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 March 31, 2008

¨	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 ¨ Smaller Reporting Company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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

Classes of Common Stock

Shares Outstanding

as of May 2, 2008

$0.01 per share

40,098,791

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PERIOD ENDED MARCH 31, 2008


PART I. FINANCIAL INFORMATION

Item 1. 1.	Financial Statements

	Consolidated Statements of Financial Condition (unaudited) at March 31, 2008 and September 30, 2007	3

	Consolidated Statements of Income (unaudited) for the Three Months and Six Months Ended March 31, 2008 and March 31, 2007	4

	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Six months Ended March 31, 2008	5

	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended March 31, 2008 and 2007	6

	Consolidated Statements of Comprehensive Income (unaudited) for the Three Months and Six Months Ended March 31, 2008 and 2007.	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Managements Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1.A.	Risk Factors	33

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Submission of Matters to a Vote of Security Holders	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Signatures	35

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(Dollars in thousands, except per share data)


	Mar 31, 2008			Sep 30, 2007
ASSETS
Cash and due from banks	$	44,627		$	47,291
Securities Available for Sale (including $659,522 and $563,030 pledged as collateral for borrowings and deposits in March 31, 2008 and September 30, 2007 respectively) (note 6)		801,784			794,997
Held to maturity, at amortized cost (fair value of $36,073 and $37,584 in March 31, 2008 and September 30, 2007, respectively) (note 6)		35,484			37,446

Total securities		837,268			832,443

Loans (notes 4 and 5):
One to four family residential mortgage loans		505,727			500,825
Commercial real estate, commercial business and construction loans		905,425			895,233
Consumer loans		242,486			242,000

Gross Loans		1,653,638			1,638,058
Allowance for loan losses		(21,413	)		(20,389	)

Total loans, net		1,632,225			1,617,669
Federal Home Loan Bank ("FHLB") stock, at cost		32,953			32,801
Accrued interest receivable		11,177			12,641
Premises and equipment, net		33,504			30,079
Goodwill		161,214			161,154
Core deposit and other intangible assets		9,633			11,041
Bank owned life insurance		41,680			40,818
Deferred income taxes, net		3,945			4,330
Other assets		15,280			11,832

Total assets	$	2,823,506		$	2,802,099

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (note 7)	$	1,722,101		$	1,713,684
FHLB and other borrowings (including repurchase agreements of $299,763 and $205,073 in March 31, 2008 and September 30, 2007, respectively) (note 8)		664,115			661,242
Mortgage escrow funds		11,263			5,982
Other liabilities		17,864			16,102

Total liabilities		2,415,343			2,397,010

STOCKHOLDERS’ EQUITY :
Preferred stock (par value $0.01 per share; 10,000,000 shares authorized; none issued or outstanding)		—			—
Common stock (par value $0.01 per share; 75,000,000 shares authorized; 45,929,552 issued; 40,086,491 and 41,230,618 shares outstanding at March 31, 2008 and September 30, 2007, respectively)		459			459
Additional paid-in capital		350,915			348,734
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(7,885	)		(8,221	)
Treasury stock, at cost (5,843,061 and 4,698,934 shares at March 31, 2008 and September 30, 2007, respectively)		(72,018	)		(57,422	)
Retained Earnings		131,342			125,743
Accumulated other comprehensive income (loss), net of taxes (notes 6 and 11)		5,350			(4,204	)

Total stockholders’ equity		408,163			405,089

Total liabilities and stockholders’ equity	$	2,823,506		$	2,802,099

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 March 31,				For the six Months Ended March 31,
	2008		2007		2008		2007
Interest and dividend income:
Loans	$	26,840	$	26,663	$	55,471	$	52,951
Securities		9,799		9,974		19,349		20,474
Other earning assets		726		628		1,390		1,179

Total interest and dividend income		37,365		37,265		76,210		74,604
Interest expense:
Deposits		7,785		8,834		16,708		17,963
Borrowings		6,339		7,963		13,887		16,478

Total interest expense		14,124		16,797		30,595		34,441

Net interest income		23,241		20,468		45,615		40,163
Provision for loan losses ( note 5)		3,000		400		3,700		800

Net interest income after provision for loan losses		20,241		20,068		41,915		39,363
Non-interest income:
Deposit fees and service charges		3,061		2,784		6,083		5,630
Net gain on sale of securities available for sale (note 6)		961		4		961		4
Title insurance fees		76		281		345		547
Bank owned life insurance		428		407		862		1,181
Investment management fees		729		726		1,492		1,348
Other		498		703		969		1,230

Total non-interest income		5,753		4,905		10,712		9,940
Non-interest expense:
Compensation and employee benefits (note 11)		9,061		8,142		17,691		15,951
Stock-based compensation plans (note 2)		924		1,477		1,920		2,853
Occupancy and office operations		3,294		3,011		6,219		5,844
Advertising and promotion		828		874		1,695		1,757
Professional fees		892		1,079		1,775		2,068
Data and check processing		694		639		1,267		1,291
Amortization of intangible assets		662		774		1,352		1,577
ATM/debit card expense		455		451		956		894
Other		2,114		2,124		4,171		4,260

Total non-interest expense		18,924		18,571		37,046		36,495
Income before income tax expense		7,070		6,402		15,581		12,808
Income tax expense (note 12)		1,987		1,970		4,604		3,765

Net Income	$	5,083	$	4,432	$	10,977	$	9,043

Weighted average common shares:
Basic		38,847,528		41,144,852		39,160,462		41,156,998
Diluted		39,214,041		41,671,701		39,530,429		41,705,300
Per common share (note 9)
Basic	$	0.13	$	0.11	$	0.28	$	0.22
Diluted	$	0.13	$	0.11	$	0.28	$	0.22

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 Income (Loss)			Total Stockholders’ Equity
Balance at September 30, 2007	41,230,618		$	459	$	348,734		$	(8,221	)	$	(57,422	)	$	125,743		$	(4,204	)	$	405,089
Net income	—			—		—			—			—			10,977			—			10,977
Other comprehensive income	—			—		—			—			—			—			9,554			9,554

Total comprehensive income	—			—		—			—			—			—			—			20,531
Deferred compensation transactions	—			—		9			—			—			—			—			9
Stock option transactions, net	114,207			—		971			—			1,192			(665	)		—			1498
ESOP shares allocated or committed to be released for allocation ( 46,735 shares)	—			—		418			336			—			—			—			754
RRP Awards	6,000			—		(81	)		—			66			15			—			—
Vesting of RRP Awards	—			—		864			—			—			—			—			864
Purchase of treasury shares	(1,264,334	)		—		—			—			(15,854	)		—			—			(15,854	)
Cash dividends paid ($0.12 per common share)	—			—		—			—			—			(4,728	)		—			(4,728	)

Balance at March 31, 2008	40,086,491		$	459	$	350,915		$	(7,885	)	$	(72,018	)	$	131,342		$	5,350		$	408,163

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands, except per share data)


	For the Six Months Ended March 31,
	2008			2007
Cash flows from operating activities:
Net income	$	10,977		$	9,043
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,700			800
Depreciation and amortization of premises and equipment		2,388			2,432
Amortization of intangibles		1,408			1,633
Gain on sales of loans held for sale		—			(151	)
Gain on sale of securities available for sale		(961	)		(4	)
Gain on sales of fixed assets		—			(212	)
Net amortization (accretion) of premiums and discounts on securities		(90	)		630
Amortization of premiums on borrowings (includes calls on borrowings)		(500	)		(573	)
ESOP and RRP expense		1,627			2,507
ESOP forfeitures		(293	)		(250	)
Stock option compensation expense		586			591
Originations of loans held for sale		—			(9,171	)
Proceeds from sales of loans held for sale		—			16,106
Increase in cash surrender value of bank owned life insurance		(862	)		(646	)
Deferred income tax benefit		(6,155	)		(2,878	)
Loan held for sale settled, cash not yet received		—			(11,246	)
Net changes in accrued interest receivable and payable		641			1,813
Other adjustments (principally net changes in other assets and other liabilities)		(995	)		(554	)

