tax equivalent adjustment 2					(1,023	)								(1,029	)
Net interest income				$	22,934								$	23,635
Ratio of average interest-earning assets to average interest bearing liabilities		125.64	%								122.07	%

1	Includes non-accrual loans
2	Reflects tax equivalent adjustment for tax exempt income based on a 35% federal rate

29

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

	Three Months Ended March 31,
	2010 vs. 2009
	Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	(94	)	$	44		$	(50	)
Consumer loans		(57	)		(94	)		(151	)
Residential mortgage loans		(941	)		(62	)		(1,003	)
Securities-taxable		802			(3,613	)		(2,811	)
Securities-tax exempt2		79			(92	)		(13	)
Federal Reserve excess reserves		—			(28	)		(28	)
Other earning assets		(9	)		100			91
Total interest income		(220	)		(3,745	)		(3,965	)
Interest-bearing liabilities
NOW checking		25			41			66
Savings		18			(136	)		(118	)
Money market		43			(440	)		(397	)
Certificates of deposit		(1,061	)		(1,563	)		(2,624	)
Borrowings		(309	)		124			(185	)
Total interest expense		(1,284	)		(1,974	)		(3,258	)
Net interest margin		1,064			(1,771	)		(707	)
Less tax equivalent adjustment2		(28	)		34			6
Net interest income	$	1,036		$	(1,737	)	$	(701	)

1	Changes due to increases in both rate and volume have been allocated proportionately to rate and volume.
2	Reflects tax equivalent adjustment for tax-exempt income based on a 35% federal rate.

Net interest income for the three months ended March 31, 2010 decreased by $701,000, or 3.0%, to $22.9 million, compared to $23.6 million for the quarter ended March 31, 2009. Gross interest income on a tax-equivalent basis decreased by $4.0 million, or 11.5%, to $30.7 million for the quarter ended March 31, 2010, compared to $34.6 million for the same three months in 2009.  General market interest rates have declined significantly from the prior period.  As a result the general levels of yields in the asset and liability structure of the Company’s balance sheet have declined.  Further, as the Company restructured a large portion of its investment portfolio, the reinvestment of proceeds from sales into generally lower yielding securities resulted in additional declines in investment income.  Interest expense decreased by $3.3 million with the primary decrease in certificates of deposit of $2.6 million, consistent with the general decline in asset yields.

Provision for Loan Losses.  The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio. The Company recorded $2.5 million in loan loss provisions for the quarter ended March 31, 2010, or $477,000 more than net charge-offs.  Refer to the credit quality section for a discussion on net charge-offs and nonperforming loans.

Non-interest income for the three months ended March 31, 2010 decreased by $5.0 million, or 45.0% to $6.1 million.  The decrease was due mainly to net gains on sales of securities of $6.1 million in second quarter fiscal 2009 compared to $1.9 million in second quarter fiscal 2010. The Company continues to realize a portion of the recent appreciation in its securities portfolio, monetizing other comprehensive income and reducing prepayment risk. Other factors contributing to the decrease were gains on the sale of loans  of $117,000 and $290,000 in 2010 and 2009, respectively; a $616,000 fair market loss on interest rate caps in fiscal 20 10 and declines in deposit fees and service charges of $291,000, which were partially offset by the $177,000 increase in investment management fees.

Non-interest expense for the three months ended March 31, 2010 increased by $1.1 million, or 5.5%, to $21.2 million, primarily due to increased medical and pension expense, FDIC insurance and occupancy expense, partially offset by reduced stock compensation expense.

30

Income Tax expense decreased $831,000 to $1.2 million for the three months ended March 31, 2010, as compared to $2.0 million for the three months ended March 31, 2009.  The effective tax rate for the three months ended March 31, 2010 was 22.5% compared to 26.9% for the same period in the prior year.  The decline is due to tax exempt municipal securities and BOLI income being a larger portion of overall pretax income in the current period.

