Form 10-Q

10-Q 1 d10q.htm FORM 10-Q Form 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 June 30, 2007

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

For the transition period from to

Commission File Number: 0-25233

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)


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

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

(845) 369-8040

(Registrant’s Telephone Number including area code)

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

Yes x No ¨

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

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨

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

Yes ¨ No x

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

Classes of Common Stock

Shares Outstanding

$0.01 per share

41,667,638

as of July 30, 2007

PROVIDENT NEW YORK BANCORP

QUARTERLY PERIOD ENDED JUNE 30, 2007

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements (unaudited)

	Consolidated Statements of Financial Condition (unaudited) at June 30, 2007 and September 30, 2006	3

	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended June 30, 2007 and 2006	5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the Nine Months Ended June 30, 2007	6

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2007 and 2006	7

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Nine Months Ended June 30, 2007 and 2006	9

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Submission of Matters to a Vote of Security Holders	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

	Signatures	43

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except per share data)

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)


	June 30, 2007			September 30, 2006
Assets
Cash and due from banks	$	46,006		$	57,293
Securities (note 7):
Available for sale, at fair value		794,949			951,729
Held to maturity, at amortized cost (fair value of $41,281 and $60,876 at June 30, 2007 and September 30, 2006, respectively)		41,416			60,987

Total securities		836,365			1,012,716

Loans held for sale (note 5)		—			7,473
Gross loans (note 5)		1,613,841			1,473,558
Allowance for loan losses (note 6)		(20,699	)		(20,373	)

Total loans, net		1,593,142			1,453,185

Federal Home Loan Bank (“FHLB”) stock, at cost		29,827			33,518
Accrued interest receivable		11,240			13,228
Premises and equipment, net		30,004			31,739
Goodwill (note 3)		161,154			159,817
Other amortizable intangibles (note 3)		11,782			14,189
Bank owned life insurance		40,387			39,308
Deferred income taxes, net		12,096			8,526
Other assets		10,798			10,345

Total assets	$	2,782,801		$	2,841,337

(Continued)

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

(Dollars in thousands, except per share data)


	June 30, 2007			September 30, 2006
Liabilities and Stockholders’ Equity
Liabilities:
Deposits (note 8):
Non-interest bearing	$	359,886		$	366,847
Interest bearing		1,388,941			1,362,812

Total deposits		1,748,827			1,729,659
FHLB and other borrowings (including repurchase agreements of $155,240 and $332,576 at June 30, 2007 and September 30, 2006, respectively) (note 9)		595,411			682,739
Mortgage escrow funds		17,828			4,612
Other		18,416			19,041

Total liabilities		2,380,482			2,436,051

Stockholders’ equity:
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)		—			—
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 shares issued; 41,666,538 shares and 42,699,046 shares outstanding at June 30, 2007 and September 30, 2006, respectively)		459			459
Additional paid-in capital		347,578			343,574
Unallocated common stock held by employee stock ownership plan (“ESOP”) (910,619 shares at June 30, 2007 and 1,035,810 shares at September 30, 2006)		(8,440	)		(9,099	)
Treasury stock, at cost (4,263,014 shares at June 30, 2007 and 3,230,506 shares at September 30, 2006)		(51,468	)		(36,973	)
Retained earnings		123,033			114,927
Accumulated other comprehensive loss, net of taxes		(8,843	)		(7,602	)

Total stockholders’ equity		402,319			405,286

Total liabilities and stockholders’ equity	$	2,782,801		$	2,841,337

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands, except per share data)


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2007		2006		2007		2006
Interest and dividend income:
Loans	$	27,896	$	24,247	$	80,847	$	69,842
Securities		9,449		10,297		29,923		28,192
Other earning assets		641		402		1,819		1,058

Total interest and dividend income		37,986		34,946		112,589		99,092

Interest expense:
Deposits		9,001		7,492		26,964		18,846
Borrowings		6,654		5,770		23,132		16,209

Total interest expense		15,655		13,262		50,096		35,055

Net interest income		22,331		21,684		62,493		64,037
Provision for loan losses (note 6)		400		300		1,200		900

Net interest income after provision for loan losses		21,931		21,384		61,293		63,137

Non-interest income:
Deposit fees and service charges		2,848		2,699		8,478		7,898
Net gain on sale of securities available for sale (note 7)		—		—		4		—
Title insurance fees		308		399		855		1,206
Bank owned life insurance		432		418		1,613		1,225
Investment management fees		759		399		2,107		868
Other		641		446		1,871		1,198

Total non-interest income		4,988		4,361		14,928		12,395

Non-interest expense:
Compensation and employee benefits (note 12)		8,567		7,810		24,517		24,001
Stock-based compensation plans (note 2)		1,433		1,327		4,286		4,509
Occupancy and office operations		2,827		2,957		8,670		8,609
Advertising and promotion		1,267		905		3,024		1,899
Professional fees		914		877		2,982		2,526
Data and check processing		659		785		1,949		2,451
Amortization of intangible assets (note 3)		746		808		2,323		2,456
ATM/debit card expense		471		460		1,365		1,142
Other		2,166		2,112		6,428		6,008

Total non-interest expense		19,050		18,041		55,544		53,601

Income before income tax expense		7,869		7,704		20,677		21,931
Income tax expense		2,433		2,143		6,199		6,806

Net income	$	5,436	$	5,561	$	14,478	$	15,125

Weighted average common shares:
Basic		40,722,093		40,728,939		41,012,030		40,955,647
Diluted		41,223,958		41,254,819		41,551,464		41,515,092
Per common share: (note 10)
Basic	$	0.13	$	0.14	$	0.35	$	0.37
Diluted	$	0.13	$	0.13	$	0.35	$	0.36

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)


	Number of Shares		Common Stock		Additional Paid-In Capital			Unallocated ESOP Shares			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at September 30, 2006	42,699,046		$	459	$	343,574		$	(9,099	)	$	(36,973	)	$	114,927		$	(7,602	)	$	405,286
Implementation of SAB 108 (note 4)															374						374

Balance as adjusted at October 1, 2006	42,699,046			459		343,574			(9,099	)		(36,973	)		115,301			(7,602	)		405,660
Net income															14,478						14,478
Other comprehensive loss																		(1,241	)		(1,241	)

Total comprehensive income																					13,237
Deferred compensation transactions						38															38
Stock option transactions, net	86,592					948						752			(547	)					1,153
ESOP shares allocated or committed to be released for allocation (140,850 shares)						1,353			659												2,012
RRP awards	5,000					(70	)					70									—
Vesting of RRP shares						1,576															1,576
RRP forfeitures	(12,200	)				159						(159	)								—
Purchase of treasury shares	(1,111,900	)										(15,158	)								(15,158	)
Cash dividends paid ($0.15 per common share)															(6,199	)					(6,199	)

Balance at June 30, 2007	41,666,538		$	459	$	347,578		$	(8,440	)	$	(51,468	)	$	123,033		$	(8,843	)	$	402,319

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands, except per share data)


	For the Nine Months Ended June 30
	2007			2006
Cash flows from operating activities:
Net income	$	14,478		$	15,125
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,200			900
Depreciation and amortization of premises and equipment		3,366			2,978
Amortization of intangibles		2,407			2,456
Gain on sales of loans held for sale		(154	)		(105	)
Gain on sale of securities available for sale		(4	)		—
Gain on sales of fixed assets		(212	)		—
Net amortization of premiums and discounts on securities		709			2,382
Accretion of premiums on borrowings (includes calls on borrowings)		(1,404	)		(2,428	)
ESOP and RRP expense		3,588			3,367
ESOP forfeitures		(250	)		—
Stock option compensation expense		948			862
Originations of loans held for sale		(20,243	)		(8,355	)
Proceeds from sales of loans held for sale		27,870			7,708
Net increase in cash surrender value of bank owned life insurance		(1,079	)		(1,225	)
Deferred income tax benefit (expense)		(2,901	)		206
Net changes in accrued interest receivable and payable		3,170			817
Other adjustments (principally net changes in other assets and other liabilities)		(2,959	)		(11,898	)

Net cash provided by operating activities		28,530			12,790

Cash flows from investing activities:
Purchases of securities:
Available for sale		(103,871	)		(206,864	)
Held to maturity		(6,255	)		(20,875	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		257,051			96,490
Held to maturity		25,767			27,139
Proceeds from sales of securities available for sale		846			—
Loan originations		(470,612	)		(470,064	)
Loan principal payments		329,613			380,601
Purchase of Hudson Valley Investment Advisors, Inc., net of cash and cash equivalents acquired		—			(2,622	)
(Purchase) sale of FHLB stock (net)		3,691			(8,688	)
Purchases of premises and equipment		(3,143	)		(2,820	)
Proceeds from sale of premises		1,725			—
Other investing activities		—			82

Net cash provided by (used in) investing activities		34,812			(207,621	)

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands, except per share data)