Net cash provided by operating activities		11,471			9,870

Cash flows from investing activities:
Purchases of securities:
Available for sale		(161,469	)		(61,428	)
Held to maturity		(3,514	)		(3,927	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		136,401			173,332
Held to maturity		5,449			12,795
Proceeds from sales of securities available for sale		35,416			846
Loan originations		(261,779	)		(314,590	)
Loan principal payments		243,624			227,297
(Purchase) sale of FHLB stock (net)		(152	)		2,858
Purchases of premises and equipment		(5,813	)		(1,923	)
Proceeds from sale of premises		—			1,725
Other investing activities		—			4

Net cash (used in) provided by investing activities		(11,837	)		36,989

Cash flows from financing activities:
Net increase (decrease) in transaction, savings and money market deposits		19,698			(2,401	)
Net increase (decrease) in time deposits		(11,273	)		13,067
Net increase (decrease) in borrowings		3,373			(62,949	)
Net increase in mortgage escrow funds		5,281			5,171
Treasury shares purchased		(15,854	)		(4,825	)
Stock option transactions		1,196			243
Other stock-based compensation transactions		9			20
Cash dividends paid		(4,728	)		(4,081	)

Net cash used in financing activities		(2,298	)		(55,755	)

Net decrease in cash and cash equivalents		(2,664	)		(8,896	)
Cash and cash equivalents at beginning of period		47,291			57,293

Cash and cash equivalents at end of period	$	44,627		$	48,397

Supplemental information:
Interest payments	$	31,418		$	33,087
Income tax payments		10,300			5,346
Net change in unrealized gains recorded on securities available for sale		16,058			5,880
Change in deferred taxes on unrealized losses on securities available for sale	$	(6,504	)	$	(2,406	)
Number of RRP shares issued		6,000			5,000

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(Dollars in thousands, except per share data)


	For the Three Months Ended March 31,						For the Six Months Ended March 31,
	2008			2007			2008			2007
Net Income:	$	5,083		$	4,432		$	10,977		$	9,043
Other Comprehensive income :
Net unrealized holding gains arising during the period, net of tax expense of $3,185, $1,556, $6,894 and $2,408		4,732			2,250			10,125			3,482
Reclassification adjustment for net realized gains included in net income, net of related income tax of $390, $2, $390 and $2		(571	)		(2	)		(571	)		(2	)

		4,161			2,248			9,554			3,480
Total Comprehensive Income	$	9,244		$	6,680		$	20,531		$	12,523

See accompanying notes to unaudited consolidated financial statements.

PROVIDENT NEW YORK BANKCORP 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 at or for the six months ended as of March 31, 2008 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 which provides certain favorable tax consequences. Warsave Development Corp. holds title to a rental property that generates rental income. Hardenburgh is a title insurance agency which generates title insurance fees and commissions. HVIA is an investment advisory firm which 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 March 31, 2008, the activities of these wholly-owned subsidiaries have had an inmaterial 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 six months ended March 31, 2008 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2008. 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, 2007.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan losses (see note 5), which reflects the application of a critical accounting policy.

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

2.	Stock-Based Compensation

The Company applies Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation”, and related interpretations in accounting for its stock-based compensation plans The Company’s stock-based compensation plans allow for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS No. 123R, grants issued subsequent to the adoption of SFAS 123R that are subject to such an accelerated vesting upon the recipient’s attainment of retirement age are expensed over the shorter of the time-to-retirement age or the vesting schedule in accordance with the grant. Thus, the vesting period can be far less than the plan’s five-year vesting period depending on the age of the grantee. As of March 31, 2008, 90,300 shares of the options granted were subject to this potential accelerated vesting. During the six months ended March 31, 2008 & 2007, the Company expensed $7 and $8 respectively for accelerated vesting of stock options.

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 six months ended March 31, 2008, the Company issued 231,179 shares of stock-based option awards including reload options and recognized total non-cash stock-based

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

compensation cost of $586 associated with stock options. As of March 31, 2008, the total remaining unrecognized compensation cost related to non-vested stock options was $1.6 million. The following table shows information regarding outstanding and exercisable options as of March 31, 2008:


	March 31, 2008
	Outstanding				Exercisable
		Weighted-Average				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	614,447	$	3.78	1.90	614,447	$	3.78	1.90
$7.32 to $11.85	171,898		11.61	5.05	162,898		11.64	4.94
$11.86 to $15.66	1,778,005		12.94	6.73	1,234,465		12.90	6.53

	2,564,350	$	10.65	5.46	2,011,810	$	10.01	4.99

As of March 31, 2008, 150,395 shares were anti-dilutive on a fiscal year-to-date basis and 150,678 for the second quarter of fiscal 2008 and therefore were not included in common stock equivalents for diluted earnings per share purposes.

The following table summarizes the Company’s stock option activity for the six months ended March 31, 2008:


	Number of Shares		Weighted Average Exercise Price
Outstanding at October 1, 2007	2,504,294		$	10.20
Granted	231,179			13.08
Exercised	(151,386	)		6.61
Forfeited	(19,737	)		12.84

Outstanding at March 31, 2008	2,564,350		$	10.65

Exercisable at March 31, 2008	2,011,810		$	10.01

Weighted average estimated fair value of options granted during the period			$	3.04

The fair value for grants during the six-month period ended March 31, 2008 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:


Risk-free interest rate	3.36	%
Dividend yield	1.85	%
Volatility of the market price	26.77	%
Weighted-average expected life of options	5.95 yrs

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

The aggregate intrinsic value of options outstanding as of March 31, 2008 was $7,329. 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 six-month period ended March 31, 2008 and the exercise price, multiplied by the number of in-the-money options).

Under the Company’s 2000 and 2004 restricted stock plans, 77,033 shares of restricted stock are reserved for issuance as of March 31, 2008. 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 $864 and $1,144 for the six months ended March 31, 2008 and 2007, respectively. The remaining unearned compensation cost was $3,602 as of March 31, 2008. 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.

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 March 31, 2008, 153,500 shares of the awards granted were subject to this accelerated vesting. A summary of restricted stock award activity under the plan for the six months ended March 31, 2008 is presented below:


	Number of Shares		Average Grant-Date Fair Value
Nonvested shares outstanding at October 1, 2007	340,700		$	12.87

Granted	6,000			13.46
Vested	(50	)		13.57
Forfeited	—

Nonvested shares outstanding at March 31, 2008	346,650		$	12.88

During the six months ended March 31, 2007, the Company expensed $252 for accelerated vesting. There was no additional expense recognized during the six months ended March 31, 2008 for accelerated vesting.

The Company maintains an ESOP. The loan that funds the ESOP initiated in connection with the second step public offering matures in December 2023 and results in the release of 49,932 shares annually. The ESOP expense for the shares released under the loan totaled $470 and $1,112 for the six month periods ended March 31, 2008 and March 31, 2007, respectively. The Company reduced ESOP expense by $293 and $250 related to forfeitures from the plan during the same respective periods. The Company’s first ESOP loan was paid off in December 2007. As a result, after December 31, 2007, expense is recorded on the annual release of only 49,932 shares.

3.	Critical Accounting Policies

The accounting and reporting policies of the Company are prepared in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to the Company’s financial results include calculating the allowance for loan losses, accounting for goodwill and the recognition of interest income. The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized, and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. 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

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

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, 2007 provides detail regarding the Company’s accounting for the allowance for loan losses.