Comparison of Operating Results for the Six Months Ended March 31, 2010 and March 31, 2009

Net income for the six months ended March 31, 2010 was $10.3 million, a decrease of $1.5 million, compared to $11.8 million for the same period in fiscal 2009. Excluding net securities gains and the fair value adjustment of interest rate caps earnings was $0.20 per diluted share for the six months ended March 31, 2010 and 2009.  Net interest income before provision for loan losses for the six months ended March 31, 2010 decreased by $2.9 million, or 5.88%, to $45.8 million, compared to $48.7 million for the same period in the prior year.  Net interest margin on a tax equivalent basis for the six months ended March 31, 2010 decreased 17 basis points compared to the same period last year from 3.89% to 3.72%, primarily due to of lower volume and yields in the loan portfolio and lower yields on the security portfolio.  Provision for loan losses for the six months ended March 31, 2010 decreased by $4.6 million, or 47.9% to $5.0 million, compared to $9.6 million for the same period in the prior year as net charges offs have slowed down.  Non-interest income decreased $2.7 million, or 15.9%, to $14.2 million for the six months ended March 31, 2010, compared to $16.9 million for the six months ended March 31, 2009 mostly due to decreased gains on securities. Non-interest expense increased $1.8 million, or 4.5%, to $41.1 million for the six months ended March 31, 2010, compared to $39.3 million for the same period in the prior year primarily due to increases in compensation and employee benefits (primarily pension expense increases), occupancy and office operations and FDIC assessments partially offset by decreases in stock base d compensation, advertising and promotion and intangible amortization.

Earnings excluding securities gains and the fair value adjustment of interest rate caps are presented below.  The Company presents earnings excluding theses factors so that investors can better understand the results of the Company’s core banking operations and to better align with the views of the investment community.

(In thousands, except share data)
	Six months ended March 31,
	2010			2009
Net Income
Net Income	$	10,333		$	11,835
Securities gains1		(2,537	)		(3,815	)
Fair value loss on interest rate caps1		140			—
Net adjusted income	$	7,936		$	8,020
Earnings per common share
Diluted Earnings per common share	$	0.27		$	0.30
Securities gains1		(0.07	)		(0.10	)
Fair value loss on interest rate caps1		0.00			—
Diluted adjusted earnings per common share	$	0.20		$	0.20
Non-interest income
Total non-interest income	$	14,206		$	16,894
Securities gains		(4,272	)		(6,424	)
Fair value loss on interest rate caps		236			—
Adjusted non interest-income	$	10,170		$	10,470
1 After marginal tax effect 40.61%
The relevant operating results performance measures follow:

	Six Months Ended March 31,
	2010			2009
Per common share:
Basic earnings	$	0.27		$	0.30
Diluted earnings		0.27			0.30
Dividends declared		0.12			0.12
Return on average (annualized):
Assets		0.71	%		0.81	%
Equity		4.90	%		5.80	%

31

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,
	2010									2009
	Average						Average			Average						Average
	Outstanding						Yield			Outstanding						Yield
	Balance			Interest			Rate			Balance			Interest			Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	956,225		$	27,515			5.77	%	$	961,208		$	28,777			6.00	%
Consumer loans		250,585			5,673			4.54			251,234			6,058			4.84
Residential mortgage loans		443,053			12,867			5.82			503,097			14,851			5.92
Total loans 1		1,649,863			46,055			5.60			1,715,539			49,686			5.81
Securities-taxable		660,401			9,476			2.88			635,573			15,426			4.87
Securities-tax exempt 2		202,421			5,839			5.79			193,505			5,790			6.00
Federal Reserve Bank Balance		35,934			45			0.25			36,067			42			0.23
Other earning assets		25,369			673			5.32			29,668			539			3.64
Total securities and other earning assets		924,125			16,033			3.48			894,813			21,797			4.89
Total interest-earning assets		2,573,988			62,088			4.84			2,610,352			71,483			5.49
Non-interest-earning assets		328,752									324,220
Total assets	$	2,902,740								$	2,934,572
Interest bearing liabilities:
NOW Checking	$	295,351			335			0.23	%	$	236,447			425			0.36	%
Savings, clubs and escrow		376,713			190			0.10			349,993			487			0.28
Money market accounts		412,988			781			0.38			354,229			1,770			1.00
Certificate accounts		462,010			3,685			1.60			620,781			8,399			2.71
Total interest-bearing deposits		1,547,062			4,991			0.65			1,561,450			11,081			1.42
Borrowings		492,913			9,234			3.76			570,810			9,695			3.41
Total interest-bearing liabilities		2,039,975			14,225			1.40			2,132,260			20,776			1.95
Non- interest bearing deposits		419,173									373,074
Other non-interest-bearing liabilities		20,347									19,951
Total liabilities		2,479,495									2,525,285
Stockholders’ equity		423,245									409,287
Total liabilities and equity	$	2,902,740								$	2,934,572
Net interest rate spread								3.44	%								3.54	%
Net earning assets	$	534,013								$	478,092
Net interest margin					47,863			3.72	%					50,707			3.89	%
Less tax equivalent adjustment 2					(2,043	)								(2,026	)
Net interest income				$	45,820								$	48,681
Ratio of average interest-earning assets to average interest bearing liabilities		126.18	%
											122.42	%