	For the Nine Months Ended June 30,
	2007			2006
Cash flows from financing activities:
Net decrease in transaction, savings and money market deposits	$	21,248		$	(59,254	)
Net increase in time deposits		(2,055	)		83,725
Net (decrease) increase in borrowings		(85,924	)		167,611
Net increase in mortgage escrow funds		13,216			11,746
Treasury shares purchased		(15,158	)		(12,851	)
Stock option transactions		205			66
Other stock-based compensation transactions		38			1,661
Cash dividends paid		(6,199	)		(6,232	)

Net cash (used in) provided by financing activities		74,629			186,472

Net decrease in cash and cash equivalents		(11,287	)		(8,359	)
Cash and cash equivalents at beginning of period		57,293			64,117

Cash and cash equivalents at end of period	$	46,006		$	55,758

Supplemental information:
Interest payments	$	48,914		$	33,020
Income tax payments		7,762			1,632
Cash portion of Hudson Valley Investment Advisors, Inc. purchase transaction		750			2,500
Stock portion of Hudson Valley Investment Advisors, Inc. purchase transaction		—			2,740

Total paid for Hudson Valley Investment Advisors, Inc.		750			5,240
Loans transferred to real estate owned		618			—

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands, except per share data)


	For the Three Months Ended June 30,						For the Nine Months Ended June 30,
	2007			2006			2007			2006
Net Income:	$	5,436		$	5,561		$	14,478		$	15,125
Other comprehensive income (loss):
Net unrealized holding gains (losses) arising during the period, net of tax benefit of $3,269, 2,240, $876 and $5,841		(4,721	)		(3,187	)		(1,239	)		(8,403	)
Reclassification adjustment for net realized gains included in net income, net of related income tax of $0, $0, $2, and $0		—			—			(2	)		—

Total comprehensive income	$	715		$	2,374		$	13,237		$	6,722

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

1.	Basis of Presentation

The consolidated financial statements and other financial information presented in this document as of June 30, 2007 include the accounts of Provident New York Bancorp, a Delaware corporation (the “Company”), Provident Bank (the “Bank”), Hardenburgh Abstract Company of Orange County, Inc. (“Hardenburgh”), and Hudson Valley Investment Advisors, LLC (“HVIA”) and each subsidiary of Provident Bank: Provest Services Corp., (an inactive subsidiary), Provest Services Corp. I, Provest Services Corp. II, Provident REIT, Inc., WSB Funding, Inc., Warsave Development Corp., Provident Municipal Bank and WSB Financial Services, Inc. (an inactive subsidiary). Collectively, these entities are referred to herein as the “Company.” Provident New York Bancorp is a publicly held company and the parent company of the Bank. Provest Services Corp. I holds a limited partnership interest in a low-income housing partnership that provides certain favorable tax consequences. Warsave Development Corp. holds title to a rental property that generates rental income. Hardenburgh is a title insurance agency that generates title insurance fees and commissions. HVIA is an investment advisory firm that generates investment management fees. Provest Services Corp. II has engaged a third-party provider to sell annuities and life insurance to the customers of the Bank. Through June 30, 2007, the activities of these wholly-owned subsidiaries have had a minor impact on the Company’s consolidated financial condition and results of operations. Provident REIT, Inc. and WSB Funding, Inc. hold a portion of the Company’s real estate loans and are real estate investment trusts for federal income tax purposes. Provident Municipal Bank (“PMB”) is a limited purpose New York State-chartered commercial bank and is authorized to accept deposits from municipalities in the Bank’s New York business area.

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

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three and nine months ended June 30, 2007 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2007. 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, 2006.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan losses (see note 6), which is a critical accounting policy.

2.	Stock-Based Compensation

The Company applies Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation”, and related interpretations in accounting for its stock-based compensation plans. SFAS No. 123R, issued in December 2004, established accounting and disclosure requirements using a fair-value-based

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

method of accounting for stock-based employee compensation plans, and required adoption by all publicly owned companies for fiscal periods ending after June 15, 2005. As of October 1, 2005, the Company began to expense these grants as required by SFAS No. 123R. Stock-based employee compensation cost pertaining to stock options is reflected in net income, as all unvested options granted under the Company’s stock option plans had a value based on the fair value calculations using the Black-Scholes option pricing model, even though the exercise prices were equal to the market value of the underlying common stock on the date of the grant. Prior to October 1, 2005, the Company applied the requirements of APB Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, and related interpretations, in accounting for its stock-based plans. Under APB 25, no compensation expense was recognized for the Company’s stock-based plans regarding employee stock-options. The Company did, however, recognize expense for its plans that were compensatory per APB 25, and had grant-date intrinsic value, such as restricted stock grants (RRPs).

The Company’s stock-based compensation plans allow for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS No. 123R, grants issued subsequent to the adoption of SFAS 123R that are subject to such an accelerated vesting upon the recipient’s attainment of retirement age are expensed over the shorter of the time-to-retirement age or the vesting schedule in accordance with the grant. Thus, the vesting period can be far less than the plan’s five-year vesting period depending on the age of the grantee. As of June 30, 2007, 247,700 shares of the options granted were subject to this potential accelerated vesting.

The Company elected the modified prospective transition method in adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the date of adoption. During the nine months ended June 30, 2007, the Company issued 33,128 shares of stock-based option awards and recognized a total non-cash stock-based compensation cost of $948,000 associated with stock options. As of June 30, 2007, the total remaining unrecognized compensation cost related to non-vested stock options was $2.0 million. The following table shows information regarding outstanding and exercisable options as of June 30, 2007:


	June 30, 2007
	Outstanding				Exercisable
	Number of Stock Options	Weighted-Average			Number of Stock Options	Weighted-Average
	Number of Stock Options	Exercise Price		Life (in Years)	Number of Stock Options	Exercise Price		Life (in Years)
Range of Exercise Price
$3.50 to $7.31	762,019	$	3.72	2.65	762,019	$	3.72	2.65
$7.32 to $11.85	178,844		11.57	6.0	133,844		11.60	5.58
$11.86 to $15.66	1,589,630		12.89	7.72	926,250		12.88	7.58

	2,530,493				1,822,113

6,387 shares were anti-dilutive as of June 30, 2007 on a fiscal year-to-date basis, and therefore were not included in common stock equivalents for earnings per share purposes.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

The following table summarizes the Company’s stock option activity for the nine months ended June 30, 2007:


	Number of Shares		Weighted Average Exercise Price
Outstanding at October 1, 2006	2,679,963		$	9.86
Granted	33,128			14.07
Exercised	(135,678	)		6.57
Forfeited	(46,920	)		12.93

Outstanding at June 30, 2007	2,530,493		$	10.04

Exercisable at June 30, 2007	1,822,113		$	8.96

Weighted average estimated fair value of options granted during the period			$	2.98

The fair value for grants during the nine-month period ended June 30, 2007 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


Risk-free interest rate	4.88	%
Dividend yield	1.55	%
Volatility of the market price	25.67	%
Weighted-average expected life of options	3.29

The aggregate intrinsic value of options outstanding as of June 30, 2007 was $8.3 million. The intrinsic value represents total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading date of the nine-month period ended June 30, 2007 and the exercise price, multiplied by the number of in-the-money options).

Under the Company’s 2000 and 2004 restricted stock plans, 83,033 shares of restricted stock are reserved for issuance as of June 30, 2007. The Company can also fund the restricted stock plan with treasury stock. The fair market value of the shares awarded under the restricted stock plan is being amortized to expense on a straight-line basis over the five-year vesting period of the underlying shares. Compensation expense related to the restricted stock plan was $1.6 million and $1.8 million for the nine months ended June 30, 2007 and 2006, respectively. The remaining unearned compensation cost was $4.8 million as of June 30, 2007. On the grant date, shares awarded under the restricted stock plan were transferred from treasury stock at cost with the difference between the fair market value on the grant and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable. Upon adoption of SFAS No. 123R, the balance of unearned compensation as of October 1, 2005 was transferred to additional paid-in capital.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

The terms of issued restricted stock plans allow for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS No. 123R, grants issued subsequent to adoption of SFAS 123R that are subject to such an accelerated vesting upon the recipient’s attainment of retirement age are expensed over the shorter of the time-to-retirement age or the vesting schedule in accordance with the grant. Thus, the vesting period can be shorter than the plan’s five-year vesting period depending on the age of the grantee. As of June 30, 2007, 301,700 shares of the awards granted were subject to this accelerated vesting.

Restricted stock awards granted under the 2004 Stock Incentive Plan are accounted for in accordance with SFAS No.123R. The fair value of the shares awarded, measured as of the grant date, is recognized and amortized on a straight-line basis to compensation expense over the vesting period of the awards. A summary of restricted stock award activity under the plan for the nine months ended June 30, 2007 is presented below:


	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested shares outstanding at October 1, 2006	505,480		$	12.84
Granted	5,000			13.94
Vested	(21,980	)		12.84
Forfeited	(12,200	)		13.01

Nonvested shares outstanding at June 30, 2007	476,300		$	12.86

During the nine months ended June 30, 2007 and 2006, the Company expensed $252,000 and $386,000 for accelerated vesting, respectively.