Loans

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


	March 31, 2008		September 30, 2007
Real estate – residential mortgage	$	505,727	$	500,825
Real estate – commercial mortgage		528,852		535,003
Real estate – acquisition, development and construction		150,648		153,074
Commercial and industrial		225,925		207,156
Consumer loans		242,486		242,000

Total	$	1,653,638	$	1,638,058

5.	Allowance for Loan Losses and Non-Performing Assets

The allowance for loan losses is established through provisions for losses charged to earnings. Loan losses are charged against the allowance when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized. The allowance for loan losses is the amount that management has determined to be necessary to absorb probable incurred loan losses inherent in the existing portfolio. Management’s evaluations, which are subject to periodic review by the Company’s regulators, are made using a consistently applied methodology that takes into consideration such factors as the Company’s past loan loss experience, changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and collateral values, and current economic conditions that may affect the borrowers’ ability to pay. Changes in the allowance for loan losses may be necessary in the future based on changes in economic and real estate market conditions, new information obtained regarding known problem loans, regulatory examinations, the identification of additional problem loans, and other factors. Non-performing loans increased $6.3 million from $7.3 million at September 30, 2007 to $13.6 million at March 31, 2008, primarily due to a softening in credit quality seen in the commercial sector of the Company’s loan portfolio. In light of weaker economic conditions and recent loss experience in the portfolios the Company increased the provision for loan losses.

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


	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2007			2008			2007
Balance at beginning of period	$	20,325		$	20,436		$	20,389		$	20,373
Charge-offs		(2,017	)		(421	)		(2,880	)		(818	)
Recoveries		105			20			204			80

Net charge-offs		(1,912	)		(401	)		(2,676	)		(738	)

Provision for loan losses		3,000			400			3,700			800

Balance at end of period	$	21,413		$	20,435		$	21,413		$	20,435

Net charge-offs to average loans outstanding (annualized)		0.46	%		0.10	%		0.33	%		0.10	%

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

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


	March 31, 2008					September 30, 2007
	90 days past due Still accruing		Non- Accrual			90 days past due Still accruing		Non- Accrual
Non-performing loans:
One- to four- family	$	2,595	$	1,007		$	1,899	$	—
Commercial real estate		1,499		2,867			1,487		1,099
Commercial business		356		2,073			46		1,637
Construction		—		2,794			45		644
Consumer		86		273			272		129

Total non-performing loans	$	4,536	$	9,014		$	3,749	$	3,509

Real estate owned:
One- to four-family				138					139

Total real estate owned				138					139

Total non-performing assets			$	13,688				$	7,397

Ratios:
Non-performing loans to total loans				0.82	%				0.44	%
Non-performing assets to total assets				0.48	%				0.26	%
Allowance for loan losses to total non-performing loans				158	%				281	%
Allowance for loan losses to average loans				1.30	%				1.26	%

The Company recorded an investment in impaired loans, as defined by SFAS No. 114, of $9.2 million and $3.4 million at March 31, 2008 and September 30, 2007, respectively. The allowance for loan losses associated with impaired loans was $166 and $283.6 at March 31, 2008 and September 30, 2007, respectively.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

6.	Securities

The following is a summary of securities available for sale at March 31, 2008 and September 30, 2007:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2008
*Mortgage-backed securities*
Mortgage-backed pass-through securities	$	573,633	$	8,074	$	(517	)	$	581,190
Collateralized mortgage obligations		36,568		906		(128	)		37,346

Total mortgage-backed securities		610,201		8,980		(645	)		618,536

*Investment securities*
U.S. Government Securities & Federal Agencies		28,053		67		(1	)		28,119
State and municipal securities		152,871		2,039		(918	)		153,992
Equities		1,146		3		(12	)		1,137

		182,070		2,109		(931	)		183,248

Total available for sale	$	792,271	$	11,089	$	(1,576	)	$	801,784

September 30, 2007
*Mortgage-backed securities*
Mortgage-backed pass-through securities	$	536,280	$	927	$	(6,570	)	$	530,637
Collateralized mortgage obligations		41,126		272		(344	)		41,054

Total mortgage-backed securities		577,406		1,199		(6,914	)		571,691

*Investment securities*
U.S. Government Securities & Federal Agencies		84,005		118		(266	)		83,857
State and municipal securities		140,026		338		(1,026	)		139,338
Equities		105		7		(1	)		111

		224,136		463		(1,293	)		223,306

Total available for sale	$	801,542	$	1,662	$	(8,207	)	$	794,997


The following is a summary of securities held to maturity at March 31, 2008 and September 30, 2007:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2008
*Mortgage-backed securities*
Mortgage-backed pass-through securities	$	11,184	$	206	$	(11	)	$	11,379
Collateralized mortgage obligations		1,152		—		(2	)		1,150

Total mortgage-backed securities		12,336		206		(13	)		12,529

*Investment securities*
State and municipal securities		23,090		404		(10	)		23,484
Other investments		58		2		—			60

		23,148		406		(10	)		23,544

Total held to maturity	$	35,484	$	612	$	(23	)	$	36,073

September 30, 2007
*Mortgage-backed securities*
Mortgage-backed pass-through securities	$	13,086	$	78	$	(83	)	$	13,081
Collateralized mortgage obligations		1,225		31		—			1,256

Total mortgage-backed securities		14,311		109		(83	)		14,337

*Investment securities*
State and municipal securities		23,078		248		(139	)		23,187
Other investments		57		3		—			60

		23,135		251		(139	)		23,247

Total held to maturity	$	37,446	$	360	$	(222	)	$	37,584

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

At March 31, 2008 and September 30, 2007, the accumulated unrealized net gain (loss) on securities available for sale, net of tax (expense)/benefit of $(3.9) million and $2.7 million, respectively, that was included in accumulated other comprehensive loss, a separate component of stockholders’ equity, was $5.6 million and $(3.9) million, respectively. There were realized gains of $961 and no realized losses for the six months ended March 31, 2008.

Securities, including held-to-maturity securities, with a carrying amount of $368,149 and $342,873 were pledged as collateral for borrowings and securities repurchase agreements at March 31, 2008 and September 30, 2007, respectively. U.S. Government and municipal securities with carrying amounts of $291,373 and $220,157 were pledged as collateral for municipal deposits and other purposes at March 31, 2008 and September 30, 2007, respectively.

The following tables summarize, for all securities in an unrealized loss position at March 31, 2008 and September 30, 2007, 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
As of March 31, 2008	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
Available For Sale:
Mortgage-backed securities	$	(206	)	$	70,601	$	(440	)	$	54,659	$	(645	)	$	125,260
U.S. Government Agency securities		—			—		(1	)		56		(1	)		56
Municipal securities		(831	)		34,789		(86	)		7,181		(918	)		41,970
Equity securities		(11	)		1,030		(1	)		104		(12	)		1,134
												—

Total available-for-sale:		(1,048	)		106,420		(528	)		62,000		(1,576	)		168,420

Held to Maturity:
Mortgage-backed securities		(2	)		1,151		(11	)		1,351		(13	)		2,502
State and municipal securities		—			281		(10	)		880		(10	)		1,161

Total held to maturity:		(2	)		1,432		(21	)		2,231		(23	)		3,663

Total securities:	$	(1,050	)	$	107,852	$	(549	)	$	64,231	$	(1,599	)	$	172,083

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)


	Less than 12 months					12 months or longer					Total
As of September 30, 2007	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
Available For Sale:
Mortgage-backed securities	$	(631	)	$	133,490	$	(6,283	)	$	305,640	$	(6,914	)	$	439,130
U.S. Government and agency securities		—			—		(266	)		53,802		(266	)		53,802
Municipal securities		(710	)		59,117		(316	)		31,292		(1,026	)		90,409
Equity securities		—			—		(1	)		104		(1	)		104

Total available-for-sale:		(1,341	)		192,607		(6,866	)		390,838		(8,207	)		583,445

Held to Maturity:
Mortgage-backed securities		—			—		(83	)		7,608		(83	)		7,608
State and municipal securities		(1	)		890		(138	)		4,879		(139	)		5,769

Total held to maturity:		(1	)		890		(221	)		12,487		(222	)		13,377

Total securities:	$	(1,342	)	$	193,497	$	(7,087	)	$	403,325	$	(8,429	)	$	596,822

Substantially all of the unrealized losses at March 31, 2008 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no individual securities with unrealized losses of significant dollar amounts at March 31, 2008. A total of 154 securities were in a continuous unrealized loss position for less than 12 months, and 66 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 March 31, 2008.