1	Includes non-accrual loans
2	Reflects tax equivalent adjustment for tax exempt income based on a 35% federal rate

32 

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

	Six Months Ended March 31,
	2010 vs. 2009
	Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	(150	)	$	(1,112	)	$	(1,262	)
Consumer loans		(16	)		(369	)		(385	)
Residential mortgage loans		(1,738	)		(246	)		(1,984	)
Securities-taxable		585			(6,535	)		(5,950	)
Securities-tax exempt2		258			(209	)		49
Federal Reserve Bank Balance		—			3			3
Other earning assets		(98	)		232			134
Total interest income		(1,159	)		(8,236	)		(9,395	)
Interest-bearing liabilities
NOW checking		89			(179	)		(90	)
Savings		35			(332	)		(297	)
Money market		255			(1,244	)		(989	)
Certificates of deposit		(1,812	)		(2,902	)		(4,714	)
Borrowings		(2,081	)		1,620			(461	)
Total interest expense		(3,514	)		(3,037	)		(6,551	)
Net interest margin		2,355			(5,199	)		(2,844	)
Less tax equivalent adjustment2		(94	)		77			(17	)
Net interest income	$	2,261		$	(5,122	)	$	(2,861	)

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

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

_____________________________________________________

Net interest income for the six months ended March 31, 2010 decreased by $2.9 million, or 5.9%, to $45.8 million, compared to $48.7 million for the six months ended March 31, 2009. Net interest income on a tax-equivalent basis decreased by $2.8 million, or 5.6%, to $47.9 million for the six months ended March 31, 2010, compared to $50.7 million for the same six months in 2009.  The target fed funds rate averaged .25% for the six month period ended March 31, 2010 versus an average of .67% for the same period in the prior year.  Comparable declines were experienced in the prime rate to which $538.3 million in loans reprice and there were no floating rate borrowings at March 31, 2010.  Interest expense decreased by $6.6 million, or 31 .5% to $14.2 million, for the year, compared to $20.8 million for the same period in 2009.  Average interest-bearing liabilities decreased by $92.3 million and the average cost of interest-bearing liabilities decreased by 55 basis points. The average yields on the loan portfolio decreased by 21 basis points.  Average yields on investment securities on a tax-equivalent basis decreased by 157 basis points reflecting purchases at yields lower than the book yields of sold or called securities.  Yields on interest-bearing deposit accounts decreased 77 basis points and average borrowings costs increased 35 basis points reflecting fixed rate borrowings. The tax equivalent net interest margin, therefore, decreased by 17 basis points to 3.72%, while net interest spread decreased by  10 basis points as compared to 2009 to 3.44%.

Provision for Loan Losses.  The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio.  The Company recorded $5.0 million in loan loss provisions for the six months ended March 31, 2010, and recognized net charge-offs of $4.6 million in the same period. This compares to loan loss provisions of $9.6 million and net charge-offs of $6.3 million for the six months ended March 31, 2009. The primary driver of the decrease in charge-offs compared the previous period is the performance of the small business credit-scored portfolios. Net charge-offs for this portfolio were $2.3 million on average outstandings of $99.0 million for the six months ended March 31, 2010 compared to $4.6 million of the $106.9 million of average outstandings for the six months ending March 31, 2009.

Non-interest income for the six months ended March 31, 2010 decreased by $2.7 million, or 15.9%, to $14.2 million compared to $16.9 million for the same period in 2009.  The decline in non-interest income is a result of declines on net gains on sales of securities of $2.2 million and gains on sale of  premises and equipment of $571,000, decreased deposit fees and service charges of $436,000, as well a cumulative loss on the fair value on interest rate caps of $236,000, which were partially offset by the $348,000 increase in investment management fees.