The Company maintains an employee stock ownership plan (ESOP), funded by two loans, in which approximately 187,800 shares are released each calendar year. The first loan, initiated in connection with the first public offering in 1999, will be paid off in December 2007 and results in the release of approximately 138,000 shares annually. The second loan, initiated in connection with the second step public offering, matures in December 2023 and results in the release of 49,932 shares annually. For the nine-month period ended June 30, 2007, the ESOP expense for the shares released under the first and second loans totaled $1.5 million and $534,830 respectively. The Company expects a substantial decrease in ESOP expense once the first ESOP loan is paid off, and the related shares are fully released in December 2007. The Company reduced ESOP expense by $250,000 related to forfeitures from the plan during the first quarter of fiscal 2007.

3.	Acquisitions

The Company has been active in acquisitions over the past several years. All acquisitions were accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded by the Company at their fair values at the acquisition date.

On June 1, 2006, the Company acquired the net assets of Hudson Valley Investment Advisors, Inc. for $2.5 million in cash and 208,331 shares of common stock, for total consideration of $5.2 million. In connection with this acquisition, the Company formed Hudson Valley Investment Advisors, LLC (“HVIA”) as a subsidiary of the Company.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

In connection with the acquisition, the Company recorded $2.8 million in amortizable intangible assets and $2.5 million in goodwill. The amortizable intangible assets consist of $2.3 million of the value of non-competition rights and $500,000 of the value of a customer list. Such intangible assets will be amortized over 10 years, equal to the term of the exclusive management contract established with the principal manager of HVIA. The manager receives a fee, payable quarterly, equal to 50% of the net revenues as defined, and was eligible to receive an additional $1.0 million earn-out over a five-year period, if certain revenues were achieved. The earnout portion was settled for $750,000 and recorded as additional goodwill. The Company has an option to purchase the management contract under certain circumstances.

On October 1, 2004, the Company completed its acquisition of Warwick Community Bancorp, Inc. (“WSB” or “Warwick”), located in Warwick, New York. WSB was the holding company for The Warwick Savings Bank, headquartered in Warwick, New York, The Towne Center Bank, headquartered in Lodi, New Jersey and Hardenburgh Abstract Company of Orange County, Inc., headquartered in Goshen, New York.

On January 14, 2004, the Company completed its acquisition of E.N.B. Holding Company, Inc. (“ENB”), located in Ellenville, New York. ENB was the holding company for Ellenville National Bank.

On April 23, 2002, the Company completed its acquisition of The National Bank of Florida (“NBF”), located in Florida, New York.

Below is a summary of the financial transactions, including the purchase on May 19, 2005 of an HSBC Bank USA, National Association (“HSBC”) branch office in South Fallsburg New York, which has been consolidated with the Bank’s existing branch in South Fallsburg.


	HVIA		HSBC			WSB		ENB		NBF		Total
At Acquisition Date
Number of shares issued		208,331		—			6,257,896		3,969,676		—		10,435,903
Loans acquired	$	—	$	2,045		$	284,522	$	213,730	$	23,112	$	523,409
Deposits assumed		—		23,319			475,150		327,284		88,182		913,935
Cash paid/(received)		2,500		(18,938	)		72,601		36,773		28,100		121,036
Goodwill		2,531		—			91,576		51,794		13,063		158,964
Core deposit/other intangibles*		2,830		1,690			10,395		6,624		1,787		23,326
At June 30, 2007
Goodwill	$	3,279	$	—		$	92,262	$	52,277	$	13,336	$	161,154
Accumulated intangible amortization		306		721			4,788		5,015		1,505		12,335
Net core deposit/other intangibles		2,524		969			5,607		1,609		282		10,991

*	In addition to the above, the Company also carries $792,000 in mortgage servicing rights.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

The following table sets forth the future amortization of core deposit and other intangible assets:


At June 30, 2007	Amortization
Less than one year	$	2,705
One to two years		2,290
Two to three years		1,930
Three to four years		1,511
Four to five years		1,009
Beyond five years		1,546

Total	$	10,991

Goodwill is not amortized to expense, but is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit intangible asset is recognized apart from goodwill and amortized to expense over its estimated useful life and evaluated, at least annually, for impairment.

On March 30, 2007, the Company received notice from the U.S. Internal Revenue Service of the disallowance of certain expenses related to Warwick Community Bancorp, Inc.’s disposition of assets prior to its acquisition by the Company. This disallowance of $2.3 million in federal income taxes, if realized, would have resulted in a reduction of a refund receivable. In May, the Company agreed to settle this matter and recorded $591,000 in increased goodwill reflecting the effects of the settlement. Further, as a result of the agreement, the Company recorded as interest due on the remaining $3.7 million refund, $235,000 in other income.

4.	Critical Accounting Policies

The accounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to the Company’s financial results include the allowance for loan losses, accounting for goodwill and the recognition of interest income. The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. Accounting for goodwill is considered to be a critical policy because goodwill must be tested for impairment at least annually using a “two-step” approach that involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions utilized. Interest income on loans, securities and other interest-earning assets is accrued monthly unless management considers the collection of interest to be doubtful. 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. Application of assumptions different than those used by management could result in material changes in the Company’s financial position or results of operations. Footnote 2 (Summary of Significant Accounting Policies) of the Annual Report on Form 10-K for the year ended September 30, 2006 provides detail regarding the Company’s accounting for the allowance for loan losses.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

With the exception of the adoption of Staff Accounting Bulletin (SAB) 108 on October 1, 2006 and the resulting adjustment to retained earnings, there have been no significant changes in the application of accounting policies since September 30, 2006. As a result of the implementation of SAB 108, the Company corrected immaterial errors which resulted in $374,000 being credited to retained earnings, net of taxes of $264,000. $611,000 was credited due to analysis of the Company’s reserve for off-balance sheet liabilities. This analysis applied to the fiscal year ended September 30, 2000 and subsequent periods. $237,000 was charged to retained earnings to reflect post-employment benefits associated with the Company’s BOLI contracts since September 30, 2002. The Company appropriately considered these adjustments to be immaterial, individually and in the aggregate, to its prior financial statements.

Loans

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


	June 30, 2007		September 30, 2006
Real estate – residential mortgage	$	501,795	$	462,996
Real estate – commercial mortgage		537,258		529,607
Real estate – construction		133,133		96,656
Commercial and industrial		205,632		160,823
Consumer loans		236,023		223,476

Total	$	1,613,841	$	1,473,558

Loans held for sale totaled $7.5 million at September 30, 2006 and represented student loans, which were purchased by a third party 60 days after annual advances occurred. There were no loans held for sale as of June 30, 2007. The Company ceased student loan originations as of June 30, 2007.

6.	Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio. Management’s evaluations, which are subject to periodic review by the Company’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers’ ability to pay. However, consistent with our policy, during the quarter ended December 31, 2006 we enhanced our methodology to better reflect current loan loss experience post acquisitions. Changes in the allowance for loan losses may be necessary in the future based on changes in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory examinations, the identification of additional problem loans, and other factors. Non-performing loans increased $2.6 million from $5.0 million at September 30, 2006 to $7.7 million at June 30, 2007, as payment on certain previously criticized loans ceased or slowed further, resulting in their categorization as non-performing. No significant increase in loan loss reserves was required by this classification based on an evaluation of underlying collateral values.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

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


	Three Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Balance at beginning of period	$	20,435		$	20,093		$	20,373		$	21,047
Transfer to reserve for contingent loan commitments		—			—			—			(73	)
Charge-offs		(731	)		(167	)		(1,549	)		(1,704	)
Recoveries		595			134			675			190

Net charge-offs		(136	)		(33	)		(874	)		(1,514	)

Provision for loan losses		400			300			1,200			900

Balance at end of period	$	20,699		$	20,360		$	20,699		$	20,360

Net charge-offs to average loans outstanding (annualized)		0.03	%		0.01	%		0.08	%		0.14	%

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


	June 30, 2007					September 30, 2006
	90 days past due Still accruing		Non- Accrual			90 days past due Still accruing		Non- Accrual
Non-performing loans:
One- to four- family	$	2,106	$	—		$	629	$	472
Commercial real estate		1,350		1,293			613		2,367
Commercial business		19		1,839			30		459
Construction		—		689			—		—
Consumer		241		135			310		144

Total non-performing loans	$	3,716	$	3,956		$	1,582	$	3,442

Real estate owned:
One- to four-family				705					87

Total real estate owned				705					87

Total non-performing assets			$	8,377				$	5,111

Ratios:
Non-performing loans to total loans				0.48	%				0.34	%
Non-performing assets to total assets				0.30	%				0.18	%
Allowance for loan losses to total non-performing loans				270	%				406	%
Allowance for loan losses to average loans				1.36	%				1.44	%

The Company recorded an investment in impaired loans, as defined by SFAS No. 114, of $1.1 million and $0 at June 30, 2007 and September 30, 2006, respectively. The amount of allowance allocated to impaired loans was $114,000 at June 30, 2007.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

7.	Securities

The following is a summary of securities available for sale at June 30, 2007 and September 30, 2006:


	Available for Sale Portfolio June 30, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities
Mortgage-backed pass-through securities	$	500,077	$	133	$	(11,226	)	$	488,984
Collateralized mortgage obligations		39,394		19		(553	)		38,860

Total mortgage-backed securities		539,471		152		(11,779	)		527,844

Investment securities
U.S. Government and federal agency securities		139,054		7		(952	)		138,109
State and municipal securities		131,109		27		(2,252	)		128,884
Equity securities		105		8		(1	)		112

Total investment securities		270,268		42		(3,205	)		267,105

Total available for sale	$	809,739	$	194	$	(14,984	)	$	794,949


	Available for Sale Portfolio September 30, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities
Mortgage-backed pass-through securities	$	540,888	$	482	$	(10,066	)	$	531,304
Collateralized mortgage obligations		37,667		139		(410	)		37,396

Total mortgage-backed securities		578,555		621		(10,476	)		568,700

Investment securities
U.S. Government and federal agency securities		289,506		29		(3,355	)		286,180
State and municipal securities		95,405		799		(234	)		95,970
Equity securities		947		7		(75	)		879

Total investment securities		385,858		835		(3,664	)		383,029

Total available for sale	$	964,413	$	1,456	$	(14,140	)	$	951,729

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

The following is a summary of securities held to maturity at June 30, 2007 and September 30, 2006:


	Held to Maturity Portfolio June 30, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities
Mortgage-backed pass-through securities	$	14,037	$	58	$	(152	)	$	13,943
Collateralized mortgage obligations		1,288		41		—			1,329

Total mortgage-backed securities		15,325		99		(152	)		15,272

Investment securities
State and municipal securities		26,035		162		(248	)		25,949
Other investments		56		4		—			60

Total investment securities		26,091		166		(248	)		26,009

Total held to maturity	$	41,416	$	265	$	(400	)	$	41,281


	Held to Maturity Portfolio September 30, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mortgage-backed securities
Mortgage-backed pass-through securities	$	18,472	$	100	$	(294	)	$	18,278
Collateralized mortgage obligations		1,467		44		—			1,511

Total mortgage-backed securities		19,939		144		(294	)		19,789

Investment securities
State and municipal securities		40,892		323		(288	)		40,927
Other investments		156		5		(1	)		160

Total investment securities		41,048		328		(289	)		41,087

Total held to maturity	$	60,987	$	472	$	(583	)	$	60,876

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

At June 30, 2007 and September 30, 2006, the accumulated unrealized net loss on securities available for sale (net of tax of $6.0 million and $5.2 million respectively) that was included in accumulated other comprehensive loss, a separate component of stockholders’ equity, was $8.8 million and $7.5 million, respectively. Gross realized gains were $4,000 and $0 for the nine months ended June 30, 2007 and 2006, respectively.

Securities, including held-to-maturity securities, with a carrying amount of $352.5 million and $427.9 million were pledged as collateral for borrowings and securities repurchase agreements at June 30, 2007 and September 30, 2006, respectively. U.S. Government and municipal securities with carrying amounts of $233.5 million and $180.5 million were pledged as collateral for municipal deposits and other purposes at June 30, 2007 and September 30, 2006, respectively.

The following tables summarize, for all securities in an unrealized loss position at June 30, 2007 and September 30, 2006, respectively, the aggregate fair value and gross unrealized loss by length of time those securities have continuously been in an unrealized loss position:


	Less than 12 months					12 months or longer					Total
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
As of June 30, 2007
Available For Sale:
Mortgage-backed securities	$	(2,541	)	$	176,718	$	(9,238	)	$	316,150	$	(11,779	)	$	492,868
U.S. Government Agency securities		(91	)		14,881		(861	)		113,264		(952	)		128,145
Municipal securities		(1,917	)		111,682		(335	)		13,303		(2,252	)		124,985
Equity securities		—			—		(1	)		104		(1	)		104

Total available-for-sale:		(4,549	)		303,281		(10,435	)		442,821		(14,984	)		746,102

Held to Maturity:
Mortgage-backed securities		(12	)		1,868		(140	)		8,008		(152	)		9,876
State and municipal securities		(59	)		8,012		(189	)		3,887		(248	)		11,899
Other securities		—					—			—		—

Total held to maturity:		(71	)		9,880		(329	)		11,895		(400	)		21,775

Total securities:	$	(4,620	)	$	313,161	$	(10,764	)	$	454,716	$	(15,384	)	$	767,877

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per 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, 2006
Available For Sale:
Mortgage-backed securities	$	(627	)	$	71,092	$	(9,849	)	$	392,338	$	(10,476	)	$	463,430
U.S. Government Agency securities		(282	)		34,655		(3,073	)		231,584		(3,355	)		266,239
Municipal securities		(31	)		9,281		(203	)		14,409		(234	)		23,690
Equity securities		—			105		(75	)		767		(75	)		872

Total available-for-sale:		(940	)		115,133		(13,200	)		639,098		(14,140	)		754,231

Held to Maturity:
Mortgage-backed securities		(3	)		1,121		(291	)		10,090		(294	)		11,211
State and municipal securities		(89	)		18,998		(199	)		4,424		(288	)		23,422
Other securities		—			—		(1	)		100		(1	)		100

Total held to maturity:		(92	)		20,119		(491	)		14,614		(583	)		34,733

Total securities:	$	(1,032	)	$	135,252	$	(13,691	)	$	653,712	$	(14,723	)	$	788,964

Substantially all of the unrealized losses at June 30, 2007 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no individual securities with unrealized losses of significant dollar amounts at June 30, 2007. A total of 440 securities were in a continuous unrealized loss position for less than 12 months, and 272 securities for 12 months or longer. For fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment. The Company has the ability and intent to hold securities with unrealized losses until a market price recovery (which, for securities with fixed maturities, may be until maturity), therefore, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2007.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

8.	Deposits

Major classifications of deposits are summarized below:


	June 30, 2007		September 30, 2006
Demand deposits:
Retail	$	154,497	$	163,582
Commercial and municipal		205,389		203,265
Business NOW deposits		44,046		50,546
Personal NOW deposits		116,848		103,186

Total transaction accounts		520,780		520,579
Savings		369,886		378,337
Money market		268,424		238,977
Certificates of deposit		589,737		591,766

Total deposits	$	1,748,827	$	1,729,659

Municipal deposits of $192.5 million and $147.8 million were included in total deposits at June 30, 2007 and September 30, 2006, respectively. June 30, 2007 includes $4.2 million in brokered certificates of deposit.

9.	FHLB and Other Borrowings

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


	June 30, 2007				September 30, 2006
	Amount		Rate		Amount		Rate
By type of borrowing:
Advances	$	440,171	5.10	%	$	350,163	5.18	%
Repurchase agreements		155,240	4.08			332,576	5.04

Total borrowings	$	595,411	4.84	%	$	682,739	5.11	%

By remaining period to maturity:
One year or less	$	359,826	5.29	%	$	565,555	5.40	%
One to two years		30,503	3.62			32,180	3.28
Two to three years		21,043	3.89			38,266	3.80
Three to four years		4,689	4.21			21,337	3.84
Four to five years		—	—			21,560	3.82
Five years or greater		179,350	4.25			3,841	4.89

Total borrowings	$	595,411	4.84	%	$	682,739	5.11	%

As a member of the FHLB of New York, the Bank may borrow in the form of term and overnight borrowings up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of June 30, 2007 and September 30, 2006, the Bank had pledged mortgages totaling $370.4 million and $354.7 million, respectively. The Bank had also pledged securities with carrying amounts of $352.5 million and $427.9 million as of June 30, 2007 and September 30, 2006,

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

respectively, to secure borrowings. Based on total outstanding borrowings with the FHLB of New York which totaled $584.2 million and $670.1 million as of June 30, 2007 and September 30, 2006, the Bank had unused borrowing capacity under the FHLB of New York of $236.3 million and $102.6 million, respectively.

During the nine months ended June 30, 2007 $16.2 million in borrowings were called, with an associated decrease in interest expense of $500,000. For the nine months ending June 30, 2006 a $1.3 million decrease in interest expense for called borrowings was realized. Of the $155.2 million in repurchase agreements, $145.0 million are callable quarterly through their respective maturities. Premium recorded, but not accreted into income at June 30, 2007, was $1.7 million. In addition, the Company has $440.2 million in advances, of which $94.5 million are callable quarterly.

10.

Earnings Per Common Share

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

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

Basic earnings per common share is computed as follows:


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2007		2006		2007		2006
Weighted average common shares outstanding (basic), in ‘000s		40,722		40,729		41,012		40,956

Net income	$	5,436	$	5,561	$	14,478	$	15,125
Basic earnings per common share	$	0.13	$	0.14	$	0.35	$	0.37

Diluted earnings per common share is computed as follows:


	For the Three Months Ended June 30,				For the Nine Months Ended June 30,
	2007		2006		2007		2006
Weighted average common shares outstanding (basic), in ‘000s		40,722		40,729		41,012		40,956
Effect of common stock equivalents		502		526		539		559

Total diluted shares		41,224		41,255		41,551		41,515
Net income	$	5,436	$	5,561	$	14,478	$	15,125
Diluted earnings per common share	$	0.13	$	0.13		0.35	$	0.36

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

11.