7.	Deposits

Major classifications of deposits are summarized below:


	March 31, 2008		September 30, 2007
Demand deposits:
Retail	$	150,860	$	162,518
Commercial and municipal		191,167		201,213
Business and municipal NOW deposits		70,214		51,679
Personal NOW deposits		115,902		110,858

Total transaction accounts		528,143		526,268
Savings		341,210		346,430
Money market		300,836		277,793
Certificates of deposit		551,912		563,193

Total deposits	$	1,722,101	$	1,713,684

Municipal deposits of $203.3 million and $176.5 million were included in total deposits at March 31, 2008 and September 30, 2007, respectively. Certificates of deposit include $14.2 million in brokered deposits at March 31, 2008 and September 30, 2007.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

8.	FHLB and Other Borrowings

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


	March 31, 2008				September 30, 2007
	Amount		Rate		Amount		Rate
By type of borrowing:
Advances	$	364,352	3.57	%	$	456,169	4.99	%
Repurchase agreements		299,763	3.67	%		205,073	4.09

Total borrowings	$	664,115	3.62	%	$	661,242	4.71	%

By remaining period to maturity:
One year or less	$	220,225	3.12	%	$	376,753	5.13	%
One to two years		52,270	3.45	%		34,766	3.68
Two to three years		42,721	3.92	%		15,745	3.91
Three to four years		22,500	4.03	%		4,677	4.23
Four to five years		32,197	3.94	%		—	—
Five years or greater		294,202	3.90	%		229,301	4.24

Total borrowings	$	664,115	3.62	%	$	661,242	4.71	%

As a member of the FHLB of New York, the Bank may borrow in the form of term and overnight borrowings up to the amount of eligible mortgages and securities that have been pledged as collateral under a blanket security agreement. As of March 31, 2008 and September 30, 2007, the Bank had pledged mortgages totaling $393,428 and $382,502, respectively. The Bank had also pledged securities with carrying amounts of $357,483 and $342,873 as of March 31, 2008 and September 30, 2007, respectively, to secure borrowings. Based on total outstanding borrowings with the FHLB which totaled $653,631 and $650,247 as of March 31, 2008 and September 30, 2007, the bank had unused borrowing capacity under the FHLB Line of Credit of $158,150 and $46,100, respectively. As of March 31, 2008, the Bank may borrow additional amounts by pledging securities not required to be pledged for other purposes with a market value of $201,582. FHLB advances are subject to prepayment penalties if repaid prior to maturity.

The Bank had $176,850 in overnight and floating rate borrowings that reprice daily, as of March 31, 2008. During the six months ended March 31, 2008 no borrowings were called. Of the $443,890 in borrowings due in greater than one year, $282,500 are callable quarterly after an initial lockout period through their respective maturities. Premium recorded, but not accreted into income at March 31, 2008 was $931.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

9.	Earnings Per Common Share

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

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

Basic earnings per common share is computed as follows:


	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2008		2007		2008		2007
Weighted average common shares outstanding (basic), in ‘000s		38,848		41,145		39,160		41,157

Net Income	$	5,083	$	4,432	$	10,977	$	9,043
Basic earnings per common share	$	0.13	$	0.11	$	0.28	$	0.22

Diluted earnings per common share is computed as follows:


	For the Three Months Ended March 31,				For the Six Months Ended March 31,
	2008		2007		2008		2007
Weighted average common shares outstanding (basic), in ‘000s		38,848		41,145		39,160		41,157
Effect of common stock equivalents		366		527		370		548

Total Diluted Shares		39,214		41,672		39,530		41,705
Net Income	$	5,083	$	4,432	$	10,977	$	9,043
Basic earnings per common share	$	0.13	$	0.11	$	0.28	$	0.22

10.

Guarantor’s Obligations Under Guarantees

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

As of March 31, 2008, the Company had $28.4 million in outstanding letters of credit, of which $10.3 million were secured by cash collateral.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

11.

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 March 31,						Three Months Ended March 31,
	2008			2007			2008			2007
Service cost	$	—		$	—		$	5		$	3
Interest cost		397			434			8			5
Expected return on plan assets		(537	)		(571	)		—			—
Amortization net transition obligation		—			—			3			3
Amortization of prior service cost		—			—			1			2
Amortization of (gain) or loss		—			14			(20	)		(3	)

Net periodic cost (benefit)	$	(140	)	$	(123	)	$	(3	)	$	10


	Pension Plans						Other Post Retirement Plans
	Six Months Ended December 31,						Six Months Ended December 31,
	2008			2007			2008			2007
Service cost	$	—		$	—		$	10		$	6
Interest cost		794			867			16			10
Expected return on plan assets		(1,075	)		(1,143	)		—			—
Amortization net transition obligation		—			—			5			6
Amortization of prior service cost		—			—			3			4
Amortization of (gain) or loss		—			28			(39	)		(6	)

Net periodic cost (benefit)	$	(281	)	$	(248	)	$	(5	)	$	20

No contributions are expected to be made in fiscal 2008.

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 has been 3% of eligible compensation for fiscal 2007. In 2008, it is anticipated that the annual cost of the profit sharing contribution will be approximately $800.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). The standard calls for the balance sheet to fully recognize the funded status of a benefit plan, such as a pension plan. The Company adopted SFAS 158 effective September 30, 2007 and subsequently recorded the unrecognized components of defined benefit pension plans and retiree medical plan on the balance sheet at September 30, 2007. As a result of adoption of SFAS 158, the Company recorded $287, net of taxes of $193 as an adjustment to accumulated other comprehensive loss with an offset to Pension Funded Status.

PROVIDENT NEW YORK BANKCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in thousands, except per share data)

12.

Income Taxes

Effective October 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes the accounting method to be applied to measure uncertainty in income taxes recognized under Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48 established a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. At the adoption date of October 1, 2007, the Company had approximately $1.2 million of unrecognized tax benefits, all of which would have an immaterial effect upon our effective tax rate if recognized. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in non-interest operating expenses. Such accrued interest payable was approximately $145,000 as of October 1, 2007 and $173,000 as of March 31, 2008. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. We are unable to estimate a range of reasonably possible changes in the level of unrecognized tax benefits that may occur due to a challenge. The Company’s Federal and New Jersey tax returns for fiscal years ended after 2003 are currently subject to examination. The Company’s New York State tax returns for fiscal years subsequent to 2004 are subject to examination. The adoption of FIN 48 did not result in any change to the Company’s liability for uncertain tax positions or impact our financial position and results of operation as of October 1, 2007.

Item 2.

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

Forward-Looking Statements

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

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

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

•

Our business and operating results are affected by business and economic conditions generally or specifically in the principal markets in which we do business. We are affected by changes in our customers’ and counterparties’ financial performance, as well as changes in customer preferences and behavior, including as a result of changing business and economic conditions.