33

Non-interest expensefor the six months ended March 31, 2010 increased by $1.8 million, or 4.5%, to $41.1 million, from $39.3 million for the same period in 2009 primarily due to employee benefits and incentive accruals, occupancy and equipment expenses and FDIC assessments.

Income tax expense was $3.6 million for the six months ended March 31, 2010, compared to $4.8 million for the same period in 2009.  The effective tax rates were 26.0% and 29.0%, respectively. The decline is due to tax exempt municipal securities and BOLI income being a larger portion of overall pretax income in the current period

Liquidity and Capital Resources

The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order 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.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, wholesale borrowings, the proceeds from maturing securities and short-term investments, and the proceeds from the sales of loans and securities. The scheduled amortizations 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.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows in our consolidated financial statements. Our primary investing activities are the origination of commercial real estate and residential one- to four-family loans, and the purchase of investment securities and mortgage-backed securities. During the six months ended March 31, 2010 and 2009 our loan originations, including origination of loans held for sale, totaled $221.6 million and $242.3 million, respectively. Purchases of securities available for sale totaled $425.5 million and $216.7million for the six months ended March 31, 2010 and 2009, respectively. Purchases of securities held to maturity totaled $15.6 million and $14.8 million for the six months ended March 31, 2010 and 2009, respectively. These activities were funded primarily with the proceeds received from the sale of securities, by borrowings and by principal repayments on loans and securities. Loan origination commitments totaled $41.8 million at March 31, 2010, and consisted of $34.3 million at adjustable or variable rates and $7.5 million at fixed rates. Unused lines of credit granted to customers were $364.5 million at March 31, 2010. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit.

The Company’s investments in BOLI are considered 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.  The recorded value of BOLI contracts totaled $49.9 million and $49.6 million at March 31, 2010 and September 30, 2009, respectively.

Deposit flows are generally affected by the level of market interest rates, the interest rates and other conditions on deposit products offered by our banking competitors, and other factors. The net decrease in total deposits was $75.3 million for the six months ended March 31, 2010. Total deposits increased $19.6 million for the six months ended March 31, 2009.  Total municipal deposits decreased $109.8 million and $29.1 million for the six months ended March 31, 2010 and 2009, respectively.  The trends seen in deposit categories as of March 31, 2010 are consistent with those that the Company historically experiences in the first six months of the fiscal year.  The decrease in municipal deposits is a result of September deposits including $201 million in seasonal tax deposits.  Municipal deposit s in New York State are required to be collateralized for amounts in excess of FDIC insurance.  Effective June 30, 2010 the FDIC unlimited insurance guarantee of transaction accounts is scheduled to expire.  The Company has opted out of the Transaction Account Guarantee program (“TAGP”) effective July 1, 2010. Therefore, any funds held in non-interest bearing transaction accounts will no longer be guaranteed in full, but will be insured up to $250,000 under the FDIC’s general deposit insurance rules.  Based on March 31, 2010 balances an additional $76.1 million in municipal deposits would be required to be secured.  The Company further anticipates that it has sufficient liquidity for withdrawals, if any, of non municipal transaction accounts due to the reduction of FDIC insurance back to $250,000.

Credit markets improved significantly at March 31, 2010 from the poor conditions that existed at March 31, 2009.  Credit spreads narrowed steadily during the past year and many are very near historical low levels.  Notwithstanding these improvements loan demand remains muted causing liquidity to increase.   Furthermore, the extremely low interest rate environment has enhanced our deposit growth which has also strengthened our liquidity position.  Many banks are experiencing a situation similar to ours resulting in the industry liquidity to be at significantly elevated levels.  However, much of this liquidity is held in the form of very short-term securities and non-maturity deposit accounts.  The preference of depositors to stay short could portend potential liquidity red uctions in the future and possibly put pressure on us to raise rates in the future to retain these funds. Therefore, we continue to view the credit markets and overall economic conditions as fragile thereby warranting maintenance of higher than normal liquidity levels.