Guarantor’s Obligations Under Guarantees

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

As of June 30, 2007, the Company had $20.7 million in outstanding letters of credit, of which $8.8 million were secured by cash collateral.

12.

Pension and Other Post-Retirement Plans

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


	Pension Plans						Other Post-Retirement Plans
	Three Months Ended June 30,						Three Months Ended June 30,
	2007			2006			2007			2006
Service cost	$	—		$	286		$	1		$	9
Interest cost		452			822			28			19
Expected return on plan assets		(570	)		(971	)		—			—
Amortization net transition obligation		—			—			13			2
Amortization of prior service cost		—			(2	)		1			2
Amortization of gain or loss		27			(28	)		(25	)		(26	)

Net periodic cost (benefit)	$	(91	)	$	107		$	18		$	(6	)


	Pension Plans						Other Post-Retirement Plans
	Nine Months Ended June 30,						Nine Months Ended June 30,
	2007			2006			2007			2006
Service cost	$	—		$	942		$	14		$	20
Interest cost		1,284			1,270			59			44
Expected return on plan assets		(1,716	)		(1,620	)		—			—
Amortization net transition obligation		—			—			18			8
Amortization of prior service cost		—			(8	)		6			7
Amortization of gain or loss		27			135			(99	)		(107	)

Net periodic cost (benefit)	$	(405	)	$	719		$	(2	)	$	(28	)

No contributions are expected to be made in fiscal 2007. As part of the acquisition of WSB, the Company assumed the WSB Pension Plan, a defined benefit plan. The WSB plan was frozen on April 30, 2002. As part of the acquisition of ENB, the Company assumed the ENB Pension Plan, a defined benefit plan. The ENB plan was frozen in connection with the merger of ENB into the Company. On April 1, 2006 the Company approved merging both the ENB and WSB pension plans into the Provident Bank Pension Plan, effective April 30, 2006.

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands, except per share data)

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

In addition, the Provident Bank 401(k) Plan and Profit Sharing Plan was amended. The amendment to the 401(k) plan added a profit sharing contribution for employees which is expected to be 3% of eligible compensation for fiscal 2007. In 2007, it is anticipated that the annual cost of the profit sharing contribution will be approximately $800,000.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." The standard calls for the balance sheet to fully recognize the funded status of a benefit plan, such as a pension plan. This standard applies for years ending after December 15, 2006 to employers with publicly traded equity securities. If such unrecognized components of defined benefit pension plans and retiree medical plans were recorded as of September 30, 2006, accumulated other comprehensive loss would have been increased by $605,000. The adoption of SFAS 158 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The Company has made, and may continue to make, various forward-looking statements with respect to earnings, credit quality and other financial and business matters for 2007 and, in certain instances, subsequent periods. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements for subsequent periods are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements.

In addition to those factors previously disclosed by the Company and those factors identified elsewhere herein, the following factors could cause actual results to differ materially from such forward-looking statements: pricing pressures on loan and deposit products, changes in local and national economic conditions, the extent and timing of actions of the Company’s regulators, customer deposit disintermediation, changes in customers’ acceptance of the Company’s products and services, general actions of competitors, other normal business risks such as credit losses, litigation and increases in the levels of non-performing assets and unfavorable changes in tax legislation. The Company’s forward-looking statements speak only as of the date on which such statements are made. The Company assumes no duty to update forward-looking statements to reflect new, changing or unanticipated events or circumstances.

The Company’s significant accounting policies are summarized in note 2 of the consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2006. An accounting policy considered particularly critical to the Company’s financial results is the allowance for loan losses. The methodology for assessing the appropriateness of the allowance for loan losses and non-performing loans is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes in the necessary allowance.

Comparison of Financial Condition at June 30, 2007 and September 30, 2006

Total assets as of June 30, 2007 were $2.8 billion, a decrease of $58.5 million, or 2.1%, from September 30, 2006. The decrease from September 30, 2006 was primarily due to a decrease in the securities portfolio of $176.4 million, or 17.4%, offset in part by an increase in net loans of $140.0 million.

Net loans as of June 30, 2007 were $1.6 billion, an increase of $140.0 million, or 9.6%, over net loan balances of $1.45 billion at September 30, 2006. Commercial loans, primarily commercial and industrial loans, increased by $88.9 million, or 11.3%, over balances at September 30, 2006. Consumer loans increased by $12.5 million, or 5.6%, during the nine-month period ended June 30, 2007, while residential loans increased by $38.8 million, or 8.4%. Total loan originations, excluding loans originated for sale, were $470.6 million for the nine months ended June 30, 2007. However, repayments were $329.6 million for the nine months ended June 30, 2007. Non-performing loans increased $2.6 million from September 30, 2006 due to payment on previously criticized loans ceasing or slowing further, resulting in their categorization as non-performing.

Net charge-offs of $874,000 for the nine months ended June 30, 2007 represent 0.08% of average loans outstanding on an annualized basis. Loan quality continues to be strong. At $7.7 million, non-performing loans as a percentage of total loans was 0.48%, as compared to 0.34% at

September 30, 2006, and 0.32% at June 30, 2006. The allowance for loan losses represents 1.36% of average loans and 270% of non-performing loans, each at June 30, 2007.

Total securities decreased by $176.4 million, or 17.4%, to $836.4 million at June 30, 2007 from $1.0 billion at September 30, 2006 primarily due to maturities being utilized to fund loans and pay down borrowings and not being reinvested at current rates. Maturities were primarily in mortgage-backed securities, which decreased by $45.5 million, or 7.7%, and U.S. Government and federal agency securities, which decreased $148.1 million, or 51.7%. These decreases were partially offset by increases due to purchases in state and municipal securities of $18.1 million, or 13.2%.

Deposits as of June 30, 2007 were $1.7 billion, an increase of $19.2 million, or 1.1%, from September 30, 2006. As of June 30, 2007, retail and commercial transaction accounts were 29.8% of deposits compared to 30.1% at September 30, 2006. The decrease in demand deposits of $7.0 million, or 1.9%, was offset by an increase in NOW accounts of $7.2 million. The decrease in savings accounts of $8.5 million was largely due to the migration from the lower-yielding savings accounts to our power money market account products, or in some cases, to other institutions offering higher yields. In recent periods the rate of decline in savings accounts appears to have slowed (see “Liquidity and Capital Resources”). Certificates of deposit decreased by $2.0 million, or 0.3%, primarily due to increases in municipal certificates of $45.0 million offset by declines of $47.1 million in retail certificates of deposit. Money Market accounts increased by $29.4 million, or 12.3% as the Company has been offering certain new products that offer higher, market-sensitive interest rates and other products that offer transaction account incentives.

Borrowings decreased by $87.3 million, or 12.8%, from September 2006, to $595.4 million. The decrease was due to the Company paying down higher rate borrowings with maturing securities. The Company has entered into $200 million in structured advances/repurchase agreements which are callable quarterly after an initial lockout period of six months to one year.

Stockholders’ equity decreased by $3.0 million, or 0.7%, to $402.3 million at June 30, 2007, compared to $405.3 million at September 30, 2006. The decrease was primarily due to repurchases of 1.1 million shares of the Company’s stock at a cost of $15.2 million under the Company’s stock repurchase program and an increase in other comprehensive loss on available-for-sale securities of $1.2 million to $8.8 million offsetting these decreases were net retentions of earnings of $7.7 million and $4.8 million in stock-based compensation. The Company has a remaining authorization to repurchase 1,165,229 additional shares subject to market conditions.

Bank Tier I capital to adjusted total assets stands at 8.2% at June 30, 2007. Tangible capital at the holding company level is 8.8% of tangible assets.

Comparison of Operating Results for the Three Months Ended

June 30, 2007 and June 30, 2006

Net income for the three months ended June 30, 2007 was $5.4 million, a decrease of $125,000, compared to $5.6 million for the same period in fiscal 2006. Net interest income before provision for loan losses for the three months ended June 30, 2007 increased by $647,000, or 3.0%, to $22.3 million, compared to $21.7 million for the same period in the prior year. Non-interest income increased $627,000, or 14.4%, to $5.0 million for the three months ended June 30, 2007, compared to $4.4 million for the three months ended June 30, 2006, mainly due to investment management fee growth of $360,000. Non-interest expense increased $1.0 million, or 5.6%, to $19.1 million for the three months ended June 30, 2007, compared to $18.1 million for the same period in the prior year primarily due to increases in marketing and promotional expense of $362,000 and salaries and benefits of $757,000.