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

Overview

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

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Non-interest income consists primarily of banking fees and service charges, and net increases in the cash surrender value of bank-owned life insurance (“BOLI”) contracts, title insurance fees and investment management fees. Our non-interest expense consists primarily of salaries and employee benefits, stock-based compensation, occupancy and office expenses, advertising and promotion expense, professional fees, intangible assets amortization and data processing expenses. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities.

Management Strategy

We operate as an independent community bank that offers a broad range of customer-focused financial services as an alternative to large regional, multi-state and international banks in our market area. Management has invested in the infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market area focusing on core deposit generation and quality loan growth. This has resulted in a change in our business mix, providing a favorable platform for long-term sustainable growth.

Comparison of Financial Condition at March 31, 2008 and September 30, 2007

Total assets as of March 31, 2008 were $2.8 billion, relatively unchanged from September 30, 2007 levels. Provident Bank does not originate or hold subprime mortgage loans, which we consider to be loans to borrowers with subprime credit scores combined with either high loan-to-value or high debt-to-income ratios. We also hold no subprime loans through our investment portfolio.

Net Loans as of March 31, 2008 were $1.6 billion, an increase of $15.6 million, or 1.0%, over net loan balances of $1.6 billion at September 30, 2007. Commercial loans increased by $10.2 million, or 1.1%, over balances at September 30, 2007. Consumer loans increased by $486,000, or 0.2%, during the six-month period ended March 31, 2008, while residential loans increased by $4.9 million, or 1.0%. Total loan originations, excluding loans originated for sale, were $261.8 million for the six months ended March 31, 2008, however, repayments were $246.3 million during the same time period. Non-performing loans increased $6.3 million from September 30, 2007 due to deterioration in credit quality seen in the commercial sector of the Company’s loan portfolio.

Net charge-offs of $2.7 million for the six months ended March 31, 2008 represent 0.33% of average loans outstanding on an annualized basis. At $13.6 million, non-performing loans as a percentage of total loans was 0.82%, as compared to 0.44% at September 30, 2007, and 0.53% at March 31, 2007. The allowance for loan losses represents 1.30% of average loans and 158% of non-performing loans, at March 31, 2008 compared to 1.26% of average loans and 281% at September 30, 2007 of non-performing loans.

Total securities increased by $4.8 million, or 0.6%, to $837.3 million at March 31, 2008 net of improvements in market value of $16.1 million from $832.4 million at September 30, 2007. Mortgage-backed securities increased by $44.9 million, or 7.7% net of maturities and pay-downs totaling $57.5 million occurred in the mortgage backed security category and U.S. Government and federal agency securities decreased $55.7 million, or 66.5%. These decreases were partially offset by increases in state and municipal securities of $14.7 million, or 9.2% primarily due to purchases.

Deposits as of March 31, 2008 were $1.7 billion, an increase of $8.4 million, or 0.5%, from September 30, 2007. Retail and commercial transaction accounts were 30.7% of deposits at both March 31, 2008 and September 30, 2007. The

decrease in demand deposits of $21.7 million, or 6.0%, was offset by an increase in NOW accounts of $23.6 million, municipal transaction accounts included in transaction accounts increased by $17.2 million. The decrease in savings accounts of $5.2 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 $11.3 million, or 2.0%, primarily due to decreases in municipal certificates of $14.1 million partly offset by increases of $2.8 million in retail certificates of deposit. Money Market accounts increased by $23 million, or 8.3%.

Borrowings increased by $2.9 million, or 0.4%, from September 2007, to $664.1 million. The increase was due to the Company funding the increases in loans previously noted and the purchases of treasury stock of $15.9 million.

Stockholders’ equity increased by $3.1 million, or 0.8%, to $408.2 million at March 31, 2008, compared to $405.1 million at September 30, 2007. The increase was primarily due to increases in net retentions of earnings of $6.2 million and $3.1 million in stock-based transactions and an increase in other comprehensive income on available-for-sale securities of $9.6 million to a net gain position of $5.4 million. Partially offsetting these increases were repurchases of 1,264,334 shares of the Company’s stock at a cost of $15.9 million under the Company’s stock repurchase program. The Company has a remaining authorization to repurchase 1,472,344 additional shares subject to market conditions.

Bank Tier I capital to adjusted total assets stands at 8.1% at March 31, 2008. Tangible capital at the holding company level is 8.95% of tangible assets.

Comparison of Operating Results for the Three Months Ended March 31, 2008 and March 31, 2007

Net income for the three months ended March 31, 2008 was $5.1 million, an increase of $0.7 million, compared to $4.4 million for the same period in fiscal 2007. Net interest income before provision for loan losses for the three months ended March 31, 2008 increased by $2.7 million, or 13.6%, to $23.2 million, compared to $20.5 million for the same period in the prior year. The provision for loan losses for the three months ended March 31, 2008 increased $2.6 million, or 650%, to $3.0 million, compared to $400,000 for the same period in the prior year due to weaker economic conditions and recent loss experience in the portfolios Net interest margin on a tax equivalent basis for the three months ended March 31, 2008 increased 39 basis points compared to the same period last year from 3.50% to 3.89%, primarily due to increases in loans funded by maturing lower rate investments, and significant reductions in the average cost of borrowings. Non-interest income increased $848,000, or 17.3%, to $5.8 million for the three months ended March 31, 2008, compared to $4.9 million for the three months ended March 31, 2007, due to $961,000 of gains on the sale of available for sale securities. Non-interest expense increased $353,000, or 1.9%, to $18.9 million for the three months ended March 31, 2008, compared to $18.6 million for the same period in the prior year primarily due to increases in compensation and employee benefits, as well as occupancy expense, partially offset by decreases in stock based compensation, professional fees and intangible amortization.

The relevant operating results performance measures follow:


	Three Months Ended March 31,
	2008			2007
Per common share:
Basic earnings	$	0.13		$	0.11
Diluted earnings		0.13			0.11
Dividends declared		0.06			0.05
Return on average (annualized):
Assets		0.73	%		0.64	%
Equity		5.04	%		4.37	%

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


	Three Months Ended March 31,
	2008								2007
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	888,796		$	15,796		7.15	%	$	813,443		$	15,647		7.80	%
Consumer loans		242,440			3,656		6.07			240,975			4,227		7.11
Residential mortgage loans		496,473			7,388		5.99			466,224			6,789		5.91

Total loans 1		1,627,709			26,840		6.63			1,520,642			26,663		7.11

Securities-taxable		661,947			8,094		4.92			765,255			8,570		4.54
Securities-tax exempt 2		168,968			2,624		6.25			140,987			2,160		6.21
Other earning assets		36,289			725		8.04			34,487			628		7.39

Total securities and other earning assets		867,204			11,443		5.31			940,729			11,358		4.90

Total interest-earning assets		2,494,913			38,283		6.17			2,461,371			38,021		6.26

Non-interest-earning assets		318,535								325,356

Total assets	$	2,813,448							$	2,786,727

Interest bearing liabilities:
NOW Checking	$	169,187			342		0.81	%	$	153,105			135		0.36	%
Savings, clubs and escrow		342,412			358		0.42			368,171			456		0.50
Money market accounts		267,310			1,308		1.97			250,347			1,578		2.56
Certificate accounts		561,935			5,777		4.13			600,956			6,660		4.49

Total interest-bearing deposits		1,340,844			7,785		2.34			1,372,579			8,829		2.61
Borrowings		675,150			6,339		3.78			637,472			7,968		5.07

Total interest-bearing liabilities		2,015,994			14,124		2.82			2,010,051			16,797		3.39

Non- interest bearing deposits		370,843								341,016
Other non-interest-bearing liabilities		21,285								24,049

Total liabilities		2,408,122								2,375,116
Stockholders’ equity		405,326								411,611