34

We generally remain fully invested and utilize additional sources of funds through Federal Home Loan Bank of New York (“FHLB”) advances and other sources of which $198.8 million was outstanding at March 31, 2010. At March 31, 2010, we had the ability to borrow an additional $174.6 million under our credit facilities with the Federal Home Loan Bank.  The Bank may borrow an additional $375.8 million by pledging securities not required to be pledged for other purposes as of March 31, 2010. To further diversify our founding sources at March 31, 2010 we had $59.6 million in brokered certificates all of which are certificates of deposit account registers service (CDARs).  Of the $59.6 million in CDARs $6.2 million are reciprocal.   At March 31, 2010, the Bank exceeded all of its regulatory capit al requirements with a Tier 1 capital (leverage) level of $239.1 million, or 8.6% of adjusted assets (which is above the minimum required level of $111.0 million, or 4.0%) and a total risk-based capital level of $263.4 million, or 13.6% of risk-weighted assets (which is above the required level of $155.3 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, 2010, the Bank exceeded all capital requirements for the well-capitalized classification.  These capital requirements, which are applicable to the Bank only, do not consider additional capital retained at the holding company level.

The Bank provides supplemental reporting of Non-GAAP tangible equity ratios as management believes this information is useful to investors.  As of March 31, 2010, the Company’s tangible capital as a percent of tangible assets increased to 9.28%, while its tangible book value increased to $.01 to $6.61 at March 31, 2010.  The following table shows the reconciliation of tangible equity and the tangible equity ratio:

	03/31/10			09/30/09
Total assets	$	2,935,956		$	3,021,893
Goodwill and other amortizable intangibles		(165,385	)		(166,350	)
Tangible assets	$	2,770,571		$	2,855,543
Stockholders’ equity	$	422,372		$	427,456
Goodwill and other amortizable intangibles		(165,385	)		(166,350	)
Tangible stockholders’ equity	$	256,987		$	261,106
Outstandng Shares		38,861,477			39,547,207
Tangible capital as a % of tangible assets (consolidated)		9.28	%		9.14	%
Tangible book value per share	$	6.61		$	6.60

The Bank had $25.4 million outstanding in overnight borrowings under its $200 million line of credit facility with the Federal Home Loan Bank.  Although, the Bank applied for and received approval from US Treasury, the Bank did not accept a capital infusion from the capital purchase program of the Troubled Asset Relief Program (“TARP”).

The Company declared a dividend of $0.06 per share payable on May 13, 2010 to stockholders of record on May 3, 2010.

35

The following table sets forth the Bank’s regulatory capital position at March 31, 2010 and September 30, 2009, compared to OTS requirements:

						OTS requirements
						Minimum capital					Classification as well
	Bank actual					adequacy					capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2010:
Tangible capital	$	239,050		8.6	%	$	41,609		1.5	%	$	—		—
Tier 1 (core) capital		239,050		8.6			110,958		4.0			138,698		5.0	%
Risk-based capital:
Tier 1		239,050		12.3			—		—			116,462		6.0
Total		263,382		13.6			155,283		8.0	%		194,104		10.0
September 30, 2009:
Tangible capital	$	246,339		8.6	%	$	42,784		1.5	%	$	—		—
Tier 1 (core) capital		246,339		8.6			114,090		4.0			142,613		5.0	%
Risk-based capital:
Tier 1		246,339		12.6			—		—			117,447		6.0
Total		270,807		13.8			156,596		8.0	%		195,746		10.0

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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

We actively evaluate interest rate risk in connection with our lending, investing, and deposit activities. We emphasize the origination of commercial mortgage loans, commercial business loans, ADC loans, and residential fixed-rate mortgage loans that are repaid monthly and bi-weekly, fixed-rate commercial mortgage loans, adjustable-rate residential and consumer loans. Depending on market interest rates and our capital and liquidity position, we may retain all of the fixed-rate, fixed-term residential mortgage loans that we originate or we may sell or securitize all, or a portion of such longer-term loans, generally on a servicing-retained basis. We also invest in shorter-term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing ou r investments in shorter-term loans and securities may help us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.

Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in the Company’s and  Bank’s net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The model assumes estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.

36

Estimated Changes in NPV and NII.  The table below sets forth, as of March 31, 2010, the estimated changes in our NPV and our NII that would result from the designated instantaneous and parallel 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.