The relevant operating results performance measures follow:


	Three Months Ended June 30,
	2007			2006
Per common share:
Basic earnings	$	0.13		$	0.14
Diluted earnings		0.13			0.13
Dividends declared		0.05			0.05
Return on average (annualized):
Assets		0.78	%		0.81	%
Equity		5.32	%		5.74	%

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


	Three Months Ended June 30,
	2007								2006
	Average Outstanding Balance			Interest			Average Yield/Rate		Average Outstanding Balance			Interest			Average Yield/Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	847,627		$	16,552		7.83	%	$	736,000		$	13,987		7.62	%
Consumer loans		231,082			4,086		7.09			208,244			3,499		6.74
Residential mortgage loans		485,481			7,258		6.00			461,185			6,761		5.88

Total loans¹		1,564,190			27,896		7.15			1,405,429			24,247		6.92

Securities-taxable		695,016			7,952		4.59			871,878			9,198		4.23
Securities-tax exempt²		149,125			2,305		6.20			112,282			1,691		6.04
Other earning assets		32,705			641		7.86			31,908			402		5.06

Total securities and other earning assets		876,846			10,897		4.98			1,016,068			11,291		4.46

Total interest-earning assets		2,441,036			38,794		6.37			2,421,497			35,538		5.89

Non-interest-earning assets		331,630								335,167

Total assets	$	2,772,666							$	2,756,664

Interest bearing liabilities:
NOW checking	$	160,187			144		0.36	%	$	153,848			123		0.32	%
Savings, clubs and escrow		383,955			477		0.50			436,611			548		0.50
Money market accounts		256,541			1,723		2.69			240,071			1,214		2.03
Certificate accounts		589,733			6,657		4.53			577,219			5,607		3.90

Total interest-bearing deposits		1,390,416			9,001		2.60			1,407,749			7,492		2.13
Borrowings		593,467			6,654		4.50			582,294			5,770		3.97

Total interest-bearing liabilities		1,983,883			15,655		3.16			1,990,043			13,262		2.67

Non-interest-bearing deposits		348,698								357,992
Other non-interest-bearing liabilities		30,557								20,231

Total liabilities		2,363,138								2,368,266
Stockholders’ equity		409,528								388,398

Total liabilities and equity	$	2,772,666							$	2,756,664

Net interest rate spread							3.21	%							3.21	%

Net earning assets	$	457,153							$	431,454

Net interest margin					23,141		3.80	%					22,276		3.69	%

Less tax equivalent adjustment²					(808	)							(592	)

Net interest income				$	22,331							$	21,684

Ratio of average interest-earning assets to average interest-bearing liabilities		123.04	%							121.68	%

¹	Includes non-accrual loans.

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

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


	Three Months Ended June 30, 2007 vs. 2006 Increase/(Decrease) Due to
	Volume¹			Rate¹			Total
Interest-earning assets
Commercial and commercial mortgage loans	$	2,175		$	390		$	2,565
Consumer loans		396			191			587
Residential mortgage loans		368			129			497
Securities-taxable		(1,990	)		744			(1,246	)
Securities-tax exempt²		569			45			614
Other earning assets		10			229			239

Total interest income		1,528			1,728			3,256

Interest-bearing liabilities
NOW checking		5			16			21
Savings		(61	)		(10	)		(71	)
Money market		88			421			509
Certificates of deposit		123			927			1,050
Borrowings		112			772			884

Total interest expense		267			2,126			2,393

Net interest margin		1,261			(398	)		863

Less tax equivalent adjustment²		(199	)		(17	)		(216	)

Net interest income	$	1,062		$	(415	)	$	647

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

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

Net interest income for the three months ended June 30, 2007 increased by $647,000, or 3.0%, to $22.3 million, compared to $21.7 million for the quarter ended June 30, 2006. Net interest income on a tax-equivalent basis increased by $865,000, or 3.9%, to $23.1 million for the quarter ended June 30, 2007, compared to $22.3 million for the same three months in 2006. Interest expense increased by $2.4 million, or 18.0% to $15.7 million, for the quarter, compared to $13.3 million for the same quarter in 2006. The Company assumed certain callable borrowings in connection with a previous acquisition and recorded premiums related to the assumption of the liabilities. In 2006, several borrowings were called and the Company recorded $1.0 million in reduced interest expense as a result. Similar calls were also made in 2007, however, the reduction in interest expense was $500,000 in 2007. Average interest-bearing liabilities decreased by $6.2 million and the average cost of interest-bearing liabilities increased by 49 basis points. The average yields on the loan portfolio and investment securities on a tax-equivalent basis increased by 23 basis points and 43 basis points, respectively, while interest-bearing deposit accounts increased 47 basis points and average borrowings costs increased 53 basis points. The tax equivalent net interest margin, therefore, increased by 11 basis points to 3.80%, while net interest spread remained the same as compared to 2006 at 3.21%.

incurred loan losses inherent in the existing portfolio. The Company recorded $400,000 in loan loss provisions for the three months ended June 30, 2007 compared to $300,000 for the three months ended June 30, 2006, reflecting the increased level of commercial loans. Net charge-offs for the three months ended June 30, 2007 were $136,000 compared to $33,000 for the same period in 2006. (See Note 6 in Item#1 for further detail.)

Non-interest income was $5.0 million for the three months ended June 30, 2007, compared to $4.4 million for the three months ended June 30, 2006, an increase of $627,000, or 14.4% due, in large part, to fees earned by our investment management subsidiary, Hudson Valley Investment Advisors (“HVIA”), acquired in June 2006. Deposit fees and service charges increased by $149,000, or 5.5%, which offset a decline in title insurance fees of $91,000 due to a slow down in the real estate markets. Other non-interest income increased $195,000 due to interest recorded on an IRS refund of $235,000.

Non-interest expense for the three months ended June 30, 2007 increased by $1.0 million, or 5.6%, to $19.1 million mainly due to increased marketing expenses of $362,000, and compensation and benefits expense of $757,000. Compensation and benefits increased due to annual salary increases and fewer actual staff vacancies. Stock-based compensation increased by $106,000 mainly due to expenses associated with additional stock option expense and ESOP expense associated with the Company’s higher stock price in 2007 as compared to 2006. ATM/debit card expense increased $11,000 due to volume increases, which was more than offset by lower data and check processing expenses of $137,000. Other expenses increased by $54,000 primarily due to business development and training expense increases. Occupancy and office operations decreased by $130,000 for the three months ended June 30, 2007 over the same period in 2006.

Income Taxes. Income tax expense was $2.4 million for the three months ended June 30, 2007, compared to $2.1 million for the same period in 2006. The effective tax rates were 30.9% and 27.8%, respectively. The higher rate reflects the tax benefit of $241,000 on donated property in 2006 which more than offset the higher utilization of tax exempt securities in 2007.

Comparison of Operating Results for the Nine Months Ended

June 30, 2007 and June 30, 2006

Net Income. For the nine months ended June 30, 2007, net income was $14.5 million, a decrease of $647,000 compared to $15.1 million for the same period in fiscal 2006. Net interest income before provision for loan losses for the nine months ended June 30, 2007 decreased by $1.5 million, or 2.4%, compared to the same period in fiscal 2006. Non-interest income increased $2.5 million, or 20.4% to $14.9 million for the nine months ended June 30, 2007, compared to $12.4 million for the nine months ended June 30, 2006. Non-interest expense increased $1.9 million, or 3.6%, to $55.5 million for the nine months ended June 30, 2007, compared to $53.6 million for the same period in fiscal 2006.

The relevant performance measures follow:


	Nine Months Ended June 30,
	2007			2006
Per common share:
Basic earnings	$	0.35		$	0.37
Diluted earnings		0.35			0.36
Dividends declared		0.15			0.15
Return on average (annualized):
Assets		0.69	%		0.76	%
Equity		4.73	%		5.18	%


	Nine Months Ended June 30,
	2007								2006
	Average Outstanding Balance			Interest			Average Yield/ Rate		Average Outstanding Balance			Interest			Average Yield/ Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	814,331		$	47,501		7.80	%	$	715,767		$	40,051		7.48	%
Consumer loans		234,479			12,472		7.11			198,783			9,644		6.49
Residential mortgage loans		470,129			20,874		5.94			459,049			20,147		5.87

Total loans¹		1,518,939			80,847		7.12			1,373,599			69,842		6.80

Securities-taxable		761,860			25,683		4.51			831,323			25,262		4.06
Securities-tax exempt²		143,325			6,523		6.08			102,410			4,508		5.88
Other earning assets		34,192			1,819		7.11			29,720			1,058		4.76

Total securities and other earning assets		939,377			34,025		4.84			963,453			30,828		4.28

Total interest-earning assets		2,458,316			114,872		6.25			2,337,052			100,670		5.76

Non-interest-earning assets		346,359								336,889

Total assets	$	2,804,675							$	2,673,941

Interest bearing liabilities:
NOW checking	$	154,187			411		0.36	%	$	155,064			390		0.34	%
Savings, clubs and escrow		375,843			1,413		0.50			454,342			1,732		0.51
Money market accounts		248,278			4,693		2.53			225,696			2,827		1.67
Certificate accounts		605,581			20,447		4.51			528,925			13,897		3.51

Total interest-bearing deposits		1,383,889			26,964		2.61			1,364,027			18,846		1.85
Borrowings		629,475			23,132		4.91			541,174			16,209		4.00

Total interest-bearing liabilities		2,013,364			50,096		3.33			1,905,201			35,055		2.46

Non-interest-bearing deposits		343,659								357,043
Other non-interest-bearing liabilities		38,311								21,229

Total liabilities		2,395,334								2,283,473
Stockholders’ equity		409,341								390,468

Total liabilities and equity	$	2,804,675							$	2,673,941

Net interest rate spread							2.92	%							3.30	%

Net earning assets	$	444,952							$	431,851

Net interest margin					64,776		3.52	%					65,615		3.75	%

Less tax equivalent adjustment²					(2,283	)							(1,578	)

Net interest income				$	62,493							$	64,037

Ratio of average interest-earning assets to average interest-bearing liabilities		122.10	%							122.67	%

¹	Includes non-accrual loans.