Total liabilities and equity	$	2,813,448							$	2,786,727

Net interest rate spread							3.35	%							2.87	%

Net earning assets	$	478,919							$	451,320

Net interest margin					24,159		3.89	%					21,224		3.50	%

Less tax equivalent adjustment 2					(918	)							(756	)

Net interest income				$	23,241							$	20,468

Ratio of average interest-earning assets to average interest bearing liabilities		123.76	%							122.45	%

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 March 31, 2008 vs. 2007 Increase/(Decrease) Due to
	Volume¹			Rate¹		Total
Interest earning assets
Commercial and commercial mortgage loans	$	1,470		(1,321	)	149
Consumer loans		27		(598	)	(571	)
Residential mortgage loans		496		103		599
Securities-taxable		(1,191	)	715		(476	)
Securities-tax exempt²		449		15		464
Other earning assets		36		61		97

Total interest income		1,287		(1,025	)	262

Interest-bearing liabilities
NOW checking		16		191		207
Savings		(30	)	(68	)	(98	)
Money market		107		(377	)	(270	)
Certificates of deposit		(395	)	(488	)	(883	)
Borrowings		468		(2,097	)	(1,629	)

Total interest expense		166		(2,839	)	(2,673	)

Net interest margin		1,121		1,814		2,935

Less tax equivalent adjustment²		155		7		162

Net interest income	$	966		1,807		2,773

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

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

Net interest income for the three months ended March 31, 2008 increased by $2.7 million, or 13.6%, to $23.2 million, compared to $20.5 million for the quarter ended March 31, 2007. Net interest income on a tax-equivalent basis increased by $3.0 million, or 13.8%, to $24.2 million for the quarter ended March 31, 2008, compared to $21.2 million for the same three months in 2007. The target fed funds rate averaged 3.19% for the quarter ended March 31, 2008 versus an average of 5.25% for the same quarter in the prior year. Comparable declines were experienced in the prime rate to which $426.7 million in loans reprice and $176.9 million in overnight and floating rate borrowings reprice. Interest expense decreased by $2.7 million, or 15.9% to $14.1 million, for the quarter, compared to $16.8 million for the same quarter in 2007. Average interest-bearing liabilities increased by $5.9 million and the average cost of interest-bearing liabilities decreased by 57 basis points. The average yields on the loan portfolio decreased by 48 basis points. Average yields on investment securities and other earning assets on a tax-equivalent basis increased by 41 basis points as low yielding investments matured and were either replaced with higher yielding securities or used to fund loan growth. Interest-bearing deposit accounts decreased 27 basis points and average borrowings costs decreased 129 basis points. The tax equivalent net interest margin, therefore, increased by 39 basis points to 3.89%, while net interest spread increased by 48 basis points as compared to 2007 to 3.35%.

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 $3.0 million in loan loss provisions for the quarter ended March 31, 2008, and recognized net charge-offs of $1.9 million in the quarter. This compares to $400,000 in loan loss provisions and $401,000 in net charge-offs for the quarter ended March 31, 2008. The primary driver of the increased charge-offs in the current quarter is the performance of the small business credit-scored portfolio. Net charge-offs for this portfolio were $1.1 million of the $102.4 million of average outstandings for the quarter. The remainder of the charge-offs resulted from analysis of individual commercial impaired loans, while residential and consumer loan portfolios did not account for a significant portion of losses.

In light of weakened economic conditions and the increase in non-performing loans the Company increased the allowance for loan losses by $1.1 million to $21.4 million during the quarter ended March 31, 2008. (See note 5 in Item 1 for additional information).

Non-interest income for the three months ended March 31, 2008 increased by $848,000, or 17.3% to $5.8 million. Gains on the sale of securities available for sale of $961,000 and increases in deposit fees and service charges in the amount of $277,000, or 10.0%, offset a decline in title insurance fees associated with a lower level of residential mortgage loan originations. Other non-interest income declined $205,000 or 29.2% compared to March 31, 2008 due to income in the amount of $326,000 realized in 2007 associated with the Company’s student loan portfolio.

Non-interest expense for the three months ended March 31, 2008 increased by $353,000, or 1.9%, to $18.9 million, primarily due to compensation and benefits, which increased $919,000 or 11.3% and occupancy and office operations, which increased $283,000, or 9.4%. The increase in compensation and benefits included increases in 401K benefits, employee related insurance, additional employees to emphasize new business lines and performance increases for the second quarter. The increase in occupancy and office operations resulted from indexed increases in rental costs and costs associated with the Bardonia office closing. These increases were mostly offset by decreases in stock-based compensation of $553,000 due to the expiration of the first step ESOP loan and decreases of $187,000 and $112,000 in professional fees and amortization of intangibles, respectively.

Income Tax expense remained unchanged at $2.0 million for the three months ended March 31, 2008, and 2007. The effective tax rates were 28.1% and 30.7%, respectively. The decrease was due to increased investment in tax-exempt securities as compared to the prior period and the expiration of the first step ESOP loan which was primarily a non-deductible expense.

Comparison of Operating Results for the Six Months Ended March 31, 2008 and March 31, 2007

Net income for the six months ended March 31, 2008 was $11.0 million, an increase of $2.0 million, compared to $9.0 million for the same period in fiscal 2007. Net interest income before provision for loan losses for the six months ended March 31, 2008 increased by $5.4 million, or 13.6%, to $45.6 million, compared to $40.2 million for the same period in the prior year. Net interest margin on a tax equivalent basis for the six months ended March 31, 2008 increased 43 basis points compared to the same period last year from 3.39% to 3.82%, primarily due to increases in loans funded by maturing lower rate investments, as well as reductions in the average cost of borrowings. Provision for loan losses for the six months ended March 31, 2008 increased by $2.9 million, or 362.5%, compared to $800,000 for the same period in the prior year due to weaker economic conditions and recent loss experience in the portfolios. Non-interest income increased $772,000, or 7.8%, to $10.7 million for the six months ended March 31, 2008, compared to $9.9 million for the six months ended March 31, 2007, as a death benefit of $350,000 on bank owned life insurance received in fiscal 2007 was mostly offset by increases in deposit fees, investment management fees and gains on sales of securities of $961,000. Non-interest expense increased $551,000, or 1.5%, to $37.0 million for the six months ended March 31, 2008, compared to $36.5 million for the same period in the prior year primarily due to increases in compensation and employee benefits partially offset by decreases in stock based compensation, professional fees and intangible amortization.

The relevant operating results performance measures follow:


	Six Months Ended March 31,
	2008			2007
Per common share:
Basic earnings	$	0.28		$	0.22
Diluted earnings		0.28			0.22
Dividends declared		0.12			0.10
Return on average (annualized):
Assets		0.79	%		0.65	%
Equity		5.42	%		4.43	%


	Six Months Ended March 31,
	2008								2007
	Average Outstanding Balance			Interest			Average Yield Rate		Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	887,209		$	32,885		7.41	%	$	797,684		$	30,948		7.78	%
Consumer loans		242,304			7,756		6.40			236,177			8,386		7.12
Residential mortgage loans		495,931			14,830		5.98			462,455			13,617		5.91

Total loans 1		1,625,444			55,471		6.83			1,496,316			52,951		7.10

Securities-taxable		653,093			16,010		4.90			795,283			17,733		4.47
Securities-tax exempt 2		166,543			5,138		6.17			140,426			4,217		6.02
Other earning assets		36,128			1,389		7.69			34,936			1,179		6.77

Total securities and other earning assets		855,764			22,537		5.27			970,645			23,129		4.78

Total interest-earning assets		2,481,208			78,008		6.29			2,466,961			76,080		6.18