Change in				Estimated Increase (Decrease)								Increase (Decrease) in
Interest Rates		Estimated		in NPV						Estimated		Estimated NII
(basis points)		NPV		Amount			Percent			NII		Amount		Percent
(Dollars in thousands)
	+300	$	272,442	$	(37,058	)		-12.0	%	$	96,994	$	7,467		8.3	%
	+200		292,007		(17,493	)		-5.7	%		95,910		6,383		7.1	%
	+100		305,110		(4,390	)		-1.4	%		92,920		3,393		3.8	%
	0		309,500		0			0.0	%		89,527		0		0.0	%

The table set forth above indicates that at March 31, 2010, in the event of an immediate 200 basis point increase in interest rates, we would be expected to experience a 5.7% decrease in NPV and an 7.1% increase in NII.  Due to the current level of interest rates management is unable to reasonably model the impact of decreases in interest rates on NPV and NII.

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

During the first six months of fiscal year 2010, the federal funds target rate remained in a range of 0.00 – 0.25% as the Federal Open Market Committee (“FOMC”) did not change the target overnight lending rate.  U.S. Treasury yields in the two year maturities increased by 7 basis points from 0.95% to 1.02% during the first six months of fiscal year 2010 while the yield on U.S. Treasury 10 year notes increased 53 basis points from 3.31% to 3.84% over the same time period. The disproportional higher rate of increase on longer term maturities has resulted in the 2-10 year treasury yield curve being steeper at the end of the second quarter of fiscal year 2010 than it was when the year began.  To fight the economic downturn the FOMC has declared a willingness to keep the federal funds target low for an “extended period”.  Should economic conditions improve, the FOMC could reverse direction and increase the federal funds target rate.  This could cause the shorter end of the yield curve to rise disproportionably more than the longer end, thereby resulting in margin compression.  We hold $50 million in notional principal of interest rate caps to help mitigate this risk.  Should rates not increase sufficiently to collect on such derivatives; the fair value of this derivative would decline and eventually mature.  The value risk is $1.2 million.

Item 4.   Controls and Procedures

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

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

37

PART II

OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.    Risk Factors

There have been no material changes in risk factors described in the Company’s Annual Report on Form 10-K for the year ended September 30, 2009 with the exception of the following:

The Company has opted out of the Transaction Account Guarantee program (“TAGP”) effective July 1, 2010. Therefore, any funds held in non-interest bearing transaction accounts will no longer be guaranteed in full, but will be insured up to $250,000 under the FDIC’s general deposit insurance rules.

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

(a)            Not applicable.

(b)            Not applicable

(c)            Issuer Purchases of Equity Securities

	Total Number of shares (or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximated Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs
January 1 - January 31		65,984	$	8.45		61,900		2,085,990
February 1 - February 28		325,715	$	8.34		254,823		1,831,167
March 1 - March 31		16,760		9.48		—		1,831,167
Total		408,459	$	8.40		316,723

Item 3.	Defaults Upon Senior Securities
	None
Item 4.	Submission of Matters to a Vote of Security Holders

On February 18, 2010, the Company held its annual meeting of stockholders for the purpose of the election of four Directors to three year terms and the ratification of the appointment of Crowe Horwath LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2010.

The number of votes cast at the meeting as to each matter acted upon was as follows:

1.   ELECTION OF DIRECTORS:

	VOTES FOR		%		WITHHELD		%
William F. Helmer		27,902,689		98.3		496,114		1.7
R. Michael Kennedy		28,156,013		99.1		242,790		0.9
Donald T. McNelis		27,897,705		98.2		501,098		1.8
William R. Sichol, Jr.		27,690,873		97.5		707,390		2.5

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2.   The ratification of the appointment of Crowe Horwath LLP as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2009.

FOR	%		AGAINST		%		ABSTAIN		%
33,574,058		99.3		230,850		0.7		39,203		0.0

Item 5.	Other Information
	None
Item 6.	Exhibits

Exhibit Number	Description
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

39

SIGNATURES

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

Provident New York Bancorp

Date:	May  7, 2010	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
Date:	May  7, 2010	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

40

EX-31.1

Exhibit 31.1

Certification of Principal 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 7, 2010	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal 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 7, 2010	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer and Principal 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, 2010 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 7, 2010	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Date:	May 7, 2010	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal 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.