²	Tax equivalent adjustment for tax exempt income is based on a 35% federal rate.


	Nine Months Ended June 30, 2007 vs. 2006 Increase/(Decrease) Due to
	Volume¹			Rate ¹			Total
Interest-earning assets
Commercial and commercial mortgage loans	$	5,684		$	1,766		$	7,450
Consumer loans		1,846			982			2,828
Residential mortgage loans		487			240			727
Securities-taxable		(2,231	)		2,652			421
Securities-tax exempt²		1,857			158			2,015
Other earning assets		178			583			761

Total interest income		7,821			6,381			14,202

Interest-bearing liabilities
NOW checking		(2	)		23			21
Savings		(287	)		(32	)		(319	)
Money market		304			1,562			1,866
Certificates of deposit		2,209			4,341			6,550
Borrowings		2,891			4,032			6,923

Total interest expense		5,115			9,926			15,041

Net interest margin		2,706			(3,545	)		(839	)
Less tax equivalent adjustment²		(650	)		(55	)		(705	)

Net interest income	$	2,056		$	(3,600	)	$	(1,544	)

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

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

Net Interest Income. Net interest income for the nine months ended June 30, 2007 was $62.5 million, compared to $64.0 million for the nine months ended June 30, 2006, a decrease of $1.5 million, or 2.4%. Average interest-earning assets increased by $121 million compared to the prior year period. This resulted in an increase in yield on earning assets of 49 basis points to 6.25% with the addition of higher yielding assets. The cost of interest-bearing liabilities increased by 87 basis points to 3.33%. Average short-term borrowing rates increased 81 basis points, compared to the same period in 2006. When combined with increases of $88.3 million in average borrowings and $19.9 million in average interest-bearing deposits, the result was increased interest expense of $15.0 million, to $50.1 million. Similar to the quarter discussion, borrowings assumed in a previous acquisition were called, which reduced interest expense by $1.3 million in 2006 and $500,000 in 2007. The difference in the mix of deposits also contributed to higher interest expense.

Provision for Loan Losses. The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio. The Company recorded $1.2 million and $900,000, respectively, in loan loss provisions during the nine months ended June 30, 2007 and 2006, reflecting the increase in losses inherent in the commercial loan balances outstanding. Net charge-offs for the nine months ended June 30, 2007 were $874,000 compared to net charge-offs of $1.5 million for the same period in fiscal 2006. (See Note 6 in Item 1 for further discussion.)

Non-Interest Income was $14.9 million for the nine months ended June 30, 2007, compared to $12.4 million for the nine months ended June 30, 2006, representing an increase of $2.5 million or 20.4%. Investment management fees increased by $1.2 million, primarily due to fees earned by our investment management subsidiary, HVIA. Increases in deposit services fees of $580,000, or 7.3%, offset a decline in title insurance fees of $351,000 due to a slowdown in the real estate markets. Income from bank-owned life insurance (BOLI) increased by $388,000 due to death benefit proceeds received in the first fiscal quarter of 2007. Other non-interest income increased $677,000 due to gains on the disposition of real estate of $212,000 in the first quarter of 2007, and gains associated with the Company’s student loan portfolio of $326,000.

Non-Interest Expense for the nine months ended June 30, 2007 increased by $1.9 million, or 3.6%, to $55.5 million, compared to $53.6 million for the nine months ended June 30, 2006, primarily due to increased marketing expenses of $1.1 million and professional fees of $456,000 (HVIA management fees). Compensation and benefits expense increased $516,000 from the prior year due to savings from retirement plan changes implemented in the prior year being offset by salary increases and fewer staff vacancies in 2007. Stock-based compensation declined by $223,000 due to lower acceleration of vesting of restricted stock awards and prior year ESOP adjustments. The ATM/debit card expense increase of $223,000 was partially offset by lower data and check processing expenses of $133,000 as we took our data processing operations in-house in November, 2005. Other non-interest expenses increased by $420,000 mainly due to increases in business development and training expenses, courier and correspondent expenses, and regulatory assessments.

Income Taxes. Income tax expense was $6.2 million for the nine months ended June 30, 2007, compared to $6.8 million expense for the same period in 2006. The effective tax rates were 30.0% and 31.0%, respectively. As previously mentioned, the Company’s strategies for the utilization of tax-advantaged investments and income from BOLI has had a positive impact on its income tax liabilities.

Liquidity and Capital Resources

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

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

The Company’s primary investing activities are the origination of commercial mortgage loans, construction loans, commercial and industrial loans, one- to four-family residential mortgage loans, home equity loans and the purchase of investment securities and mortgage-backed securities. During the nine months ended June 30, 2007 and 2006, loan originations, excluding loans originated for sale, totaled $470.6 million and $470.1 million, respectively, and purchases of securities totaled $110.1 million and $227.7 million, respectively. The decrease in security purchases for the nine-month period ended June 30, 2007 reflects our focus on increasing the loan portfolio, which increased $140.3 million from September 30, 2006, and reducing higher cost borrowings. Loan origination commitments and undrawn lines of credit totaled $462 million at June 30, 2007. The Company anticipates that it will have sufficient funds available to meet current loan commitments. At June 30, 2007, the Company had investments of $40.4 million in BOLI contracts. Such investments are illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any.

Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, the appeal of non-deposit investments, and other factors. During the nine-month period ended June 30, 2007, short-term interest rates were stable. The federal funds rate at 5.25% is unchanged since June 2006. The interest rate yield curve has finally regained a slightly positive slope as the ten-year US Treasury yield at 4.65% was higher than the two-year note with a 4.58% yield. The negative spread that still exists between the federal funds rate and the two-year maturities still creates the expectations of a rate cut by the Federal Open Market Committee (“FOMC”).

Total deposits increased by $19.2 million for the nine months ended June 30, 2007. Within the deposit categories, money market accounts exhibited the largest increase, rising $29.4 million or 12.3%, due to success of our power and premium money market program. During the same period, transaction accounts remained relatively unchanged; however, within this category, Personal NOW accounts rose $5.7 million to $116.8 million, an increase of 5.2%. Certificates of deposit decreased by $2.0 million while savings accounts decreased by $8.5 million. Although savings balances have decreased by 8.5% since September 2006, there is evidence that this negative trend is slowing. Since March 31, 2007, savings balances have increased $5.1 million. During the same three month period, transaction accounts have exhibited similar behavior, with balances rising by $14.6 million. This positive development is consistent with forecasted behaviors that were based on a historical analysis of the Bank’s core deposit base. The interest rate environment has been relatively stable as the FOMC, after having raised rates for 17 consecutive meetings beginning June 2004, has kept the federal funds rate steady at 5.25% since June 2006. The erosion of balances in the Bank’s core deposit categories that took place during the rising interest rate environment appears to have abated during this recent period of rate stability. The increase in transaction account balances and the stabilization of the savings account balances is consistent with the Bank’s internal models.

The Company monitors its liquidity position on a daily basis. It generally remains fully invested and utilizes additional sources of funds through Federal Home Loan Bank of New York advances and repurchase agreements, of which $595.4 million was outstanding at June 30, 2007. At June 30, 2007, we had an additional borrowing capacity of $236.3 million under all credit facilities with the Federal Home Loan Bank. The Company may utilize brokered certificates of deposit as well. As of June 30, 2007 there was $4.2 million outstanding. The Company has $200 million in securities maturing/repricing over the next 12 months. The average tax equivalent yield on those securities is 3.80%. The Company will either purchase new securities at current yields, reduce its outstanding borrowings or fund loan demand.

At June 30, 2007, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $212.9 million, or 8.2% of adjusted assets (which is above the minimum required level of $104.5 million, or 4.00%) and a total risk-based capital level of $233.6 million, or 13.0% of risk-weighted assets (which is above the required level of $144.3 million, or 8%). Regulations require leverage and total risk-based capital ratios of 5.0% and 10.0%, respectively, in order to be classified as well-capitalized. In performing this calculation, the intangible assets recorded as a result of acquisitions are deducted from capital and from total adjusted assets for purposes of regulatory capital measures. At June 30, 2007, the Bank exceeded all capital requirements for the well-capitalized classification. These capital requirements, which are applicable to the Bank only, do not consider additional capital retained at the holding company level.

The Company declared a dividend of $0.05 per share payable on August 23, 2007 to stockholders of record on August 9, 2007.