Non-interest-earning assets		315,334								333,206

Total assets	$	2,796,542							$	2,800,167

Interest bearing liabilities:
NOW Checking	$	156,221			535		0.68	%	$	151,187			267		0.35	%
Savings, clubs and escrow		345,558			693		0.40			371,787			936		0.50
Money market accounts		263,600			3,046		2.31			244,146			2,970		2.44
Certificate accounts		571,622			12,434		4.35			613,505			13,790		4.51

Total interest-bearing deposits		1,337,001			16,708		2.50			1,380,625			17,963		2.61
Borrowings		670,238			13,887		4.14			647,479			16,478		5.10

Total interest-bearing liabilities		2,007,239			30,595		3.05			2,028,104			34,441		3.41

Non- interest bearing deposits		364,007								341,139
Other non-interest-bearing liabilities		20,498								21,676

Total liabilities		2,391,744								2,390,919
Stockholders’ equity		404,798								409,248

Total liabilities and equity	$	2,796,542							$	2,800,167

Net interest rate spread							3.24	%							2.77	%

Net earning assets	$	473,969							$	438,857

Net interest margin					47,413		3.82	%					41,639		3.39	%

Less tax equivalent adjustment 2					(1,798	)							(1,476	)

Net interest income				$	45,615							$	40,163

Ratio of average interest-earning assets to average interest bearing liabilities		123.61	%							121.64	%

1	Includes non-accrual loans

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


	Six Months Ended March 31, 2008 vs. 2007 Increase/(Decrease) Due to
	Volume¹			Rate¹			Total
Interest earning assets
Commercial and commercial mortgage loans	$	2,357		$	(420	)	$	1,937
Consumer loans		37			(667	)		(630	)
Residential mortgage loans		964			249			1,213
Securities-taxable		(2,244	)		521			(1,723	)
Securities-tax exempt²		793			128			921
Other earning assets		40			170			210

Total interest income		1,947			(19	)		1,928

Interest-bearing liabilities
NOW checking		8			260			268
Savings		(64	)		(179	)		(243	)
Money market		137			(61	)		76
Certificates of deposit		(952	)		(404	)		(1,356	)
Borrowings		72			(2,663	)		(2,591	)

Total interest expense		(799	)		(3,047	)		(3,846	)

Net interest margin		2,746			3,028			5,774

Less tax equivalent adjustment²		279			43			322

Net interest income	$	2,467		$	2,985		$	5,452

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

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

Net interest income for the six months ended March 31, 2008 increased by $5.4 million, or 13.6%, to $45.6 million, compared to $40.2 million for the six months ended March 31, 2007. Net interest income on a tax-equivalent basis increased by $5.8 million, or 13.9%, to $47.4 million for the six months ended March 31, 2008, compared to $41.6 million for the same six months in 2007. The target fed funds rate averaged 3.87% for the six month period ended March 31, 2008 versus an average of 5.25% for the same period in the prior year. Comparable declines were experienced in the prime rate to which $426.7 million in loans reprice and $176.9 million in overnight and floating rate borrowings reprice. Interest expense decreased by 3.8 million, or 11.2% to $30.6 million, for the quarter, compared to $34.4 million for the same period in 2007. Average interest-bearing liabilities decreased by $20.9 million and the average cost of interest-bearing liabilities decreased by 36 basis points. The average yields on the loan portfolio decreased by 27 basis points. Average yields on investment securities on a tax-equivalent basis increased by 58 basis points as low yielding investments matured and were either replaced with higher yielding securities or used to fund loan growth. Interest-bearing deposit accounts decreased 11 basis points and average borrowings costs decreased 96 basis points. The tax equivalent net interest margin, therefore, increased by 43 basis points to 3.82%, while net interest spread increased by 47 basis points as compared to 2007 to 3.24%.

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 $3.7 million in loan loss provisions for the six months ended March 31, 2008, and recognized net charge-offs of $2.7 million in the same period. This compares to loan loss provisions of $800,000 and net charge-offs of $738,000 for the six months ended March 31, 2008. The primary driver of the increased charge-offs in the current period is the performance of the small business credit-scored portfolios. Net charge-offs for this portfolio were $1.6 million of the $98.0 million of average outstandings for the period. Most of the remainder of the charge-offs resulted from analysis of individual commercial impaired loans. In light of weakened economic conditions and the increase in non-performing loans, the Company increased the allowance for loan losses by $1.0 million to $21.4 million for the six months ended March 31, 2008. (See note 5 in Item 1 for additional information).

Non-interest income for the six months ended March 31, 2008 increased by $772,000, or 7.8%, to $10.7 million compared to $9.9 million for the same period in 2007. Gains on sales of securities of $961,000 and deposit fees and service charges increased by $453,000, or 8.0%, which offset a decline in bank owned life insurance, due to a death benefit of $350,000 received in fiscal 2007. Investment management fees increased due to fees earned by our investment management subsidiary, Hudson Valley Investment Advisors (“HVIA”), acquired in June 2006. Fiscal 2007 also included gains on sales of premises and income from student loan originations.

Non-interest expense for the six months ended March 31, 2008 increased by $551,000, or 1.5%, to $37.0 million, from $36.5 million for the same period in 2007 primarily due to compensation and benefits, which increased $1.7 or 10.9%. The increase in compensation and benefits included increases in 401K benefits, employee related insurance and performance increases for the first half of 2008. This increase was mostly offset by decreases in stock-based compensation due to the maturity of the first step ESOP loan and due to $252,000 of expense related to the acceleration of vesting of restricted stock in the first half of fiscal 2007 and decreases of $293,000 and $225,000 in professional fees and amortization of intangibles, respectively.

Income Taxes. Income tax expense was $4.6 million for the six months ended March 31, 2008, compared to $3.8 million for the same period in 2007. The effective tax rates were 29.5% and 29.4%, respectively.

Liquidity and Capital Resources

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

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

The Company’s primary investing activities are the origination of commercial mortgage loans, acquisition, development and construction loans, commercial and industrial loans, one- to four-family residential mortgage loans, home equity loans and the purchase of investment securities and mortgage-backed securities. During the six months ended March 31, 2008 and 2007, loan originations, excluding loans originated for sale, totaled $261.8 million and $314.6 million, respectively, and purchases of securities totaled $165.0 million and $65.4 million, respectively. Loan growth was modest due to loan payments during the first half of 2008 of $246.3 million. Paydowns on securities and sales totaled $177.3 and therefore afforded the opportunity to reduce higher cost borrowings for the six month period ending March 31, 2008. Loan origination commitments and undrawn lines of credit totaled $416.2 million at March 31, 2008. The Company anticipates that it will have sufficient funds available to meet current loan commitments. At March 31, 2008, the Company had investments of $41.7 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 six-month period ended March 31, 2008 short-term interest rates were significantly reduced. The target federal funds rate at 2.25% has dropped 250 basis points since September 2007, after remaining at 5.25% for the prior year. The interest rate yield curve has finally regained a positive slope as the ten-year US Treasury yield at 3.41% was higher than the two-year note with a 1.59% yield. The negative spread that still exists between the federal funds rate and the two-year maturities reflects the expectations of further rate cuts by the Federal Open Market Committee (“FOMC”).

Total deposits increased by $8.4 million for the six months ended March 31, 2008. Within the deposit categories transaction accounts increased by $1.9 million; however, within this category, retail transaction accounts decreased $6.6 million to $266.8 million, a decrease of 2.4%. Commercial and municipal transaction accounts increased $8.5 million or 3.4%. Certificates of deposit decreased $11.3 million with municipal certificates decreasing $14.1 and non municipal certificates increasing $2.8 million. Savings accounts decreased by $5.2 million. The trends seen in deposit categories as of March 31, 2008 are consistent with those that the Company historically experiences in the first half of the fiscal year.