The following table sets forth the Bank’s regulatory capital position at June 30, 2007 and September 30, 2006, compared to OTS requirements.


	OTS Requirements
	Bank Actual				Minimum Capital Adequacy				For Classification as Well Capitalized
	Amount		Ratio		Amount (Dollars in thousands)		Ratio		Amount		Ratio
June 30, 2007
Tangible Capital	$	212,905	8.2	%	$	39,197	1.5	%	$	—	—	%
Tier 1 (core) capital		212,905	8.2			104,525	4.0			130,656	5.0
Risk-based capital:
Tier 1		212,905	11.8			—	—			108,195	6.0
Total		233,604	13.0			144,261	8.0			180,326	10.0
September 30, 2006
Tangible Capital	$	208,820	7.8	%	$	40,080	1.5	%	$	—	—	%
Tier 1 (core) capital		208,820	7.8			106,879	4.0			133,599	5.0
Risk-based capital:
Tier 1		208,820	11.6			—	—			107,947	6.0
Total		229,193	12.7			143,929	8.0			179,912	10.0

Recent Accounting Standards

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

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans,” an amendment of FASB Statements No. 87, 88, 106 and 132(R) “SFAS 158”. For defined benefit post-retirement plans, SFAS 158 requires that the funded status be recognized in the statement of financial position, that assets and obligations that determine funded status be measured as of the end of the employer’s fiscal year, and that changes in funded status be recognized in comprehensive income in the year the changes occur. SFAS 158 does not change the amount of net periodic benefit cost included in net income or address measurement issues related to defined benefit post-retirement plans. The requirement to recognize funded status is effective for fiscal years ending after December 15, 2006. The requirement to measure assets and obligations as of the end of the employer’s fiscal year is effective for fiscal years ending after December 15, 2008. The unrecognized components of defined benefit pension plans and retiree medical plans will be recorded on the balance sheet at September 30, 2007. If such amounts were recorded as of September 30, 2006, accumulated other comprehensive loss would have been increased by $605,000. The adoption of SFAS 158 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2006. The adoption of SFAS 157 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108 to require quantification of financial statement misstatements under both the “rollover approach” and the “iron curtain approach.” The “rollover approach” quantifies a misstatement based on the amount of the error originating in the current year income statement, but ignores the effects of correcting the portion of the current year balance sheet misstatement that originated in prior years. The “iron curtain approach” quantifies a misstatement based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year(s) of origination. The provisions of SAB No. 108 must be applied to financial statements for fiscal years ending after November 15, 2006. The Company adopted SAB No.108, effective October 1, 2006 and recorded an adjustment to retained earnings of $374,000 (see discussion under 4. Critical Accounting Policies for further information.)

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

In July 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which attempts to set out a consistent framework for preparers to use to determine the appropriate level of tax reserves to maintain for “uncertain tax positions.” This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than fifty percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of a Company’s tax reserves. FIN 48 is effective October 1, 2007. We are currently assessing the financial statement impact of implementing FIN 48.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156 (“SFAS 156”), “Accounting for Servicing of Financial Assets” an amendment of FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and allows for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS

156 is effective for the fiscal year beginning after September 15, 2006. Implementation of SFAS 156 did not have a material impact on the consolidated earnings or financial position of the Company.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s most significant form of market risk is interest rate risk, as the majority of its assets and liabilities are sensitive to changes in interest rates. The Bank’s net interest income risk profile has become less interest rate sensitive since September 30, 2006. However, its NPV risk sensitivity has increased modestly. Quantitative and qualitative disclosure about market risk is presented at September 30, 2006 in Item 7A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 12, 2006. The following is an update of the discussion provided therein.

The table below sets forth, as of June 30, 2007, the estimated changes in our net portfolio value and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of the 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.

PROVIDENT BANK

Quarterly Report - Quantitative Analysis - MPV

6/30/2007


	NPV							Net Interest Income
Change in Interest Rates	Estimated		Estimated Increase (decrease) NPV					Estimated Net Interest		Estimated Increase (Decrease) in Net Interest Income
Change in Interest Rates	NPV		Amount			Percent		Income		Amount			Percent
300	$	376,176	$	(86,416	)	-18.7	%	$	90,387	$	(6,823	)	-7.0	%
200		404,394		(58,198	)	-12.6	%		92,821		(4,389	)	-4.5	%
100		434,100		(28,492	)	-6.2	%		95,134		(2,076	)	-2.1	%
0		462,592							97,211
-100		483,623		21,031		4.5	%		98,669		1,459		1.5	%

The table set forth above indicates that at June 30, 2007, in the event of an immediate 200 basis point decrease in interest rates, we would expect to experience a 5.0% increase in Net Portfolio Value (NPV) and a 0.7% increase in net interest income. In the event of an immediate 200 basis point increase in interest rates, we would expect to experience a 12.6% decrease in NPV and a 4.5% decrease in net interest income. On September 30, 2006, the same 200 basis point decrease in rates would have resulted in a 2.9% increase in NPV and a 2.8% increase in net interest income, while a 200 basis point increase in rates would have resulted in a comparable 10.6% reduction in NPV and a decrease in net interest income of 5.7%. The improvement to interest income that would occur in a lower interest rate environment in June 2007 is smaller than the improvement that would have occurred in September 2006. Similarly, the negative effect of higher interest rates to interest income is smaller in June of 2007 than it would have been in September 2006. It should also be noted that the modest impact that interest rate changes would have on net interest income would be occurring on income levels that are considerably higher than those from nine months ago. The Base Case level of Net Interest Income on September 2006 was $91.2 million, while on June 2007 it was $97.2 million. The Bank has made a conscious effort to compress its net interest income risk exposure over the last several years and as a result, the interest rate risk profile of the Bank was low in September 2006 and is low- to moderate at June 30, 2007.

The Bank’s strategy is to maintain an appropriate risk level of exposure to interest rate changes despite yield curves that were either flat or negatively sloped. Remaining neutral to interest rates provides the flexibility needed for the eventual reemergence of a positively sloped curve. The federal funds rate has remained unchanged at 5.25% since June 2006. Since then, expectations of rate cuts gained momentum only to be replaced by renewed anticipation of rate increases by the Federal Reserve. The uncertainty of short term interest rates notwithstanding,

the yield curve has regained a slightly positive slope and the expectation is that the curve will continue to become more positive. Therefore, The Bank believes that it is prudent to remain relatively interest rate neutral and, therefore flexible so as to be in a better position to become more asset or liability sensitive when market direction becomes clearer. In order to maintain this neutrality, The Bank will seek to sustain the current duration of liabilities, and re-evaluate the replacement of maturing assets as they come due.

The Company’s largest component of market risk continues to be interest rate risk. The Company is not subject to foreign currency exchange or commodity price risk. At June 30, 2007, the Company did not own any trading assets, nor did it utilize hedging transactions, such as interest rate swaps and caps.

The Bank continues to monitor the impact of interest rate volatility upon net interest income and net portfolio value in the same manner as at September 30, 2006. There have been no changes in the Board approved limits of acceptable variances in net interest income and net portfolio value change through June 30, 2007 compared to September 30, 2006, and the impact of possible changes within the Company’s models continues to fall within all Board-approved limits for potential interest rate volatility.

Item 4.

Controls and Procedures

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

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

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

The Company is not involved in any pending legal proceedings 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 Corporation’s Annual Report on Form 10-K for the year ended September 30, 2006, except as described below:

On March 30, 2007, the Company received notice from the U.S. Internal Revenue Service of the disallowance of certain expenses related to Warwick Community Bancorp, Inc.’s disposition of assets prior to its acquisition by the Company. This disallowance of $2.3 million in federal income taxes, if realized, would have resulted in a reduction of a refund receivable. In May, the Company agreed to settle this matter and recorded $591,000 in increased goodwill reflecting the effects of the settlement. Further, as a result of the agreement, the Company recorded, as interest due on the remaining $3.7 million refund, $235,000 in other income.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not applicable.

(b)	Not applicable

(c)	Issuer Purchases of Equity Securities


Period (2007)	Total Number of Shares (or Units) Purchased⁽¹⁾	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs⁽²⁾
April 1 – April 30	—	$	—	—	1,922,729
May 1 – May 31	382,300		13.61	382,300	1,540,429
June 1 – June 30	417,899		13.68	375,200	1,165,229

Total	800,199	$	13.65	757,500

The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options (33,128) by submitting previously acquired shares of common stock in satisfaction of the exercise price, as is permitted under the Company’s stock benefit plans and shares repurchased as part of a previously authorized repurchase program.

²	The Company announced in February 2006 that it authorized the repurchase of 2,100,000 shares, or approximately 5% of common shares currently outstanding, having completed its second repurchase program of 2,200,000 shares in March 2007.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

None

Item 5.

Other Information

None

Item 6.

Exhibits


Exhibit Number		Description

31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Provident New York Bancorp
(Registrant)

By:		/s/ George Strayton
		George Strayton
		President and Chief Executive Officer

Date:		August 8, 2007

By:		/s/ Paul A. Maisch
		Paul A. Maisch
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date:		August 8, 2007