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 $664.1 million was outstanding at March 31, 2008. At March 31, 2008, we had additional borrowing capacity of $359.7 million under all credit facilities with the Federal Home Loan Bank. The Company may utilize brokered certificates of deposit as well, and as of March 31, 2008 there was $14.2 million outstanding.

At March 31, 2008, the Bank exceeded all of its regulatory capital requirements with a Tier 1 capital (leverage) level of $215.5 million, or 8.1% of adjusted assets (which is above the minimum required level of $105.9 million, or 4.00%) and a total risk-based capital level of $236.9 million, or 12.8% of risk-weighted assets (which is above the required level of $147.8 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 March 31, 2008, 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 $0.06 per share payable on May 22, 2008 to stockholders of record on May 8, 2008.

The following table sets forth the Bank’s regulatory capital position at March 31, 2008 and September 30, 2006, compared to OTS requirements:


					OTS requirements
	Bank actual				Minimum capital adequacy				Classification as well capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2008:
Tangible capital	$	215,491	8.1	%	$	39,718	1.5	%	$	—	—
Tier 1 (core) capital		215,491	8.1			105,916	4.0			132,395	5.0	%
Risk-based capital:
Tier 1		215,491	11.7			—				110,870	6.0
Total		236,904	12.8			147,827	8.0			184,784	10.0

September 30, 2007:
Tangible capital	$	212,497	8.1	%	$	39,578	1.5	%	$	—	—
Tier 1 (core) capital		212,497	8.1			105,541	4.0			131,926	5.0	%
Risk-based capital:
Tier 1		212,497	11.6			—				109,656	6.0
Total		232,886	12.7			146,208	8.0			182,760	10.0

Recent Accounting Standards

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). This statement requires enhanced disclosures regarding an entity’s derivative and hedging activities. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2008. The adoption of SFAS 161 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 110, which permits the use of the “simplified” method for developing an estimate of expected term of share options. The Company has elected to utilize the simplified method. The Bulletin is effective for grants issued after December 31, 2007. The implementation of this bulletin did not have a material impact on the consolidated earnings or financial position of the Company.

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 in the amount of $287, net of taxes of $193, were recorded as an adjustment to accumulated other comprehensive income with an offset to Pension Funded Status as of September 30, 2007.

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”). This statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of SFAS 157 is not expected to have a material impact on the consolidated earnings or financial position of the Company.

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 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 certain acquisitions that are associated with employees who are no longer active. The Company is currently evaluating the impact of adoption of Issue 06-04.

Effective October 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 prescribes the accounting method to be applied to measure uncertainty in income taxes recognized under Statement of Financial Accounting Standards No. 109, ”Accounting for Income Taxes.” FIN 48 established a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. At the adoption date of October 1, 2007, the Company had approximately $1.2 million of unrecognized tax benefits, all of which would have an immaterial effect upon our effective tax rate if recognized. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in non-interest operating expenses. Such accrued interest payable was approximately $145,000 as of October 1, 2007 and $173,000 as of March 31, 2008. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. We are unable to estimate a range of reasonably possible changes in the level of unrecognized tax benefits that may occur due to a challenge. The Company’s federal and New Jersey tax returns for fiscal year ended 2003 are currently subject to examination. The Company’s New York State tax return for fiscal years subsequent to 2004 are subject to examination. The adoption of FIN 48 did not result in any change to the Company’s liability for uncertain tax positions or impact our financial position and results of operation as of October 1, 2007.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

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

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

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

Estimated Changes in NPV and NII. The table below sets forth, as of March 31, 2008, the estimated changes in our NPV and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.


Interest Rates	NPV		Amount			Percent		Income		Amount			Percent
300	$	284,681	$	(119,400	)	-29.5	%	$	95,196	$	(1,996	)	-2.1	%
200		327,034		(77,047	)	-19.1	%		96,600		(591	)	-0.6	%
100		371,959		(32,122	)	-7.9	%		98,265		1,075		1.1	%
0		404,081		—		0.0	%		97,190		—		0.0	%
-100		396,167		(7,914	)	-2.0	%		95,514		(1,676	)	-1.7	%

The table set forth above indicates that at March 31, 2008, in the event of an immediate 100 basis point decrease in interest rates, we would be expected to experience an 2.0% decrease in NPV and a 1.7% decrease in net interest income. In the event of an immediate 100 basis point increase in interest rates, we would be expected to experience a 7.9% decrease in NPV and a 1.1% increase in net interest income.

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

The federal funds target rate remained constant the first 11 months of fiscal 2007 at 5.25% and was decreased 50 basis points from 5.25% to 4.75% in September 2007. During the first six months of fiscal 2008, the FOMC decreased the target fed funds rate an additional 250 basis points ending the period at 2.25%. During the same period, U.S. Treasury rates in the five year maturities have decreased 180 basis points from 4.24% to 2.44% and U.S. Treasury 10 year notes have decreased 118 basis points from 4.02% to 3.41%. The disproportional lower rate of decrease on longer term maturities has somewhat normalized the inverted yield curve, which has been flat to inverted on the short end of the treasury curve at various times this past year. The flat-to-inverted yield curve effectively increased the rate paid on interest-bearing deposits at a faster pace than the rate earned on term investments and fixed rate loans in the Bank’s portfolio. The positively sloped yield curve would normally reduce the rates paid on deposits and for short term borrowings; however, the market has not completely reacted to these changes due to concerns created by the sub-prime collateral uncertainties, which have put pressures on general credit market liquidity. This has left short-term funding rates higher than some intermediate and U.S. Treasury yields. Should the credit markets stabilize, the Federal Reserve could reverse direction and increase the federal funds rate to reduce inflationary risks. This could cause the yield curve to rise and steepen, potentially reducing the NPV resulting from asset value declines.

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 have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

There have been no material changes in risk factors described in the Company’s Annual Report on Form 10-K for the year ended September 30, 2007.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not applicable.

(b)	Not applicable

(c)	Issuer Purchases of Equity Securities


	Total Number of shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximated Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs (2)
January 1 - January 31	29,552	$	13.33	—	1,619,858
February 1 - February 29	91,894		13.10	90,576	1,529,282
March 1 - March 31	61,863		13.13	56,938	1,472,344

Total	183,309	$	13.15	147,514

The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options (35,795) by submitting previously acquired shares of common stock in satisfaction of the exercise price, as is permitted under the Company’s stock benefit plans.

²	The Company announced its fourth repurchase program on August 24, 2007 authorizing the repurchase of 2,000,000 shares.

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

On February 21, 2008, the Company held its annual meeting of stockholders for the purpose of the election of four Directors to three year terms and the ratification of the appointment of Crowe Chizek and Company LLC as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2008.

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

ELECTION OF DIRECTORS:


	VOTES FOR	%	VOTES WITHHELD	%
Dennis L. Coyle	35,000,280	99.1	323,393	0.9
George Strayton	35,006,990	99.1	316,683	0.9
Victoria Kossover	34,370,455	97.3	953,218	2.7
Burt Steinberg	35,005,298	99.1	318,375	0.9

The ratification of the appointment of Crowe Chizek and Company LLC as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2008.


FOR	%	AGAINST	%	ABSTAIN	%
35,021,023	99.4	194,406	0.6	108,244	0.0

Item 5.

Other Information

None

Item 6.

Exhibits


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

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

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

SIGNATURES

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


		Provident New York Bancorp

Date: May 9, 2008	By:	/s/ George Strayton
		George Strayton
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: May 9, 2008	By:	/s/ Paul A. Maisch
		Paul A. Maisch
		Executive Vice President
		Chief Financial Officer
		Principal Accounting Officer
		(Principal Financial Officer)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents