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 December 31, 2011

OR

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

For the transition period from              to             

Commission File Number: 001-35385

PROVIDENT NEW YORK BANCORP

(Exact Name of Registrant as Specified in its Charter)

Delaware	80-0091851
(State or Other Jurisdiction of	(IRS Employer ID No.)
Incorporation or Organization)
400 Rella Boulevard, Montebello, New York	10901
(Address of Principal Executive Office)	(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including area code)

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

Yes  x    No  ¨

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

Yes  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 February 1, 2012
$0.01 per share	37,890,008

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

QUARTERLY PERIOD ENDED DECEMBER 31, 2011

	PART I. FINANCIAL INFORMATION
Item1.	Financial Statements
	Consolidated Statements of Financial Condition (unaudited) at December 31, 2011 and September 30, 2011	3
	Consolidated Statements of Income (unaudited) for the Three Months Ended December 31, 2011 and 2010	4
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended December 31, 2011	5
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended December 31, 2011 and 2010	6
	Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended December 31, 2011 and 2010	8
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	50
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	(Removed and reserved).	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
	Signatures	52

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

(In thousands, except share data)

	December 31, 2011			September 30, 2011
ASSETS
Cash and due from banks	$	43,687		$	281,512
Securities (including $634,856 and $644,910 pledged as collateral for borrowings and deposits at December 31, 2011 and September 30, 2011 respectively)
Available for Sale		785,462			739,844
Held to maturity, at amortized cost (fair value of $184,119 and $111,272 at December 31, 2011 and September 30, 2011, respectively)		182,076			110,040
Total securities		967,538			849,884
Loans held for sale		2,142			4,176
Gross loans:		1,775,893			1,703,799
Allowance for loan losses		(28,245	)		(27,917	)
Total loans, net		1,747,648			1,675,882
Federal Home Loan Bank (“FHLB”) stock, at cost		21,789			17,584
Accrued interest receivable		9,430			9,904
Premises and equipment, net		39,860			40,886
Goodwill		160,861			160,861
Core deposit and other intangible assets		4,306			4,629
Bank owned life insurance		57,485			56,967
Forclosed properties		5,625			5,391
Other assets		23,795			29,726
Total assets	$	3,084,166		$	3,137,402
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits	$	2,135,555		$	2,296,695
FHLB borrowings (including repurchase agreements of $206,696 and $211,694 at December 31, 2011 and September 30, 2011, respectively)		417,043			323,522
Borrowings senior unsecured note (FDIC insured)		51,500			51,499
Mortgage escrow funds		18,597			9,701
Other liabilities		23,789			24,851
Total liabilities		2,646,484			2,706,268
Commitments and contingent liabilities		—			—
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; 37,883,008 and 37,864,008 shares outstanding at December 31, 2011 and September 30, 2011, respectively)		459			459
Additional paid-in capital		357,359			357,063
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(6,013	)		(6,138	)
Treasury stock, at cost (8,046,544 and 8,065,544 shares at December 31, 2011 and September 30, 2011, respectively)		(90,452	)		(90,585	)
Retained earnings		168,637			165,199
Accumulated other comprehensive income, net of taxes		7,692			5,136
Total stockholders’ equity		437,682			431,134
Total liabilities and stockholders’ equity	$	3,084,166		$	3,137,402

See accompanying notes to unaudited consolidated financial statements

3

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(Dollars in thousands, except share data)

	For the Three Months Ended December 31,
	2011			2010
Interest and dividend income:
Loans	$	22,149		$	23,205
Taxable securities		3,990			3,530
Non-taxable securities		1,774			1,925
Other earning assets		255			400
Total interest and dividend income		28,168			29,060
Interest expense:
Deposits		1,313			1,642
Borrowings		3,617			4,234
Total interest expense		4,930			5,876
Net interest income		23,238			23,184
Provision for loan losses		1,950			2,100
Net interest income after provision for loan losses		21,288			21,084
Non-interest income:
Deposit fees and service charges		2,790			2,767
Net gain on sale of securities		1,989			4,202
Other than temporary impairment on securities		(38	)		—
Title insurance fees		260			363
Bank owned life insurance		518			494
Gain on sale of loans		440			542
Investment management fees		765			743
Fair value gain (loss) on interest rate cap		(3	)		234
Other		455			538
Total non-interest income		7,176			9,883
Non-interest expense:
Compensation and employee benefits		10,925			11,228
Stock-based compensation plans		275			279
Merger related expense		247			—
Occupancy and office operations		3,701			3,635
Advertising and promotion		613			953
Professional fees		927			1,062
Data and check processing		672			642
Amortization of intangible assets		323			412
Forclosed property expense		205			(84	)
FDIC insurance and regulatory assessments		728			768
ATM/debit card expense		411			393
Other		1,694			1,981
Total non-interest expense		20,721			21,269
Income before income tax expense		7,743			9,698
Income tax expense		2,026			2,978
Net Income	$	5,717		$	6,720
Weighted average common shares:
Basic		37,252,464			37,552,245
Diluted		37,252,464			37,552,245
Per common share
Basic	$	0.15		$	0.18
Diluted	$	0.15		$	0.18

See accompanying notes to unaudited consolidated financial statements

4

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited)

(In thousands, except share data)

	Number of Shares		Common Stock		Additional Paid-In Capital			Unallocated ESOP Shares			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at October 1, 2011		37,864,008	$	459	$	357,063		$	(6,138	)	$	(90,585	)	$	165,199		$	5,136	$	431,134
Net income		—		—		—			—			—			5,717			—		5,717
Other comprehensive income		—		—		—			—			—			—			2,556		2,556
Total comprehensive income																				8,273
Deferred compensation transactions		—		—		125			—			—			—			—		125
Stock option transactions, net		—		—		133			—			—			—			—		133
ESOP shares allocated or committed to be released for allocation (12,483 shares)		—		—		111			125			—			—			—		236
RRP Awards		19,000		—		(132	)		—			133			—			—		1
Vesting of RRP Awards		—		—		59			—			—			—			—		59
Purchase of treasury shares		—		—		—			—			—			—			—		—
Cash dividends paid ($0.06 per common share)		—		—		—			—			—			(2,279	)		—		(2,279	)
Balance at December 31, 2011		37,883,008	$	459	$	357,359		$	(6,013	)	$	(90,452	)	$	168,637		$	7,692	$	437,682

See accompanying notes to unaudited consolidated financial statements

5

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Three Months Ended December 31,
	2011			2010
Cash flows from operating activities:
Net income	$	5,717		$	6,720
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		1,950			2,100
Loss on real estate owned		56			—
Depreciation of premises and equipment		1,255			1,413
Amortization of intangibles		323			412
Net gains on loans held for sale		(440	)		(542	)
Other than temporary impairment loss (credit loss)		38			—
Net gains on sale of securities		(1,989	)		(4,202	)
Fair value (gain) loss on interest rate cap		3			(234	)
Net amortization of premium on securities		677			4,024
Accretion (amortization) of premiums on borrowings		1			(11	)
Amortization of prepaid penalties on borrowings		360			1
ESOP and RRP expense		143			144
ESOP forfeitures		(1	)		(3	)
Stock option compensation expense		133			138
Originations of loans held for sale		(15,204	)		(30,028	)
Proceeds from sales of loans held for sale		17,678			33,409
Increase in cash surrender value of bank owned life insurance		(518	)		(495	)
Deferred income tax benefit		(6,824	)		(6,069	)
Net changes in accrued interest receivable and payable		786			247
Other adjustments (principally net changes in other assets and other liabilities)		10,202			9,689
Net cash provided by operating activities		14,346			16,713
Cash flows from investing activities
Purchases of available for sale securities		(151,185	)		(301,065	)
Purchases of held to maturity securities		(76,832	)		(3,986	)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale		27,083			81,275
Held to maturity		4,710			7,407
Proceeds from sales of securities available for sale and held to maturity		83,579			224,797
Loan originations		(216,422	)		(151,989	)
Loan principal payments		141,718			151,895
Proceeds from sales of other real estate owned		695			—
Purchase of FHLB stock, net		(4,205	)		(3,703	)
Purchases of premises and equipment		(229	)		(1,310	)
Net cash (used in) provided by investing activities		(191,088	)		3,321

(Continued)

6

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands, except share data)

	For the Three Months Ended December 31,
	2011			2010
Cash flows from financing activities
Net decrease in transaction, savings and money market deposits		(168,515	)		(192,620	)
Net increase in time deposits		7,375			29,986
Net increase in short-term borrowings		93,499			85,360
Gross repayments of long-term borrowings		(60	)		(3,063	)
Payment of penalties on restrucrured borrowings		(278	)		(1,751	)
Net increase in mortgage escrow funds		8,896			8,892
Treasury shares purchased		—			(757	)
Stock option transactions		154			3
Other stock-based compensation transactions		125			22
Cash dividends paid		(2,279	)		(2,134	)
Net cash used in financing activities		(61,083	)		(76,062	)
Net decrease in cash and cash equivalents		(237,825	)		(56,028	)
Cash and cash equivalents at beginning of period		281,512			90,872
Cash and cash equivalents at end of period	$	43,687		$	34,844
Supplemental information:
Interest payments	$	4,618		$	5,861
Income tax payments		36			36
Net change in net unrealized gains recorded on securities available for sale		3,735			(26,189	)
Change in deferred taxes on net unrealized gains on securities available for sale		(1,517	)		10,636
Real estate acquired in settlement of loans		988			226

See accompanying notes to unaudited consolidated financial statements

7

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

(In thousands, except share data)

	For the Three Months Ended December 31,
	2011			2010
Net Income:	$	5,717		$	6,720
Other comprehensive income (loss) :
Net unrealized holding gains ( losses) on securities available for sale net of related tax expense (benefit) of $2,310 and ($8,930)		3,376			(13,057	)
Less:
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $808 and $1,706		1,181			2,496
Reclassification adjustment for other than temporary impaired losses included in net income, net of related income tax expense of $15		(23	)		—
		2,218			(15,553	)
Change in funded status of defined benefit plans, net of related income tax expense of $229 and $74		338			107
		2,556			(15,446	)
Total comprehensive income (loss)	$	8,273		$	(8,726	)

See accompanying notes to unaudited consolidated financial statements.

8

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

1. Basis of Presentation

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

The Company’s off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and letters of credit on behalf of customers, which all occur in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50,000 during the first quarter of fiscal 2010. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three months ended December 31, 2011 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2012. 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, 2011.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan loss (see note 4), which reflects the application of a critical accounting policy.

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

2. Stock-Based Compensation

The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $192, and $39, for the three months ending December 31, 2011 and 2010. There was no income tax benefit for the three months ending December 31, 2011 and 2010.

Stock Option Plan

The Company’s 2004 Employee Share Option Plan (stock option plan), which is shareholder-approved, permits the grant of share options to its employees for up to 159,107 shares of common stock as of December 31, 2011. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards have vesting periods ranging from 2 to 5 years and have 10 year contractual terms. The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

9

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	Three months ended December 31,
	2011			2010
Risk-free interest rate (1)		1.7	%		—
Expected stock price volatility		39.1	%		—
Dividend yield (2)		3.2	%		—
Expected term in years		5.9			—

The following table summarizes the Company's stock option activity for the three months ended December 31, 2011:

	Number of Shares			Weighted Average Exercise Price
Outstanding at October 1, 2011		1,906,020		$	12.20
Granted		150,000			7.28
Exercised		—			—
Forfeited		(101,500	)		12.47
Outstanding at December 31, 2011		1,954,520		$	11.81
Exercisable at December 31, 2011		1,516,844		$	12.61
Weighted average estimated fair value of options granted during the period				$	2.09

Information related to the stock option plan during the period:

		0000000		0000000
	Three months ended December 31,
	2011		2010
Intrinsic value of options exercised	$	—	$	—
Cash received from option exercises		—		—
Tax benefit realized from option exercises		—		—
Weighted average fair value of options granted		2.09		—

As of December 31, 2011, there was $665 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.5 years.

There were no modifications for the three months ending December 31, 2011 and 2010.

10

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Share Award Plan

A Recognition and Retention Plan (“RRP”) provides for the issuance of shares to directors and officers. Compensation expense is recognized on a straight line basis over the vesting period of the awards based on the fair value of the stock at issue date. RRP shares vest annually on the anniversary of the grant date over the vesting period. Total shares issuable under the plan are 8,120 shares of authorized but un-issued shares remain available for future grant at December 31, 2011. Inducement shares of 41,370 were issued in July of 2011.

A summary of restricted stock award activity under the plan for the three months ended December 31, 2011, is presented below:

	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested shares at September 30, 2011		57,520	$	8.77
Granted		19,000		6.96
Vested		—		—
Forfeited		—		—
Nonvested shares at December 31, 2011		76,520	$	8.77

As of December 31, 2011, there was $551 of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.81 years.

3. Recent Accounting Standards, Not Yet Adopted

Accounting Standards Update (ASU) 2011-03, Transfers and Servicing (Topic 860)—Reconsideration of Effective Control for Repurchase Agreements has been issued, which is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820)-Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS has been issued, which will conform the meaning and disclosure requirements of fair value measurement between U.S. GAAP and IFRS. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update (ASU) 2011-05- Presentation of Comprehensive Income (Topic 220) has been issued. This standard was issued to conform U.S. GAAP and IFRS as well as to increase the prominence of items reported in other comprehensive income. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting standards update (ASU) 2011-11, Balance Sheet (Topic 210)—Disclosures about offsetting Assets and Liabilities has been issued to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. This standard is effective for the Company on January 1, 2013 and is not expected to have a material effect on the Company's consolidated financial statements.

11

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

4. Loans

The components of the loan portfolio, excluding loans held for sale, were as follows:

	December 31, 2011			September 30, 2011
One- to four-family residential mortgage loans	$	385,552		$	389,765
Commercial real estate loans		809,078			703,356
Commercial business loans		199,362			209,923
Acquisition, development & construction loans		161,990			175,931
Total Commercial loans		1,170,430			1,089,210
Consumer loans:
Home equity lines of credit		172,235			174,521
Homeowner loans		38,667			40,969
Other consumer loans, including overdrafts		9,009			9,334
		219,911			224,824
Total loans		1,775,893			1,703,799
Allowance for loan losses		(28,245	)		(27,917	)
Total loans, net	$	1,747,648		$	1,675,882

Total loans include net deferred loan origination costs of $0 and $308 at December 31, 2011 and September 30, 2011, respectively.

Loans where management has the intent and ability to hold for the foreseeable future or until maturity or payoff (other than loans held for sale) are reported at amortized cost less the allowance for loan losses. Interest income on loans is accrued on the level yield method.

A loan is placed on non-accrual status when management has determined that the borrower may likely be unable to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income, while interest recorded in the prior year 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.

The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amount as an adjustment of the yield over the estimated life of the loan. If a loan is prepaid or sold, the net deferred amount is recognized in the statement of income at that time. Interest and fees on loans include prepayment fees and late charges collected.

The allowance for loan losses is established through provisions for losses charged to earnings. Losses on loans (including impaired loans) are charged to the allowance for loan losses when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized.

A substantial portion of the Company’s loan portfolio is secured by residential and commercial real estate located in Rockland and Orange Counties of New York and contiguous areas such as Ulster, Sullivan, Putnam and Westchester Counties of New York and Bergen County, New Jersey. The ability of the Company’s borrowers to make principal and interest payments is dependent upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company’s concentrated lending area. Commercial real estate and acquisition, development and construction loans are considered by management to be of somewhat greater credit risk than loans to fund the purchase of a primary residence due to the generally larger loan amounts and dependency on income production or sale of the real estate. Substantially all of these loans are collateralized by real estate located in the Company’s primary market area.

12

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The allowance for loan losses is established through provisions for losses charged to earnings. Losses on loans (including impaired loans) are charged to the allowance for loan losses 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 an amount that management believes is necessary to absorb probable incurred losses on existing loans that may become uncollectible. Management’s evaluations, which are subject to periodic review by the Company’s primary regulator, take into consideration factors such 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. Future adjustments to the allowance for loan losses may be necessary, based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, results of regulatory examinations, the identification of additional problem loans, and other factors. The process of assessing the adequacy of the allowance for loan loss is subjective, particularly in times of economic downturns. It is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management’s current estimates. As such there can be no assurance that future charge-offs will not exceed management’s current estimate of what constitutes a reasonable allowance for loan losses.

The Company considers a loan to be impaired when, based on current information and events, it is probable that the borrower will be unable to comply with contractual principal and interest payments due. Certain loans are individually evaluated for collectability in accordance with the Company’s ongoing loan review procedures (principally commercial real estate, commercial business and construction loans). Smaller-balance homogeneous loans are collectively evaluated for impairment, such as residential mortgage loans and consumer loans. Impaired loans are based on one of three measures — the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at its measured value.

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for December 31, 2011 are summarized below:

	For the three months ended December 31, 2011
	Beginning Allowance for loan losses		Charge-offs			Recoveries		Net Charge-offs			Provision for losses			Ending Allowance for Loan Losses
Loans by segment:
Real estate—residential mortgage	$	3,498	$	(789	)	$	119	$	(670	)	$	1,339		$	4,167
Real estate—commercial mortgage		4,533		(472	)		—		(472	)		711			4,772
Real estate—commercial mortgage (CBL)		1,035		(474	)		350		(124	)		(161	)		750
Commercial business loans		1,331		—			53		53			(175	)		1,209
Commercial business loans (CBL)		4,614		(208	)		493		285			(487	)		4,412
Acquisition Development & Construction		9,895		(275	)		—		(275	)		(217	)		9,403
Consumer, including home equity		3,011		(462	)		43		(419	)		940			3,532
Total Loans	$	27,917	$	(2,680	)	$	1,058	$	(1,622	)	$	1,950		$	28,245
Net charge-offs to average gross loans annualized															0.37	%

13

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table sets forth the loans evaluated for impairment by segment at December 31, 2011:

	December 31, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total ending loans balance
Loans by segment:
Real estate—residential mortgage	$	9,363	$	376,189	$	385,552
Real estate—commercial mortgage		10,912		705,235		716,147
Real estate—commercial mortgage (CBL)		3,953		88,978		92,931
Commercial business loans		597		125,758		126,355
Commercial business loans (CBL)		129		72,878		73,007
Acquisition Development & Construction		28,792		133,198		161,990
Consumer, including home equity		2,590		217,321		219,911
Total Loans	$	56,336	$	1,719,557	$	1,775,893

The following table sets forth the allowance evaluated for impairment by segment at December 31, 2011:

	December 31, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance balance
Ending allowance by segment:
Real estate—residential mortgage	$	922	$	3,245	$	4,167
Real estate—commercial mortgage		378		4,394		4,772
Real estate—commercial mortgage (CBL)		236		514		750
Commercial business loans		67		1,142		1,209
Commercial business loans (CBL)		51		4,361		4,412
Acquisition Development & Construction		1,864		7,539		9,403
Consumer, including home equity		394		3,138		3,532
Total allowance	$	3,912	$	24,333	$	28,245

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for December 31, 2010 are summarized below:

	For the three months ended December 31, 2010
	Beginning Allowance for loan losses		Charge-offs			Recoveries		Net Charge-offs			Provision for losses			Ending Allowance for Loan Losses
Loans by segment:
Real estate—residential mortgage	$	2,641	$	(153	)	$	1	$	(152	)	$	325		$	2,814
Real estate—commercial mortgage		5,915		(217	)				(217	)		586			6,284
Commercial business loans		8,970		(1,359	)		290		(1,069	)		1,315			9,216
Acquisition Development & Construction		9,752		—			8		8			(779	)		8,981
Consumer, including home equity		3,565		(507	)		30		(477	)		653			3,741
Total Loans	$	30,843	$	(2,236	)	$	329	$	(1,907	)	$	2,100		$	31,036
Net charge-offs to average gross loans outstanding annualized															0.45	%

14

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table sets forth the loans evaluated for impairment by segment at September 30, 2011:

	September 30, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total ending loans balance
Loans by segment:
Real estate—residential mortgage	$	8,573	$	381,192	$	389,765
Real estate—commercial mortgage		10,653		599,726		610,379
Real estate—commercial mortgage (CBL)		4,477		88,500		92,977
Commercial business loans		531		133,868		134,399
Commercial business loans (CBL)		—		75,524		75,524
Acquisition Development & Construction		28,223		147,708		175,931
Consumer, including home equity		2,504		222,320		224,824
Total Loans	$	54,961	$	1,648,838	$	1,703,799

The following table sets forth the allowance evaluated for impairment by segment at September 30,, 2011:

	September 30, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance balance
Ending allowance by segment:
Real estate—residential mortgage	$	1,069	$	2,429	$	3,498
Real estate—commercial mortgage		474		4,059		4,533
Real estate—commercial mortgage (CBL)		594		441		1,035
Commercial business loans		—		1,331		1,331
Commercial business loans (CBL)		—		4,614		4,614
Acquisition Development & Construction		1,409		8,486		9,895
Consumer, including home equity		260		2,751		3,011
Total allowance	$	3,806	$	24,111	$	27,917

A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans substantially consist of non-performing loans and accruing and performing troubled debt restructured loans. The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.

15

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table presents loans individually evaluated for impairment by segment of loans as of December 31, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		YTD Average Impaired Loans		Interest Income Recognized		Cash-basis Interest Income Recognized
With no related allowance recorded:
Real estate—residential mortgage	$	3,184	$	3,394	$	—	$	2,729	$	30	$	12
Real estate—commercial mortgage		7,185		7,322		—		6,956		84		56
Real estate—commercial mortgage (CBL)		2,328		2,400		—		2,288		23		13
Acquisition, development and construction		19,794		19,888		—		22,660		201		108
Commercial business loans		503		503		—		615		4		4
Commercial business loans (CBL)		58		58		—		58		1		—
Consumer loans, including home equity		1,696		1,710		—		1,697		15		4
Subtotal		34,748		35,275		—		37,003		358		197
With an allowance recorded:
Real estate—residential mortgage		5,852		5,969		922		5,595		32		31
Real estate—commercial mortgage		3,551		3,590		378		3,621		19		10
Real estate—commercial mortgage (CBL)		1,430		1,553		236		1,430		—		—
Acquisition, development and construction		8,567		8,904		1,864		11,750		85		81
Commercial business loans		95		94		67		47		2		2
Commercial business loans (CBL)		71		71		51		71		1		—
Consumer loans, including home equity		872		880		394		842		9		6
Subtotal		20,438		21,061		3,912		23,356		148		130
Total	$	55,186	$	56,336	$	3,912	$	60,359	$	506	$	327

16

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table presents loans individually evaluated for impairment by segment of loans as of September 30, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		YTD Average Impaired Loans		Interest Income Recognized		Cash-basis Interest Income Recognized
With no related allowance recorded:
Real estate—residential mortgage	$	2,437	$	2,577	$	—	$	2,702	$	92	$	51
Real estate—commercial mortgage		6,753		6,823		—		6,769		332		146
Real estate—commercial mortgage (CBL)		2,012		2,050		—		2,148		165		102
Acquisition, development and construction		20,914		21,316		—		26,111		1,892		1,454
Commercial business loans		531		531		—		862		42		42
Commercial business loans (CBL)		—		—		—		—		—		—
Consumer loans, including home equity		1,879		1,885		—		1,860		61		13
Subtotal		34,526		35,182		—		40,452		2,584		1,808
With an allowance recorded:
Real estate—residential mortgage		5,836		5,996		1,069		6,319		159		159
Real estate—commercial mortgage		3,741		3,830		474		3,843		108		108
Real estate—commercial mortgage (CBL)		2,283		2,427		594		2,662		91		36
Acquisition, development and construction		6,900		6,907		1,409		6,963		114		96
Commercial business loans		—		—		—		—		—		—
Commercial business loans (CBL)		—		—		—		—		—		—
Consumer loans, including home equity		619		619		260		642		33		22
Subtotal		19,379		19,779		3,806		20,429		505		421
Total	$	53,905	$	54,961	$	3,806	$	60,881	$	3,089	$	2,229

Listed below is the interest income recognized during impairment and cash received for interest during impairment for the three months ended December 31, 2011 and December 31, 2010, respectively.

	December 31, 2011		December 31, 2010
Interest income recognized during impairment	$	506	$	407
Cash-basis interest income recognized		327		235

17

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following tables set forth the amounts and status of the Company's loans, troubled debt restructurings and other real estate owned at December 31, 2011 and September 30, 2011.

	December 31, 2011
	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual			Total Loans
Non-performing loans:
Real estate—residential mortgage	$	375,502	$	1,794	$	94	$	1,619	$	6,543		$	385,552
Real estate—commercial mortgage		705,078		584		—		1,683		8,802			716,147
Real estate—commercial mortgage (CBL)		89,544		—		—		312		3,075			92,931
Commercial business loans		126,094		—		—		—		261			126,355
Commercial business loans (CBL)		72,936		—		—		71		—			73,007
Acquisition, development and construction loans		132,835		2,946		4,889		446		20,874			161,990
Consumer, including home equity loans		216,687		500		497		1,005		1,222			219,911
Total	$	1,718,676	$	5,824	$	5,480	$	5,136	$	40,777		$	1,775,893
Total troubled debt restructurings included above	$	7,049	$	—	$	1,494	$	446	$	8,868		$	17,857
Non Performing Assets:
Loans 90+ and still accruing									$	5,136
Nonaccrual loans										40,777
Total non performing loans										45,913
Other real estate owned:
Land										2,419
Commercial real estate										2,051
Acquisition, development & construction loans										222
One- to four-family										933
Total other real estate owned										5,625
Total non-performing assets									$	51,538
Ratios:
Non-performing loans to total loans										2.59	%
Non-performing assets to total assets										1.67	%
Allowance for loan losses to total non-performing loans										62	%
Allowance for loan losses to average loans										1.63	%

18

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

	September 30, 2011
	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual			Total Loans
Non-performing loans:
Real estate—residential mortgage	$	380,577	$	868	$	344	$	491	$	7,485		$	389,765
Real estate—commercial mortgage		599,619		768		337		1,639		8,016			610,379
Real estate—commercial mortgage (CBL)		89,418		—		—		350		3,209			92,977
Commercial business loans		133,741		490		—		—		168			134,399
Commercial business loans (CBL)		75,449		—		—		—		75			75,524
Acquisition, development and construction loans		154,682		3,859		406		446		16,538			175,931
Consumer, including home equity loans		221,880		494		300		1,164		986			224,824
Total	$	1,655,366	$	6,479	$	1,387	$	4,090	$	36,477		$	1,703,799
Total troubled debt restructurings included above	$	9,060	$	266	$	—	$	446	$	7,792		$	17,564
Non Performing Assets:
Loans 90+ and still accruing									$	4,090
Nonaccrual loans										36,477
Total non performing loans										40,567
Other real estate owned:
Land										1,926
Commercial real estate										2,163
Acquisition, development & construction loans										745
One- to four-family										557
Total other real estate owned										5,391
Total non-performing assets									$	45,958
Ratios:
Non-performing loans to total loans										2.38	%
Non-performing assets to total assets										1.46	%
Allowance for loan losses to total non-performing loans										69	%
Allowance for loan losses to average loans										1.68	%

Troubled Debt Restructurings:

Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the company’s internal underwriting policy. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for period ranging from 3 months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 3 months to 30 years. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items. Troubled debt restructurings resulted in $101 in charge offs for the three months ending December 31, 2011.

19

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Troubled debt restructurings at December 31, 2011 were as follows:

	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total TDR’s
Real estate—residential mortgage	$	1,058	$	—	$	—	$	—	$	857	$	1,915
Real estate—commercial mortgage		587		—		—		—		1,009		1,596
Acquisition, development and construction		5,245		—		1,494		446		7,002		14,187
Consumer loans, including home equity		159		—		—						159
Total	$	7,049	$	—	$	1,494	$	446	$	8,868	$	17,857
Allowance	$	249	$	—	$	—	$	—	$	690	$	939

Troubled debt restructurings at September 30, 2011 were as follows:

	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total TDR’s
Real estate—residential mortgage	$	485	$	—	$	—	$	—	$	1,226	$	1,711
Real estate—commercial mortgage		1,439		—		—		—		—		1,439
Acquisition, development and construction		6,975		266		—		446		6,566		14,253
Consumer loans, including home equity		161		—		—				—		161
Total	$	9,060	$	266	$	—	$	446	$	7,792	$	17,564
Allowance	$	7	$	56	$	—	$	—	$	346	$	409

The Company has committed to lend additional amounts totaling up to $4,081, and $4,225 as of December 31, 2011, and September 30, 2011, respectively to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.

The following table presents by class loans modified as troubled debt restructurings that occurred during the three months ending December 31, 2011:

			Recorded Investment
	Number		Pre- Modification		Post- Modification
Restructured Loans:
Real estate—residential mortgage		2	$	328	$	314
Real estate—commercial mortgage		1		159		159
Total restructured loans		3	$	487	$	473

The troubled debt restructurings described above increased the allowance for loan losses by $134. There were $11 in charge offs as a result of the above troubled debt restructurings.

20

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

A loan is considered to be in default once it is 90 days contractually past due under the modified terms. The following table presents by class loans that were modified as troubled debt restructurings during the last twelve months that have subsequently defaulted during the current quarter ended December 31, 2011:

	Number of Loans		Recorded Investment
Real estate—commercial mortgage		1	$	850

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans. This analysis is performed on a monthly basis on all criticized/classified loans. The Company uses the following definitions of risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected these potential weaknesses may result in the deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed as of December 31, 2011 and September 30, 2011, the risk category of loans by segment of gross loans is as follows:

	December 31, 2011
	Special Mention		Substandard		Doubtful
Real estate—residential mortgage	$	2,410	$	9,436	$	—
Real estate—commercial mortgage		7,457		28,908		—
Real estate—commercial mortgage (CBL)		1,104		3,953		—
Acquisition, development and construction		4,531		50,445		—
Commercial business loans		1,571		3,832		—
Commercial business loans (CBL)		853		137		71
Consumer loans, including home equity loans		498		2,601		—
Total	$	18,424	$	99,312	$	71

21

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

	September 30, 2011
	Special Mention		Substandard		Doubtful
Real estate—residential mortgage	$	3,701	$	8,525	$	—
Real estate—commercial mortgage		10,175		25,952		—
Real estate—commercial mortgage (CBL)		897		4,044		—
Acquisition, development and construction		5,170		49,294		—
Commercial business loans		1,915		3,501		—
Commercial business loans (CBL)		557		150		—
Consumer loans, including home equity loans		611		2,523		—
Total	$	23,026	$	93,989	$	—

5. Fair value measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

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

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

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

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

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

Investment securities available for sale

The majority of the Company’s available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. U.S. Treasuries are actively traded and therefore have been classified as Level 1 valuations. As of October 1, 2010 the company determined that government sponsored agencies totaling $346,019 previously reported as Level 1 securities were not classified based on the lowest level within the fair value hierarchy and deemed it appropriate to transfer the securities to Level 2.

The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company’s available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of financial market data and compares them to dealer indicative bids from the Company’s external investment advisor. The Company does not make adjustments to these prices unless it is determined there is limited trading activity. For securities where there is limited trading activity (private label CMO’s) and less observable valuation inputs, the Company has classified such valuations as Level 3.

22

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities. The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3. As of December 31, 2011, these securities have an amortized cost of $5,189 and a fair value of $4,675. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of December 31, 2011. These securities have a weighted average coupon rate of 2.86%, a weighted average life of 5.11 years, a weighted average one month prepayment history of 7.75 years and a weighted average twelve month default rate of 4.29 CDR. It was determined that two of these securities with a carrying amount of $4,228 and an amortized cost of $4,726 had other than temporary losses which resulted in a $38 other than temporary impairment charge for the three months ending December 31, 2011. These two securities have a total of $113 in other than temporary charges.

The investment grades of these securities are as follows:

	Amortized Cost		Fair Value
Investment Rating:
Aa1	$	326	$	320
Ba1		137		127
B1		2,882		2,631
B3		1,844		1,597
Total private label CMOs	$	5,189	$	4,675

Derivatives

The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2). The Company’s derivatives consist of two interest rate caps and three interest rate swaps (see note 9).

Commitments to sell real estate loans

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

23

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

A summary of assets and liabilities at December 31, 2011 measured at estimated fair value on a recurring basis were as follows:

	Fair Value Measurements at December 31, 2011		Level 1		Level 2		Level 3
Investment securities available for sale:
Mortgage-backed securities-residential
Fannie Mae	$	197,609	$	—	$	197,609	$	—
Freddie Mac		112,379		—		112,379		—
Ginnie Mae		5,134		—		5,134		—
CMO/Other MBS		114,815		—		114,815		—
Privately issued collateralized mortgage obligations		4,675		—		—		4,675
		434,612		—		429,937		4,675
Investment securities
Federal agencies		152,847		—		152,847		—
Corporate debt securities		17,162		—		17,162		—
Obligations of states and political subdivisions		179,705		—		179,705		—
Equities		1,136		—		1,136		—
Total investment securities available for sale		350,850		—		350,850		—
Total available for sale securities		785,462		—		780,787		4,675
Interest rate caps and swaps		1,180		—		1,180		—
Total assets	$	786,642	$	—	$	781,967	$	4,675
Swaps	$	1,114	$	—	$	1,114	$	—
Total Liabilities	$	1,114	$	—	$	1,114	$	—

24

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

A summary of assets and liabilities at September 30, 2011 measured at estimated fair value on a recurring basis were as follows:

	Fair Value Measurements at September 30, 2011		Level 1		Level 2		Level 3
Investment securities available for sale:
Mortgage-backed securities-residential
Fannie Mae	$	139,991	$	—	$	139,991	$	—
Freddie Mac		100,675		—		100,675		—
Ginnie Mae		5,180		—		5,180		—
CMO/Other MBS		77,561		—		77,561		—
Privately issued collateralized mortgage obligations		4,851		—		—		4,851
		328,258		—		323,407		4,851
Investment securities
Federal agencies		204,648		—		204,648		—
Corporate debt securities		17,062		—		17,062		—
Obligations of states and political subdivisions		188,684		—		188,684		—
Equities		1,192		—		1,192		—
Total investment securities available for sale		411,586		—		411,586		—
Total available for sale securities		739,844		—		734,993		4,851
Interest rate caps and swaps		1,474		—		1,474		—
Total assets	$	741,318	$	—	$	736,467	$	4,851
Swaps	$	1,411	$	—	$	1,411	$	—
Total Liabilities	$	1,411	$	—	$	1,411	$	—

The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the period ending December 31, 2011:

	Fair Value Measurement three months ended December 31, 2010 Using Significant Unobservable Inputs Level 3			Fair Value Measurement three months ended December 31, 2011 Using Significant Unobservable Inputs Level 3
Private label CMOs available for sale
Beginning Balance September 30	$	5,996		$	4,851
Pay downs		(216	)		(148	)
(Amortization) and accretion, net		—			3
Credit loss write down (OTTI)		—			(38	)
Change in fair value		156			7
Ending Balance December 31	$	5,936		$	4,675

25

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

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

Loans Held for Sale and Impaired Loans

Loans held for sale are recorded at the lower of cost or fair value.

The Company may record nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependant loans calculated in accordance with FASB ASC Topic 310 – Receivables, when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based upon recent comparable sales of similar properties or assumptions generally observable by market participants. Any fair value adjustments for loans categorized here are classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the market place and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurements were $52,424 and $51,155 which equals the carrying value less the allowance for loan losses allocated to these loans at December 31, 2011 and September 30, 2011, respectively. Changes in fair value recognized on provisions on loans held by the Company were $1,648 and $864 for the three months ended December 31, 2011 and 2010, respectively.

A summary of impaired loans at December 31, 2011 measured at estimated fair value on a nonrecurring basis were as follows:

	Fair Value Measurements at December 31, 2011		Level 1		Level 2		Level 3
Real estate—residential mortgage	$	6,440	$	—	$	—	$	6,440
Real estate—commercial mortgage		3,614		—		—		3,614
Real estate—commercial mortgage (CBL)		2,220		—		—		2,220
Commercial business loans		28		—		—		28
Commercial business loans (CBL)		20		—		—		20
Acquisition, development and construction		11,038		—		—		11,038
Consumer loans		810		—		—		810
Total impaired loans with specific allowance allocations	$	24,170	$	—	$	—	$	24,170

A summary of impaired loans at September 30, 2011 measured at estimated fair value on a nonrecurring basis were as follows:

	Fair Value Measurements at September 30, 2011		Level 1		Level 2		Level 3
Real estate—residential mortgage	$	6,469	$	—	$	—	$	6,469
Real estate—commercial mortgage		3,741		—		—		3,741
Commercial business loans (CBL)		2,119		—		—		2,119
Acquisition, development and construction		2,126		—		—		2,126
Consumer loans		569		—		—		569
Total impaired loans with specific allowance allocations	$	15,024	$	—	$	—	$	15,024

26

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Mortgage servicing rights

The Company utilizes the amortization method to subsequently measure the carrying value of its servicing asset. In accordance with FASB ASC Topic 860-Transfers and Servicing, the Company must record impairment charges on a nonrecurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights the Company utilizes a third party vendor, which considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights is considered a Level 3 valuation. Changes in fair value of mortgage servicing rights recognized for the three months ended December 31, 2011 and 2010 was $(29) and $305, respectively. A valuation allowance of $10 was recorded at December 31, 2011, reflecting fair market value. There was no valuation allowance recorded at September 30, 2011.

Assets taken in foreclosure of defaulted loans

Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place, and the related nonrecurring fair value measurements adjustments have generally been classified as Level 2. Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $5,625 and $5,391 at December 31, 2011 and September 30, 2011, respectively. There were $68 and $0 changes in fair value recognized through income for those foreclosed assets held by the Company during the three months ending December 31, 2011 and 2010, respectively.

27

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Fair values of financial instruments

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

Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with FASB Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

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

	December 31, 2011						September 30, 2011
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Financial assets:
Cash and due from banks	$	43,687		$	43,687		$	281,512		$	281,512
Securities available for sale		785,462			785,462			739,844			739,844
Securities held to maturity		182,076			184,119			110,040			111,272
Loans		1,747,648			1,791,629			1,675,882			1,718,372
Loans held for sale		2,142			2,142			4,176			4,176
Accrued interest receivable		9,430			9,430			9,904			9,904
FHLB of New York stock		21,789			21,789			17,584			17,584
Financial liabilities:
Non-maturity deposits		(1,824,521	)		(1,824,521	)		(1,993,036	)		(1,993,036	)
Certificates of Deposit		(311,034	)		(313,071	)		(303,659	)		(305,940	)
FHLB and other borrowings		(468,543	)		(510,950	)		(375,021	)		(417,879	)
Mortgage escrow funds		(18,597	)		(18,597	)		(9,701	)		(9,701	)
Accrued interest payable		(2,128	)		(2,128	)		(1,816	)		(1,816	)

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

(a) Cash and due from banks

The carrying value of cash and due from banks approximates their fair value.

(b) Securities

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

28

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

(c) Loans held for sale

Loans held for sale are recorded at the lower of cost or fair value in accordance with GAAP.

(d) Loans

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

(e) FHLB of New York Stock

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

(f) Deposits and Mortgage Escrow Funds

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

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

(g) Borrowings

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

(h) Other Financial Instruments

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

The fair values of the Company’s off-balance sheet financial instruments were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At December 31, 2011 and September 30, 2011, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.

29

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

6. Securities

The following is a summary of securities available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2011
Mortgage-backed securities-residential
Fannie Mae	$	193,557	$	4,052	$	—		$	197,609
Freddie Mac		110,049		2,333		(3	)		112,379
Ginnie Mae		4,934		200		—			5,134
CMO/Other MBS		118,420		1,709		(639	)		119,490
		426,960		8,294		(642	)		434,612
Investment securities
Federal agencies		148,870		3,977		—			152,847
Corporate bonds		16,922		401		(161	)		17,162
State and municipal securities		164,875		14,830		—			179,705
Equities		1,192		—		(56	)		1,136
		331,859		19,208		(217	)		350,850
Total available for sale	$	758,819	$	27,502	$	(859	)	$	785,462
September 30, 2011
Mortgage-backed securities-residential
Fannie Mae	$	136,699	$	3,292	$	—		$	139,991
Freddie Mac		98,511		2,205		(41	)		100,675
Ginnie Mae		4,973		207		—			5,180
CMO/Other MBS		81,170		1,764		(522	)		82,412
		321,353		7,468		(563	)		328,258
Investment securities
Federal agencies		199,741		4,986		(79	)		204,648
Corporate bonds		16,984		257		(179	)		17,062
State and municipal securities		177,666		11,018		—			188,684
Equities		1,192		—		—			1,192
		395,583		16,261		(258	)		411,586
Total available for sale	$	716,936	$	23,729	$	(821	)	$	739,844

30

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

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

	December 31, 2011
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	3,025	$	3,052
One to five years		131,660		136,440
Five to ten years		152,622		162,946
Greater than ten years		43,360		47,276
Total investment securities		330,667		349,714
Mortgage backed securities-residential		426,960		434,612
Equity securities		1,192		1,136
Total available for sale securities	$	758,819	$	785,462

Proceeds from sales of securities available for sale totaled $83,579 and $224,797 during the three months ending December 31, 2011 and 2010, respectively. These sales resulted in gross realized gains of $1,989 and $4,202 for the three months ending December 31, 2011 and 2010, respectively. There were no gross realized losses for the three months ending December 31, 2011 and 2010.

Securities, including some held to maturity securities, with carrying amounts of $262,370 and $206,829 were pledged as collateral for borrowings at December 31, 2011 and September 30, 2011, respectively. Securities with carrying amounts of $372,486 and $438,081 were pledged as collateral for municipal deposits and other purposes at December 31, 2011 and September 30, 2011, respectively.

Securities Available for Sale with Unrealized Losses. The following table summarizes those securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position:

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Freddie Mac	$	5,130	$	(3	)	$	—	$	—		$	5,130	$	(3	)
CMO/Other MBS		12,726		(382	)		1,724		(257	)		14,450		(639	)
Total mortgage backed securities - residential		17,856		(385	)		1,724		(257	)		19,580		(642	)
Corporate bonds		2,029		(161	)		—		—			2,029		(161	)
Equity		886		(56	)		—		—			886		(56	)
Total	$	20,771	$	(602	)	$	1,724	$	(257	)	$	22,495	$	(859	)

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of September 30, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Freddie Mac	$	10,262	$	(41	)	$	—	$	—		$	10,262	$	(41	)
CMO/Other MBS		3,037		(257	)		1,813		(265	)		4,850		(522	)
Total mortgage backed securities—residential		13,299		(298	)		1,813		(265	)		15,112		(563	)
U.S. Government and agency securities		9,914		(79	)		—		—			9,914		(79	)
Corporate bonds		1,886		(179	)		—		—			1,886		(179	)
Total	$	25,099	$	(556	)	$	1,813	$	(265	)	$	26,912	$	(821	)

31

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The Company, as of June 30, 2009 adopted the provisions under FASB ASC Topic 320 – Investments- Debt and Equity Securities which requires a forecast of recovery of cost basis through cash flow collection on all debt securities with a fair value less than its amortized cost less any current period credit loss with an assertion on the lack of intent to sell (or requirement to sell prior to recovery of cost basis). Based on a review of each of the securities in the investment portfolio in accordance with FASB ASC 320 at December 31, 2011, the Company concluded that it expects to recover the amortized cost basis of its investments on all but two private label collateralized mortgage-backed securities (“CMO’s”) which incurred impairment charges of $38 for the three months ended December 31, 2011. Total cumulative impairment charges on the two private label CMO’s total $113. As of December 31, 2011, the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period applicable credit losses.

The losses related to privately issued residential CMO’s were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The Company uses a discounted cash flow (“DCF”) analysis to provide an estimate of an OTTI loss. Inputs to the discount model included known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over collateralization tests, interest coverage tests and other factors. Expected default and deferral rates were weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate was based upon the yield expected from the related securities.

Substantially all of the unrealized losses at September 30, 2011 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. A total of 18 available for sale securities were in a continuous unrealized loss position for less than 12 months and 4 securities for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.

Within the CMO category of the available for sale portfolio there are four individual private label CMO’s that have an amortized cost of $5,189 and a fair value (carrying value) of $4,675 as of December 31, 2011. Two of the four securities are considered to be other than temporarily impaired as noted above and are below investment grade. The impaired private label CMO’s have an amortized cost of $4,726 and a fair value of $4,228 at December 31, 2011. The remaining two securities are rated at or above Ba1 and are performing as of December 31, 2011 and are expected to perform based on current information.

In determining whether there existed other than temporary impairment on these securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no losses are expected. The Company will continue to evaluate its portfolio in this manner on a quarterly basis.

32

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

Securities Held to Maturity

The following is a summary of securities held to maturity:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Decemer 31, 2011
Mortgage-backed securities-residential
Fannie Mae	$	32,051	$	242	$	—		$	32,293
Freddie Mac		57,501		323		(10	)		57,814
CMO/Other MBS		30,333		260		(20	)		30,573
		119,885		825		(30	)		120,680
Investment securities
Federal agencies		40,739		87		(42	)		40,784
State and municipal securities		19,952		1,168		—			21,120
Other		1,500		35		—			1,535
		62,191		1,290		(42	)		63,439
Total held to maturity	$	182,076	$	2,115	$	(72	)	$	184,119
September 30, 2011
Mortgage-backed securities-residential
Fannie Mae	$	1,298	$	63	$	—		$	1,361
Freddie Mac		32,858		103		(120	)		32,841
CMO/Other MBS		25,828		155		—			25,983
		59,984		321		(120	)		60,185
Investment securities
Federal agencies		29,973		25		(141	)		29,857
State and municipal securities		18,583		1,108		—			19,691
Other		1,500		39		—			1,539
		50,056		1,172		(141	)		51,087
Total held to maturity	$	110,040	$	1,493	$	(261	)	$	111,272

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

	December 31, 2011
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	10,327	$	10,424
One to five years		4,291		4,519
Five to ten years		44,086		44,590
Greater than ten years		3,487		3,906
Total investment securities		62,191		63,439
Mortgage backed securities-residential		119,885		120,680
Total held to maturity securities	$	182,076	$	184,119

33

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

The following table summarizes those securities held to maturity with unrealized losses, segregated by the length of time in a continuous unrealized loss position:

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer				Total
As of December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Freddie Mac MBS-residential	$	15,123	$	(10	)	$	—	$	—	$	15,123	$	(10	)
CMO other MBS		4,992		(20	)						4,992		(20	)
Total mortgage back securities		20,115		(30	)						20,115		(30	)
US Gov’t Agencies		14,958		(42	)						14,958		(42	)
Total	$	35,073	$	(72	)	$	—	$	—	$	35,073	$	(72	)

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer				Total
As of September 30, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Freddie Mac MBS-residential	$	25,770	$	(120	)	$	—	$	—	$	25,770	$	(120	)
Federal Agencies		24,831		(141	)		—		—		24,831		(141	)
Total	$	50,601	$	(261	)	$	—	$	—	$	50,601	$	(261	)

All of the unrealized losses on held to maturity securities at December 31, 2011 are attributable to changes in market interest rates and credit risk spreads subsequent to purchase. There were no securities with unrealized losses that individually had significant dollar amounts at December 31, 2011. There were no held-to-maturity securities in a continuous unrealized loss position for more than 12 months and 6 securities in a continuous unrealized loss for less than 12 months. For securities with fixed maturities, the Company currently believes it is probable that it will collect all amounts due according to the contractual terms of the investment. As of December 31, 2011, the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period applicable credit losses.

34

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

7. Deposits

Major classifications of deposits are summarized below:

	December 31, 2011		September 30, 2011
Demand Deposits
Retail	$	166,972	$	194,299
Business		307,004		296,505
Municipal		14,870		160,422
NOW Deposits
Retail		178,226		164,637
Business		33,844		37,092
Municipal		98,847		200,773
Total transaction accounts		799,763		1,053,728
Savings		444,803		429,825
Money market		579,955		509,483
Certificates of deposit		311,034		303,659
Total deposits	$	2,135,555	$	2,296,695

Municipal deposits of $401,517 and $614,834 were included in total deposits at December 31, 2011 and September 30, 2011, respectively. Deposits received for tax receipts were approximately $284,000 at September 30, 2011. Listed below are the Company’s brokered deposits included in the table above:

	December 31, 2011		September 30, 2011
Money market	$	31,431	$	5,725
Reciprocal CDAR’s1		1,349		2,746
CDAR’s one way		22,157		3,366
Total brokered deposits	$	54,937	$	11,837

¹  Certificate of deposit account registry service

35

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

8. Borrowings

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

	December 31, 2011					September 30, 2011
	Amount		Rate			Amount		Rate
By type of borrowing:
FHLB advances	$	210,347		2.13	%	$	111,828		3.83	%
FHLB Repurchase agreements		206,696		3.66			211,694		3.61
Senior Debt (FDIC insured)		51,500		2.75			51,499		2.75
Total borrowings	$	468,543		2.87	%	$	375,021		3.56	%
By remaining period to maturity:
Less than one year	$	155,000		1.12	%	$	61,500		2.96	%
One to two years		35,955		2.65			5,066		4.04
Two to three years		9,486		3.01			35,795		2.37
Three to four years		42,439		2.63			49,312		2.28
Four to five years		2,574		1.38			211		5.32
Greater than five years		223,089		4.18			223,137		4.18
Total borrowings	$	468,543		2.87	%	$	375,021		3.56	%

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 December 31, 2011 and September 30, 2011, the Bank had pledged mortgages totaling $527,936 and $464,900 respectively. The Bank had also pledged securities with carrying amounts of $262,370 and $206,829 as of December 31, 2011 and September 30, 2011, respectively, to secure borrowings. As of December 31, 2011, the Bank may increase its borrowing capacity by pledging securities and mortgages not required to be pledged for other purposes with a market value of $373,263. FHLB advances are subject to prepayment penalties, if repaid prior to maturity.

FHLB borrowings (includes advance and repurchase agreements) of $200,000 at June 30, 2011 and December 31, 2011, respectively are putable quarterly, at the discretion of the FHLB. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 5.31 years and 5.56 years and weighted average interest rates of 4.23 percent and 4.23 percent at December 31, 2011 and September 30, 2011, respectively. An additional $20,000 is putable on a one time basis after an initial lockout period beginning in February 2013 with an interest rate of 3.57 percent.

During the three months ending December 31, 2011, the Company restructured $5,000 of its FHLBNY advances which had a weighted average rate of 4.04 percent and a duration of 1.5 years, into new borrowings with a weighted average rate of 2.37 percent net of prepayment penalties , duration of 1.6 years. Prepayment penalties of $278 associated with the modifications are being amortized to maturity on a level yield basis.

36

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

9. Derivatives

The Company purchased two interest rate caps in the first quarter of fiscal 2010 to assist in offsetting a portion of interest rate exposure should short term rate increases lead to rapid increases in general levels of market interest rates on deposits. These caps are linked to LIBOR and have strike prices of 3.5 percent and 4.0 percent. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings; the amount for December 31, 2011 and 2010 is a fair value loss of $3 and a fair value gain of $234, respectively. The fair value of the interest rate caps at December 31, 2011 is reflected in other assets with a corresponding credit (charge) to income recorded as a gain (loss) to non-interest income.

The Company acts as an interest rate swap counterparty with certain commercial customers and manages this risk by entering into corresponding and offsetting interest rate risk agreements with third parties. The swaps are considered a derivative instrument and must be carried at fair value. As the swaps are not a designated qualifying hedge, the change in fair value is recognized in current earnings, with no offset from any other instrument. There was no net gain or loss recorded in earnings during the three months ended December 31, 2011 and 2010. Interest rate swaps are recorded on our consolidated statements of financial condition as an other asset or other liability at estimated fair value.

At December 31, 2011 summary information regarding these derivatives is presented below:

	December 31, 2011
	Notional Amount			Average Maturity		Weighted Average Rate Fixed			Weighted Average Variable Rate			Fair Value
Interest Rate Caps	$	50,000			2.93		3.75	%		NA	%	$	62
3rd party interest rate swap		23,920			7.44		4.63			1 m Libor + 2.32	%		1,411
Customer interest rate swap		(23,920	)		7.44		4.63			1 m Libor + 2.32	%		(1,411	)

At September 30, 2011, summary information regarding these derivatives is presented below:

	September 30, 2011
	Notional Amount			Average Maturity		Weighted Average Rate Fixed			Weighted Average Variable Rate			Fair Value
Interest Rate Caps	$	50,000			3.18		3.75	%		NA	%	$	65
3rd party interest rate swap		12,009			10.23		5.28			1 m Libor + 2.15	%		1,114
Customer interest rate swap		(12,009	)		10.23		5.28			1 m Libor + 2.15	%		(1,114	)

The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The fair values of these commitments are not considered material.

37

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

10. Earnings Per Common Share

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

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

Basic earnings per common share are computed as follows:

	For the Three Months Ended December 31,
	2011		2010
Weighted average common shares outstanding (basic), in ‘000s		37,252		37,552
Net Income	$	5,717	$	6,720
Basic earnings per common share	$	0.15	$	0.18

Diluted earnings per common share are computed as follows:

	For the Three Months Ended December 31,
	2011		2010
Weighted average common shares outstanding (basic), in ‘000s		37,252		37,552
Effect of common stock equivalents		—		—
		37,252		37,552
Net Income	$	5,717	$	6,720
Diluted earnings per common share	$	0.15	$	0.18

Anti-dilutive shares excluded in the determination of earnings per share were 1,935,830 and 1,916,707 at December 31, 2011 and 2010, respectively. Anti-dilutive shares are not included in the determination of diluted earnings per share.

11. 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 December 31, 2011, the Company had $17,725 in outstanding letters of credit, of which $171 are cash secured and $7,027 were secured by collateral. The carrying values of these obligations are considered immaterial.

38

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

12. Pension and Other Post Retirement Plans

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

	Pension Plan						Other Post Retirement Plans
	Three months Ended December 31,						Three months Ended December 31,
	2011			2010			2011			2010
Service Cost	$	—		$	—		$	9		$	7
Interest Cost		375			378			27			27
Expected return on plan assets		(531	)		(498	)		—			—
Amortization of net transition obligation		—			—			6			6
Amortization of prior service cost		—			—			12			12
Amortization of (gain) or loss		579			509			(15	)		(24	)
	$	423		$	389		$	39		$	28

As of December 31, 2011, no contributions were deposited into the pension plan. The Company has not yet determined if additional contributions will be made during the fiscal year 2012.

The Company has also established a non-qualified Supplemental Executive Retirement Plan (“SERP”) to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended (“IRS Code”). The periodic pension expense for the supplemental plan amounted to $13 for the three months ended December 31, 2011 and $22 for the three months ended December 31, 2010. As of December 31, 2011 there were $9 in contributions to fund benefit payments related to the SERP.

13. Contingencies

Certain premises and equipment are leased under operating leases with terms expiring through 2033. The Company has the option to renew certain of these leases for additional terms.

The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management, after consultation with legal counsel, does not anticipate losses on any of these claims or actions that would have a material adverse effect on the consolidated financial statements.

14. Subsequent Events

The Company announced January 18, 2012 that Provident Bank its subsidiary has entered into a definitive agreement to acquire Gotham Bank of New York in a cash transaction valued at approximately $40.5 million. The closing considerations will be 125% of adjusted tangible net worth as calculated under the merger agreement, resulting in an estimated 3.3% core deposit premium. Completion of the transaction is subject to regulatory and Gotham Bank shareholder approvals as well as other customary closing conditions.

39

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(In thousands, except share data)

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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 financial, business or strategic matters regarding or affecting Provident 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 or future or conditional verbs such as “will,” “should,” “would” and “could.” These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared.

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.

The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:

• legislative and regulatory changes such as the Dodd-Frank Act and its implementing regulations that adversely affect our business including changes in regulatory policies and principles or the interpretation of regulatory capital or other rules;

• a further deterioration in general economic conditions, either nationally, internationally, or in our market areas, including extended declines in the real estate market and constrained financial markets;

• the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government;

• our ability to make accurate assumptions and judgments about an appropriate level of allowance for loan losses and the collectability of our loan portfolio, including changes in the level and trend of loan delinquencies and write-offs that may lead to increased losses and non-performing assets in our loan portfolio, result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves;

• our use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

• changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;

• computer systems on which we depend could fail or experience a security breach, implementation of new technologies may not be successful; and our ability to anticipate and respond to technological changes can affect our ability to meet customer needs;

• changes in other economic, competitive, governmental, regulatory, and technological factors affecting our markets, operations, pricing, products, services and fees;

• our Company’s ability to successfully implement growth, expense reduction and other strategic initiatives and to complete merger and acquisition activities and realize expected strategic and operating efficiencies associated with such matters;

• our success at managing the risks involved in the foregoing and managing our business; and

• the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond our control.

Additional factors that may affect our results are discussed in our annual report on Form 10-K under “Item 1A, Risk Factors” and elsewhere in this Report or in other filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

40

Overview and 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, which is the greater New York City market place. Additionally, the Company offers investment management services through its subsidiary, HVIA. The financial condition and results of operations of Provident New York Bancorp are discussed herein on a consolidated basis with the Bank. Reference to Provident New York Bancorp or the Company may signify the Bank, depending on the context.

We specialize in the delivery of service solutions to business owners, their families and consumers within our marketplace through a team based approach. We focus our efforts on core deposit generation, especially transaction accounts and quality loan growth with emphasis on growing commercial loan balances. We seek to maintain a disciplined pricing strategy on deposit generation that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs. Going forward imperatives for the Company will be to grow revenue and earnings by expanding client acquisitions, continuing to improve credit metrics and to significantly improve efficiency levels. To achieve these goals we will focus on high value client segments, expand delivery channels and distribution to increase client acquisitions, execute effectively by creating a highly productive performance culture, reduce operating costs, and proactively manage enterprise risk.

The Company’s results for the first quarter of fiscal 2012 reflected the effects of the implementation of our strategies. During the first quarter we restructured the organization around markets and have hired high performing leadership to assume the roles of Market Presidents and Chief Operating Officer. We also announced during the quarter our expansion into New York City which follows through on our strategic objective of expanding our reach into the greater New York City marketplace. In line with our strategies during the month of January we hired a new Chief Financial Officer and entered into a definitive agreement to acquire Gotham Bank of New York. Gotham Bank is a great strategic fit for the Company and provides an attractive platform in the New York City marketplace to grow our franchise. In addition we have hired four seasoned commercial banking teams for the New York City marketplace, all with proven track records of delivering superior service to their clients.

We continue to experience pressure on net interest income as low rates continue to have the effect of causing many assets to prepay or to be called. Many of our liabilities are at rates that are either fixed or already very low, so maintaining net interest margin is a function of loan growth, growth in non-interest bearing deposits and certain core deposits, and continuation of our deposit pricing discipline. Current market interest rates have declined, and may have an affect on our reinvestment opportunities. The low interest rate environment has also caused management to sell fixed rate conforming residential mortgages into the secondary market in order to reduce interest rate risk.

We continue to make progress in credit quality as we work through the criticized and classified portfolio seeking positive resolution on existing problem credits. The loan portfolio demonstrates an improving credit risk profile as nearly all originations are at the desirable internal risk rating which is five or better. Our average portfolio risk rating improved to 5.46 at December 31, 2011 from 5.71 at December 31, 2010. The ADC portfolio continues to decline in size as we have deemphasized this business and repayments continue. Non performing loans increased primarily in the ADC and residential portfolios. The increase in nonperforming ADC loans from September 30, 2011 is related mostly to one large relationship and plans to resolve this credit is in progress. Residential loans have an extended three to four year foreclosure process and therefore are difficult to resolve in a timely manner potentially resulting in increased charge offs and non performing loans in this category. See credit quality section for further discussion.

41

Comparison of Financial Condition at December 31, 2011 and September 30, 2011

Total assets as of December 31, 2011 decreased $53.2 million or 1.7 percent from September 30, 2011 due primarily to a decrease in cash and due from banks. September 30, 2011 balances historically reflect deposits of municipal tax collections that are drawn down over time to fund government expenditures. Other cash balances were redeployed into higher yielding loans and securities.

Net loans as of December 31, 2011 increased $71.8 million or 4.3 percent to $1.7 billion from September 30, 2011. Commercial real estate loans were the sole contributor with an increase of $105.7 million. Acquisition, Development and Construction loans (ADC) declined $13.9 million to $162.0 million compared to $175.9 million at September 30, 2011, a reflection of the Company’s de-emphasis on the originations of this type of loan. Consumer loans decreased by $4.9 million, and residential loans decreased by $4.2 million as of December 31, 2011. Total loan originations, including loans originated for sale were $231.6 million for the three months ending December 31, 2011, while repayments were $141.7 million. Loan loss reserves increased $328,000 during the three months ended December 31, 2011 to $28.2 million compared to the three months ended September 30, 2011.

Total securities increased by $117.7 million, to $967.5 million at December 31, 2011 from $849.9 million at September 30, 2011. Securities purchases were $228.0 million, sales of securities were $83.6 million, and maturities, calls, and repayments were $31.8 million. Carrying values of securities increased by $3.7 million mainly due to unrealized gains. Security gains and other than temporarily impaired losses were $2.0 million and net amortization of securities were $677,000 for the three months ended December 31, 2011.

Deposits as of December 31, 2011 were $2.1 billion, a decrease of $161.1 million, or 7.0 percent, from September 30, 2011. As of December 31, 2011 transaction accounts were 37.5 percent of deposits, or $799.8 million compared to $1.1 billion or 45.9 percent of deposits at September 30, 2011. Deposits received from municipalities for tax payments were approximately $284.0 million at September 30, 2011. As of December 31, 2011 savings deposits were $444.8 million, an increase of $15.0 million or 3.5 percent. Money market accounts increased $70.5 million or 13.8 percent to $580.0 million at December 31, 2011. Certificate of deposit accounts increased by $7.4 million or 2.4 percent. As of December 31, 2011, the Company had $54.9 million in wholesale deposits.

Borrowings increased by $93.5 million, or 24.9 percent, from September 30, 2011, to $468.5 million primarily due to the slower exit of municipal tax deposits received at September 30, 2011. The Company completed restructuring of $5.0 million of FHLBNY advances during the first quarter of fiscal 2012 which had a weighted average rate of 4.04 percent and a duration of 1.5 years, into new borrowings with a weighted average rate of 2.37 percent, and a duration of 1.6 years. Prepayment penalties of $278,500 associated with the modifications are being amortized into interest expense over the modification period on a level yield basis.

Stockholders’ equity increased $6.5 million from September 30, 2011 to $437.7 million at December 31, 2011. The increase was due to an increase in retained earnings of $3.4 million and a $2.6 million increase in accumulated other comprehensive income, after realizing securities gains of $2.0 million for the quarter ended, December 31, 2011.

As of December 31, 2011 the Company had authorization to purchase up to additional 776,713 shares of common stock. Bank Tier I capital to assets was 8.51 percent at December 31, 2011. Tangible capital as a percentage of tangible assets at the consolidated company level was 9.34 percent.

Credit Quality (Also see Note 4 to the consolidated financial statements)

Our non-performing loans (“NPLs”) increased $5.3 million from $40.6 million at September 30 2011, to $45.9 million at December 31, 2011, driven primarily by one relationship in the ADC portfolio of $3.6 million, which had been previously classified as substandard. This increase in NPLs caused our coverage ratio of reserves to NPLs to drop from 69% to 62% quarter-over-quarter. The coverage compared to total loans was 1.59% at December 31, 2011 compared to 1.64% at September 30, 2011. Our provision for the quarter of $2.0 million exceeded net charge-offs of $1.6 million, increasing the Allowance for Loan Losses by $328,000 from September 30, 2011 to $28.2 million at December 31, 2011.

NPLs are concentrated in the ADC portfolio, which contains $21.3 million of NPLs compared to total NPLs of $45.9 million. There are 2 larger relationships in the NPL ADC portfolio. The first was added to nonperforming at June 30, 2011. It is in litigation and has been written down to $8.5 million, supported by current appraisals. There is a related performing group of loans, which partially guarantees the nonperforming debt, it is secured by a condominium project now selling in Phase 3 of its 5 phases. We are working toward a consensual arrangement to liquidate that guaranty. The other nonperforming loan relates to 3 projects that are still in development. We also are working toward a consensual arrangement to bring this relationship back to performing status. We have recourse to a substantial guarantor should that prove necessary.

Also contributing disproportionately to NPLs is the residential mortgage portfolio, with $8.2 million in that status at December 31, 2011. The time to foreclose on these loans has risen dramatically, limiting our capacity to timely resolve defaulted loans.

42

Net charge-offs for the quarter were $1.6 million, or 0.37% of the average loan portfolio. This compares to $10.3 million (2.41% of average loans) in the prior quarter and $1.9 million (0.45% of average loans) in the same quarter last year. Net charge-offs benefited from recoveries of $1.1 million, mostly from recoveries on commercial business loans. Charge-offs for the quarter were concentrated in write-downs of mortgage-secured nonperforming loans based on declining appraisal values.

Comparison of Operating Results for the Three Months Ended December 31, 2011 and December 31, 2010

Net income for the three months ended December 31, 2011 was $5.7 million or $0.15 per diluted share, a decrease of $1.0 million compared to $6.7 million or $0.18 per diluted share, for the same period in fiscal 2011. Excluding the after tax effect of securities gains and other than temporary impairment credit losses, the fair value adjustment of interest rate caps, severances, and merger related expenses associated with the pending acquisition of Gotham Bank, net income was $ 0.13 per diluted share for the three month period ending December 31, 2011 compared to $0.11 per diluted share for the three month period ending December 31, 2010. The provision for loan losses for the three months ended December 31, 2011 was $2.0 million, $150,000 lower, compared to $2.1 million for the same period in the prior year. Net interest margin on a tax equivalent basis for the three months ended December 31, 2011, decreased by 12 basis points compared to the same period last year from 3.66 percent to 3.54 percent. Non-interest income totaled $7.2 million for the three months ended December 31, 2011 a decrease of $2.7 million compared to December 31, 2010. The decrease was mainly attributable to fact that there were lower gains on sales of securities of $2.0 million, a decline of $2.2 million compared to $4.2 million and a fair value gain on interest rate caps in the first fiscal quarter of 2011. Additionally, declines in other- loan fees, gains on sale of loans and lower title insurance fees also contributed to the decrease. Non-interest expense decreased $548,000, or 2.6 percent, to $20.7 million for the three months ended December 31, 2011, compared to $21.3 million for the same period in the prior year primarily due to lower employee benefits of $319,000 which were offset by severance costs of $375,000 and new hires in executive management. Marketing and consulting costs declined by $340,000 and $306,000, respectively. These expense reductions were offset in part by merger-related costs of $247,000 and an increase in real estate owned expense of $289,000.

43

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

	Three months ended December 31,
	2011			2010
Net Income
Net Income	$	5,717		$	6,720
Securities net gains and credit losses(1)		(1,159	)		(2,496	)
Fair value (gain) loss on interest rate caps(1)		2			(139	)
Severance (1)		223			—
Merger related expenses (1)		147			—
Net adjusted income	$	4,930		$	4,085
Earnings per common share
Diluted Earnings per common share	$	0.15		$	0.18
Securities net gains and credit losses(1)		(0.03	)		(0.07	)
Fair value (gain) loss on interest rate caps(1)		—			—
Severance (1)		0.01			—
Merger related expenses (1)		—			—
Diluted adjusted earnings per common share	$	0.13		$	0.11
Non-interest income
Total non-interest income	$	7,176		$	9,883
Securities net gains and credit losses		(1,951	)		(4,202	)
Fair value (gain) loss on interest rate caps		3			(234	)
Adjusted non interest-income	$	5,228		$	5,447
Non-interest expense
Total non-interest expense	$	20,721		$	21,269
Severance		(376	)		—
Merger related expenses		(247	)		—
Adjusted non interest-expense	$	20,098		$	21,269

⁽¹⁾ After marginal tax effect 40.61%

^*  Rounding

Relevant operating results performance measures follow:

	Three Months Ended December 31,
	2011			2010
Per common share:
Basic earnings	$	0.15		$	0.18
Diluted earnings		0.15			0.18
Dividends declared		0.06			0.06
Return on average (annualized):
Assets		0.74	%		0.90	%
Equity		5.26	%		6.22	%

44

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 December 31,
	2011									2010
	Average Outstanding Balance			Interest			Average Yield Rate			Average Outstanding Balance			Interest			Average Yield Rate
Interest earning assets:
Commercial and commercial mortgage loans	$	1,097,476		$	14,245			5.15	%	$	1,040,065		$	14,864			5.67	%
Consumer loans		227,274			2,635			4.60			238,319			2,673			4.45
Residential mortgage loans		387,446			5,269			5.40			403,567			5,668			5.57
Total net loans 1		1,712,196			22,149			5.13			1,681,951			23,205			5.47
Securities-taxable		696,293			3,990			2.27			692,346			3,530			2.02
Securities-tax exempt 2		205,366			2,729			5.27			221,802			2,961			5.30
Federal Reserve balances		82,437			63			0.30			8,459			20			0.94
Other earning assets		18,735			192			4.07			24,257			380			6.22
Total securities and other earning assets		1,002,831			6,974			2.76			946,864			6,891			2.89
Total interest-earning assets		2,715,027			29,123			4.26			2,628,815			30,096			4.54
Non-interest-earning assets		347,493									332,643
Total assets	$	3,062,520								$	2,961,458
Interest bearing liabilities:
NOW Checking	$	398,885			164			0.16	%	$	317,876			173			0.22	%
Savings, clubs and escrow		445,236			81			0.07			405,177			109			0.11
Money market accounts		577,387			397			0.27			433,865			339			0.31
Certificate accounts		302,713			671			0.88			406,241			1,021			1.00
Total interest-bearing deposits		1,724,221			1,313			0.30			1,563,159			1,642			0.42
Borrowings		392,785			3,617			3.65			481,939			4,234			3.49
Total interest-bearing liabilities		2,117,006			4,930			0.92			2,045,098			5,876			1.14
Non- interest bearing deposits		500,621									470,873
Other non-interest-bearing liabilities		13,764									16,587
Total liabilities		2,631,391									2,532,558
Stockholders’ equity		431,129									428,900
Total liabilities and equity	$	3,062,520								$	2,961,458
Net interest rate spread								3.34	%								3.40	%
Net earning assets	$	598,021								$	583,717
Net interest margin					24,193			3.54	%					24,220			3.66	%
Less tax equivalent adjustment 2					(955	)								(1,036	)
Net interest income				$	23,238								$	23,184
Ratio of average interest-earning assets to average interest bearing liabilities		128.25	%								128.54	%

¹  Includes non-accrual loans

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

45

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 December 31, 2011 vs. 2010 Increase / (Decrease) Due to
	Volume1			Rate1			Total
Interest earning assets
Commercial and commercial mortgage loans	$	784		$	(1,403	)	$	(619	)
Consumer loans		(125	)		87			(38	)
Residential mortgage loans		(226	)		(173	)		(399	)
Securities-taxable		20			440			460
Securities-tax exempt2		(215	)		(17	)		(232	)
Federal Reserve excess reserves		66			(23	)		43
Other earning assets		(69	)		(119	)		(188	)
Total interest income		235			(1,208	)		(973	)
Interest-bearing liabilities
NOW checking		42			(51	)		(9	)
Savings		11			(39	)		(28	)
Money market		104			(46	)		58
Certificates of deposit		(238	)		(112	)		(350	)
Borrowings		(802	)		185			(617	)
Total interest expense		(883	)		(63	)		(946	)
Net interest margin		1,118			(1,145	)		(27	)
Less tax equivalent adjustment2		75			6			81
Net interest income	$	1,193		$	(1,139	)	$	54

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 December 31, 2011 of $23.2 million remained flat, compared to the same quarter December 31, 2010. Gross interest income on a tax-equivalent basis of $29.1 million remained relatively unchanged for the quarter ended December 31, 2011 compared to the same period in fiscal 2011. The current quarter was negatively impacted by non-accrual interest on non-performing loans net of prepayment fees, which reduced interest income on loans by $384,000 in the first quarter of 2012 and $83,000 in the first quarter of 2011. Interest expense declined by $946,000 with the decrease mainly in certificates of deposit of $350,000 and borrowings of $617,000. The average costs of borrowings increased as result of a change in mix between short-term and long-term funding.

Provision for Loan Losses. The Company records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level necessary to absorb probable incurred loan losses inherent in the existing portfolio. The Company recorded $2.0 million in loan loss provisions for the quarter ended December 31, 2011. Refer to the credit quality section for a discussion on net charge-offs and nonperforming loans. Net charge-offs for the quarter ended December 31, 2011 were $1.6 million, which included $1.3 million of specific reserves recorded in prior periods.

Non-interest income for the three months ended December 31, 2011 decreased by $2.7 million to $7.2 million. The primary driver of the decrease were lower gains on sales of securities of $2.0 million, a decrease of $2.2 million compared to $4.2 million and a fair value gain on interest rate caps in the first fiscal quarter of 2011. Declines in other loan fees, gains on sales of loans in fiscal 2011 and lower title insurance fees also contributed to the decrease.

Non-interest expense for the three months ended December 31, 2011 decreased by 2.6 percent, to $20.7 million, due to lower employee benefits of $319,000 which were primarily offset by severance costs of $375,000 and new hires in executive management. Marketing and consulting costs declined by $340,000 and $306,000, respectively. These expense reductions were offset in part by merger-related costs of $247,000 and an increase in real estate owned expense of $289,000.

Income Tax decreased $1 million to $2.0 million for the three months ended December 31, 2011, compared to $3.0 million for the period ended December 31, 2010. The effective tax rate was 26.2 percent and 30.7 percent for the periods ended December 31, 2011 and 2010, respectively. The decline is due to municipal income and BOLI income making up a larger percentage of overall pretax income in the current period.

46

Liquidity and Capital Resources

The overall objective of our liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, wholesale borrowings, the proceeds from maturing securities and short-term investments, and the proceeds from the sales of loans and securities. The scheduled amortizations of loans and securities, as well as proceeds from borrowings, are predictable sources of funds. Other funding sources, however, such as deposit inflows, mortgage prepayments and mortgage loan sales are greatly influenced by market interest rates, economic conditions and competition.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in the Consolidated Statements of Cash Flows in our consolidated financial statements. Our primary investing activities are the origination of commercial real estate and residential one- to four-family loans, and the purchase of investment securities and mortgage-backed securities. During the three months ended December 31, 2011 and 2010, our loan originations totaled $231.6 million and $182.0 million, respectively. Purchases of securities available for sale totaled $151.2 million and $301.1 million for the three months ended December 31, 2011 and 2010, respectively. Purchases of securities held to maturity totaled $76.8 million and $4.0 million for the three months ended December 31, 2011 and 2010, respectively. These activities were funded primarily by sales of securities, by borrowings and by principal repayments on loans and securities. Loan origination commitments totaled $63.8 million at December 31, 2011, and consisted of $54.0 million at adjustable or variable rates and $9.8 million at fixed rates. Unused lines of credit granted to customers were $288.6 million at December 31, 2011. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit.

The Company’s investments in BOLI are considered illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. The recorded value of BOLI contracts totaled $57.5 million and $57.0 million at December 31, 2011 and September 30, 2011, respectively.

Deposit flows are generally affected by the level of market interest rates, the interest rates and other conditions on deposit products offered by our banking competitors, and other factors. The net decrease in total deposits was $161.1 million and $162.6 million for the three months ended December 31, 2011 and 2010, respectively. Based upon prior experience and our current pricing strategy, management believes that a significant portion of deposits will remain with us, although we may be required to compete for many of the maturing certificates in a highly competitive environment.

Credit markets continue to improve during fiscal 2012 from the extreme conditions that existed in 2009. Credit spreads narrowed steadily during the past year and many are very near historically low levels. Nevertheless, loan demand remains muted causing liquidity to remain high. Furthermore, the extremely low interest rate environment caused our deposits to remain at elevated levels which have also strengthened our liquidity position. Many banks are experiencing a situation similar to ours resulting in the industry liquidity to be at significantly elevated levels. However, much of this liquidity is held in the form of very short-term securities. The preference of depositors to stay short could portend potential liquidity reductions in the future and possibly put pressure on us to raise rates in the future to retain these funds.

We generally remain fully invested and utilize additional sources of funds through Federal Home Loan Bank of New York (“FHLB”) advances and other sources of which $468.5 million was outstanding at December 31, 2011. At December 31, 2011, we had the ability to borrow an additional $373.3 million under our credit facilities with the Federal Home Loan Bank. The Bank may borrow up to an additional $313.4 million by pledging securities not required to be pledged for other purposes as of December 31, 2011. Further, at December 31, 2011 we had $54.9 million in Brokered Deposits (including certificates of deposit accounts registry service (CDAR’s) reciprocal CD’s of $1.3 million) and have relationships with several brokers to utilize these low cost sources of funding should conditions warrant further sources of funds.

47

The Bank provides supplemental reporting of Non-GAAP tangible equity ratios as management believes this information is useful to investors. As of December 31, 2011, the Company’s tangible capital as a percent of tangible assets increased 40 basis points to 9.34 percent, and its tangible book value increased $0.17 to $7.19 per share, compared to September 30, 2011. The following table shows the reconciliation of tangible equity and the tangible equity ratio:

	December 31, 2011			September 30, 2011
Total assets	$	3,084,166		$	3,137,402
Goodwill and other amortizable intangibles		(165,167	)		(165,490	)
Tangible assets	$	2,918,999		$	2,971,912
Stockholders’ equity	$	437,682		$	431,134
Goodwill and other amortizable intangibles		(165,167	)		(165,490	)
Tangible stockholders’ equity	$	272,515		$	265,644
Outstanding Shares		37,883,008			37,864,008
Tangible capital as a % of tangible assets (consolidated)		9.34	%		8.94	%
Tangible book value per share	$	7.19		$	7.02

The Company declared a dividend of $0.06 per share payable on February 16, 2012 to stockholders of record on February 6, 2012.

The following table sets forth the Bank’s regulatory capital position at December 31, 2011 and September 30, 2011, compared to OCC requirements:

						OCC requirements
	Bank actual					Minimum capital adequacy					Classification as well capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011:
Tangible capital	$	247,433		8.5	%	$	43,632		1.5	%	$	—		—
Tier 1 (core) capital		247,433		8.5			116,353		4.0			145,441		5.0	%
Risk-based capital:
Tier 1		247,433		11.7			—		—			126,681		6.0
Total		273,847		13.0			168,908		8.0	%		211,134		10.0
September 30, 2011:
Tangible capital	$	241,196		8.1	%	$	44,460		1.5	%	$	—		—
Tier 1 (core) capital		241,196		8.1			118,559		4.0			148,199		5.0	%
Risk-based capital:
Tier 1		241,196		11.8			—		—			122,126		6.0
Total		265,307		13.0			162,835		8.0	%		203,544		10.0

The levels are well above current regulatory capital requirements to be considered well capitalized. Management is currently studying the impact on capital requirements resulting from the Basel III accords.

48

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 and consumer loans. Depending on market interest rates and our capital and liquidity position, we may retain all of the fixed-rate, fixed-term residential mortgage loans that we originate or we may sell or securitize all, or a portion of such longer-term loans, generally on a servicing-retained basis. We also invest in shorter-term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities may help us to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.

Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NII”) under varying interest rate assumptions. Management also evaluates this sensitivity using a model that estimates the change in the Company 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. The model assumes estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.

Estimated Changes in NPV and NII. The table below sets forth, as of December 31, 2011, the estimated changes in our (1) NPV that would result from the designated instantaneous changes in the forward rate curves, and (2) NII 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		Estimated		in NPV						Estimated		Estimated NII
(basis points)		NPV		Amount			Percent			NII		Amount			Percent
		(Dollars in thousands)
	+300	$	282,585	$	(60,355	)		-17.6	%	$	98,195	$	5,999			6.5	%
	+200		309,224		(33,716	)		-9.8	%		97,442		5,246			5.7	%
	+100		331,450		(11,490	)		-3.4	%		95,299		3,103			3.4	%
	0		342,940		0			0.0	%		92,196		0			0.0	%
	-100		338,124		(4,816	)		-1.4	%		84,835		(7,361	)		-8.0	%

The table set forth above indicates that at December 31, 2011, in the event of an immediate 200 basis point increase in interest rates, we would be expected to experience an 9.8 percent decrease in NPV and a 5.7 percent increase in NII. Due to the current level of interest rates, management is unable to reasonably model the impact of decreases in interest rates on NPV and NII beyond -100 basis points.

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

49

During the first quarter of fiscal year 2012, the federal funds target rate remained in a range of 0.00 – 0.25 percent as the Federal Open Market Committee (“FOMC”) did not change the target overnight lending rate. U.S. Treasury yields in the two year maturities remained unchanged at 0.25 percent at the end of the first quarter of fiscal year 2012 while the yield on U.S. Treasury 10 year notes decreased 3 basis points from 1.92 percent to 1.89 percent over the same three month period. The slight decrease in yield on longer term maturities while the yield on shorter term maturities remained unchanged resulted in the 2-10 year treasury yield curve being only slightly flatter at the end of the first quarter of fiscal 2012 than it was when the year began. To fight the economic downturn the FOMC declared a willingness to keep the federal funds target low for an “extended period”. Furthermore, during the fourth quarter of the current fiscal year the FOMC stated that it anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. However, should economic conditions improve, the FOMC could reverse direction and increase the federal funds target rate. This could cause the shorter end of the yield curve to rise disproportionably more than the longer end thereby resulting in margin compression.

Item 4. Controls and Procedures

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

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussed under Part I, Item 1A of the Company’s most recent annual report on Form 10-K. See also Part I, Item 2 (Forward-Looking Statements) of this quarterly report on Form 10-Q. There have been no material changes from the risk factors previously disclosed in the Company’s most recent annual report on Form 10-K.

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

(a) Not applicable.

(b) Not applicable

(c) Issuer Purchases of Equity Securities—NONE

Item 3. Defaults Upon Senior Securities

    None

Item 4. (Removed and reserved).

Item 5. Other Information

    None

50

Item 6. Exhibits

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated as of January 17, 2012, by and between Provident Bank and Gotham Bank of New York (listed exhibits and schedules have been omitted pursuant to Regulation S-K Item 601(b)(2). The Registrant agrees to furnish a supplemental copy of such exhibits and schedules upon the request of the Securities and Exchange Commission).
10.1	Employment Agreement by and among Provident New York Bancorp, Provident Bank and Steven V. Masterson (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed with the Commission on January 10, 2012).+
10.2	Separation agreement between Provident New York Bancorp and Paul A. Maisch (incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed with the Commission on January 10, 2012).+
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
101.INS	XBRL Instance Document 1(filed herewith)
101.SCH	XBRL Taxonomy Extension Schema Document 1(filed herewith)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document 1(filed herewith)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document 1(filed herewith)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document 1(filed herewith)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document 1(filed herewith)

⁺  Management compensatory plan or agreement

¹  In accordance with Rule 406T of Regulation S-T, these interactive data files are deemed “not filed” for purposes of section 18 of the exchange act, and otherwise are not subject to liability under that section.

51

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:    February 8, 2012	By:	/s/    Jack Kopnisky
		Jack Kopnisky
		President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date:    February 8, 2012	By:	/s/    Stephen V. Masterson
		Stephen V. Masterson
		Executive Vice President
		Chief Financial Officer
		Principal Accounting Officer
		(Principal Financial Officer)

52

EX-2.1

EXECUTION VERSION

EXHIBIT 2.1

AGREEMENT AND PLAN OF MERGER

dated as of

January 17, 2012

between

GOTHAM BANK OF NEW YORK

and

PROVIDENT BANK

TABLE OF CONTENTS

	Page
AGREEMENT AND PLAN OF MERGER		1
ARTICLE I DEFINITIONS		2
1.1 Certain Definitions		2
1.2 Other Definitional and Interpretative Provisions		9
ARTICLE II THE MERGER		9
2.1 The Merger		9
2.2 Conversion of Shares		10
2.3 Surrender and Payment		10
2.4 Dissenting Shares		11
2.5 Stock Options		12
2.6 Determination of Tangible Net Worth		12
2.7 Payment of Certain Seller Transaction Expenses		14
2.8 Adjustments		14
2.9 Withholding Rights		14
2.10 Lost Certificates		14
ARTICLE III THE SURIVIVING BANK		14
3.1 Organization Certificate and Bylaws		14
3.2 Directors and Officers		15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER		15
4.1 Capital Structure of Seller; Subsidiaries		15
4.2 Organization		15
4.3 Authorized and Effective Agreement		16
4.4 Regulatory Reports; Financial Statements; Books and Records; Minute Books		16

i

	Page
4.5 Absence of Certain Changes or Events		17
4.6 Absence of Undisclosed Liabilities		18
4.7 Properties		18
4.8 Loan Portfolio		19
4.9 Reserves		20
4.10 Tax Matters		20
4.11 Employee Benefit Plans		22
4.12 Certain Contracts		23
4.13 Legal Proceedings		24
4.14 Regulatory Matters		24
4.15 Compliance with Laws		25
4.16 Labor Matters		26
4.17 Brokers and Finders		26
4.18 Insurance		26
4.19 Deposit Insurance and Deposits		27
4.20 Environmental Matters		27
4.21 Intellectual Property		27
4.22 Risk Management Instruments		28
4.23 Repurchase Agreements		28
4.24 Seller Off-Balance Sheet Transactions		28
4.25 Takeover Laws		28
4.26 No Other Representations and Warranties		29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ENTITIES		29
5.1 Organization, Standing and Authority of Purchaser		29
5.2 Regulatory Matters		30

ii

	Page
5.3 Legal Proceedings		30
5.4 Brokers and Finders		31
5.5 Financing		31
5.6 No Other Representations		31
ARTICLE VI COVENANTS OF SELLER		31
6.1 Stockholders’ Meeting		31
6.2 Actions Pending the Merger		31
6.3 Permitted Dividends		34
6.4 Takeover Proposals		34
6.5 Access to Properties and Records; Confidentiality		36
6.6 Disclosure Update		37
ARTICLE VII COVENANTS OF THE PURCHASER ENTITIES		37
7.1 Conduct of the Purchaser Entities		37
7.2 Formation and Obligations of Merger Subsidiary		37
7.3 Voting of Shares		37
7.4 Director and Officer Liability		38
7.5 Employees		39
ARTICLE VIII COVENANTS OF PURCHASER AND SELLER		41
8.1 Applications		41
8.2 Commercially Reasonable Efforts		41
8.3 Press Releases		42
ARTICLE IX CONDITIONS PRECEDENT		42
9.1 Conditions Precedent – The Parties		42
9.2 Conditions Precedent – Seller		43
9.3 Conditions Precedent – Purchaser Entities		43

iii

	Page
ARTICLE X TERMINATION, WAIVER AND AMENDMENT		44
10.1 Termination		44
10.2 Effect of Termination		45
10.3 Survival of Representations, Warranties and Covenants		46
10.4 Amendments and Waivers		46
ARTICLE XI MISCELLANEOUS		46
11.1 Expenses		46
11.2 Disclosure Schedule		47
11.3 Entire Agreement; Binding Effect; Benefit		47
11.4 Specific Performance		47
11.5 Binding Effect; Benefit; No Assignment		48
11.6 Notices		48
11.7 Severability		49
11.8 Governing Law		49
11.9 Jurisdiction		49
11.10 WAIVER OF JURY TRIAL		49
11.11 Counterparts; Effectiveness		50

Exhibit A	Voting Agreement
Exhibit B	Interim Joinder
Schedule I	Certain Stockholders

iv

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this “Agreement”) dated as of January 17, 2012, is entered into between Gotham Bank of New York, a New York state-chartered banking corporation having its principal office at 1450 Broadway, 32^nd Floor, New York, New York 10018 (“Seller”), and Provident Bank, a federal savings association having its principal office at 400 Rella Boulevard, Montebello, New York 10901 (“Purchaser” and, together with Interim, the “Purchaser Entities”).

WITNESSETH

WHEREAS, the Board of Directors of Seller has determined that the Merger (as defined below) is advisable and in the best interests of Seller’s stockholders and has approved and adopted this Agreement, whereby Purchaser would acquire Seller by means of a merger of Interim (as defined below) with and into Seller (the “Merger”) on the terms and subject to the conditions set forth herein;

WHEREAS, immediately following the Merger, Purchaser intends that Seller, as the surviving bank in the Merger, shall be merged with and into Purchaser (the “Second Merger” and, together with the Merger, the “Transaction”):

WHEREAS, the Board of Directors of Purchaser has determined that this Agreement and the Merger are consistent with, and will further, its business strategies and goals, and are in the best interests of the Purchaser and its stockholders and, therefore, has approved the Merger and this Agreement;

WHEREAS, Purchaser has required, as a condition to its willingness to enter into this Agreement, that each of the directors of Seller and their respective spouses identified on Schedule I each enter into a Voting Agreement, dated as of the date hereof, substantially in the form attached as Exhibit A (the “Voting Agreement”); and

WHEREAS, the parties hereto desire to make certain representations, warranties, agreements and covenants in connection with the Merger contemplated hereby and also to prescribe certain conditions to the Merger.

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, agreements and covenants herein contained and intending to be legally bound hereby, the parties hereto do hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 Certain Definitions

For purposes of this Agreement, the following terms shall have the following meanings:

(a) “Accounting Policies” shall mean the accounting policies, principles, practices and methodologies used in the preparation of the audited Seller Financial Statements.

(b) “Acquisition Proposal” shall have the meaning set forth in Section 6.4(d)(i).

(c) “Affiliate”, unless otherwise indicated, shall mean, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person and “control,” with respect to the relationship between or among two or more persons, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or any other means.

(d) “Agreement” shall have the meaning set forth in the preamble.

(e) “Applicable Law” means, with respect to any Person, any transnational, domestic or foreign federal, commonwealth, state or local law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as amended unless expressly specified otherwise.

(f) “Banking Law” shall mean the banking law of the State of New York (Chapter 2 of the Consolidated Laws of New York).

(g) “Breakup Fee” shall have the meaning set forth in Section 10.2(b)(i).

(h) “Business Day” shall mean a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

(i) “Call Reports” shall mean those periodic reports of condition filed by Seller pursuant to Section 7(a) of the FDIA.

(j) “Certificates” shall have the meaning set forth in Section 2.3(a)(i).

(k) “Closing” shall have the meaning set forth in Section 2.1(b).

(l) “Closing Date” shall mean the date on which the Closing occurs.

(m) “Closing Statement” shall have the meaning set forth in Section 2.6(a).

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(n) “Code” shall mean the Internal Revenue Code of 1986.

(o) “Confidentiality Agreement” shall mean the Confidentiality Agreement dated August 25, 2011 between Purchaser and Seller.

(p) “Continuing Employees” shall mean each person who is employed by Seller on the Closing Date and who is employed by Purchaser or one of its Subsidiaries immediately following the Effective Time.

(q) “Cutoff Date” shall mean the close of business on September 30, 2012.

(r) “CRA” shall have the meaning set forth in Section 4.15(a).

(s) “Department” shall mean the Department of Financial Services of the State of New York.

(t) “Dispute Notice” shall have the meaning set forth in Section 2.6(c).

(u) “Dissenting Shares” shall have the meaning set forth in Section 2.4.

(v) “D&O Insurance” shall have the meaning set forth in Section 7.4(c).

(w) “Effective Time” shall have the meaning set forth in Section 2.1(c).

(x) “Environmental Laws” shall mean all applicable local, state and federal environmental laws and regulations, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Federal Clean Air Act and the Occupational Safety and Health Act, and their respective state counterparts.

(y) “ERISA” shall mean the Employee Retirement Income Security Act of 1974.

(z) “ERISA Affiliate” shall mean any trade or business, whether or not incorporated, that together with Seller would be deemed a “single employer” under Section 414 of the Code.

(aa) “FDIA” shall mean the Federal Deposit Insurance Act.

(bb) “FDIC” shall mean the Federal Deposit Insurance Corporation.

(cc) “Federal Home Loan Bank” shall mean the Federal Home Loan Bank of New York.

(dd) “Full Dilution Number” means the sum of (x) the total number of shares of Seller Common Stock outstanding as of the Effective Time and (y) the total number of shares of Seller Common Stock issuable upon exercise of the Seller Stock Options as of the Effective Time.

(ee) “GAAP” shall mean accounting principles generally accepted in the United States.

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(ff) “Governmental Authority” shall mean any federal, state, local, foreign or supranational court, tribunal, arbitral or administrative agency or commission or other governmental authority or instrumentality, or any industry self-regulatory authority.

(gg) “High Risk Loans” shall have the meaning set forth in Section 4.8(f).

(hh) “Indemnified Person” shall have the meaning set forth in Section 7.4(a).

(ii) “Intellectual Property” shall mean (i) trademarks, trade dress, service marks, logos, trade names, slogans, applications and registrations for the foregoing, including all renewals of the same, and the goodwill associated therewith and symbolized thereby, (ii) inventions and patents and patent applications thereon, including divisionals, continuations and continuations-in-part, and any renewals, extensions and reissues thereof, (iii) confidential or proprietary information, data, inventions (to the extent not disclosed in published patent applications), and know-how and other information meeting the definition of a trade secret under the Uniform Trade Secrets Act, (iv) works of authorship, and copyrights therein, the registrations and applications therefor, and any renewals, extensions, restorations and reversions thereof, (v) Internet domain names and registrations thereof and (vi) any other similar types of proprietary intellectual property right.

(jj) “Interim” shall mean an interim federal savings bank and wholly owned subsidiary of Purchaser, to be formed after the date hereof and prior to the Closing.

(kk) “Interim Joinder” shall have the meaning set forth in Section 7.2.

(ll) “IT Assets” shall mean all computers, hardware, computer software, firmware, middleware, databases, systems, servers, workstations, routers, hubs, switches, communication lines and other information technology equipment owned by Seller in connection with Seller’s business or operations or licensed or leased by Seller pursuant to a written agreement or otherwise used and controlled by Seller in connection with Seller’s business or operations (excluding any public networks used).

(mm) “Knowledge” shall mean, with respect to a party hereto, actual knowledge after due inquiry of Laurence R. Marchini, Jr., Laurence R. Marchini, III, Richard Marchini and William Rossi.

(nn) “Lien” shall mean any charge, mortgage, pledge, security interest, lien or similar encumbrance.

(oo) “Loans” shall have the meaning set forth in Section 4.8(a).

(pp) “Lutz” shall have the meaning set forth in Section 4.17.

(qq) “Material Adverse Effect” shall mean, with respect to Purchaser or Seller, as the case may be, (a) a material adverse effect on the business, assets, results of operations or financial condition of such party and any subsidiary of such party, taken as a whole or (b) a material adverse effect on such party’s ability to consummate the Merger; provided, however, that in determining whether a Material Adverse Effect has occurred there shall be excluded any

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effect to the extent arising out of or resulting from (i) any change in banking or other Applicable Law, rules or regulations of general applicability or interpretations thereof by courts or Governmental Authorities, (ii) any change in GAAP or regulatory accounting requirements applicable to banks, thrifts or their holding companies generally, (iii) any action or omission of Purchaser or Seller or any Subsidiary of either of them with the prior written consent of the other parties to this Agreement or any action taken by such Person or any of its Subsidiaries that is required pursuant to this Agreement, (iv) the impact of the announcement or consummation of this Agreement and the Transaction, and compliance with this Agreement on the business, financial condition or results of operations of the parties and their respective Subsidiaries, including the expenses (inclusive of any change in control, severance and related payments to be made to employees at or subsequent to the Closing Date) incurred by the parties hereto in consummating the Merger, (v) changes in national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States, or any of its territories, possessions or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (vi) any change in the value of the securities or loan portfolio, or any change in the value of the deposits or borrowings, of Seller or Purchaser or any of their Subsidiaries, respectively, resulting from a change in interest rates generally, (vii) changes relating to financial or securities markets in general (including any disruption thereof and any decline in the price of any security or market index) or general economic conditions in the United States, (viii) changes or conditions generally affecting the banking industry and not specifically relating to or having a materially disproportionate effect on Seller or (ix) solely in the case of Seller, any failure by Seller to meet any internal or published budgets, projections, forecasts or predictions of financial performance for any period.

(rr) “Measurement Date” shall mean 4:00 p.m. Eastern time on the date as of which Seller’s Tangible Net Worth shall be measured for purposes of determining the Merger Consideration, which date shall be the most recent month end preceding the date on which all of the conditions in Sections 9.1(a) and 9.1(b) have been satisfied or waived; provided, however, that if such date occurs in the first 15 days of a month then the Measurement Date shall be the date of the second preceding month end.

(ss) “Merger” shall have the meaning set forth in the recitals.

(tt) “Merger Consideration” shall mean the sum of (i) 125% of Tangible Net Worth and (ii) the aggregate implied exercise price of Seller Stock Options outstanding at the Effective Time, divided by the Full Dilution Number.

(uu) “Monthly Financial Statements” shall mean (i) the unaudited balance sheet of Seller and (ii) the related unaudited statement of income for the then elapsed portion of the fiscal year, in each case, as of the end of each calendar month and prepared in accordance with past practice of Seller and consistent with the methodology used to prepare the Call Reports.

(vv) “Notice of Superior Proposal” shall have the meaning set forth in Section 6.4(e) hereof.

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(ww) “Parent” shall have the meaning set forth in Section 7.4(b).

(xx) “Paying Agent” shall have the meaning set forth in Section 2.3(a).

(yy) “Permitted Liens” shall have the meaning set forth in Section 4.7.

(zz) “Person” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

(aaa) “Plan” shall have the meaning set forth in Section 4.11(a).

(bbb) “Profit Sharing Plan” shall have the meaning set forth in Section 7.5(f).

(ccc) “Purchaser” shall have the meaning set forth in the preamble.

(ddd) “Purchaser Disclosure Schedule” shall mean the Purchaser Disclosure Schedule delivered by Purchaser to Seller concurrently with the execution of this Agreement.

(eee) “Purchaser Entities” shall have the meaning set forth in the preamble.

(fff) “Purchaser Group Plan” shall have the meaning set forth in Section 7.5(b).

(ggg) “Purchaser Welfare Plan” shall have the meaning set forth in Section 7.5(b).

(hhh) “Regulatory Agreement” shall have the meaning set forth in Section 4.14.

(iii) “Related Parties” shall have the meaning set forth in Section 4.12(c).

(jjj) “Retention Agreements” shall have the meaning set forth in Section 7.5(d).

(kkk) “Review Period” shall have the meaning set forth in Section 2.6(c).

(lll) “Rights” shall mean warrants, options, rights, convertible securities and other arrangements or commitments which obligate an entity to issue or dispose of any of its capital stock.

(mmm) “SEC Documents” shall mean all reports and registration statements filed, or required to be filed by a party hereto pursuant to the Securities Laws.

(nnn) “Second Merger” shall have the meaning set forth in the recitals.

(ooo) “Securities Laws” shall mean the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Trust Indenture Act of 1939.

(ppp) “Seller” shall have the meaning set forth in the preamble.

(qqq) “Seller Balance Sheet” shall have the meaning set forth in Section 2.6(a).

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(rrr) “Seller Board Recommendation” shall have the meaning set forth in Section 6.1.

(sss) “Seller Common Stock” shall mean the common stock of Seller, par value $10.00 per share.

(ttt) “Seller Disclosure Schedule” shall mean the Seller Disclosure Schedule delivered by Seller to Purchaser concurrently with the execution of this Agreement.

(uuu) “Seller Intellectual Property” shall mean Intellectual Property that is owned by Seller.

(vvv) “Seller Financial Statements” shall mean the (i) audited balance sheet of Seller as of December 31, 2009 and 2010 and the related audited statements of income, cash flows and changes in stockholders’ equity (including related notes, if any) for the years ended December 31, 2009 and 2010, (ii) the unaudited interim balance sheet of Seller as of September 30, 2011 and the related unaudited interim statements of income, cash flows and changes in stockholders’ equity (including related notes, if any) for the nine months ended September 30, 2011 and (iii) when delivered pursuant to Section 6.5, the audited balance sheet of Seller as of December 31, 2011 and the related audited statements of income, cash flows and changes in stockholders’ equity (including related notes, if any) for the year ended December 31, 2011.

(www) “Seller Licensed Intellectual Property” shall mean Intellectual Property that is licensed by a third party to Seller.

(xxx) “Seller Severance Plan” shall mean the Gotham Bank of New York Severance Pay Plan.

(yyy) “Seller Stock Option” shall mean an outstanding option to purchase shares of Seller Common Stock granted pursuant to the Seller Stock Option Plan or any other Seller equity compensation plan.

(zzz) “Seller Stock Option Plan” shall mean the Gotham Bank of New York 2006 Stock Option Plan.

(aaaa) “Seller Stockholder Approval” shall mean the affirmative vote of the holders of (i) two thirds of the outstanding shares of Seller Common Stock in accordance with the Banking Law and (ii) the majority of the outstanding shares of Seller Common Stock, excluding, for the purposes of clause (ii), any shares beneficially owned by the Persons listed on Section 1.1(aaaa) of the Seller Disclosure Schedule.

(bbbb) “Seller Stockholder Meeting” shall have the meaning set forth in Section 6.1.

(cccc) “Seller Subsequent Determination” shall have the meaning set forth in Section 6.4(b).

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(dddd) “Seller Transaction Expenses” shall mean the fees, costs and expenses (including investment banking, legal and accounting fees, costs and expenses) incurred by Seller in connection with this Agreement and the transactions contemplated hereby.

(eeee) “Seller Welfare Plan” shall have the meaning set forth in Section 7.5(b).

(ffff) “Subsidiary” or “Subsidiaries” shall mean with respect to any party, any bank, corporation, partnership or other organization, whether incorporated or unincorporated, which is consolidated with such party for financial reporting purposes.

(gggg) “Superior Proposal” shall have the meaning set forth in Section 6.4(d)(ii).

(hhhh) “Surviving Bank” shall have the meaning set forth in Section 2.1(a).

(iiii) “Takeover Laws” shall have the meaning set forth in Section 4.25.

(jjjj) “Tangible Net Worth” shall mean, the amount set forth adjacent to “Total Capital Account” on the Closing Statement including the same line items as the illustrative statement set forth in Section 2.6(a) of the Seller Disclosure Schedule.

(kkkk) “Tax” or “Taxes” shall mean all taxes, and assessments or governmental charges of the same or of a similar nature, however denominated, including any interest, penalties, criminal sanctions or additions to tax (including any underpayment penalties for insufficient estimated tax payments) or other additional amounts that may become payable in respect thereof (or in respect of a failure to file any Tax Return when and as required), imposed by any federal, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employment taxes, withholding taxes (including withholding taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other Person), unemployment insurance taxes, social security (or similar) taxes, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, value added taxes, transfer taxes, profits or windfall profits taxes, licenses in the nature of taxes, estimated taxes, severance taxes, duties (custom and others), workers’ compensation taxes, premium taxes, environmental taxes (including taxes under Section 59A of the Code), disability taxes, registration taxes, alternative or add-on minimum taxes, estimated taxes, and other fees, assessments, charges or obligations of the same or of a similar nature.

(llll) “Tax Returns” shall mean all returns, reports, estimates, information statements or other written submissions, and any schedules or attachments thereto, required or permitted to be filed pursuant to the statutes, rules and regulations of any federal, state, local or foreign government Tax authority, including original returns and filings, amended returns, claims for refunds and information returns.

(mmmm) “Transaction” shall have the meaning set forth in the recitals.

(nnnn) “Uncertificated Shares” shall have the meaning set forth in Section 2.3(a)(ii).

(oooo) “Voting Agreement” shall have the meaning set forth in the recitals.

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1.2 Other Definitional and Interpretative Provisions The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision hereof. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any statute shall be deemed to refer to such statute as amended from time to time and to any rules or regulations promulgated thereunder. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that with respect to any agreement or contract listed on any schedules hereto, all such amendments, modifications or supplements must also be listed in the appropriate schedule. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. References to “law”, “laws” or to a particular statute or law shall be deemed also to include any and all applicable laws.

ARTICLE II

THE MERGER

2.1 The Merger

(a) At the Effective Time, Interim shall be merged with and into Seller in accordance with 12 C.F.R. §152.13 and Article 13 of the Banking Law, whereupon the separate existence of Interim shall cease, and Seller shall be the surviving entity (the “Surviving Bank”).

(b) Subject to the provisions of Article IX, the closing of the Merger (the “Closing”) shall take place at the office of Arnold & Porter LLP, 399 Park Avenue, New York, New York 10022, or such other location as the parties may otherwise agree, as soon as possible, but in any event no later than two Business Days following the date the conditions to consummation of the Merger set forth in Article IX hereof (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permissible, waiver of those conditions at the Closing) have been satisfied or, to the extent permissible, waived by the party or parties entitled to the benefit of such conditions, or at such other place, at such other time or on such other date as Purchaser and Seller may mutually agree.

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(c) In connection with such Closing, Seller and Interim shall execute articles of merger and shall cause such articles to be delivered for filing to the Department in accordance with Applicable Law. The Merger shall be effective at the later of the time and on the date specified in such articles of merger or upon the filing thereof with the Department (the “Effective Time”).

(d) From and after the Effective Time, the Surviving Bank shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of Seller and Interim.

2.2 Conversion of Shares

At the Effective Time:

(a) Except as otherwise provided in Section 2.2(b) or Section 2.4, each share of Seller Common Stock outstanding immediately prior to the Effective Time shall be converted into the right to receive the Merger Consideration. As of the Effective Time, all such shares of Seller Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and shall thereafter represent only the right to receive the Merger Consideration to be paid in accordance with Section 2.3.

(b) Each share of Seller Common Stock held by Seller as treasury stock (other than shares in a Plan of Seller or shares held for the account of clients, customers or other Persons or otherwise in a fiduciary capacity or held as a result of debts previously contracted in good faith) or owned by the Purchaser Entities or any of their Affiliates immediately prior to the Effective Time (other than shares held for the account of clients, customers or other Persons) shall be canceled, and no payment shall be made with respect thereto.

(c) Each share of common stock of Interim outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Bank with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Bank.

2.3 Surrender and Payment

(a) Prior to the Effective Time, Purchaser shall appoint an agent reasonably acceptable to Seller (the “Paying Agent”) for the purpose of paying the Merger Consideration in exchange for (i) certificates representing shares of Seller Common Stock (the “Certificates”) or (ii) uncertificated shares of Seller Common Stock (the “Uncertificated Shares”). Prior to the Effective Time, Purchaser shall make available to the Paying Agent the Merger Consideration to be paid in respect of the Certificates and the Uncertificated Shares. Promptly after the Effective Time (but not later than two Business Days thereafter), Purchaser shall send, or shall cause the Paying Agent to send, to each holder of shares of Seller Common Stock at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates or transfer of the Uncertificated Shares to the Paying Agent) for use in such exchange.

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(b) Each holder of shares of Seller Common Stock that have been converted into the right to receive the Merger Consideration shall be entitled to receive, upon (i) surrender to the Paying Agent of a Certificate, together with a properly completed letter of transmittal, or (ii) receipt of an “agent’s message” by the Paying Agent (or such other evidence, if any, of transfer as the Paying Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the Merger Consideration in respect of Seller Common Stock represented by a Certificate or Uncertificated Shares. Until so surrendered or transferred, as the case may be, each such Certificate or Uncertificated Share shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration.

(c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate or the transferred Uncertificated Share is registered, it shall be a condition to such payment that (i) either such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer or such Uncertificated Share shall be properly transferred and (ii) the Person requesting such payment shall pay to the Paying Agent any transfer or other taxes required as a result of such payment to a Person other than the registered holder of such Certificate or Uncertificated Share or establish to the satisfaction of the Paying Agent that such tax has been paid or is not payable.

(d) After the Effective Time, there shall be no further registration of transfers of shares of Seller Common Stock. If, after the Effective Time, Certificates or Uncertificated Shares are presented to the Surviving Bank or the Paying Agent, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article II.

(e) Any portion of the aggregate Merger Consideration or the proceeds of any investments thereof that remain unclaimed by the holders of Seller Common Stock for six months after the Effective Time shall be repaid by the Payment Agent to Purchaser. Any holder of Seller Common Stock who has not theretofore complied with this Section 2.3 shall thereafter look solely to Purchaser for payment of the Merger Consideration.

(f) Notwithstanding the foregoing, neither the Paying Agent nor any party hereto shall be liable to any former holder of Seller Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

2.4 Dissenting Shares

Notwithstanding Section 2.2, shares of Seller Common Stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has elected to exercise dissenters’ rights pursuant to Section 604 of the Banking Law (any such shares being referred to herein as “Dissenting Shares”) shall not be converted into the right to receive the Merger Consideration, unless such holder fails to perfect, withdraws or otherwise loses such dissenters’ rights. If, after the Effective Time, such holder fails to perfect, withdraws or otherwise loses such dissenters’ rights, such shares shall be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration.

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2.5 Stock Options

At or immediately prior to the Effective Time, each Seller Stock Option, whether or not exercisable or vested, shall become fully vested and exercisable and shall be canceled, and Purchaser shall or shall cause the Surviving Bank to pay each such holder at or promptly after the Effective Time for each such option an amount in cash determined by multiplying (i) the excess, if any, of the Merger Consideration over the applicable exercise price of such option by (ii) the number of shares of Seller Common Stock such holder could have purchased (giving effect to the full vesting of such options provided for herein) had such holder exercised such option in full immediately prior to the Effective Time.

2.6 Determination of Tangible Net Worth

(a) No later than ten Business Days after the determination of the Measurement Date, Seller shall deliver to Purchaser a statement, prepared in the same manner as the illustrative statement set forth in Section 2.6(a) of the Seller Disclosure Schedule, setting forth Tangible Net Worth as of the Measurement Date (the “Closing Statement”). The parties agree that Section 2.6(a) of the Seller Disclosure Schedule, which sets out a calculation of Tangible Net Worth as of November 30, 2011, based upon the values of assets and liabilities of Seller as reflected in a balance sheet of Seller prepared as of November 30, 2011, is intended to be for illustrative purposes only, in order to set forth a methodology for the calculation of Tangible Net Worth. Except as expressly provided in Section 2.6(e), the Closing Statement shall be based upon the values of assets and liabilities of Seller as reflected in a balance sheet of Seller prepared as of the Measurement Date (the “Seller Balance Sheet”), which shall be provided to Purchaser, with such documentation as Purchaser may reasonably request, together with the Closing Statement.

(b) The Seller Balance Sheet shall be prepared in accordance with GAAP applied consistent with past practice of Seller, subject to the following adjustments:

(1) in the case of securities held for sale, available for sale or held to maturity as of the Measurement Date, Seller shall obtain bids on such securities, on a security by security basis, and shall also obtain bids on any hedges or other risk management arrangements related to such securities (the “Related Instruments”), from the three firms listed in Section 2.6(b)(1) of the Seller Disclosure Schedule (or, if any of those firms shall be unavailable, a replacement from among the alternate firms listed therein) and the arithmetical average of such bids shall constitute the value of such securities and Related Instruments for the Seller Balance Sheet; and

(2) no accrual shall be made for the first $450,000 of Seller Transaction Expenses, which shall be paid by Purchaser pursuant to Section 2.7.

(c) The Purchaser shall have the right, for a period not to exceed five Business Days from the date of delivery of the Closing Statement by Seller (the “Review Period”), to request additional information and to review Seller’s books and records in order to review Seller’s calculation of Tangible Net Worth. If Purchaser disagrees with such calculation, Purchaser shall within the Review Period deliver written notice to Seller of such disagreement (the “Dispute Notice”). Notwithstanding anything to the contrary herein, if Purchaser does not deliver a Dispute Notice within the Review Period, the Closing Statement prepared by Seller and Seller’s

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calculation of Tangible Net Worth shall be final, conclusive and binding. Following delivery of a timely Dispute Notice by Purchaser to Seller, Purchaser and Seller shall have two Business Days to agree to Tangible Net Worth. Seller agrees that it will, and will cause its accountants to, cooperate and assist in the Purchaser’s review of the Seller Balance Sheet, the Closing Statement and all related documentation delivered by Seller pursuant to this Section 2.6, including making available to the extent necessary books, records, work papers and personnel.

(d) In the event that Purchaser and Seller fail to agree with respect to the Closing Statement within the two Business Days provided in Section 2.6(c) then, within two Business Days after the end of the two Business Day period described in Section 2.6(c) above, Purchaser and Seller shall mutually agree to an independent public accounting firm of nationally recognized standing, reasonably acceptable to Purchaser and Seller, which shall make a determination of Tangible Net Worth based solely on the provisions of this Section 2.6 and not by independent review, and based on not more than two rounds of presentations by Purchaser and Seller. The first round of presentations by Seller and Purchaser shall be made within five Business Days of the selection of such firm and the second round of presentations shall be made within three Business Days of the first round of presentations. The findings of such firm shall be presented within three Business Days of the second round of presentations and shall be conclusive and binding upon Purchaser and Seller for purposes of this Agreement. The parties agree that the written engagement of such firm shall include an obligation to present its findings within such three-Business-Day period. The fees and expenses of such firm shall be borne 50% by Seller and 50% by Purchaser and shall be accrued for purposes of determining Tangible Net Worth.

(e) Notwithstanding the foregoing, on the date that is three Business Days prior to the Closing Date (the “Adjustment Date”):

(1) subject to Section 2.6(b)(2), the Seller Balance Sheet and the Closing Statement shall be adjusted to reflect the impact of all Seller Transaction Expenses (accrued or unaccrued, whether or not then due) in excess of $450,000 (net of any related tax benefits) and shall be further adjusted to the extent necessary to avoid a double counting of any Seller Transaction Expense; and

(2) the value of Seller’s securities that are held for sale, available for sale or held to maturity shall be determined as of the Adjustment Date using the same procedures (including the same three designated firms) set forth in Section 2.6(b)(1) and the Seller Balance Sheet and the Closing Statement shall be adjusted to reflect (i) in the case of any securities reflected on Seller’s books on both the Measurement Date and the Adjustment Date, any changes in AOCI related to such securities since the Measurement Date, (ii) in the case of any securities reflected on Seller’s books on the Measurement Date but not on the Adjustment Date, any after-tax gains or losses related to such securities, and (iii) the effect on Tangible Net Worth of any securities reflected on Seller’s books on the Adjustment Date but not on the Measurement Date;

(3) the value of the Related Instruments shall be determined as of the Adjustment Date using the same procedures (including the same three designated firms) set forth in Section 2.6(b)(1) and the Seller Balance Sheet and the Closing Statement shall be adjusted to reflect the financial impact of any changes in value of the Related Instruments as of the

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Adjustment Date in order to reflect the effect on Tangible Net Worth of Related Instruments reflected on Seller’s books on both the Measurement Date and the Adjustment Date, on the Measurement Date but not on the Adjustment Date, or on the Adjustment Date but not on the Measurement Date; and

(4) no other items on the Seller Balance Sheet or the Closing Statement shall be adjusted.

2.7 Payment of Certain Seller Transaction Expenses

At the Closing, Purchaser shall pay, by wire transfer of immediately available funds, Seller Transaction Expenses in the amounts and to the parties set forth on a schedule to be delivered to Purchaser by Seller at least one Business Day prior to the Closing Date, up to a maximum of $450,000.

2.8 Adjustments

If, during the period between the date of this Agreement and the Effective Time, any change in the outstanding shares of capital stock of Seller shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend thereon with a record date during such period, but excluding any change that results from any exercise of Seller Stock Options, the Merger Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted.

2.9 Withholding Rights

Notwithstanding any provision contained herein to the contrary, each of the Paying Agent, the Surviving Bank and Purchaser shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to this Article II such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of Tax law. If the Paying Agent, the Surviving Bank or Purchaser, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to such Person in respect of which the Paying Agent, the Surviving Bank or, Purchaser, as the case may be, made such deduction and withholding.

2.10 Lost Certificates

If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact and the posting of a surety bond by the Person claiming such Certificate to be lost, stolen or destroyed, the Paying Agent will issue, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the shares of Seller Common Stock represented by such Certificate, as contemplated by this Article II.

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ARTICLE III

THE SURIVIVING BANK

3.1 Organization Certificate and Bylaws

The Organization Certificate and the bylaws of Seller as existing and constituted at the Effective Time shall be and constitute the Organization Certificate and the bylaws of the Surviving Bank.

3.2 Directors and Officers

From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with Applicable Law, (i) the directors of Interim at the Effective Time shall be the directors of the Surviving Bank and (ii) the officers of Interim at the Effective Time shall be the officers of the Surviving Bank.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the Seller Disclosure Schedule, Seller hereby represents and warrants to Purchaser as follows:

4.1 Capital Structure of Seller; Subsidiaries

(a) As of the date hereof, the authorized capital stock of Seller consists of 612,500 shares of Seller Common Stock. As of the date hereof, there were outstanding 295,295 shares of Seller Common Stock and no shares of Seller Common Stock were reserved for issuance, except that 15,280 shares of Seller Common Stock are reserved for issuance upon the exercise of Seller Stock Options. All of the issued and outstanding shares of Seller Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Except as referred to above or reflected in Section 4.1(a) of the Seller Disclosure Schedule, Seller does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Seller Common Stock or any other equity security of Seller or any securities representing the right to purchase or otherwise receive any shares of Seller Common Stock or any other equity security of Seller. As of the date of hereof, the holders of Seller Stock Options, the grant date of each Seller Stock Option, the number of shares subject to each Seller Stock Option, the expiration date and the exercise price of each Seller Stock Option are set forth in Section 4.1(a) of the Seller Disclosure Schedule.

(b) Except (i) as disclosed in Section 4.1(b) of the Seller Disclosure Schedule, (ii) for securities held for the benefit of third parties in trust accounts, managed accounts and the like for the benefit of customers and (iii) for securities acquired after the date of this Agreement in satisfaction of debts previously contracted in good faith, Seller does not beneficially own or control, directly or indirectly, any shares of stock or other equity interest in any corporation, firm, partnership, joint venture or other entity.

4.2 Organization

Seller is a New York state-chartered banking corporation duly organized, validly existing and in good standing under the Applicable Law of its jurisdiction of formation, and is a member bank of the Federal Reserve System, with full corporate power and authority to carry on its

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business as now conducted and is duly qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification, except for those jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

4.3 Authorized and Effective Agreement

(a) Seller has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement and to consummate the Merger. The execution and delivery of this Agreement and, subject to the receipt of all necessary regulatory approvals and the required approval of Seller’s stockholders in connection with the consummation of the Merger, the consummation of the Merger have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Seller. Seller’s Board of Directors has directed that this Agreement be submitted to Seller’s stockholders for approval at an annual or special meeting to be held as soon as practicable.

(b) This Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, subject as to enforceability, bankruptcy, insolvency and other Applicable Law of general applicability relating to or affecting creditors’ rights to the supervisory and enforcement powers of applicable Governmental Authorities, and to general equity principles.

(c) Subject to the receipt of all necessary regulatory approvals, neither the execution and delivery of this Agreement nor consummation of the Merger, nor compliance by Seller with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Seller’s Organization Certificate or bylaws, (ii) constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any Lien upon any property or asset of Seller pursuant to, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, with only such exceptions, in the case of clause (ii), as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

4.4 Regulatory Reports; Financial Statements; Books and Records; Minute Books

(a) Seller has never been required to file any SEC Documents under the Securities Laws.

(b) Since January 1, 2010, Seller has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed with any Governmental Authority pursuant to Applicable Law, such reports were prepared in all material respects in accordance with Applicable Law and Seller has paid all fees and assessments due and payable in connection therewith. The balance sheets of Seller and related statements of income and cash flows (including related notes, if any) as filed by Seller with the Central Data Repository of the Federal Financial Institutions Examination Council in a Call Report with respect to periods ended subsequent to December 31, 2010 fairly present in all

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material respects, in accordance with Applicable Law, the financial position of Seller as of the dates indicated and the results of its operations as of such date. Except for normal examinations conducted by a Governmental Authority in the regular course of the business of Seller, since January 1, 2008, to Seller’s Knowledge, no Governmental Authority has initiated any proceeding or investigation into the business or operations of Seller and Seller has received no notification or communication from any Governmental Authority of any intention to initiate any such proceeding or investigation. There is no unresolved material violation, criticism, or exception by any Governmental Authority with respect to any report or statement relating to any examinations of Seller.

(c) Seller has made available to Purchaser the Seller Financial Statements. The Seller Financial Statements fairly present in all material respects, in accordance with GAAP applied on a consistent basis, the financial position of Seller as of the dates indicated and the results of operations, cash flows and changes in stockholders’ equity for the periods then ended (subject to normal year-end audit adjustments and the absence of footnotes in the case of any unaudited interim Seller Financial Statements). The Seller Financial Statements were prepared on the basis of the books and records of Seller kept in the ordinary course consistent with past practice and in accordance with GAAP applied on a consistent basis except as disclosed in the notes thereto.

(d) The Seller Disclosure Schedule lists all non-audit services performed by Crowe Horwath LLP (or any other of its then independent public accountants) for Seller since January 1, 2008.

(e) The books and records of Seller have been fully and accurately maintained, in all material respects, in accordance with the Accounting Policies. The minute books of Seller contain records, which are accurate in all material respects, of all corporate actions of its stockholders and its Board of Directors (including committees of the Board of Directors).

4.5 Absence of Certain Changes or Events

(a) Since December 31, 2010 (i) no event has occurred or circumstance has arisen which has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Seller and (ii) Seller has carried on its business in all material respects in the ordinary and usual course of business consistent with past practices.

(b) Except as disclosed in Section 4.5(b) of the Seller Disclosure Schedule, since December 31, 2010, Seller has not:

(1) incurred any additional indebtedness for borrowed money, other than in the course of business of Seller consistent with past practice;

(2)(i) waived or released any material right other than in the ordinary course of business consistent with past practice or (ii) canceled or compromised any material debt or claim other than loans written down or charged off in the ordinary course of business consistent with past practice;

(3) liquidated, sold or disposed of any material assets or acquired any material assets, other than (i) pursuant to contracts or commitments existing prior to the date hereof. (ii) the sale of any securities owned by Seller or (iii) in the ordinary course of business consistent with past practice;

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(4) filed any applications or made any contract with respect to the establishment or relocation of branches or similar facilities or entered into or modified any leases, except in the ordinary course of business consistent with past practice;

(5) changed its lending, deposit, investment, asset/liability management or other material banking policies in any material respect except as may have been required by changes in Applicable Law, regulation or regulatory directives;

(6) delayed or accelerated any payment of any amount payable or other liability beyond or in advance of its due date or deferred incurring or accruing maintenance or other expenses in any case beyond the date when such liability would have been paid or such expense incurred or accrued in the ordinary course of business consistent with past practice;

(7) changed its methods of accounting in effect at December 31, 2010, except as required by changes in GAAP, or changed any of its methods of reporting income and deductions for federal income tax purposes from those employed in the preparation of its federal income Tax Returns for the year ended December 31, 2010, except as required by Applicable Law; or

(8) agreed to do any of the foregoing.

4.6 Absence of Undisclosed Liabilities

Seller has no liability (contingent or otherwise) that would reasonably be expected to have a Material Adverse Effect, or that, when combined with all similar liabilities, would reasonably be expected to have a Material Adverse Effect, except for (i) liabilities disclosed in or provided for in the Seller Financial Statements or the notes thereto, (ii) liabilities incurred in the ordinary course of business subsequent to December 31, 2010 or (iii) liabilities incurred in connection with the Merger.

4.7 Properties

Section 4.7 of the Seller Disclosure Schedule sets forth a complete and accurate list of all material real property owned or leased by Seller as of the date hereof. Seller has good, valid and marketable title to, or in the case of leased property and assets has valid leasehold interests in, all property and assets (whether real or personal) reflected on the Seller Financial Statements as being owned by Seller as of December 31, 2010 or acquired after such date, except for properties and assets sold since such date in the ordinary course of business consistent with past practice or for properties and assets that, individually or in the aggregate, are not material to the business or operations of the Seller. None of such property or assets is subject to any Lien, except: (i) Liens disclosed in the Seller Financial Statements or the notes thereto or securing liabilities reflected in the Seller Financial Statements or the notes thereto, (ii) statutory Liens for amounts not yet due and payable or that are being contested in good faith, (iii) pledges to secure deposits and other Liens incurred in the ordinary course of its banking business, (iv) such imperfections of title, easements, Liens, defaults or equitable interests, if any, as do not affect the use of properties or

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assets subject thereto or affected thereby or otherwise materially impair business operations at such properties, (v) encumbrances in the ordinary course of business and (vi) Liens on properties acquired in foreclosure or on account of debts previously contracted (clauses (i) through (vi) collectively, “Permitted Liens”). All leases of real or personal property pursuant to which Seller is a party, are valid, binding and enforceable in accordance with their respective terms and neither Seller, or to the Knowledge of Seller, any other party thereto, is in default thereunder in any material respect and all material tangible property used in the business of Seller is in good condition, reasonable wear and tear excepted, and usable in the ordinary course of business consistent with past practice.

4.8 Loan Portfolio

(a) Except as would not reasonably be expected to be, individually or in the aggregate, material to Seller, each loan reflected as an asset in the Seller Financial Statements as of December 31, 2010 or acquired or originated by Seller subsequent thereto (collectively, “Loans”) (i) is evidenced by notes, agreements or other evidences of indebtedness which are true, genuine and what they purport to be, (ii) to the extent secured, has been secured by valid Liens and security interests which have been perfected, and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles. Except as would not reasonably expected to be, individually or in the aggregate, material to Seller, the notes or other credit or security documents with respect each such outstanding Loan were in compliance in all material respects with all material Applicable Laws at the time of origination or purchase by Seller.

(b) Each outstanding Loan was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant Loan files are being maintained, in all material respects in accordance with the relevant notes or other credit or security documents, Seller’s written underwriting standards and with all requirements of Applicable Law, with only such exceptions as would not reasonably be expected to be, individually or in the aggregate, material to Seller.

(c) Except as would not reasonably be expected to be, individually or in the aggregate, material to Seller, Section 4.8(c) of the Seller Disclosure Schedule sets forth a listing, as of September 30, 2011, by account, of: (A) all Loans (including loan participations) of Seller that have been accelerated during the past twelve months, (B) all loan commitments or lines of credit of Seller that have been terminated by Seller during the past twelve months by reason of a default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower, (C) each borrower, customer or other party which has notified Seller during the past twelve months of, or has asserted against Seller, in each case in writing, any “lender liability” or similar claim, and, to the Knowledge of Seller, each borrower, customer or other party that has given Seller any oral notification of, or orally asserted to or against Seller, any such claim, (D) all Loans (1) that are contractually past due 90 days or more in the payment of principal and/or interest, (2) that are on non-accrual status, (3) that are classified by Seller or any applicable regulatory authority as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Watch list” or words of similar import, together with the principal amount of and accrued and unpaid interest

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on each such Loan and the identity of the obligor thereunder, (4) where, during the past three years, the interest rate terms have been reduced and/or the maturity dates have been extended subsequent to the agreement under which the Loan was originally created due to concerns regarding the borrower’s ability to pay in accordance with such initial terms or (5) where a specific reserve allocation exists in connection therewith and (E) all assets classified by Seller as real estate acquired through foreclosure or in lieu of foreclosure, including in-substance foreclosures, and all other assets currently held that were acquired through foreclosure or in lieu of foreclosure.

(d) Seller has previously delivered to Purchaser a schedule setting forth a list of all Loans as of September 30, 2011 by Seller to any directors, executive officers and principal stockholders (as such terms are defined in Regulation O promulgated by the Federal Reserve System (12 C.F.R. Part 215)) of Seller. Except as listed in Section 4.8(d) of the Seller Disclosure Schedule, (i) there are no employee, officer, director or other affiliate Loans on which the borrower is paying a rate other than that reflected in the note or the relevant credit agreement or on which the borrower is paying a rate which was below market at the time the Loan was made; and (ii) all such Loans are and were made in compliance with all Applicable Laws, except for such exceptions as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Seller.

(e) None of the agreements pursuant to which Seller has sold loans or pools of loans or participations in loans or pools of loans contains any obligation to repurchase such loans or interests therein solely on account of a payment default by the obligor on any such loan.

(f) Seller has not originated or serviced, and does not currently hold, directly or indirectly, any loans that would be commonly referred to as “subprime”, “Alt-A” or “negative amortization” loans due to characteristics such as borrower bankruptcy, delinquencies, foreclosures, judgments, charge-offs or high debt-to-income ratios and high risk of default as evidenced by low credit scores, or home equity loans or lines of credit with a loan to value ratio at origination of over 90% (collectively, the “High Risk Loans”).

(g) Seller does not own any investment securities that are secured by High Risk Loans.

4.9 Reserves

(a) The allowance for loan losses reflected on the Seller Financial Statements, as of their respective dates, is adequate in all material respects under the requirements of GAAP to provide for reasonably anticipated losses inherent in Seller’s Loan portfolio.

(b) The reserve for Taxes calculated under FIN 48 reflected on the Seller Financial Statements, as of their respective dates, is adequate in all material respects under the requirements of GAAP.

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4.10 Tax Matters

(a) Seller, and each of its predecessors, have timely filed federal income Tax Returns for each tax year through December 31, 2010 and have timely filed, or caused to be filed, all state and other material Tax Returns required to be filed, and all such Tax Returns are complete and correct in all material respects. All material Taxes due, whether or not shown as due on such Tax Returns have been paid or are being contested in good faith.

(b) Seller is not delinquent in the payment of any material Tax, and Seller has not requested any extension of time within which to file any material Tax Returns which have not since been filed. No audit examination, deficiency, adjustment, refund claim or litigation with respect to Seller’s Tax Returns, paid or unpaid Taxes of Seller, or Tax attributes of Seller has been proposed, asserted or assessed (tentatively or otherwise) or is pending. There are currently no agreements in effect with respect to Seller to extend the period of limitations for the assessment or collection of any material Tax.

(c) Seller has timely filed all material informational Tax Returns required to have been filed under Sections 1441-1446 of the Code, Sections 6031-6060 of the Code and any regulations thereunder, and any comparable state, foreign and local laws, and has timely complied in all material respects with the requirements of Section 3406 of the Code and the regulations thereunder and any comparable state, foreign and local laws and regulations.

(d) Seller is not party to, or bound by, and has no obligation under, any Tax sharing or Tax indemnity agreement or similar contract or arrangement.

(e) Neither Seller nor any of its predecessors is or has ever been a member of an affiliated, consolidated, combined, unitary or other group for any Tax purposes (other than a group the common parent of which is Seller). Seller does not have any liability for Taxes of any person (other than Seller) arising from the application of Treasury Regulation §1.1502-6 or any analogous provision of state, local or foreign law, as a transferee or successor, by contract or otherwise.

(f) Seller has not been either a “distributing corporation” or a “controlled corporation” in a distribution occurring during the last five years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

(g) No closing agreement pursuant to Section 7121 of the Code (or any similar provision of state, local or foreign law) has been entered into with respect to Seller.

(h) Seller has not engaged in any “listed transaction” as defined in Section 6707A(c)(2) of the Code and the regulations thereunder.

(i) Except as may result from the transactions contemplated by this Agreement, none of the net operating loss carryforwards, unrealized built-in losses, tax credits or capital loss carryforwards, if any, of Seller is currently subject to limitation under Section 382 or 383 of the Code or Treasury Regulation §1.1502-15 or §1.1502-21 or otherwise.

(j) No claim has ever been made in writing to Seller by a Governmental Authority in a jurisdiction where Seller does not file Tax Returns or pay Taxes that it was, is or may be subject to Tax by that jurisdiction.

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(k) Seller is not, and has not been, a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

4.11 Employee Benefit Plans

(a) Section 4.11(a) of the Seller Disclosure Schedule sets forth a true and complete list of each material plan (the “Plans”). For purposes hereof, a “plan” means each bonus, deferred compensation, incentive compensation, stock purchase, stock option, employment or consulting, severance pay or benefit, retention, change in control, savings, medical, life or other insurance, vacation, welfare benefit, fringe benefit, cafeteria, profit-sharing or pension benefit plan, program, agreement or arrangement, and each other employee benefit or compensation plan, program, agreement or arrangement, sponsored, maintained or contributed to or required to be contributed to by Seller or as to which Seller has or may have any liability or obligation.

(b) Seller has previously made available to Purchaser upon request true and complete copies of each of the following documents: (i) the Plans (including all amendments thereto); (ii) the most recent annual reports, actuarial reports, and financial statements, if any; and (iii) the most recent Summary Plan Description, together with each Summary of Material Modifications, required under ERISA with respect to such Plan, and (iv) the most recent determination letter or opinion letter received from the IRS with respect to each Plan that is intended to be qualified under the Code.

(c) Neither Seller nor any fiduciary of any Plan has engaged in a transaction that would be subject to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed pursuant to Section 4975 of the Code.

(d) None of the Plans is, and neither the Seller nor any ERISA Affiliate contributes to or has any liability in respect of, any plan (within the meaning of Section 3(3) of ERISA) that is subject to Title IV of ERISA, Section 302 or 303 of ERISA or Section 412 or 430 of the Code. No Plan is a “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA).

(e) Each Plan that is intended to be “qualified” within the meaning of Section 401(a) of the Code (and each corresponding trust that is intended to be exempt under Section 501 of the Code) has received or is the subject of a favorable determination letter or opinion letter from the IRS relating to the most recently completed remedial amendment period cycle (or has pending or has time remaining in which to file an application for such determination from the IRS), and to the Knowledge of Seller nothing has occurred that would reasonably be expected to adversely affect the qualified status of any Plan (or the exempt status of any related trust). Each of the Plans has been operated and administered in accordance with its terms and Applicable Laws in all material respects, including but not limited to ERISA and the Code.

(f) No payment or benefit paid or provided, or to be paid or provided, to current or former employees of Seller will fail to be deductible for federal income tax purposes under Section 280G of the Code.

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(g) There are no actions, suits, or claims pending, or, to the Knowledge of Seller, threatened or anticipated against any Plan, the assets of any Plan or against Seller with respect to any Plan (other than routine claims for benefits). There are no pending or, to the Knowledge of Seller, threatened audits or investigations by any governmental body, commission or agency involving any Plan.

(h) No Plan provides for post-employment or post-termination life or health insurance benefits for current or former employees or directors of Seller except as may be required by Part 6 of Subtitle B of Title I of ERISA or similar state continuation laws.

(i) Neither the execution of this Agreement nor the consummation of the Merger contemplated hereby will (either alone or together with any other event) result in, or is a precondition to, (i) any current or former employee or director of Seller becoming entitled to severance pay or any similar payments or (ii) any acceleration of the time of payment or vesting, or any increase in the amount, of any compensation due to any such current or former employee or director of Seller, or (iii) any renewal or extension of the term of any agreement regarding compensation for any such current or former employee or director of Seller.

(j) No current or former employee, director or other service provider of Seller is entitled to any gross-up, make-whole or other additional payment from Seller in respect of any Tax (including Taxes imposed under Sections 4999 or 409A of the Code) or interest or penalty related thereto.

4.12 Certain Contracts

(a) Except as set forth in Section 4.12(a) of the Seller Disclosure Schedule, Seller is neither a party to, nor is it bound by any contract, arrangement, commitment or understanding (whether written or oral), which (i) would constitute a “material contract” under Section 601(b)(10) of Regulation S-K of the Securities and Exchange Commission and involves payments by, or to, Seller in fiscal year 2010 of more than $100,000 or which would reasonably be expected to involve payments during fiscal year 2011 or 2012 of more than $100,000, (ii) is an agreement restricting the nature or geographic scope of its business activities in any material respect, (iii) relates to the incurrence of indebtedness for borrowed money by Seller (other than deposit liabilities, federal funds, advances and loans from the Federal Home Loan Bank and sales of securities subject to repurchase, in each case incurred in the ordinary course of business consistent with past practice) by Seller in the principal amount of $100,000 or more, including any sale and leaseback transactions (including in the ordinary course of business consistent with past practice), capitalized leases and other similar financing transactions, (iv) grants any right of first refusal, right of first offer or similar right with respect to any material assets or properties of Seller, (v) provides for material payments to be made by Seller in upon a change in control thereof, (vi) (A) requires referrals of business or requires Seller to make available investment opportunities to any person on a priority or exclusive basis or (B) requires Seller to use any product or service of another person on an exclusive basis, (vii) involved payments by, or to, Seller in fiscal year 2010 of more than $100,000 and not terminable on 90 days or less notice or which would reasonably be expected to involve payments during fiscal year 2011 or 2012 of more than $100,000 and not terminable on 90 days or less notice (other than pursuant to Loans originated or purchased by Seller in the ordinary course of business consistent with past practice) or (viii) relate to the employment of a consultant or the employment, election, retention in office or severance of any present or former director or officer, in each case whether written or oral.

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(b) Seller is not in material default under any agreement required to be disclosed pursuant to this Section 4.12(b) and, to the Knowledge of Seller, there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a material default.

(c) Except as set forth in Section 4.12(c) of the Seller Disclosure Schedule or pursuant to the terms of any Plan, Seller is not a party to any transaction with any (i) person who has been an executive officer or a director of Seller, (ii) any spouse of any such officer or director, (iii) any parent, child, brother, sister or other family relation of any such officer or director who has the same home as such officer or director or (iv) any corporation or other entity of which any such officer or director or any such family relation is an officer, director, partner or greater than 5% stockholder (based on percentage ownership of voting stock) (collectively, “Related Parties”), including (x) any transaction involving a contract, agreement or other arrangement providing for the employment of, furnishing of materials, products or services by, rental of real or personal property from, or otherwise requiring payments to, any Related Party, and (y) Loans (including any loan guaranty) outstanding at the date hereof (but not deposit accounts maintained at Seller in the ordinary course of Seller’s banking business).

4.13 Legal Proceedings

There are no actions, suits, investigations, audits or proceedings (whether judicial, arbitral, administrative or other) instituted, pending or, to the Knowledge of Seller, threatened against Seller or against any asset, interest or right of Seller that would reasonably be expected to have a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitration outstanding against Seller that would reasonably be expected to have a Material Adverse Effect. To the Knowledge of Seller, there are no actual or threatened actions, suits, investigations, audits or proceedings, which present a claim to restrain or prohibit the transactions contemplated herein or to impose upon Purchaser, Seller or any of their respective Subsidiaries or Affiliates any material cost or obligation in connection therewith. There are no actions, suits investigations, audits or proceedings instituted, pending or, to the Knowledge of Seller, threatened against any present or former director or officer of Seller that would give rise to a claim for indemnification.

4.14 Regulatory Matters

Seller is not a party to or subject to any cease-and-desist or other order issued by, or a party to any written agreement, consent agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or subject to any order or directive (other than orders or directives of general applicability) by, or has been since January 1, 2008 a recipient of any extraordinary supervisory letter from, or since January 1, 2008 has adopted any board resolution at the request of, any Governmental Authority that, in any such case, currently restricts in any material respect the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business (each, a “Regulatory Agreement”), nor has Seller been advised by any federal or state regulatory agency that it is considering issuing or requesting any Regulatory Agreement.

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4.15 Compliance with Laws

(a) Seller is in material compliance with all Applicable Law, including, to the extent applicable, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act (“CRA”) (which includes a CRA Rating of “satisfactory” or better), the Home Mortgage Disclosure Act and all other applicable fair lending laws and other laws relating to discriminatory business practices, except where the failure to so comply would not reasonably be expected to be material to Seller, and, to the Knowledge of Seller, Seller has not received notice of any defaults or violations of any Applicable Law from any Governmental Authority.

(b) Seller has no Knowledge of any facts or circumstances exist that would cause it to be deemed (i) to be operating in violation in any material respect of the Bank Secrecy Act, the USA PATRIOT Act, any order issued with respect to anti-money laundering by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or any other applicable anti-money laundering statute, rule or regulation, or (iii) not to be in satisfactory compliance in any material respect with the applicable privacy and customer information requirements contained in any federal and state privacy Laws and regulations, including in Title V of the Gramm-Leach-Bliley Act of 1999 and the regulations promulgated thereunder, as well as the provisions of the information security program adopted by Seller pursuant to 12 C.F.R. Part 208 (Appendix D-2). To Seller’s Knowledge, none of its non-public customer information has been disclosed to or accessed by an unauthorized third party in a manner that would cause it to undertake any material remedial action. Seller’s Board of Directors has adopted and implemented an anti-money laundering program that contains adequate and appropriate customer identification verification procedures that comply in all material respects with Section 326 of the USA PATRIOT Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the USA PATRIOT Act and the regulations thereunder and Seller has complied in all material respects with any requirements to file reports and other necessary documents as required by the USA PATRIOT Act.

(c) Seller has all material permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its assets and properties and to conduct in all material respects its business as presently conducted, except for such permits, licenses, authorizations, orders, approvals, filings, applications and registrations the absence of which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Knowledge of Seller, no suspension or cancellation of any of them is threatened.

(d) Neither Seller, nor, to the Knowledge of Seller, any director or officer thereof, has received any notification or communication from any Governmental Authority (A) asserting that Seller is not in material compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces, (B) threatening to revoke any material license, franchise, permit or governmental authorization or (C) restricting or in any way limiting operations (nor, to the Knowledge of Seller, do any grounds for any of the foregoing exist).

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4.16 Labor Matters

(a) Seller is not a party to nor is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is Seller the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel Seller to bargain with any labor organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to Seller’s Knowledge, threatened, nor, to the Knowledge of Seller, is there any activity involving its employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

(b) Seller is not a party to, or otherwise bound by, any material consent decree with, or material citation by, any Governmental Authority relating to employees or employment practices. Seller is employing all of its employees in compliance in all material respects with all Applicable Law relating to employment and employment practices, including all applicable Laws related to Taxes, employment standards, workers’ compensation, terms and conditions of employment, occupational health and safety, disability benefits, wages and hours, termination of employment, human rights, immigration, pay equity and employment equity. Since January 1, 2008, there has been no material harassment, discrimination, retaliatory act or similar claim, action or proceeding against Seller or any of its officers and employers.

4.17 Brokers and Finders

Other than Lutz Advisors, Inc. (“Lutz”), there is no broker, investment banker, financial advisor or finder who might be entitled to any fee or commission from Seller or any of its Affiliates in connection with the Merger. A copy of Seller’s agreement with Lutz has previously been delivered to Purchaser. Lutz has delivered to Seller its opinion to the effect that, as of the date hereof, the aggregate Merger Consideration to be paid to Seller’s stockholders in the Merger is fair from a financial point of view.

4.18 Insurance

Section 4.18 of Seller’s Disclosure Schedule identifies all of the material insurance policies, binders or bonds maintained by Seller. Seller is insured with reputable insurers against such risks and in such amounts as the management of Seller reasonably has determined to be prudent in accordance with industry practices. All such insurance policies are in full force and effect, Seller is not in material default thereunder, and all claims thereunder have been filed in due and timely fashion. Seller has not received any notice of a premium increase or cancellation with respect to any of its insurance policies, binders or bonds and, within the last three (3) years, Seller has not been refused any insurance coverage sought or applied for (other than the denial of any claim of less than $10,000), and Seller has no reason to believe that existing insurance coverage cannot be renewed as and when the same shall expire, upon terms and conditions as favorable as those presently in effect, other than possible increases in premiums or unavailability in coverage that have not resulted from any extraordinary loss experience of Seller.

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4.19 Deposit Insurance and Deposits

Seller is an “insured depository institution” as defined in the FDIA and applicable regulations thereunder. Seller’s deposit accounts are insured by the FDIC to the fullest extent permitted by Applicable Law and all premiums and assessments required to be paid in connection therewith have been paid when due. Except as disclosed in Seller’s Call Report for the period ending September 30, 2011, to the Knowledge of Seller, none of the deposits of Seller is a “brokered deposit” (as defined in 12 C.F.R. Section 337.6(a)(2)). Brokered deposits originated by Seller are originated in compliance in all material respects with all Applicable Law and do not exceed $70 million in the aggregate.

4.20 Environmental Matters

To the Knowledge of Seller, since January 1, 2008 and except as would not reasonably be expected to be material to Seller, (i) neither the conduct nor operation by Seller of any property presently or previously owned, leased or operated by it (including in a fiduciary or agency capacity), or on which it holds a Lien, violates or violated Environmental Laws and to the Knowledge of Seller, no condition has existed or event has occurred with respect to it or any such property that, with notice or the passage of time, or both, is reasonably likely to result in liability under Environmental Laws, (ii) Seller has not used or stored any hazardous material in, on, or at any property presently or previously owned, leased or operated or held as collateral or in a fiduciary capacity by it in violation of any Environmental Law, (iii) Seller has not received any notice that Seller or the operation or condition of any property ever owned, leased, operated by it is or was in violation of or otherwise is alleged to have liability under any Environmental Law, including responsibility (or potential responsibility) for the cleanup or other remediation of any pollutants, contaminants or hazardous or toxic wastes, substances or materials at, on, beneath or originating from any such property and (iv) Seller is not the subject of any action, claim, litigation, dispute, investigation or other proceeding with respect to violations of, or liability under, any Environmental Law. To the Knowledge of Seller, it has timely filed all reports and notifications required to be filed with respect to all of its operations and properties presently or previously owned, leased or operated by it and has generated and maintained all required records and data under all applicable Environmental Laws.

4.21 Intellectual Property

(a) Section 4.21 of the Seller Disclosure Schedule sets forth a true and complete list, as of the date of this Agreement, of all registrations and applications for registration of any material Seller Intellectual Property that has been registered or filed with the U.S. Patent and Trademark Office, the U.S. Copyright Office or similar Governmental Authority.

(b) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (i) Seller owns the Seller Intellectual Property free and clear of all Liens (except for Permitted Liens); (ii) the ownership, licensing or use of the Seller Intellectual Property and the Seller Licensed Intellectual Property by Seller and the operation of the business of Seller as presently conducted, including its provision of products and services, does not conflict with, infringe, dilute, misappropriate or otherwise violate the Intellectual Property rights of any other person or entity; (iii) to the Knowledge of Seller, no third party is infringing or misappropriating any Seller Intellectual Property; and (iv) the Seller Intellectual Property and the Seller Licensed Intellectual Property constitutes all of the Intellectual Property necessary for the conduct of the business of Seller as presently conducted.

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(c) Seller takes commercially reasonable actions in accordance with customary industry practices to maintain (i) the confidentiality of all trade secrets included in the Seller Intellectual Property, (ii) the confidentiality of all personally identifiable data and non-public customer information collected or otherwise acquired by Seller and (iii) the security and integrity of the IT Assets in order to protect the IT Assets against unauthorized use, modification, or access thereto, or the introduction of any viruses or other unauthorized or damaging or corrupting code or elements. To the Knowledge of Seller, the IT Assets have not materially malfunctioned or failed within the past two (2) years in any manner that has resulted in a security breach or the unauthorized disclosure of personally identifiable information or non-public customer information collected or otherwise acquired by Seller or in any manner that remains unresolved. To the Knowledge of Seller, the IT Assets have not been subjected to any “denial of service” or other such attack, or been the subject of an actual or attempted intrusion, except in each case as have not and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Seller has implemented commercially reasonable backup and disaster recovery technology in accordance with customary industry practices.

(d) Seller has complied with Seller’s own privacy and data security policies relating to the collection, storage, transfer and processing by Seller (or any third parties acting on Seller’s behalf) of any personally identifiable information of Seller’s customers or other users of Seller’s products and services. The consummation of the Transaction will not violate Seller’s applicable privacy and data security policies, except for such violations that are not and would not reasonably be expected to be, individually or in the aggregate, material to Seller.

4.22 Risk Management Instruments

Seller is not a party to any interest rate swaps, caps, floors, option agreements, futures and forward contracts or other similar risk management arrangements.

4.23 Repurchase Agreements

With respect to all agreements pursuant to which Seller has purchased securities subject to an agreement to resell, if any, Seller has a valid, perfected Lien or security interest in or evidence of ownership in book-entry form of the government securities or other collateral securing the repurchase agreements, and the value of such collateral equals or exceeds the amount of the debt secured thereby.

4.24 Seller Off-Balance Sheet Transactions

Except as set forth on Section 4.24 of the Seller Disclosure Schedule, Seller has no off-balance sheet transactions.

4.25 Takeover Laws

Seller has taken all action required to be taken by it in order to exempt this Agreement and the Merger contemplated hereby and the Voting Agreements from the requirements of any “moratorium,” “control share,” “fair price,” “affiliate transaction,” “business combination” or other antitakeover laws and regulations of any state (collectively, “Takeover Laws”) applicable to it.

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4.26 No Other Representations and Warranties

(a) Seller has not made any representations or warranties, express or implied, of any nature whatsoever relating to Seller or the business of Seller or otherwise in connection with the transactions contemplated hereby, other than those representations and warranties expressly set forth in this Article IV.

(b) Without limiting the generality of the foregoing, Seller has not made, and shall not be deemed to have made, any representations or warranties in the materials relating to the business of Seller made available to Purchaser, including due diligence materials, or in any presentation of the business of Seller by management of Seller or others in connection with the transactions contemplated hereby, and no statement contained in any of such materials or made in any such presentation shall be deemed a representation or warranty hereunder or otherwise or deemed to be relied upon by the Purchaser Entities in executing, delivering and performing this Agreement and the transactions contemplated hereby. It is understood that any cost estimates, projections or other predictions, any data, any financial information or any memoranda or offering materials or presentations, including any confidential information memorandum or similar materials made available by Seller and its representatives, are not and shall not be deemed to be or to include representations or warranties of Seller, and are not and shall not be deemed to be relied upon by the Purchaser Entities in executing, delivering and performing this Agreement and the transactions contemplated hereby.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ENTITIES

Except as set forth in the Purchaser Disclosure Schedule, the Purchaser Entities hereby represent and warrant to Seller as follows:

5.1 Organization, Standing and Authority of Purchaser

(a) Purchaser is a duly organized federal savings association, validly existing and in good standing under the laws of the United States, with full corporate power and authority to carry on its business as now conducted and is duly qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification.

(b) Upon the formation of Interim and at the Effective Time, (i) Interim will be a duly organized federal savings association, validly existing and in good standing under the laws of the United States, with full corporate power and authority to carry on its business as conducted as of the Effective Time and will be duly qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification and (ii) the outstanding shares of capital stock of Interim will be validly issued, fully paid, nonassessable and owned directly by Purchaser free and clear of all Liens, claims and encumbrances. As of the Effective Time, Interim will have been formed solely for the purpose of engaging in the Merger contemplated by this Agreement and after its formation and prior to the Effective Time, will have engaged in no other business activities and will have incurred no liabilities or obligations other than as contemplated herein.

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(c) Purchaser has, and as of the Effective Time, Interim will have, all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement and to consummate the Merger contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger contemplated hereby have been, in the case of Purchaser, and will be as of the Effective Time, in the case of Interim, duly and validly authorized by all necessary corporate action in respect thereof on the part of Purchaser.

(d) This Agreement constitutes, in the case of Purchaser, and will constitute as of the Effective Time, in the case of Interim, a legal, valid and binding agreement of such party, in each case enforceable against such entity in accordance with its terms subject, as to enforceability, to bankruptcy, insolvency and similar laws relating to or affecting creditors’ rights, the supervisory and enforcement powers of applicable Governmental Authorities and general principles of equity.

(e) Subject to the receipt of all necessary regulatory approvals, neither the execution and delivery of this Agreement nor consummation of the Merger contemplated hereby, nor compliance by the Purchaser Entities with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of the charter or bylaws of the Purchaser Entities, (ii) constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any Lien upon any property or asset of Purchaser pursuant to, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation, or (iii) contravene, conflict with or result in a violation or breach of any provision of any Applicable Law.

5.2 Regulatory Matters

Neither Purchaser nor any of its Subsidiaries is a party to or subject to any Regulatory Agreement, nor has Purchaser been advised by any Governmental Authority that it is considering issuing or requesting any such Regulatory Agreement that, in any such case, would reasonably be expected to, individually or in the aggregate, materially interfere with, impede or delay the transactions contemplated by this Agreement. To the Knowledge of Purchaser, there are no facts or circumstances relating to Purchaser or its Affiliates that, individually or in the aggregate, would reasonably be expected to result in a failure to satisfy the condition set forth in Section 9.1(b).

5.3 Legal Proceedings

There are no actions, suits, investigations, audits or proceedings (whether judicial, arbitral, administrative or other) instituted, pending or, to the Knowledge of Purchaser, threatened against Purchaser or any of its Subsidiaries or against any asset, interest or right of Purchaser or any of its Subsidiaries that would reasonably be expected to have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority or arbitration outstanding against Purchaser or any of its Subsidiaries that would reasonably be expected to have a material adverse effect on the ability of the Purchaser Entities to consummate the Merger contemplated by this Agreement. To the Knowledge of Purchaser, there are no actual or threatened actions, suits, investigations, audits or proceedings, which present a claim to restrain or prohibit the Merger contemplated herein.

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5.4 Brokers and Finders

Other than Endicott Financial Advisors, L.L.C. and Sevara Capital Markets LLC, whose fees and expenses will be paid by the Purchaser Entities, there is no broker, investment banker, financial advisor or finder who might be entitled to any fee or commission from Purchaser or any of its Affiliates in connection with the Merger contemplated by this Agreement.

5.5 Financing

Purchaser has, and will have as of the Effective Time, sufficient cash, available lines of credit or other sources of immediately available funds to enable it to perform all of its obligations under the terms of this Agreement, including to pay the aggregate Merger Consideration for all of the shares of Seller Common Stock, to make all payments in respect of the Seller Stock Options and to pay all related fees and expenses of the Purchaser and its Affiliates and representatives pursuant to this Agreement.

5.6 No Other Representations

Each of the Purchaser Entities is an informed and sophisticated Person, and has engaged expert advisors experienced in the evaluation and acquisition of companies such as Seller as contemplated hereunder. Each of the Purchaser Entities has undertaken such investigation and has been provided with and has evaluated such documents and information as it has deemed necessary to enable it to make an informed and intelligent decision with respect to the execution, delivery and performance of this Agreement and the transactions contemplated hereby as to all matters, including the quality of the Loans. Each of the Purchaser Entities acknowledges and agrees that it is relying exclusively on the representations and warranties set forth in Article IV and its own examination and investigation of Seller and that it is not relying on any other statements or documents.

ARTICLE VI

COVENANTS OF SELLER

6.1 Stockholders’ Meeting

Seller shall cause an annual or a special meeting to be called and held as soon as reasonably practicable (the “Seller Stockholder Meeting”) for the purposes of voting for the approval and adoption of this Agreement. Subject to the fiduciary duties of the Board of Directors as determined after consultation with counsel, and subject to Section 6.4, the Board of Directors shall recommend that the stockholders vote in favor of such approval (the “Seller Board Recommendation”).

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6.2 Actions Pending the Merger

(a) Except as set forth in Section 6.2 of the Seller Disclosure Schedule, from the date hereof until the Closing Date, and except as otherwise provided for by this Agreement or consented to or approved by Purchaser (which consent or approval shall not be unreasonably withheld, conditioned or delayed), Seller shall carry on its business in all material respects in the ordinary course and use its reasonable best efforts to preserve its properties, business and relationships with customers, employees and other persons.

(b) Except with the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed) or as otherwise provided for by this Agreement or set forth in Section 6.2 of the Seller Disclosure Schedule, between the date hereof and the Closing Date, Seller shall not:

(1) declare, set aside, make or pay any dividend or other distribution in respect of its capital stock, except as permitted by Section 6.3 hereof;

(2) issue any shares of its capital stock, except shares of Seller Common Stock upon the exercise of Seller Stock Options;

(3) incur any additional indebtedness for borrowed money, other than in the ordinary course of business of Seller consistent with past practice;

(4) issue, grant or authorize any Rights or effect any recapitalization, reclassification, stock dividend, stock split or like change in capitalization;

(5) amend its Organization Certificate or bylaws;

(6)(i) waive or release any material right other than in the ordinary course of business consistent with past practice or (ii) cancel or compromise any material debt or claim other than loans written down or charged off in the ordinary course of business consistent with past practice;

(7) merge with any other corporation, savings association or bank or permit any other corporation, savings association or bank to merge into it or consolidate with any other corporation, savings association or bank; acquire control over any other firm, bank, corporation, savings association or organization; or create any subsidiary;

(8) liquidate, sell or dispose of any material assets or acquire any material assets, other than (i) pursuant to contracts or commitments existing prior to the date hereof, (ii) the sale of any securities owned by Seller or (iii) in the ordinary course of business consistent with past practice;

(9) fail to comply in any material respect with any material Applicable Law;

(10) make any capital expenditures, except for (i) those contemplated by the business plans previously furnished to Purchaser, (ii) expenditures necessary to maintain existing assets in good repair or (iii) any other unbudgeted capital expenditures not to exceed $10,000 in the aggregate;

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(11) enter into any new service agreement or similar contract not terminable by Seller within 60 days and involving amounts in excess of $50,000 individually or $250,000 in the aggregate;

(12) file any applications or make any contract with respect to the establishment or relocation of branches or other similar facilities or enter into or modify any leases, except in the ordinary course of business consistent with past practice;

(13) take any action that would result in any of the conditions to Closing set forth in Sections 9.1 and 9.3 not being satisfied;

(14) make or commit to make any new individual loan or other extension of credit, except loan originations that are committed as of the date of this Agreement and identified in Section 6.2(b)(14) of the Seller Disclosure Schedule and loans or other extensions of credit made in the ordinary course of business consistent with past practice;

(15) renew for a period in excess of one year any existing loan or other extension of credit, which renewal would require Seller to advance additional funds, except such renewals that are committed as of the date of this Agreement and identified in Section 6.2(b)(15) of the Seller Disclosure Schedule and renewals made in the ordinary course of business in accordance with past practice;

(16) increase the rate of compensation for its directors, officers or employees or adopt or modify any Plan except (i) in a manner consistent with past practice or in accordance with the terms of any Plan, (ii) as may be required by Applicable Law, (iii) in connection with the hiring of at-will non-officer employees in the ordinary course of business, and (iv) payment of retention bonuses in individual amounts, and in an aggregate amount as to all retention bonuses, to be agreed to by Seller and Purchaser;

(17) change its lending, deposit, investment, asset/liability management or other material banking policies in any material respect except as may be required by changes in Applicable Law, regulation or regulatory directives; provided, however, that commencing from the date on which both (i) the Merger Consideration is finally determined and (ii) the conditions to the Merger set forth in Article IX hereof are satisfied or waived, but in no event sooner than two Business Days prior to Closing, Seller shall cooperate in good faith with Purchaser to adopt policies, practices and procedures consistent with those utilized by Purchaser and its Affiliates; provided, further, that the adoption of any such policies, practices or procedures shall not affect the satisfaction of any condition to Closing or the amount of the Merger Consideration;

(18) delay or accelerate any payment of any amount payable or other liability beyond or in advance of its due date or defer incurring or accruing maintenance or other expenses in any case beyond the date when such liability would have been paid or such expense incurred or accrued in the ordinary course of business consistent with past practice;

(19) change its methods of accounting in effect at December 31, 2010, except as required by changes in GAAP, or change any of its methods of reporting income and deductions for federal income tax purposes from those employed in the preparation of its federal income Tax Returns for the year ended December 31, 2010, except as required by Applicable Law; or

(20) agree to do any of the foregoing.

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6.3 Permitted Dividends

Notwithstanding anything to the contrary in Section 6.2, between the date hereof and the Effective Time, Seller may pay dividends (whether regular quarterly dividends or special dividends) not to exceed in the aggregate 100% of its net income for the period beginning July 1, 2011 and ending on the Measurement Date, determined in accordance with the Accounting Policies (and, for the avoidance of doubt, including any net income generated from the sale by Seller of any securities owned by Seller); provided, however, that notwithstanding anything to the contrary in this Section 6.3, Seller shall not pay any dividend in excess of the amount it is permitted to pay under any Applicable Law; and provided, further, that either the payment or non-payment of any dividends by Seller shall be deemed to be in the ordinary course for purposes of this Agreement.

6.4 Takeover Proposals

(a) Except as expressly permitted by this Section 6.4, Seller shall not, and Seller shall not authorize or permit its representatives to, initiate, solicit or knowingly encourage or facilitate inquiries or proposals with respect to, or engage in any negotiations concerning, or provide any confidential or nonpublic information or data to, or have any discussions with, any Person relating to, any Acquisition Proposal; provided that, prior to the receipt of the Seller Stockholder Approval but not after, in the event (1) Seller receives, after the execution of this Agreement, an unsolicited bona fide Acquisition Proposal from a third party and (2) Seller’s Board of Directors concludes in good faith after consulting with its financial advisor that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal, and, after considering the advice of outside counsel, that failure to take such actions would be reasonably likely to be inconsistent with its fiduciary duties to Seller’s stockholders under Applicable Law, Seller may, and may permit its representatives to, furnish or cause to be furnished nonpublic information or data and participate in negotiations or discussions with third parties with respect to such Acquisition Proposal; provided that prior to providing any nonpublic information permitted to be provided pursuant to the foregoing proviso, it shall have entered into an agreement with such third party on terms substantially similar to and no more favorable to such third party than those contained in the Confidentiality Agreement and any nonpublic information provided to such third party shall have previously been provided to Purchaser or shall be provided to Purchaser prior to or concurrently with the time it is provided to such third party. Seller shall (A) immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any persons other than Purchaser with respect to any Acquisition Proposal, (B) not terminate, waive, amend, release or modify any provision of any confidentiality or standstill agreement relating to any Acquisition Proposal to which it or any of its Affiliates or representatives is a party and (C) use its commercially reasonable efforts to enforce any confidentiality or similar agreement relating to any Acquisition Proposal.

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(b) Neither Seller’s Board of Directors nor any committee thereof shall (i) (A) withdraw (or modify or qualify in any manner adverse to Purchaser) or fail to make the Seller Board Recommendation or (B) adopt, approve, recommend, endorse or otherwise declare advisable the adoption of any Acquisition Proposal or (ii) cause or permit Seller to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement constituting or related to any Acquisition Proposal (other than a confidentiality agreement permitted by the terms of Section 6.4(a)) (a “Seller Subsequent Determination”). Notwithstanding the foregoing, prior to the receipt of the Seller Stockholder Approval and subject to compliance with Section 6.4(e), the Board of Directors may make a Seller Subsequent Determination if, but only if, the Board of Directors has reasonably determined in good faith, after consultation with and having considered the advice of outside legal counsel, either that an Acquisition Proposal constitutes a Superior Proposal and the failure to make a Seller Subsequent Determination would reasonably be likely to be inconsistent with its fiduciary duties to Seller’s stockholders under Applicable Law.

(c) In the event Seller or any of its representatives receives (i) any Acquisition Proposal or (ii) any request for non-public information or to engage in negotiations that the Board of Directors reasonably believe is reasonably likely to lead to or that contemplates an Acquisition Proposal, Seller promptly (and in any event within two Business Days of receipt) shall advise Purchaser in writing of the existence of items (i) or (ii), together with the material terms and conditions of such Acquisition Proposal or request and the identity of the Person making any such Acquisition Proposal or request. Seller shall keep Purchaser reasonably well informed in all material respects of the status (including after the occurrence of any material amendment or modification) of any such Acquisition Proposal or request. Without limiting any of the foregoing, Seller shall promptly (and in any event within two Business Days) notify Purchaser in writing if it determines to begin providing non-public information or to engage in negotiations concerning an Acquisition Proposal pursuant to Sections 6.4(a) or (b).

(d) For purposes of this Agreement:

(i) “Acquisition Proposal” means, other than the Merger contemplated by this Agreement, a tender or exchange offer to acquire 25% or more of the voting power in Seller, a proposal for a merger, consolidation or other business combination involving Seller or any other proposal or offer to acquire in any manner 25% or more of the voting power in, or 25% or more of the business, assets or deposits of, Seller.

(ii) “Superior Proposal” means an unsolicited bona fide written Acquisition Proposal (with the percentages set forth in the definition of such term changed from 25% to 50%) that Seller’s Board of Directors concludes in good faith to be more favorable, from a financial point of view, to its stockholders than the Merger (including taking into account any adjustment to the terms and conditions proposed by Purchaser in response to such proposal pursuant to Section 6.4(e) or otherwise), (1) after receiving the advice of its financial advisor, (2) after taking into account the likelihood of consummation of such transaction on the terms set forth therein (as compared to, and with due regard for, the terms herein), and (3) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal and any other relevant factors permitted under Applicable Law.

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(e) The Board of Directors shall not make a Seller Subsequent Determination in response to a Superior Proposal or exercise its right to terminate this Agreement pursuant to Section 10.1(h) unless (i) Seller has delivered a written notice to Purchaser (the “Notice of Superior Proposal”) (A) advising that the Board of Directors has decided that an Acquisition Proposal that it received constitutes a Superior Proposal (it being understood that Seller shall be required to deliver a new Notice of Superior Proposal in respect of any revised Superior Proposal from such third party or its affiliates that Seller proposes to accept) and (B) specifying the material terms and conditions of such Superior Proposal and containing an unredacted copy of any relevant transaction agreement and (ii) a period commencing on the date the Notice of Superior Proposal is deemed received by Purchaser in accordance with Section 11.6 and ending at 5:00 p.m., Eastern Time, on the fourth business day thereafter (the “Notice Period”) has elapsed and such Superior Proposal has not been withdrawn and continues, in the good faith determination of the Board of Directors after consultation with its financial advisor and outside legal counsel, to be a Superior Proposal after taking into account all adjustments to the terms of this Agreement that are committed to in writing by Purchaser.

(f) It is understood and agreed that any amendment to the financial terms or other material terms of a Superior Proposal made by a third party after delivery of a Notice of Superior Proposal in respect of such Superior Proposal shall require delivery of another Notice of Superior Proposal and another Notice Period in respect of such Superior Proposal pursuant to Section 6.4(e), except that, assuming Purchaser has been afforded at least one Notice Period of at least four Business Days in respect of a Superior Proposal from such third party, any and each such subsequent Notice Period shall expire at 5:00 p.m., Eastern Time, on the second Business Day after the date that such subsequent Superior Proposal Notice is deemed received by Purchaser in accordance with Section 11.6.

6.5 Access to Properties and Records; Confidentiality

On reasonable advance notice, Seller shall (i) permit Purchaser and its representatives, accompanied by an officer of Seller, reasonable access during normal business hours to its properties, and shall make available to Purchaser and its representatives all books, papers and records relating its assets, stock ownership, properties, operations, obligations and liabilities, and (ii) furnish to Purchaser and their representatives such financial and operating data and other information relating to Seller as such Persons may reasonably request. Seller shall not be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of any customer, violate the terms of any contract, violate employee privacy rights, jeopardize attorney-client privilege or contravene any Applicable Law. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of Seller. Purchaser shall, and shall cause its directors, officers, attorneys and advisors to, maintain the confidentiality of all information obtained in such investigation which is not otherwise publicly disclosed by Seller in accordance with the terms of the Confidentiality Agreement. Notwithstanding any other provision contained in this Agreement, Purchaser shall not under any circumstance be permitted to exercise control of Seller prior to the Effective Time. As soon as reasonably available, but in no event more than

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45 days after the end of each fiscal quarter ending after the date of this Agreement and prior to the Effective Time, Seller will deliver to Purchaser Seller’s Call Report filed for such quarter. Seller shall cause its audited financial statements for the year ended December 31, 2011 to be timely prepared in accordance with past practice and shall provide copies thereof to Purchaser within 15 Business Days of completion. Seller shall also furnish to Purchaser copies of the Monthly Financial Statements within ten Business Days of the end of the month to which the Monthly Financial Statements relate.

6.6 Disclosure Update

Seller shall furnish to Purchaser on the date that is two Business Days immediately preceding the Closing Date either (i) a supplement or amendment to the Seller Disclosure Schedule with respect to any matter existing to Seller’s Knowledge as of that date which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in the Seller Disclosure Schedule or which is necessary to correct any information therein which has been rendered materially inaccurate thereby, or (ii) written confirmation that no supplement or update is required as of that date. No supplement or amendment to the Seller Disclosure Schedule shall have any effect for the purpose of determining satisfaction of the conditions set forth in Article IX or shall relieve Seller of any liability hereunder. Purchaser agrees that a failure to make a disclosure in accordance with the first sentence of this Section 6.6, or the fact that any disclosure made is incomplete or inaccurate, shall not constitute a breach of a covenant or obligation for purposes of determining whether the condition to Closing set forth in Section 9.3(b) is satisfied or whether grounds for termination of this Agreement exist pursuant to Section 10.1(b).

ARTICLE VII

COVENANTS OF THE PURCHASER ENTITIES

7.1 Conduct of the Purchaser Entities

The Purchaser Entities shall not from the date of this Agreement to the Effective Time, take any action or fail to take any action that is intended to, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the ability of the Purchaser Entities to consummate the Merger, including the financing thereof.

7.2 Formation and Obligations of Merger Subsidiary

As soon as practicable after the date hereof, and in any event prior to the Effective Time, Purchaser shall take all action necessary to cause Interim (i) to be duly and validly formed and (ii) promptly thereafter to deliver an executed joinder to this Agreement, substantially in the form attached as Exhibit B (the “Interim Joinder”). Purchaser shall take all action necessary to cause Interim to perform its obligations under this Agreement and to consummate the Merger on the terms and conditions set forth in this Agreement.

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7.3 Voting of Shares

Purchaser shall vote all shares of Seller Common Stock beneficially owned by it or any of its Subsidiaries in favor of adoption of this Agreement at the Seller Stockholder Meeting.

7.4 Director and Officer Liability

Purchaser hereby agrees, to do the following:

(a) For six years after the Effective Time, Purchaser shall indemnify and hold harmless the present and former officers and directors of Seller (each, an “Indemnified Person”) in respect of acts or omissions occurring at or prior to the Effective Time to the fullest extent permitted by Applicable Law or provided under Seller’s Organization Certificate and bylaws in effect on the date hereof. Purchaser and the Surviving Bank shall promptly pay expenses incurred by each Indemnified Person as the same are incurred to the fullest extent permitted by Applicable Law; provided, however, that such advance shall be conditioned upon Purchaser’s receipt of an undertaking by or on behalf of the Indemnified Person to repay such amount (without the posting of any bond or collateral) if it shall be ultimately determined by a final judgment of a court of competent jurisdiction that the Indemnified Person is not entitled to be indemnified pursuant to this Section 7.4(a).

(b) For six years after the Effective Time, Provident New York Bancorp (“Parent”), to the extent consistent with Applicable Law, shall cause to be maintained in effect provisions in the Surviving Bank’s Organization Certificate and bylaws (or in such documents of any successor to the business of the Surviving Bank) regarding elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses that are no less advantageous to the intended beneficiaries than the corresponding provisions in existence on the date of this Agreement.

(c) Prior to the Effective Time, Seller shall or, if Seller is unable to, Purchaser shall, as of the Effective Time, obtain and fully pay the premium for the non-cancellable extension of the directors’ and officers’ liability coverage of Seller’s existing directors’ and officers’ insurance policies and Seller’s existing fiduciary liability insurance policies (collectively, “D&O Insurance”), in each case for a claims reporting or discovery period of six years from and after the Effective Time with respect to any claim related to any period or time at or prior to the Effective Time from an insurance carrier with the same or better credit rating as Seller’s current insurance carrier with respect to D&O Insurance, with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Seller’s existing policies with respect to any actual or alleged error, misstatement, misleading statement, act, omission, neglect, breach of duty or any matter claimed against a director or officer of Seller or any of its Subsidiaries by reason of him or her serving in such capacity that existed or occurred at or prior to the Effective Time (including in connection with this Agreement or the Merger or actions contemplated hereby). If Seller or Purchaser for any reason fail to obtain such “tail” insurance policies as of the Effective Time, Purchaser shall continue to maintain in effect with respect to actions or omissions occurring prior to the Effective Time, and for a period of at least six years from and after the Effective Time, the D&O Insurance in place as of the date hereof with Seller’s current insurance carrier or with an insurance carrier with the same or better credit rating as Seller’s current insurance carrier with respect to D&O Insurance with terms, conditions,

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retentions and limits of liability that are no less favorable than the coverage provided under Seller’s existing policies as of the date hereof, or Purchaser shall purchase from Seller’s current insurance carrier or from an insurance carrier with the same or better credit rating as Seller’s current insurance carrier with respect to D&O Insurance comparable D&O Insurance for such six-year period with terms, conditions, retentions and limits of liability that are no less favorable than as provided in Seller’s existing policies as of the date hereof; provided that in no event shall Purchaser be required to expend for such policies pursuant to this sentence an annual premium amount in excess of 200% of the amount per annum Seller paid in its last full fiscal year, which amount is set forth in Section 7.4(c) of the Seller Disclosure Schedule; and provided further that if the aggregate premiums of such insurance coverage exceed such amount, Purchaser shall be obligated to obtain a policy with the greatest coverage available, with respect to matters occurring prior to the Effective Time, for a cost not exceeding such amount.

(d) If Purchaser or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary, proper provision shall be made so that the successors and assigns of Purchaser shall assume the obligations set forth in this Section 7.4.

(e) The rights of each Indemnified Person under this Section 7.4 shall be in addition to any rights such Person may have under the organizational documents or bylaws of Seller or any of its Subsidiaries, or under Applicable Law or under any agreement of any Indemnified Person with Seller or any of its Subsidiaries. These rights shall survive consummation of the Merger and are intended to benefit, and shall be enforceable by, each Indemnified Person.

7.5 Employees

(a) For a period of twelve months following the Closing Date, Purchaser shall, or shall cause its Subsidiaries to, provide each Continuing Employee with compensation and benefits no less favorable in the aggregate to the compensation and benefits provided to similarly situated employees of Purchaser and its Subsidiaries.

(b) To the extent that after the Closing Date the Continuing Employees are not covered by the Plans that provide medical, dental and other welfare benefits (collectively, the “Seller Welfare Plans”), (i) for the calendar year that includes the Closing Date, the Continuing Employees shall not be required to satisfy any deductible, co-payment, out-of-pocket maximum or similar requirements under the benefit plans maintained by Purchaser or its Subsidiaries (“Purchaser Group Plans”) that provide medical, dental and other welfare benefits (collectively, the “Purchaser Welfare Plans”) to the Continuing Employees to the extent of amounts previously credited for such purposes under the corresponding Seller Welfare Plans for such calendar year and (ii) any waiting periods, pre-existing condition exclusions, coverage requirements or other limitations contained in such Purchaser Welfare Plans shall be waived with respect to the Continuing Employees (and any dependents or beneficiaries thereof) except for waiting periods, pre-existing condition exclusions, coverage requirements or other limitations that applied with respect to such individuals and that have not been satisfied as of the Effective Time under the corresponding Seller Welfare Plans and that are comparable to those applicable under a similar Seller Welfare Plan.

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(c) With respect to any Purchaser Group Plan in which any Continuing Employee becomes a participant, such Continuing Employee shall receive full credit for service with Seller for purposes of eligibility to participate, vesting and, with respect to vacation entitlement, severance benefits and other paid time off, benefit level in all cases to the same extent that such service was recognized as of the Effective Time under a comparable plan of Seller in which the Continuing Employee participated. Purchaser shall, and shall cause its Subsidiaries to, honor all vacation, personal, and sick days accrued but unused by Continuing Employees as of the Effective Time to the extent provided for, and subject to any limitations and restrictions imposed under the terms of, the applicable plans, policies, programs and arrangements of the Seller immediately prior to the Effective Time.

(d) Purchaser agrees to honor, or to cause one of its Subsidiaries to honor, in accordance with their terms, the employee retention agreements listed in Section 7.5(d) of the Seller Disclosure Schedule (the “Retention Agreements”), subject to any limitations imposed under Applicable Law. Section 7.5(d) of the Seller Disclosure Schedule sets forth the timing and dollar amount of the cash payments that would be made to each employee who is a party to a Retention Agreement and the non-cash benefits that would be provided to such employees, assuming in each case that the employee incurs a qualifying termination under the Retention Agreements immediately following the Effective Time. Each Continuing Employee who is not a party to a Retention Agreement and whose employment by Purchaser (or one of its Subsidiaries) is terminated by Purchaser (or the applicable Subsidiary) within nine months following the Effective Time shall be entitled to receive severance benefits in accordance with, and subject to the terms of, the Seller Severance Plan.

(e) Seller and Purchaser Agree that (i) neither Purchaser nor any of its Subsidiaries shall be obligated to continue to employ any Continuing Employee for any period of time following the Effective Time,(ii) Purchaser or its Subsidiaries may revise, amend or terminate any Plan, Purchaser Group Plan or other employee benefit plan, program or policy from time to time (provided that nothing in this clause (ii) is intended to relieve Purchaser of any of its obligations under the terms of Section 7.5(a)-(d)), (iii) nothing in this Agreement shall be construed as an amendment of any Plan or Purchaser Group Plan and(iv) no provision of this Section 7.5 shall create any third party beneficiary rights in any employee or former employee (including any beneficiary or dependent of such employee or former employee) of Seller in respect of continued employment (or resumed employment) or any other matter.

(f) Prior to the Effective Time, Seller shall take all actions necessary or appropriate to terminate the Gotham Bank of New York Profit Sharing Plan (the “Profit Sharing Plan”) in compliance with applicable requirements of Section 401(a) of the Code and Applicable Law, and thereafter distributions from the Profit Sharing Plan will be made to participants in accordance with the terms of the Profit Sharing Plan and the applicable requirements of Section 401(a) of the Code and Applicable Law. All resolutions, notices, or other documents issued, adopted or executed in connection with the implementation of this Section 7.5(f) shall be subject to Purchaser’s prior review and comment.

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(g) Prior to the Effective Time, Seller shall cooperate with Purchaser to allow Purchaser or its applicable Subsidiary, in Purchaser’s discretion, to arrange and conduct for employees of Seller employee orientation sessions (with such sessions to be held at times reasonably agreed to by Purchaser and Seller).

ARTICLE VIII

COVENANTS OF PURCHASER AND SELLER

8.1 Applications

As promptly as practicable after the date hereof, and in any event within 30 days after the date hereof, Purchaser and Seller shall submit any requisite applications to satisfy the condition set forth in Section 9.1(b). The parties shall cooperate and consult with each other and provide all information reasonably requested by the other party to complete any such applications. Purchaser shall provide Seller with copies of all applications, excluding confidential information therein other than confidential information provided by Seller. Each of Purchaser and Seller shall have the right to review in advance, and to the extent practicable each shall consult with the other, in each case, subject to Applicable Law relating to the exchange of information, with respect to all the information relating to the other party, and any of their respective Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Authority in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, the parties hereto agree to act reasonably and as promptly as practicable. Each party hereto agrees to keep the other party apprised of the status of matters relating to completion of the transactions contemplated hereby. Purchaser and Seller shall promptly furnish each other to the extent permitted by Applicable Law with copies of written communications received by them or their Subsidiaries from, or delivered by any of the foregoing to, any Governmental Authority in respect of the transactions contemplated by this Agreement or by any other documents related to the transactions contemplated hereby.

8.2 Commercially Reasonable Efforts

(a) Purchaser and Seller shall use their commercially reasonable efforts to (i) furnish such information as may be required in connection with the preparation of the documents referred to in Section 8.1 and (ii) take or cause to be taken all action necessary or desirable on its part so as to permit consummation of the transactions contemplated hereby, including (1) obtaining the consent or approval of each Person (including any Governmental Authority) whose consent or approval is required for consummation of the transactions contemplated hereby; provided that Seller shall not agree to make any payments or modifications to agreements in connection therewith without the prior written consent of Purchaser and (2) requesting the delivery of appropriate opinions, consents and letters from its counsel and independent auditors and furnishing to the other party such certificates of Governmental Authorities and officers of such party as the other party may reasonably request relating to the existence of such party and the authority of such party to enter into this Agreement and such other documents as are reasonably required for the consummation of the transactions contemplated hereby. No party hereto shall take, or cause or to the best of its ability permit to be taken, any action that would substantially impair the prospects of completing the transactions contemplated hereby.

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(b) Seller shall in a reasonably timely manner provide such assistance to Purchaser as shall be reasonably necessary to assist Purchaser in converting and transferring as soon as practicable after the Effective Time all information concerning the Loans, deposits and other assets and liabilities of Seller into Purchaser own data processing system. Consistent with the preceding sentence, Seller shall, upon the reasonable request of Purchaser, provide Purchaser with computer file instructions with respect to the information in its data processing system regarding the assets and liabilities of Seller, together with operational procedures designed to implement the transfer of such information to Purchaser.

8.3 Press Releases

Seller and Purchaser shall agree with each other as to the form and substance of any press release related to this Agreement or the transactions contemplated hereby, and shall consult each other as to the form and substance of other public disclosures related thereto; provided, however, that nothing contained herein shall prohibit either party, following notification to the other party, from making any disclosure that its counsel deems to be required by Applicable Law.

ARTICLE IX

CONDITIONS PRECEDENT

9.1 Conditions Precedent – The Parties

The respective obligations of the parties to consummate the Merger are subject to the satisfaction of the following conditions:

(a) the Seller Stockholder Approval shall have been obtained in accordance with the Banking Law;

(b) The parties hereto shall have received all regulatory approvals required or deemed necessary in connection with the transactions contemplated hereby, all notice periods and waiting periods required after the granting of any such approvals shall have passed and all conditions contained in any such approval required to have been satisfied prior to consummation of such transactions shall have been satisfied; provided, however, that no such approval shall contain any conditions, restrictions or requirements that would reasonably be expected to have a Material Adverse Effect on Purchaser after giving effect to the transactions contemplated hereby;

(c) Seller shall have obtained any consent required under the lease, dated as of February 1, 2004, by and between JER 1412 Broadway, LLC and Seller, in connection with the consummation of the transactions contemplated hereby;

(d) The amount of Tangible Net Worth shall have been determined as provided for in Section 2.6; and

(e) no order, decree or injunction of a court or agency of competent jurisdiction enjoining or prohibiting the consummation of the Merger shall have taken effect after the date hereof and shall still be in effect.

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9.2 Conditions Precedent – Seller

The obligations of Seller to consummate the Merger are subject to the satisfaction of the following further conditions:

(a) the representations and warranties of the Purchaser Entities set forth in Article V shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date (or only as of the date when made in the case of any representation and warranty which specifically refers to an earlier date); provided, however, that (i) in determining whether or not the condition contained in this paragraph (a) shall be satisfied, no effect shall be given to any exceptions in such representations and warranties relating to materiality and (ii) the condition contained in this paragraph (a) shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a material adverse effect on the ability of the Purchaser Entities to consummate the Merger contemplated by this Agreement;

(b) the Purchaser Entities shall have in all material respects performed all obligations and complied with all covenants required by this Agreement;

(c) Purchaser shall have delivered to Seller a certificate, dated as of the Closing Date and signed by an authorized officer of Purchaser, to the effect that the conditions set forth in this Section 9.2 have been satisfied; and

(d) Seller shall have received from Interim the Interim Joinder.

9.3 Conditions Precedent – Purchaser Entities

The obligations of the Purchaser Entities to consummate the Merger are subject to the satisfaction of the following further conditions:

(a) the representations and warranties of Seller set forth in Article IV shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date (or only as of the date when made in the case of any representation and warranty which specifically refers to an earlier date); provided, however, that (i) in determining whether or not the condition contained in this paragraph (a) shall be satisfied, no effect shall be given to any exceptions in such representations and warranties relating to materiality or Material Adverse Effect and (ii) the condition contained in this paragraph (a) shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a Material Adverse Effect on Seller;

(b) Seller shall have in all material respects performed all obligations and complied with all covenants required by this Agreement;

(c) Seller shall have delivered to Purchaser a certificate, dated as of the Closing Date and signed by an authorized officer of Seller, to the effect that the conditions set forth in this Section 9.3 have been satisfied; and

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(d) holders of not more than 10% of the outstanding Seller Common Stock shall have elected to exercise dissenters’ rights pursuant to Section 604 of the Banking Law with respect to the Merger (excluding any holders who have exercised but have failed to properly perfect, or have otherwise lost, such rights prior to the Effective Time in accordance with the Banking Law).

ARTICLE X

TERMINATION, WAIVER AND AMENDMENT

10.1 Termination

This Agreement may be terminated at any time prior to the Effective Time:

(a) by the mutual consent in writing of Seller and Purchaser;

(b) by either Purchaser or Seller (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there shall have been a material breach of any of the representations, warranties, covenants or agreements set forth in this Agreement on the part of the other party, which breach is not cured within thirty days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Cutoff Date, and which breach of a representation, warranty or covenant, would, individually or in the aggregate with other breaches, result in one or more of the conditions set forth in Sections 9.2(a) or 9.2(b) (in case of a termination by Seller) or 9.3(a) or 9.3(b) (in case of termination by Purchaser) not to be satisfied or not capable of being satisfied by the Cutoff Date;

(c) by either Seller or Purchaser, if any application for prior approval referred to in Section 9.1(b) has been denied or the Governmental Authority with jurisdiction over any such application has advised either party that the application would not be approved, and the time period for appeals and requests for reconsideration has run;

(d) by either Seller or Purchaser, if at the Seller Stockholder Meeting (including any adjournment or postponement thereof), the Seller Stockholder Approval shall not have been obtained;

(e) by either Seller or Purchaser, if the Merger shall not have been consummated on or before the Cutoff Date; provided, however, that no party may terminate this Agreement pursuant to this Section 10.1(e) if the failure of the Closing to have occurred on or before said date was due to such party’s material breach of this Agreement;

(f) by either Seller or Purchaser, if any court or agency of competent jurisdiction shall have issued an order, decree or injunction permanently enjoining or prohibiting the consummation of the Merger and such order, decree or injunction shall have become final and nonappealable; provided that the foregoing right to terminate this Agreement shall not be available to a party whose breach of any provision of this Agreement has resulted in such action or event;

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(g) by Purchaser if, prior to receipt of the Seller Shareholder Approval, (A) Seller’s Board of Directors shall have made a Seller Subsequent Determination or failed to recommend the Merger and the approval and adoption of this Agreement to the stockholders of Seller or (B) there shall have been an intentional breach of the terms of Section 6.4 in any material respect adverse to Purchaser; or

(h) by Seller if, prior to receipt of the Seller Stockholder Approval, Seller’s Board of Directors shall have made a Seller Subsequent Determination in accordance with Section 6.4, in order to enter into a definitive, written agreement with respect to a Superior Proposal.

The party desiring to terminate this Agreement pursuant to this Section 10.1 (other than pursuant to Section 10.1(a)) shall give written notice of such termination to the other party.

10.2 Effect of Termination

(a) In the event this Agreement is terminated pursuant to Section 10.1 hereof, this Agreement shall become void and have no effect without liability of any party (or any stockholder, director, officer, employee, agent, consultant or representative of such party) to the other party hereto; provided that if such termination shall result from (i) fraud or (ii) the intentional failure of any party to (A) fulfill a condition to the performance of the obligations of the other party or (B) perform a covenant hereof, such party shall be fully liable for any and all liabilities and damages (which the parties acknowledge and agree shall not be limited to reimbursement of expenses or out-of-pocket costs, and may include to the extent proven the benefit of the bargain lost by a party’s stockholders (taking into consideration relevant matters, including other combination opportunities and the time value of money), which shall be deemed in such event to be damages of such party) incurred or suffered by the other party as a result of such failure. The provisions of Section 6.5 relating to confidentiality and the provisions of this Section 10.2 and Sections 11.1, 11.8, 11.9 and 11.10 shall survive any termination hereof pursuant to Section 10.1.

(b) In the event that:

(i) (A) after the date hereof, an Acquisition Proposal (whether or not conditional) or intention to make an Acquisition Proposal (whether or not conditional) shall have been made directly to Seller’s stockholders or otherwise publicly disclosed or otherwise communicated or made known to senior management of Seller or Seller’s Board of Directors, and (B) this Agreement is thereafter terminated (x) by Purchaser or Seller pursuant to Section 10.1(d) or Section 10.1(e) (if the Seller Stockholder Approval has not theretofore been obtained), or (y) by Purchaser pursuant to Section 10.1(b), then if within 12 months after such termination, Seller enters into a definitive agreement with respect to, or consummates a transaction contemplated by, any Acquisition Proposal (which, in each case, need not be the same Acquisition Proposal that shall have been made, publicly disclosed or communicated prior to termination hereof), then Seller shall pay to Purchaser, on the earlier of the date of such execution or consummation, a fee of Two Million Dollars ($2,000,000) (the “Breakup Fee”); or

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(ii) this Agreement is terminated by Purchaser pursuant to Section 10.1(g) or by Seller pursuant to Section 10.1(h), then Seller shall pay Purchaser the Breakup Fee (in the event of termination by Purchaser pursuant to Section 10.1(g), within two Business Days after such termination, and in the event of termination by Seller pursuant to Section 10.1(h), immediately upon such termination).

For purposes of Section 10.2(b)(i), the term “Acquisition Proposal” shall have the meaning ascribed thereto in Section 6.4(d)(i) except that references to “25%” shall be replaced by “50%”.

(c) Notwithstanding anything to the contrary in this Agreement, upon any termination of this Agreement under circumstances where the Breakup Fee is payable by Seller pursuant to Section 10.2(b) and such Breakup Fee is paid in full, Purchaser’s right to receive payment of the Breakup Fee shall be the sole and exclusive remedy of Purchaser or any of its Affiliates against Seller or any of its Affiliates, and Purchaser and its Affiliates shall be precluded from any other remedy against Seller or any of its Affiliates at law, in equity or otherwise in connection with this Agreement or the Merger contemplated hereby, except with respect to any willful breach of this Agreement by Seller that gives rise to such termination.

10.3 Survival of Representations, Warranties and Covenants

All representations, warranties and covenants in this Agreement or in any instrument delivered pursuant hereto shall expire on, and be terminated and extinguished at, the Effective Time, other than covenants that by their terms are to survive or be performed after the Effective Time.

10.4 Amendments and Waivers

(a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement or, in the case of a waiver, by each party against whom the waiver is to be effective; provided that after the Seller Stockholder Approval has been obtained, there shall be no amendment or waiver that would require the further approval of the stockholders of Seller under Applicable Law without such approval having first been obtained.

(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by Applicable Law.

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ARTICLE XI

MISCELLANEOUS

11.1 Expenses

Except as otherwise provided herein, each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated in this Agreement.

11.2 Disclosure Schedule

Seller has set forth information on the Seller Disclosure Schedule in a section thereof that corresponds to the section of this Agreement to which it relates. A matter set forth in one section of a Schedule need not be set forth in any other section so long as its relevance to such other section of the Schedule or section of the Agreement is reasonably apparent on the face of the information disclosed therein. The parties acknowledge and agree that (a) the Schedules to this Agreement may include certain items and information solely for informational purposes for the convenience of Purchaser and (b) the disclosure by Seller of any matter in the Schedules shall not be deemed to constitute an acknowledgment by Seller that the matter is required to be disclosed by the terms of this Agreement or that the matter is material.

11.3 Entire Agreement; Binding Effect; Benefit

This Agreement contains the entire agreement between the parties with respect to the Transaction and supersedes all prior arrangements or understandings, written or oral, with respect the subject matter of this Agreement other than documents referred to herein or therein. The terms and conditions of this Agreement shall be binding upon and, except as provided in Section 7.4, shall inure to the benefit of the parties hereto and their respective successors and assigns. Except as provided in Section 7.4, nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations or liabilities. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. The parties intend that each representation and each warranty contained in this Agreement shall have independent significance. Accordingly, except as otherwise expressly provided in this Agreement, nothing contained in any representation or warranty, or the fact that any representation or warranty may be more specific or less specific than any other representation or warranty, shall in any way limit, restrict or otherwise affect the scope, applicability or meaning of any other representation or warranty contained in this Agreement.

11.4 Specific Performance

The parties agree that irreparable damage would occur in the event that the provisions contained in this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed the parties shall be entitled to an injunction or injunctions without the posting of any bond and without proof of actual damages to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which the parties are entitled at law, in equity or otherwise.

47

11.5 Binding Effect; Benefit; No Assignment

No party hereto may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement to any other Person without the consent of each other party hereto.

11.6 Notices

(a) All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by facsimile transmission, overnight express or by registered or certified mail, postage prepaid, addressed as follows:

If to Seller:

1450 Broadway, 32^nd Floor

New York, NY 10018

Attention: Laurence Marchini, III

Facsimile No.: (212) 768-0492

With a required copy to:

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

Attention: Joseph Rinaldi

Facsimile No.: (212) 701-5805

If to Purchaser:

400 Rella Boulevard

Montebello, NY 10901

Attention: Daniel Rothstein

Facsimile No.: (845) 369-8255

With a required copy to:

Arnold & Porter

555 Twelfth Street, N.W.

Washington, D.C. 20004

Attention: Steven Kaplan, Esq.

Facsimile No.: (202) 942-5999

or to such other Persons, addresses or facsimile numbers as such party may hereafter specify in writing. Each such notice, request, instruction or other communications shall be deemed received (a) if delivered by hand, overnight courier or registered or certified mail, when such delivery is made at the address specified in this Section 11.6, or (b) if delivered by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section 11.6 and appropriate confirmation is received.

48

11.7 Severability

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

11.8 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and entirely to be performed within such jurisdiction, without regard to the conflicts of law rules of such state, except to the extent federal law may be applicable.

11.9 Jurisdiction

The parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York, so long such court shall have subject matter jurisdiction over such suit, action or proceeding, and, if such court does not have subject matter jurisdiction over such suit, action or proceeding, in any New York State court sitting in New York City, that any cause of action arising out of this Agreement shall be deemed to have arisen from a transaction of business in the State of New York, and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 11.6 shall be deemed effective service of process on such party.

11.10 WAIVER OF JURY TRIAL

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

49

11.11 Counterparts; Effectiveness

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. Until and unless each party has received a counterpart hereof signed by the other party hereto, this Agreement shall have no effect and no party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).

50

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed in counterparts by their duly authorized officers as of the day and year first above written.

PROVIDENT BANK
By:	/s/    Jack L. Kopnisky
	Name: Jack L. Kopnisky
	Title: CEO/President

GOTHAM BANK OF NEW YORK
By:	/s/    Laurence R. Marchini, III
	Name: Laurence R. Marchini, III
	Title: President

[Signature Page to Merger Agreement]

Covenants of Parent

By executing below, Parent agrees that it shall not, from the date of this Agreement to the Effective Time, take any action or fail to take any action that is intended to, or would reasonably be expected to, individually or in the aggregate, prevent, impede or materially delay the consummation of the Merger or the other transactions contemplated hereby or the ability of Purchaser or Interim to consummate the Merger on the terms and conditions of this Agreement. In addition, Parent, intending to be legally bound, hereby unconditionally and irrevocably guarantees to Seller the due and punctual performance of the obligations of Purchaser and Interim under this Agreement.

PROVIDENT NEW YORK BANCORP
By:	/s/    Jack L. Kopnisky
	Name: Jack L. Kopnisky
	Title: CEO/President

[Signature Page to Merger Agreement]

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jack Kopnisky, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Provident New York Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 8, 2012	By:	/s/     Jack Kopnisky
			Jack Kopnisky
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen V. Masterson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Provident New York Bancorp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	February 8, 2012	By:	/s/     Stephen V. Masterson
			Stephen V. Masterson
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer and Principal Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Jack Kopnisky, Chief Executive Officer and Stephen V. Masterson, Chief Financial Officer of Provident New York Bancorp (the “Company”) each certify in his capacity as an officer of the Company that he has reviewed the quarterly report on Form 10-Q for the quarter ended December 31, 2011 and that to the best of his knowledge:

(1) the report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	February 8, 2012	By:	/s/     Jack Kopnisky
			Jack Kopnisky
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Date	:February 8, 2012	By:	/s/    Stephen V. Masterson
			Stephen V. Masterson
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Provident New York Bancorp and will be retained by Provident New York Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Consolidated Statements Of Comprehensive Income (Loss) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Unrealized holding gains (losses) on securities available for sale, related tax expense (benefit)	$ 2,310	$ (8,930)
Reclassification adjustment for net unrealized gains included in net income, related tax expense	808	1,706
Reclassification adjustment for other than temporary impaired losses included in net income, related income tax expense	15
Change in funded status of defined benefit plans, related tax expense	$ 229	$ 74

XML

Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Net Income:	$ 5,717	$ 6,720
Other comprehensive income (loss) :
Net unrealized holding gains (losses) on securities available for sale net of related tax expense (benefit) of $2,310 and ($8,930)	3,376	(13,057)
Less:
Reclassification adjustment for net unrealized gains included in net income, net of related income tax expense of $808 and $1,706	1,181	2,496
Reclassification adjustment for other than temporary impaired losses included in net income, net of related income tax expense of $15	(23)
Other comprehensive income, available-for-sale securities adjustment, net of tax	2,218	(15,553)
Change in funded status of defined benefit plans, net of related income tax expense of $229 and $74	338	107
Other comprehensive income (loss)	2,556	(15,446)
Total comprehensive income (loss)	$ 8,273	$ (8,726)

XML

Consolidated Statements Of Financial Condition (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Sep. 30, 2011
ASSETS
Cash and due from banks	$ 43,687	$ 281,512
Securities (including $634,856 and $644,910 pledged as collateral for borrowings and deposits at December 31, 2011 and September 30, 2011 respectively)
Available for Sale	785,462	739,844
Held to maturity, at amortized cost (fair value of $184,119 and $111,272 at December 31, 2011 and September 30, 2011, respectively)	182,076	110,040
Total securities	967,538	849,884
Loans held for sale	2,142	4,176
Gross loans:	1,775,893	1,703,799
Allowance for loan losses	(28,245)	(27,917)
Total loans, net	1,747,648	1,675,882
Federal Home Loan Bank ("FHLB") stock, at cost	21,789	17,584
Accrued interest receivable	9,430	9,904
Premises and equipment, net	39,860	40,886
Goodwill	160,861	160,861
Core deposit and other intangible assets	4,306	4,629
Bank owned life insurance	57,485	56,967
Forclosed properties	5,625	5,391
Other assets	23,795	29,726
Total assets	3,084,166	3,137,402
LIABILITIES
Deposits	2,135,555	2,296,695
FHLB borrowings (including repurchase agreements of $206,696 and $211,694 at December 31, 2011 and September 30, 2011, respectively)	417,043	323,522
Borrowings senior unsecured note (FDIC insured)	51,500	51,499
Mortgage escrow funds	18,597	9,701
Other liabilities	23,789	24,851
Total liabilities	2,646,484	2,706,268
Commitments and contingent liabilities
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; 37,883,008 and 37,864,008 shares outstanding at December 31, 2011 and September 30, 2011, respectively)	459	459
Additional paid-in capital	357,359	357,063
Unallocated common stock held by employee stock ownership plan ("ESOP")	(6,013)	(6,138)
Treasury stock, at cost (8,046,544 and 8,065,544 shares at December 31, 2011 and September 30, 2011, respectively)	(90,452)	(90,585)
Retained earnings	168,637	165,199
Accumulated other comprehensive income, net of taxes	7,692	5,136
Total stockholders' equity	437,682	431,134
Total liabilities and stockholders' equity	$ 3,084,166	$ 3,137,402

XML

Consolidated Statement Of Changes In Stockholders' Equity (Parenthetical) (USD $)	3 Months Ended
	Dec. 31, 2011
Consolidated Statement Of Changes In Stockholders' Equity [Abstract]
ESOP shares allocated or committed to be released for allocation, shares	12,483
Cash dividends paid, per common share	$ 0.06

XML

Contingencies

3 Months Ended

Dec. 31, 2011

Contingencies [Abstract]

Contingencies

13. Contingencies

Certain premises and equipment are leased under operating leases with terms expiring through 2033. The Company has the option to renew certain of these leases for additional terms.

The Company is a defendant in certain claims and legal actions arising in the ordinary course of business. Management, after consultation with legal counsel, does not anticipate losses on any of these claims or actions that would have a material adverse effect on the consolidated financial statements.

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 5,717	$ 6,720
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	1,950	2,100
Loss on real estate owned	56
Depreciation of premises and equipment	1,255	1,413
Amortization of intangibles	323	412
Net gains on loans held for sale	(440)	(542)
Other than temporary impairment loss (credit loss)	38
Net gains on sale of securities	(1,989)	(4,202)
Fair value (gain) loss on interest rate cap	3	(234)
Net amortization of premium on securities	677	4,024
Accretion (amortization) of premiums on borrowings	1	(11)
Amortization of prepaid penalties on borrowings	360	1
ESOP and RRP expense	143	144
ESOP forfeitures	(1)	(3)
Stock option compensation expense	133	138
Originations of loans held for sale	(15,204)	(30,028)
Proceeds from sales of loans held for sale	17,678	33,409
Increase in cash surrender value of bank owned life insurance	(518)	(495)
Deferred income tax benefit	(6,824)	(6,069)
Net changes in accrued interest receivable and payable	786	247
Other adjustments (principally net changes in other assets and other liabilities)	10,202	9,689
Net cash provided by operating activities	14,346	16,713
Cash flows from investing activities
Purchases of available for sale securities	(151,185)	(301,065)
Purchases of held to maturity securities	(76,832)	(3,986)
Proceeds from maturities, calls and other principal payments on securities:
Available for sale	27,083	81,275
Held to maturity	4,710	7,407
Proceeds from sales of securities available for sale and held to maturity	83,579	224,797
Loan originations	(216,422)	(151,989)
Loan principal payments	141,718	151,895
Proceeds from sales of other real estate owned	695
Purchase of FHLB stock, net	(4,205)	(3,703)
Purchases of premises and equipment	(229)	(1,310)
Net cash (used in) provided by investing activities	(191,088)	3,321
Cash flows from financing activities
Net decrease in transaction, savings and money market deposits	(168,515)	(192,620)
Net increase in time deposits	7,375	29,986
Net increase in short-term borrowings	93,499	85,360
Gross repayments of long-term borrowings	(60)	(3,063)
Payment of penalties on restrucrured borrowings	(278)	(1,751)
Net increase in mortgage escrow funds	8,896	8,892
Treasury shares purchased		(757)
Stock option transactions	154	3
Other stock-based compensation transactions	125	22
Cash dividends paid	(2,279)	(2,134)
Net cash used in financing activities	(61,083)	(76,062)
Net decrease in cash and cash equivalents	(237,825)	(56,028)
Cash and cash equivalents at beginning of period	281,512	90,872
Cash and cash equivalents at end of period	43,687	34,844
Supplemental information:
Interest payments	4,618	5,861
Income tax payments	36	36
Net change in net unrealized gains recorded on securities available for sale	3,735	(26,189)
Change in deferred taxes on net unrealized gains on securities available for sale	(1,517)	10,636
Real estate acquired in settlement of loans	$ 988	$ 226

XML

Consolidated Statements Of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2011	Sep. 30, 2011
Consolidated Statements Of Financial Condition [Abstract]
Securities pledged as collateral for borrowings and deposits	$ 634,856	$ 644,910
Securities held-to-maturity at fair value	184,119	111,272
FHLB borrowings, repurchase agreements	$ 206,696	$ 211,694
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	45,929,552	45,929,552
Common stock, shares outstanding	37,883,008	37,864,008
Treasury stock, shares	8,046,544	8,065,544

XML

Borrowings

3 Months Ended

Dec. 31, 2011

Borrowings [Abstract]

Borrowings

8. Borrowings

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

	December 31, 2011					September 30, 2011
	Amount		Rate			Amount		Rate
By type of borrowing:
FHLB advances	$	210,347		2.13	%	$	111,828		3.83	%
FHLB Repurchase agreements		206,696		3.66			211,694		3.61
Senior Debt (FDIC insured)		51,500		2.75			51,499		2.75
Total borrowings	$	468,543		2.87	%	$	375,021		3.56	%
By remaining period to maturity:
Less than one year	$	155,000		1.12	%	$	61,500		2.96	%
One to two years		35,955		2.65			5,066		4.04
Two to three years		9,486		3.01			35,795		2.37
Three to four years		42,439		2.63			49,312		2.28
Four to five years		2,574		1.38			211		5.32
Greater than five years		223,089		4.18			223,137		4.18
Total borrowings	$	468,543		2.87	%	$	375,021		3.56	%

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 December 31, 2011 and September 30, 2011, the Bank had pledged mortgages totaling $527,936 and $464,900 respectively. The Bank had also pledged securities with carrying amounts of $262,370 and $206,829 as of December 31, 2011 and September 30, 2011, respectively, to secure borrowings. As of December 31, 2011, the Bank may increase its borrowing capacity by pledging securities and mortgages not required to be pledged for other purposes with a market value of $373,263. FHLB advances are subject to prepayment penalties, if repaid prior to maturity.

FHLB borrowings (includes advance and repurchase agreements) of $200,000 at June 30, 2011 and December 31, 2011, respectively are putable quarterly, at the discretion of the FHLB. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 5.31 years and 5.56 years and weighted average interest rates of 4.23 percent and 4.23 percent at December 31, 2011 and September 30, 2011, respectively. An additional $20,000 is putable on a one time basis after an initial lockout period beginning in February 2013 with an interest rate of 3.57 percent.

During the three months ending December 31, 2011, the Company restructured $5,000 of its FHLBNY advances which had a weighted average rate of 4.04 percent and a duration of 1.5 years, into new borrowings with a weighted average rate of 3.82 percent net of prepayment penalties , duration of 1.6 years. Prepayment penalties of $278 associated with the modifications are being amortized to maturity on a level yield basis.

XML

Document And Entity Information	3 Months Ended
	Dec. 31, 2011	Feb. 01, 2012
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Entity Registrant Name	PROVIDENT NEW YORK BANCORP
Entity Central Index Key	0001070154
Current Fiscal Year End Date	--09-30
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		37,890,008

XML

Derivatives

3 Months Ended

Dec. 31, 2011

Derivatives [Abstract]

Derivatives

9. Derivatives

The Company purchased two interest rate caps in the first quarter of fiscal 2010 to assist in offsetting a portion of interest rate exposure should short term rate increases lead to rapid increases in general levels of market interest rates on deposits. These caps are linked to LIBOR and have strike prices of 3.5 percent and 4.0 percent. These caps are stand alone derivatives and therefore changes in fair value are reported in current period earnings; the amount for December 31, 2011 and 2010 is a fair value loss of $3 and a fair value gain of $234, respectively. The fair value of the interest rate caps at December 31, 2011 is reflected in other assets with a corresponding credit (charge) to income recorded as a gain (loss) to non-interest income.

The Company acts as an interest rate swap counterparty with certain commercial customers and manages this risk by entering into corresponding and offsetting interest rate risk agreements with third parties. The swaps are considered a derivative instrument and must be carried at fair value. As the swaps are not a designated qualifying hedge, the change in fair value is recognized in current earnings, with no offset from any other instrument. There was no net gain or loss recorded in earnings during the three months ended December 31, 2011 and 2010. Interest rate swaps are recorded on our consolidated statements of financial condition as an other asset or other liability at estimated fair value.

At December 31, 2011 summary information regarding these derivatives is presented below:

	December 31, 2011
	Notional Amount			Average Maturity		Weighted Average Rate Fixed			Weighted Average Variable Rate			Fair Value
Interest Rate Caps	$	50,000			2.93		3.75	%		NA	%	$	62
3rd party interest rate swap		23,920			7.44		4.63			1 m Libor + 2.32	%		1,411
Customer interest rate swap		(23,920	)		7.44		4.63			1 m Libor + 2.32	%		(1,411	)

At September 30, 2011, summary information regarding these derivatives is presented below:

	September 30, 2011
	Notional Amount			Average Maturity		Weighted Average Rate Fixed			Weighted Average Variable Rate			Fair Value
Interest Rate Caps	$	50,000			3.18		3.75	%		NA	%	$	65
3rd party interest rate swap		12,009			10.23		5.28			1 m Libor + 2.15	%		1,114
Customer interest rate swap		(12,009	)		10.23		5.28			1 m Libor + 2.15	%		(1,114	)

The Company enters into various commitments to sell real estate loans into the secondary market. Such commitments are considered to be derivative financial instruments and, therefore are carried at estimated fair value on the consolidated balance sheets. The fair values of these commitments are not considered material.

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Consolidated Statements Of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 31, 2011	Dec. 31, 2010
Interest and dividend income:
Loans	$ 22,149	$ 23,205
Taxable securities	3,990	3,530
Non-taxable securities	1,774	1,925
Other earning assets	255	400
Total interest and dividend income	28,168	29,060
Interest expense:
Deposits	1,313	1,642
Borrowings	3,617	4,234
Total interest expense	4,930	5,876
Net interest income	23,238	23,184
Provision for loan losses	1,950	2,100
Net interest income after provision for loan losses	21,288	21,084
Non-interest income:
Deposit fees and service charges	2,790	2,767
Net gain on sale of securities	1,989	4,202
Other than temporary impairment on securities	(38)
Title insurance fees	260	363
Bank owned life insurance	518	494
Gain on sale of loans	440	542
Investment management fees	765	743
Fair value gain (loss) on interest rate cap	(3)	234
Other	455	538
Total non-interest income	7,176	9,883
Non-interest expense:
Compensation and employee benefits	10,925	11,228
Stock-based compensation plans	275	279
Merger related expense	247
Occupancy and office operations	3,701	3,635
Advertising and promotion	613	953
Professional fees	927	1,062
Data and check processing	672	642
Amortization of intangible assets	323	412
Forclosed property expense	205	(84)
FDIC insurance and regulatory assessments	728	768
ATM/debit card expense	411	393
Other	1,694	1,981
Total non-interest expense	20,721	21,269
Income before income tax expense	7,743	9,698
Income tax expense	2,026	2,978
Net Income	$ 5,717	$ 6,720
Weighted average common shares:
Basic	37,252,464	37,552,245
Diluted	37,252,464	37,552,245
Per common share (note 10)
Basic	$ 0.15	$ 0.18
Diluted	$ 0.15	$ 0.18

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Recent Accounting Standards, Not Yet Adopted

3 Months Ended

Dec. 31, 2011

Recent Accounting Standards, Not Yet Adopted [Abstract]

Recent Accounting Standards, Not Yet Adopted

3. Recent Accounting Standards, Not Yet Adopted

Accounting Standards Update (ASU) 2011-03, Transfers and Servicing (Topic 860)—Reconsideration of Effective Control for Repurchase Agreements has been issued, which is to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company's consolidated financial statements.

Accounting Standards Update (ASU) 2011-04, Fair Value Measurement (Topic 820)-Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS has been issued, which will conform the meaning and disclosure requirements of fair value measurement between U.S. GAAP and IFRS. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company's consolidated financial statements.

Accounting Standards Update (ASU) 2011-05- Presentation of Comprehensive Income (Topic 220) has been issued. This standard was issued to conform U.S. GAAP and IFRS as well as to increase the prominence of items reported in other comprehensive income. This standard is effective for the Company on January 1, 2012 and is not expected to have a material effect on the Company's consolidated financial statements.

Accounting standards update (ASU) 2011-11, Balance Sheet (Topic 210)—Disclosures about offsetting Assets and Liabilities has been issued to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. This standard is effective for the Company on January 1, 2013 and is not expected to have a material effect on the Company's consolidated financial statements.

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Stock-Based Compensation

3 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

2. Stock-Based Compensation

The Company has two share based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $192, and $39, for the three months ending December 31, 2011 and 2010. There was no income tax benefit for the three months ending December 31, 2011 and 2010.

Stock Option Plan

The Company's 2004 Employee Share Option Plan (stock option plan), which is shareholder-approved, permits the grant of share options to its employees for up to 159,107 shares of common stock as of December 31, 2011. Option awards are generally granted with an exercise price equal to the market price of the Company's common stock at the date of grant; those option awards have vesting periods ranging from 2 to 5 years and have 10 year contractual terms. The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected share option exercises.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted was determined using the following weighted-average assumptions as of grant date:

	Three months ended December 31,
	2011			2010
Risk-free interest rate (1)		1.7	%		—
Expected stock price volatility		39.1	%		—
Dividend yield (2)		3.2	%		—
Expected term in years		5.9			—

The following table summarizes the Company's stock option activity for the three months ended December 31, 2011:

	Number of Shares			Weighted Average Exercise Price
Outstanding at October 1, 2011		1,906,020		$	12.20
Granted		150,000			7.28
Exercised		—			—
Forfeited		(101,500	)		12.47
Outstanding at December 31, 2011		1,954,520		$	11.81
Exercisable at December 31, 2011		1,516,844		$	12.61
Weighted average estimated fair value of options granted during the period				$	2.09

Information related to the stock option plan during the period:

		0000000		0000000
	Three months ended December 31,
	2011		2010
Intrinsic value of options exercised	$	—	$	—
Cash received from option exercises		—		—
Tax benefit realized from option exercises		—		—
Weighted average fair value of options granted		2.09		—

As of December 31, 2011, there was $665 of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.5 years.

There were no modifications for the three months ending December 31, 2011 and 2010.

Share Award Plan

A Recognition and Retention Plan ("RRP") provides for the issuance of shares to directors and officers. Compensation expense is recognized on a straight line basis over the vesting period of the awards based on the fair value of the stock at issue date. RRP shares vest annually on the anniversary of the grant date over the vesting period. Total shares issuable under the plan are 8,120 shares of authorized but un-issued shares remain available for future grant at December 31, 2011. Inducement shares of 41,370 were issued in July of 2011.

A summary of restricted stock award activity under the plan for the three months ended December 31, 2011, is presented below:

	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested shares at September 30, 2011		57,520	$	8.77
Granted		19,000		6.96
Vested		—		—
Forfeited		—		—
Nonvested shares at December 31, 2011		76,520	$	8.77

As of December 31, 2011, there was $551 of total unrecognized compensation cost related to non-vested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.81 years.

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Subsequent Events

3 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

14. Subsequent Events

The Company announced January 18, 2012 that Provident Bank its subsidiary has entered into a definitive agreement to acquire Gotham Bank of New York in a cash transaction valued at approximately $40.5 million. The closing considerations will be 125% of adjusted tangible net worth as calculated under the merger agreement, resulting in an estimated 3.3% core deposit premium. Completion of the transaction is subject to regulatory and Gotham Bank shareholder approvals as well as other customary closing conditions.

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Earnings Per Common Share

3 Months Ended

Dec. 31, 2011

Earnings Per Common Share [Abstract]

Earnings Per Common Share

10. Earnings Per Common Share

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

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

Basic earnings per common share are computed as follows:

	For the Three Months Ended December 31,
	2011		2010
Weighted average common shares outstanding (basic), in '000s		37,252		37,552
Net Income	$	5,717	$	6,720
Basic earnings per common share	$	0.15	$	0.18

Diluted earnings per common share are computed as follows:

	For the Three Months Ended December 31,
	2011		2010
Weighted average common shares outstanding (basic), in '000s		37,252		37,552
Effect of common stock equivalents		—		—
		37,252		37,552
Net Income	$	5,717	$	6,720
Diluted earnings per common share	$	0.15	$	0.18

Anti-dilutive shares excluded in the determination of earnings per share were 1,935,830 and 1,916,707 at December 31, 2011 and 2010, respectively. Anti-dilutive shares are not included in the determination of diluted earnings per share.

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Securities

3 Months Ended

Dec. 31, 2011

Securities [Abstract]

Securities

6. Securities

The following is a summary of securities available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2011
Mortgage-backed securities-residential
Fannie Mae	$	193,557	$	4,052	$	—		$	197,609
Freddie Mac		110,049		2,333		(3	)		112,379
Ginnie Mae		4,934		200		—			5,134
CMO/Other MBS		118,420		1,709		(639	)		119,490
		426,960		8,294		(642	)		434,612
Investment securities
Federal agencies		148,870		3,977		—			152,847
Corporate bonds		16,922		401		(161	)		17,162
State and municipal securities		164,875		14,830		—			179,705
Equities		1,192		—		(56	)		1,136
		331,859		19,208		(217	)		350,850
Total available for sale	$	758,819	$	27,502	$	(859	)	$	785,462
September 30, 2011
Mortgage-backed securities-residential
Fannie Mae	$	136,699	$	3,292	$	—		$	139,991
Freddie Mac		98,511		2,205		(41	)		100,675
Ginnie Mae		4,973		207		—			5,180
CMO/Other MBS		81,170		1,764		(522	)		82,412
		321,353		7,468		(563	)		328,258
Investment securities
Federal agencies		199,741		4,986		(79	)		204,648
Corporate bonds		16,984		257		(179	)		17,062
State and municipal securities		177,666		11,018		—			188,684
Equities		1,192		—		—			1,192
		395,583		16,261		(258	)		411,586
Total available for sale	$	716,936	$	23,729	$	(821	)	$	739,844

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

	December 31, 2011
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	3,025	$	3,052
One to five years		131,660		136,440
Five to ten years		152,622		162,946
Greater than ten years		43,360		47,276
Total investment securities		330,667		349,714
Mortgage backed securities-residential		426,960		434,612
Equity securities		1,192		1,136
Total available for sale securities	$	758,819	$	785,462

Proceeds from sales of securities available for sale totaled $83,579 and $224,797 during the three months ending December 31, 2011 and 2010, respectively. These sales resulted in gross realized gains of $1,989 and $4,202 for the three months ending December 31, 2011 and 2010, respectively. There were no gross realized losses for the three months ending December 31, 2011 and 2010.

Securities, including some held to maturity securities, with carrying amounts of $262,370 and $206,829 were pledged as collateral for borrowings at December 31, 2011 and September 30, 2011, respectively. Securities with carrying amounts of $372,486 and $438,081 were pledged as collateral for municipal deposits and other purposes at December 31, 2011 and September 30, 2011, respectively.

Securities Available for Sale with Unrealized Losses. The following table summarizes those securities available for sale with unrealized losses, segregated by the length of time in a continuous unrealized loss position:

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Freddie Mac	$	5,130	$	(3	)	$	—	$	—		$	5,130	$	(3	)
CMO/Other MBS		12,726		(382	)		1,724		(257	)		14,450		(639	)
Total mortgage backed securities - residential		17,856		(385	)		1,724		(257	)		19,580		(642	)
Corporate bonds		2,029		(161	)		—		—			2,029		(161	)
Equity		886		(56	)		—		—			886		(56	)
Total	$	20,771	$	(602	)	$	1,724	$	(257	)	$	22,495	$	(859	)

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of September 30, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Freddie Mac	$	10,262	$	(41	)	$	—	$	—		$	10,262	$	(41	)
CMO/Other MBS		3,037		(257	)		1,813		(265	)		4,850		(522	)
Total mortgage backed securities—residential		13,299		(298	)		1,813		(265	)		15,112		(563	)
U.S. Government and agency securities		9,914		(79	)		—		—			9,914		(79	)
Corporate bonds		1,886		(179	)		—		—			1,886		(179	)
Total	$	25,099	$	(556	)	$	1,813	$	(265	)	$	26,912	$	(821	)

The Company, as of June 30, 2009 adopted the provisions under FASB ASC Topic 320 – Investments- Debt and Equity Securities which requires a forecast of recovery of cost basis through cash flow collection on all debt securities with a fair value less than its amortized cost less any current period credit loss with an assertion on the lack of intent to sell (or requirement to sell prior to recovery of cost basis). Based on a review of each of the securities in the investment portfolio in accordance with FASB ASC 320 at December 31, 2011, the Company concluded that it expects to recover the amortized cost basis of its investments on all but two private label collateralized mortgage-backed securities ("CMO's") which incurred impairment charges of $38 for the three months ended December 31, 2011. Total cumulative impairment charges on the two private label CMO's total $113. As of December 31, 2011, the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period applicable credit losses.

The losses related to privately issued residential CMO's were recognized in light of deterioration of housing values in the residential real estate market and a rise in delinquencies and charge-offs of underlying mortgage loans collateralizing those securities. The Company uses a discounted cash flow ("DCF") analysis to provide an estimate of an OTTI loss. Inputs to the discount model included known defaults and interest deferrals, projected additional default rates, projected additional deferrals of interest, over collateralization tests, interest coverage tests and other factors. Expected default and deferral rates were weighted toward the near future to reflect the current adverse economic environment affecting the banking industry. The discount rate was based upon the yield expected from the related securities.

Substantially all of the unrealized losses at September 30, 2011 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. A total of 18 available for sale securities were in a continuous unrealized loss position for less than 12 months and 4 securities for 12 months or longer. For securities with fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.

Within the CMO category of the available for sale portfolio there are four individual private label CMO's that have an amortized cost of $5,189 and a fair value (carrying value) of $4,675 as of December 31, 2011. Two of the four securities are considered to be other than temporarily impaired as noted above and are below investment grade. The impaired private label CMO's have an amortized cost of $4,726 and a fair value of $4,228 at December 31, 2011. The remaining two securities are rated at or above Ba1 and are performing as of December 31, 2011 and are expected to perform based on current information.

In determining whether there existed other than temporary impairment on these securities the Company evaluated the present value of cash flows expected to be collected based on collateral specific assumptions, including credit risk and liquidity risk, and determined that no losses are expected. The Company will continue to evaluate its portfolio in this manner on a quarterly basis.

Securities Held to Maturity

The following is a summary of securities held to maturity:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Decemer 31, 2011
Mortgage-backed securities-residential
Fannie Mae	$	32,051	$	242	$	—		$	32,293
Freddie Mac		57,501		323		(10	)		57,814
CMO/Other MBS		30,333		260		(20	)		30,573
		119,885		825		(30	)		120,680
Investment securities
Federal agencies		40,739		87		(42	)		40,784
State and municipal securities		19,952		1,168		—			21,120
Other		1,500		35		—			1,535
		62,191		1,290		(42	)		63,439
Total held to maturity	$	182,076	$	2,115	$	(72	)	$	184,119
September 30, 2011
Mortgage-backed securities-residential
Fannie Mae	$	1,298	$	63	$	—		$	1,361
Freddie Mac		32,858		103		(120	)		32,841
CMO/Other MBS		25,828		155		—			25,983
		59,984		321		(120	)		60,185
Investment securities
Federal agencies		29,973		25		(141	)		29,857
State and municipal securities		18,583		1,108		—			19,691
Other		1,500		39		—			1,539
		50,056		1,172		(141	)		51,087
Total held to maturity	$	110,040	$	1,493	$	(261	)	$	111,272

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

	December 31, 2011
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	10,327	$	10,424
One to five years		4,291		4,519
Five to ten years		44,086		44,590
Greater than ten years		3,487		3,906
Total investment securities		62,191		63,439
Mortgage backed securities-residential		119,885		120,680
Total held to maturity securities	$	182,076	$	184,119

The following table summarizes those securities held to maturity with unrealized losses, segregated by the length of time in a continuous unrealized loss position:

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer				Total
As of December 31, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Freddie Mac MBS-residential	$	15,123	$	(10	)	$	—	$	—	$	15,123	$	(10	)
CMO other MBS		4,992		(20	)						4,992		(20	)
Total mortgage back securities		20,115		(30	)						20,115		(30	)
US Gov't Agencies		14,958		(42	)						14,958		(42	)
Total	$	35,073	$	(72	)	$	—	$	—	$	35,073	$	(72	)

	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer				Total
As of September 30, 2011	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Freddie Mac MBS-residential	$	25,770	$	(120	)	$	—	$	—	$	25,770	$	(120	)
Federal Agencies		24,831		(141	)		—		—		24,831		(141	)
Total	$	50,601	$	(261	)	$	—	$	—	$	50,601	$	(261	)

All of the unrealized losses on held to maturity securities at December 31, 2011 are attributable to changes in market interest rates and credit risk spreads subsequent to purchase. There were no securities with unrealized losses that individually had significant dollar amounts at December 31, 2011. There were no held-to-maturity securities in a continuous unrealized loss position for more than 12 months and 6 securities in a continuous unrealized loss for less than 12 months. For securities with fixed maturities, the Company currently believes it is probable that it will collect all amounts due according to the contractual terms of the investment. As of December 31, 2011, the Company does not intend to sell nor is it more than likely than not that it would be required to sell any of its securities with unrealized losses prior to recovery of its amortized cost basis less any current-period applicable credit losses.

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Loans

3 Months Ended

Dec. 31, 2011

Loans [Abstract]

Loans

4. Loans

The components of the loan portfolio, excluding loans held for sale, were as follows:

	December 31, 2011			September 30, 2011
One- to four-family residential mortgage loans	$	385,552		$	389,765
Commercial real estate loans		809,078			703,356
Commercial business loans		199,362			209,923
Acquisition, development & construction loans		161,990			175,931
Total Commercial loans		1,170,430			1,089,210
Consumer loans:
Home equity lines of credit		172,235			174,521
Homeowner loans		38,667			40,969
Other consumer loans, including overdrafts		9,009			9,334
		219,911			224,824
Total loans		1,775,893			1,703,799
Allowance for loan losses		(28,245	)		(27,917	)
Total loans, net	$	1,747,648		$	1,675,882

Total loans include net deferred loan origination costs of $0 and $308 at December 31, 2011 and September 30, 2011, respectively.

Loans where management has the intent and ability to hold for the foreseeable future or until maturity or payoff (other than loans held for sale) are reported at amortized cost less the allowance for loan losses. Interest income on loans is accrued on the level yield method.

A loan is placed on non-accrual status when management has determined that the borrower may likely be unable to meet contractual principal or interest obligations, or when payments are 90 days or more past due, unless well secured and in the process of collection. Accrual of interest ceases and, in general, uncollected past due interest is reversed and charged against current interest income, while interest recorded in the prior year 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.

The Company defers nonrefundable loan origination and commitment fees, and certain direct loan origination costs, and amortizes the net amount as an adjustment of the yield over the estimated life of the loan. If a loan is prepaid or sold, the net deferred amount is recognized in the statement of income at that time. Interest and fees on loans include prepayment fees and late charges collected.

The allowance for loan losses is established through provisions for losses charged to earnings. Losses on loans (including impaired loans) are charged to the allowance for loan losses when management believes that the collection of principal is unlikely. Recoveries of loans previously charged-off are credited to the allowance when realized.

A substantial portion of the Company's loan portfolio is secured by residential and commercial real estate located in Rockland and Orange Counties of New York and contiguous areas such as Ulster, Sullivan, Putnam and Westchester Counties of New York and Bergen County, New Jersey. The ability of the Company's borrowers to make principal and interest payments is dependent upon, among other things, the level of overall economic activity and the real estate market conditions prevailing within the Company's concentrated lending area. Commercial real estate and acquisition, development and construction loans are considered by management to be of somewhat greater credit risk than loans to fund the purchase of a primary residence due to the generally larger loan amounts and dependency on income production or sale of the real estate. Substantially all of these loans are collateralized by real estate located in the Company's primary market area.

The allowance for loan losses is established through provisions for losses charged to earnings. Losses on loans (including impaired loans) are charged to the allowance for loan losses 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 an amount that management believes is necessary to absorb probable incurred losses on existing loans that may become uncollectible. Management's evaluations, which are subject to periodic review by the Company's primary regulator, take into consideration factors such 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. Future adjustments to the allowance for loan losses may be necessary, based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, results of regulatory examinations, the identification of additional problem loans, and other factors. The process of assessing the adequacy of the allowance for loan loss is subjective, particularly in times of economic downturns. It is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management's current estimates. As such there can be no assurance that future charge-offs will not exceed management's current estimate of what constitutes a reasonable allowance for loan losses.

The Company considers a loan to be impaired when, based on current information and events, it is probable that the borrower will be unable to comply with contractual principal and interest payments due. Certain loans are individually evaluated for collectability in accordance with the Company's ongoing loan review procedures (principally commercial real estate, commercial business and construction loans). Smaller-balance homogeneous loans are collectively evaluated for impairment, such as residential mortgage loans and consumer loans. Impaired loans are based on one of three measures — the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. If the measure of an impaired loan is less than its recorded investment, a portion of the allowance for loan losses is allocated so that the loan is reported, net, at its measured value.

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for December 31, 2011 are summarized below:

	For the three months ended December 31, 2011
	Beginning Allowance for loan losses		Charge-offs			Recoveries		Net Charge-offs			Provision for losses			Ending Allowance for Loan Losses
Loans by segment:
Real estate—residential mortgage	$	3,498	$	(789	)	$	119	$	(670	)	$	1,339		$	4,167
Real estate—commercial mortgage		4,533		(472	)		—		(472	)		711			4,772
Real estate—commercial mortgage (CBL)		1,035		(474	)		350		(124	)		(161	)		750
Commercial business loans		1,331		—			53		53			(175	)		1,209
Commercial business loans (CBL)		4,614		(208	)		493		285			(487	)		4,412
Acquisition Development & Construction		9,895		(275	)		—		(275	)		(217	)		9,403
Consumer, including home equity		3,011		(462	)		43		(419	)		940			3,532
Total Loans	$	27,917	$	(2,680	)	$	1,058	$	(1,622	)	$	1,950		$	28,245
Net charge-offs to average gross loans annualized															0.37	%

The following table sets forth the loans evaluated for impairment by segment at December 31, 2011:

	December 31, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total ending loans balance
Loans by segment:
Real estate—residential mortgage	$	9,363	$	376,189	$	385,552
Real estate—commercial mortgage		10,912		705,235		716,147
Real estate—commercial mortgage (CBL)		3,953		88,978		92,931
Commercial business loans		597		125,758		126,355
Commercial business loans (CBL)		129		72,878		73,007
Acquisition Development & Construction		28,792		133,198		161,990
Consumer, including home equity		2,590		217,321		219,911
Total Loans	$	56,336	$	1,719,557	$	1,775,893

The following table sets forth the allowance evaluated for impairment by segment at December 31, 2011:

	December 31, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance balance
Ending allowance by segment:
Real estate—residential mortgage	$	922	$	3,245	$	4,167
Real estate—commercial mortgage		378		4,394		4,772
Real estate—commercial mortgage (CBL)		236		514		750
Commercial business loans		67		1,142		1,209
Commercial business loans (CBL)		51		4,361		4,412
Acquisition Development & Construction		1,864		7,539		9,403
Consumer, including home equity		394		3,138		3,532
Total allowance	$	3,912	$	24,333	$	28,245

Activity in the allowance for loan losses and the recorded investments in loans by portfolio segment based on impairment method for December 31, 2010 are summarized below:

	For the three months ended December 31, 2010
	Beginning Allowance for loan losses		Charge-offs			Recoveries		Net Charge-offs			Provision for losses			Ending Allowance for Loan Losses
Loans by segment:
Real estate—residential mortgage	$	2,641	$	(153	)	$	1	$	(152	)	$	325		$	2,814
Real estate—commercial mortgage		5,915		(217	)				(217	)		586			6,284
Commercial business loans		8,970		(1,359	)		290		(1,069	)		1,315			9,216
Acquisition Development & Construction		9,752		—			8		8			(779	)		8,981
Consumer, including home equity		3,565		(507	)		30		(477	)		653			3,741
Total Loans	$	30,843	$	(2,236	)	$	329	$	(1,907	)	$	2,100		$	31,036
Net charge-offs to average gross loans outstanding annualized															0.45	%

The following table sets forth the loans evaluated for impairment by segment at September 30, 2011:

	September 30, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total ending loans balance
Loans by segment:
Real estate—residential mortgage	$	8,573	$	381,192	$	389,765
Real estate—commercial mortgage		10,653		599,726		610,379
Real estate—commercial mortgage (CBL)		4,477		88,500		92,977
Commercial business loans		531		133,868		134,399
Commercial business loans (CBL)		—		75,524		75,524
Acquisition Development & Construction		28,223		147,708		175,931
Consumer, including home equity		2,504		222,320		224,824
Total Loans	$	54,961	$	1,648,838	$	1,703,799

The following table sets forth the allowance evaluated for impairment by segment at September 30,, 2011:

	September 30, 2011
	Individually evaluated for impairment		Collectively evaluated for impairment		Total allowance balance
Ending allowance by segment:
Real estate—residential mortgage	$	1,069	$	2,429	$	3,498
Real estate—commercial mortgage		474		4,059		4,533
Real estate—commercial mortgage (CBL)		594		441		1,035
Commercial business loans		—		1,331		1,331
Commercial business loans (CBL)		—		4,614		4,614
Acquisition Development & Construction		1,409		8,486		9,895
Consumer, including home equity		260		2,751		3,011
Total allowance	$	3,806	$	24,111	$	27,917

A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans substantially consist of non-performing loans and accruing and performing troubled debt restructured loans. The recorded investment of an impaired loan includes the unpaid principal balance, negative escrow and any tax in arrears.

The following table presents loans individually evaluated for impairment by segment of loans as of December 31, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		YTD Average Impaired Loans		Interest Income Recognized		Cash-basis Interest Income Recognized
With no related allowance recorded:
Real estate—residential mortgage	$	3,184	$	3,394	$	—	$	2,729	$	30	$	12
Real estate—commercial mortgage		7,185		7,322		—		6,956		84		56
Real estate—commercial mortgage (CBL)		2,328		2,400		—		2,288		23		13
Acquisition, development and construction		19,794		19,888		—		22,660		201		108
Commercial business loans		503		503		—		615		4		4
Commercial business loans (CBL)		58		58		—		58		1		—
Consumer loans, including home equity		1,696		1,710		—		1,697		15		4
Subtotal		34,748		35,275		—		37,003		358		197
With an allowance recorded:
Real estate—residential mortgage		5,852		5,969		922		5,595		32		31
Real estate—commercial mortgage		3,551		3,590		378		3,621		19		10
Real estate—commercial mortgage (CBL)		1,430		1,553		236		1,430		—		—
Acquisition, development and construction		8,567		8,904		1,864		11,750		85		81
Commercial business loans		95		94		67		47		2		2
Commercial business loans (CBL)		71		71		51		71		1		—
Consumer loans, including home equity		872		880		394		842		9		6
Subtotal		20,438		21,061		3,912		23,356		148		130
Total	$	55,186	$	56,336	$	3,912	$	60,359	$	506	$	327

The following table presents loans individually evaluated for impairment by segment of loans as of September 30, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		YTD Average Impaired Loans		Interest Income Recognized		Cash-basis Interest Income Recognized
With no related allowance recorded:
Real estate—residential mortgage	$	2,437	$	2,577	$	—	$	2,702	$	92	$	51
Real estate—commercial mortgage		6,753		6,823		—		6,769		332		146
Real estate—commercial mortgage (CBL)		2,012		2,050		—		2,148		165		102
Acquisition, development and construction		20,914		21,316		—		26,111		1,892		1,454
Commercial business loans		531		531		—		862		42		42
Commercial business loans (CBL)		—		—		—		—		—		—
Consumer loans, including home equity		1,879		1,885		—		1,860		61		13
Subtotal		34,526		35,182		—		40,452		2,584		1,808
With an allowance recorded:
Real estate—residential mortgage		5,836		5,996		1,069		6,319		159		159
Real estate—commercial mortgage		3,741		3,830		474		3,843		108		108
Real estate—commercial mortgage (CBL)		2,283		2,427		594		2,662		91		36
Acquisition, development and construction		6,900		6,907		1,409		6,963		114		96
Commercial business loans		—		—		—		—		—		—
Commercial business loans (CBL)		—		—		—		—		—		—
Consumer loans, including home equity		619		619		260		642		33		22
Subtotal		19,379		19,779		3,806		20,429		505		421
Total	$	53,905	$	54,961	$	3,806	$	60,881	$	3,089	$	2,229

Listed below is the interest income recognized during impairment and cash received for interest during impairment for the three months ended December 31, 2011 and December 31, 2010, respectively.

	December 31, 2011		December 31, 2010
Interest income recognized during impairment	$	506	$	407
Cash-basis interest income recognized		327		235

The following tables set forth the amounts and status of the Company's loans, troubled debt restructurings and other real estate owned at December 31, 2011 and September 30, 2011.

	December 31, 2011
	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual			Total Loans
Non-performing loans:
Real estate—residential mortgage	$	375,502	$	1,794	$	94	$	1,619	$	6,543		$	385,552
Real estate—commercial mortgage		705,078		584		—		1,683		8,802			716,147
Real estate—commercial mortgage (CBL)		89,544		—		—		312		3,075			92,931
Commercial business loans		126,094		—		—		—		261			126,355
Commercial business loans (CBL)		72,936		—		—		71		—			73,007
Acquisition, development and construction loans		132,835		2,946		4,889		446		20,874			161,990
Consumer, including home equity loans		216,687		500		497		1,005		1,222			219,911
Total	$	1,718,676	$	5,824	$	5,480	$	5,136	$	40,777		$	1,775,893
Total troubled debt restructurings included above	$	7,049	$	—	$	1,494	$	446	$	8,868		$	17,857
Non Performing Assets:
Loans 90+ and still accruing									$	5,136
Nonaccrual loans										40,777
Total non performing loans										45,913
Other real estate owned:
Land										2,419
Commercial real estate										2,051
Acquisition, development & construction loans										222
One- to four-family										933
Total other real estate owned										5,625
Total non-performing assets									$	51,538
Ratios:
Non-performing loans to total loans										2.59	%
Non-performing assets to total assets										1.67	%
Allowance for loan losses to total non-performing loans										62	%
Allowance for loan losses to average loans										1.63	%

	September 30, 2011
	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual			Total Loans
Non-performing loans:
Real estate—residential mortgage	$	380,577	$	868	$	344	$	491	$	7,485		$	389,765
Real estate—commercial mortgage		599,619		768		337		1,639		8,016			610,379
Real estate—commercial mortgage (CBL)		89,418		—		—		350		3,209			92,977
Commercial business loans		133,741		490		—		—		168			134,399
Commercial business loans (CBL)		75,449		—		—		—		75			75,524
Acquisition, development and construction loans		154,682		3,859		406		446		16,538			175,931
Consumer, including home equity loans		221,880		494		300		1,164		986			224,824
Total	$	1,655,366	$	6,479	$	1,387	$	4,090	$	36,477		$	1,703,799
Total troubled debt restructurings included above	$	9,060	$	266	$	—	$	446	$	7,792		$	17,564
Non Performing Assets:
Loans 90+ and still accruing									$	4,090
Nonaccrual loans										36,477
Total non performing loans										40,567
Other real estate owned:
Land										1,926
Commercial real estate										2,163
Acquisition, development & construction loans										745
One- to four-family										557
Total other real estate owned										5,391
Total non-performing assets									$	45,958
Ratios:
Non-performing loans to total loans										2.38	%
Non-performing assets to total assets										1.46	%
Allowance for loan losses to total non-performing loans										69	%
Allowance for loan losses to average loans										1.68	%

Troubled Debt Restructurings:

Troubled debt restructurings are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted and the borrower is experiencing financial difficulty. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. This evaluation is performed under the company's internal underwriting policy. The modification of the terms of such loans include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for period ranging from 3 months to 30 years. Modifications involving an extension of the maturity date were for periods ranging from 3 months to 30 years. Restructured loans are recorded in accrual status when the loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant items. Troubled debt restructurings resulted in $101 in charge offs for the three months ending December 31, 2011.

Troubled debt restructurings at December 31, 2011 were as follows:

	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total TDR's
Real estate—residential mortgage	$	1,058	$	—	$	—	$	—	$	857	$	1,915
Real estate—commercial mortgage		587		—		—		—		1,009		1,596
Acquisition, development and construction		5,245		—		1,494		446		7,002		14,187
Consumer loans, including home equity		159		—		—						159
Total	$	7,049	$	—	$	1,494	$	446	$	8,868	$	17,857
Allowance	$	249	$	—	$	—	$	—	$	690	$	939

Troubled debt restructurings at September 30, 2011 were as follows:

	Current Loans		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Non- Accrual		Total TDR's
Real estate—residential mortgage	$	485	$	—	$	—	$	—	$	1,226	$	1,711
Real estate—commercial mortgage		1,439		—		—		—		—		1,439
Acquisition, development and construction		6,975		266		—		446		6,566		14,253
Consumer loans, including home equity		161		—		—				—		161
Total	$	9,060	$	266	$	—	$	446	$	7,792	$	17,564
Allowance	$	7	$	56	$	—	$	—	$	346	$	409

The Company has committed to lend additional amounts totaling up to $4,081, and $4,225 as of December 31, 2011, and September 30, 2011, respectively to customers with outstanding loans that are classified as troubled debt restructurings. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.

The following table presents by class loans modified as troubled debt restructurings that occurred during the three months ending December 31, 2011:

			Recorded Investment
	Number		Pre- Modification		Post- Modification
Restructured Loans:
Real estate—residential mortgage		2	$	328	$	314
Real estate—commercial mortgage		1		159		159
Total restructured loans		3	$	487	$	473

The troubled debt restructurings described above increased the allowance for loan losses by $134. There were $11 in charge offs as a result of the above troubled debt restructurings.

A loan is considered to be in default once it is 90 days contractually past due under the modified terms. The following table presents by class loans that were modified as troubled debt restructurings during the last twelve months that have subsequently defaulted during the current quarter ended December 31, 2011:

	Number of Loans		Recorded Investment
Real estate—commercial mortgage		1	$	850

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans. This analysis is performed on a monthly basis on all criticized/classified loans. The Company uses the following definitions of risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected these potential weaknesses may result in the deterioration of the repayment prospects for the loan or the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Based on the most recent analysis performed as of December 31, 2011 and September 30, 2011, the risk category of loans by segment of gross loans is as follows:

	December 31, 2011
	Special Mention		Substandard		Doubtful
Real estate—residential mortgage	$	2,410	$	9,436	$	—
Real estate—commercial mortgage		7,457		28,908		—
Real estate—commercial mortgage (CBL)		1,104		3,953		—
Acquisition, development and construction		4,531		50,445		—
Commercial business loans		1,571		3,832		—
Commercial business loans (CBL)		853		137		71
Consumer loans, including home equity loans		498		2,601		—
Total	$	18,424	$	99,312	$	71

	September 30, 2011
	Special Mention		Substandard		Doubtful
Real estate—residential mortgage	$	3,701	$	8,525	$	—
Real estate—commercial mortgage		10,175		25,952		—
Real estate—commercial mortgage (CBL)		897		4,044		—
Acquisition, development and construction		5,170		49,294		—
Commercial business loans		1,915		3,501		—
Commercial business loans (CBL)		557		150		—
Consumer loans, including home equity loans		611		2,523		—
Total	$	23,026	$	93,989	$	—

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Fair Value Measurements

3 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

5. Fair value measurements

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.

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

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

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

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

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

Investment securities available for sale

The majority of the Company's available for sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2. U.S. Treasuries are actively traded and therefore have been classified as Level 1 valuations. As of October 1, 2010 the company determined that government sponsored agencies totaling $346,019 previously reported as Level 1 securities were not classified based on the lowest level within the fair value hierarchy and deemed it appropriate to transfer the securities to Level 2.

The Company utilizes an outside vendor to obtain valuations for its traded securities as well as information received from a third party investment advisor. The majority of the Company's available for sale investment securities (mortgage backed securities issued by US government corporations and government sponsored entities) have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable (Level 2). The Company utilizes prices from a leading provider of financial market data and compares them to dealer indicative bids from the Company's external investment advisor. The Company does not make adjustments to these prices unless it is determined there is limited trading activity. For securities where there is limited trading activity (private label CMO's) and less observable valuation inputs, the Company has classified such valuations as Level 3.

The Company reviewed the volume and level of activity for its available for sale securities to identify transactions which may not be orderly or reflective of significant activity and volume. Although estimated prices were generally obtained for such securities, there has been a decline in the volume and level of activity in the market for its private label mortgage backed securities. The market assumptions regarding credit adjusted cash flows and liquidity influences on discount rates were difficult to observe at the individual bond level. Because of the inactivity in the markets and the lack of observable valuation inputs the Company has classified the valuation of privately issued residential mortgage backed securities as Level 3. As of December 31, 2011, these securities have an amortized cost of $5,189 and a fair value of $4,675. In determining the fair value of these securities the Company utilized unobservable inputs which reflect assumptions regarding the inputs that market participants would use in pricing these securities in an orderly market. Present value estimated cash flow models were used discounted at a rate that was reflective of similarly structured securities in an orderly market. The resultant prices were averaged with prices obtained from two independent third parties to arrive at the fair value as of December 31, 2011. These securities have a weighted average coupon rate of 2.86%, a weighted average life of 5.11 years, a weighted average one month prepayment history of 7.75 years and a weighted average twelve month default rate of 4.29 CDR. It was determined that two of these securities with a carrying amount of $4,228 and an amortized cost of $4,726 had other than temporary losses which resulted in a $38 other than temporary impairment charge for the three months ending December 31, 2011. These two securities have a total of $113 in other than temporary charges.

The investment grades of these securities are as follows:

	Amortized Cost		Fair Value
Investment Rating:
Aa1	$	326	$	320
Ba1		137		127
B1		2,882		2,631
B3		1,844		1,597
Total private label CMOs	$	5,189	$	4,675

Derivatives

The fair values of derivatives are based on valuation models using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2). The Company's derivatives consist of two interest rate caps and three interest rate swaps (see note 9).

Commitments to sell real estate loans

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

A summary of assets and liabilities at December 31, 2011 measured at estimated fair value on a recurring basis were as follows:

	Fair Value Measurements at December 31, 2011		Level 1		Level 2		Level 3
Investment securities available for sale:
Mortgage-backed securities-residential
Fannie Mae	$	197,609	$	—	$	197,609	$	—
Freddie Mac		112,379		—		112,379		—
Ginnie Mae		5,134		—		5,134		—
CMO/Other MBS		114,815		—		114,815		—
Privately issued collateralized mortgage obligations		4,675		—		—		4,675
		434,612		—		429,937		4,675
Investment securities
Federal agencies		152,847		—		152,847		—
Corporate debt securities		17,162		—		17,162		—
Obligations of states and political subdivisions		179,705		—		179,705		—
Equities		1,136		—		1,136		—
Total investment securities available for sale		350,850		—		350,850		—
Total available for sale securities		785,462		—		780,787		4,675
Interest rate caps and swaps		1,180		—		1,180		—
Total assets	$	786,642	$	—	$	781,967	$	4,675
Swaps	$	1,114	$	—	$	1,114	$	—
Total Liabilities	$	1,114	$	—	$	1,114	$	—

A summary of assets and liabilities at September 30, 2011 measured at estimated fair value on a recurring basis were as follows:

	Fair Value Measurements at September 30, 2011		Level 1		Level 2		Level 3
Investment securities available for sale:
Mortgage-backed securities-residential
Fannie Mae	$	139,991	$	—	$	139,991	$	—
Freddie Mac		100,675		—		100,675		—
Ginnie Mae		5,180		—		5,180		—
CMO/Other MBS		77,561		—		77,561		—
Privately issued collateralized mortgage obligations		4,851		—		—		4,851
		328,258		—		323,407		4,851
Investment securities
Federal agencies		204,648		—		204,648		—
Corporate debt securities		17,062		—		17,062		—
Obligations of states and political subdivisions		188,684		—		188,684		—
Equities		1,192		—		1,192		—
Total investment securities available for sale		411,586		—		411,586		—
Total available for sale securities		739,844		—		734,993		4,851
Interest rate caps and swaps		1,474		—		1,474		—
Total assets	$	741,318	$	—	$	736,467	$	4,851
Swaps	$	1,411	$	—	$	1,411	$	—
Total Liabilities	$	1,411	$	—	$	1,411	$	—

The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows for the period ending December 31, 2011:

	Fair Value Measurement three months ended December 31, 2010 Using Significant Unobservable Inputs Level 3			Fair Value Measurement three months ended December 31, 2011 Using Significant Unobservable Inputs Level 3
Private label CMOs available for sale
Beginning Balance September 30	$	5,996		$	4,851
Pay downs		(216	)		(148	)
(Amortization) and accretion, net		—			3
Credit loss write down (OTTI)		—			(38	)
Change in fair value		156			7
Ending Balance December 31	$	5,936		$	4,675

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

Loans Held for Sale and Impaired Loans

Loans held for sale are recorded at the lower of cost or fair value.

The Company may record nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of these loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependant loans calculated in accordance with FASB ASC Topic 310 – Receivables, when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is valued using independent appraisals or other indications of value based upon recent comparable sales of similar properties or assumptions generally observable by market participants. Any fair value adjustments for loans categorized here are classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the market place and therefore such valuations have been classified as Level 3. Loans subject to nonrecurring fair value measurements were $52,424 and $51,155 which equals the carrying value less the allowance for loan losses allocated to these loans at December 31, 2011 and September 30, 2011, respectively. Changes in fair value recognized on provisions on loans held by the Company were $1,648 and $864 for the three months ended December 31, 2011 and 2010, respectively.

A summary of impaired loans at December 31, 2011 measured at estimated fair value on a nonrecurring basis were as follows:

	Fair Value Measurements at December 31, 2011		Level 1		Level 2		Level 3
Real estate—residential mortgage	$	6,440	$	—	$	—	$	6,440
Real estate—commercial mortgage		3,614		—		—		3,614
Real estate—commercial mortgage (CBL)		2,220		—		—		2,220
Commercial business loans		28		—		—		28
Commercial business loans (CBL)		20		—		—		20
Acquisition, development and construction		11,038		—		—		11,038
Consumer loans		810		—		—		810
Total impaired loans with specific allowance allocations	$	24,170	$	—	$	—	$	24,170

A summary of impaired loans at September 30, 2011 measured at estimated fair value on a nonrecurring basis were as follows:

	Fair Value Measurements at September 30, 2011		Level 1		Level 2		Level 3
Real estate—residential mortgage	$	6,469	$	—	$	—	$	6,469
Real estate—commercial mortgage		3,741		—		—		3,741
Commercial business loans (CBL)		2,119		—		—		2,119
Acquisition, development and construction		2,126		—		—		2,126
Consumer loans		569		—		—		569
Total impaired loans with specific allowance allocations	$	15,024	$	—	$	—	$	15,024

Mortgage servicing rights

The Company utilizes the amortization method to subsequently measure the carrying value of its servicing asset. In accordance with FASB ASC Topic 860-Transfers and Servicing, the Company must record impairment charges on a nonrecurring basis, when the carrying value exceeds the estimated fair value. To estimate the fair value of servicing rights the Company utilizes a third party vendor, which considers the market prices for similar assets and the present value of expected future cash flows associated with the servicing rights. Assumptions utilized include estimates of the cost of servicing, loan default rates, an appropriate discount rate and prepayment speeds. The determination of fair value of servicing rights is considered a Level 3 valuation. Changes in fair value of mortgage servicing rights recognized for the three months ended December 31, 2011 and 2010 was $(29) and $305, respectively. A valuation allowance of $10 was recorded at December 31, 2011, reflecting fair market value. There was no valuation allowance recorded at September 30, 2011.

Assets taken in foreclosure of defaulted loans

Assets taken in foreclosure of defaulted loans are primarily comprised of commercial and residential real property and upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value is generally determined using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the market place, and the related nonrecurring fair value measurements adjustments have generally been classified as Level 2. Assets taken in foreclosure of defaulted loans subject to nonrecurring fair value measurement were $5,625 and $5,391 at December 31, 2011 and September 30, 2011, respectively. There were $68 and $0 changes in fair value recognized through income for those foreclosed assets held by the Company during the three months ending December 31, 2011 and 2010, respectively.

Fair values of financial instruments

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

Quoted market prices are used to estimate fair values when those prices are available, although active markets do not exist for many types of financial instruments. Fair values for these instruments must be estimated by management using techniques such as discounted cash flow analysis and comparison to similar instruments. These estimates are highly subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates. Since these estimates are made as of a specific point in time, they are susceptible to material near-term changes. Fair values disclosed in accordance with FASB Topic 825 do not reflect any premium or discount that could result from the sale of a large volume of a particular financial instrument, nor do they reflect possible tax ramifications or estimated transaction costs.

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

	December 31, 2011						September 30, 2011
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Financial assets:
Cash and due from banks	$	43,687		$	43,687		$	281,512		$	281,512
Securities available for sale		785,462			785,462			739,844			739,844
Securities held to maturity		182,076			184,119			110,040			111,272
Loans		1,747,648			1,791,629			1,675,882			1,718,372
Loans held for sale		2,142			2,142			4,176			4,176
Accrued interest receivable		9,430			9,430			9,904			9,904
FHLB of New York stock		21,789			21,789			17,584			17,584
Financial liabilities:
Non-maturity deposits		(1,824,521	)		(1,824,521	)		(1,993,036	)		(1,993,036	)
Certificates of Deposit		(311,034	)		(313,071	)		(303,659	)		(305,940	)
FHLB and other borrowings		(468,543	)		(510,950	)		(375,021	)		(417,879	)
Mortgage escrow funds		(18,597	)		(18,597	)		(9,701	)		(9,701	)
Accrued interest payable		(2,128	)		(2,128	)		(1,816	)		(1,816	)

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

(a) Cash and due from banks

The carrying value of cash and due from banks approximates their fair value.

(b) Securities

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

(c) Loans held for sale

Loans held for sale are recorded at the lower of cost or fair value in accordance with GAAP.

(d) Loans

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

(e) FHLB of New York Stock

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

(f) Deposits and Mortgage Escrow Funds

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

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

(g) Borrowings

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

(h) Other Financial Instruments

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

The fair values of the Company's off-balance sheet financial instruments were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At December 31, 2011 and September 30, 2011, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.

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Deposits

3 Months Ended

Dec. 31, 2011

Deposits [Abstract]

Deposits

7. Deposits

Major classifications of deposits are summarized below:

	December 31, 2011		September 30, 2011
Demand Deposits
Retail	$	166,972	$	194,299
Business		307,004		296,505
Municipal		14,870		160,422
NOW Deposits
Retail		178,226		164,637
Business		33,844		37,092
Municipal		98,847		200,773
Total transaction accounts		799,763		1,053,728
Savings		444,803		429,825
Money market		579,955		509,483
Certificates of deposit		311,034		303,659
Total deposits	$	2,135,555	$	2,296,695

Municipal deposits of $401,517 and $614,834 were included in total deposits at December 31, 2011 and September 30, 2011, respectively. Deposits received for tax receipts were approximately $284,000 at September 30, 2011. Listed below are the Company's brokered deposits included in the table above:

	December 31, 2011		September 30, 2011
Money market	$	31,431	$	5,725
Reciprocal CDAR's1		1,349		2,746
CDAR's one way		22,157		3,366
Total brokered deposits	$	54,937	$	11,837

¹  Certificate of deposit account registry service

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Pension And Other Post Retirement Plans

3 Months Ended

Dec. 31, 2011

Pension And Other Post Retirement Plans [Abstract]

Pension And Other Post Retirement Plans

12. Pension and Other Post Retirement Plans

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

	Pension Plan						Other Post Retirement Plans
	Three months Ended December 31,						Three months Ended December 31,
	2011			2010			2011			2010
Service Cost	$	—		$	—		$	9		$	7
Interest Cost		375			378			27			27
Expected return on plan assets		(531	)		(498	)		—			—
Amortization of net transition obligation		—			—			6			6
Amortization of prior service cost		—			—			12			12
Amortization of (gain) or loss		579			509			(15	)		(24	)
	$	423		$	389		$	39		$	28

As of December 31, 2011, no contributions were deposited into the pension plan. The Company has not yet determined if additional contributions will be made during the fiscal year 2012.

The Company has also established a non-qualified Supplemental Executive Retirement Plan ("SERP") to provide certain executives with supplemental retirement benefits in addition to the benefits provided by the pension plan due to amounts limited by the Internal Revenue Code of 1986, as amended ("IRS Code"). The periodic pension expense for the supplemental plan amounted to $13 for the three months ended December 31, 2011 and $22 for the three months ended December 31, 2010. As of December 31, 2011 there were $9 in contributions to fund benefit payments related to the SERP.

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Consolidated Statement Of Changes In Stockholders' Equity (USD $) In Thousands, except Share data	Common Stock [Member]	Additional Paid-In Capital [Member]	Unallocated ESOP Shares [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]	Total
Balance, value at Sep. 30, 2011	$ 459	$ 357,063	$ (6,138)	$ (90,585)	$ 165,199	$ 5,136	$ 431,134
Balance, shares at Sep. 30, 2011	37,864,008
Net income					5,717		5,717
Other comprehensive income						2,556	2,556
Total comprehensive income (loss)							8,273
Deferred compensation transactions		125					125
Stock option transactions, net		133					133
ESOP shares allocated or committed to be released for allocation (12,483 shares)		111	125				236
RRP Awards		(132)		133			1
RRP Awards, shares	19,000
Vesting of RRP Awards		59					59
Purchase of treasury shares
Purchase of treasury shares, shares
Cash dividends paid ($0.06 per common share)					(2,279)		(2,279)
Balance, value at Dec. 31, 2011	$ 459	$ 357,359	$ (6,013)	$ (90,452)	$ 168,637	$ 7,692	$ 437,682
Balance, shares at Dec. 31, 2011	37,883,008

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Basis Of Presentation

3 Months Ended

Dec. 31, 2011

Basis Of Presentation [Abstract]

Basis Of Presentation

1. Basis of Presentation

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

The Company's off-balance sheet activities are limited to loan origination commitments, loan commitments pending sale, lines of credit extended to customers and letters of credit on behalf of customers, which all occur in the ordinary course of its lending activities. In addition, the Company purchased interest rate caps with a notional value of $50,000 during the first quarter of fiscal 2010. The Company does not engage in off-balance sheet financing transactions or other activities involving the use of special-purpose or variable interest entities.

The consolidated financial statements have been prepared by management without audit, but, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position and results of operations as of the dates and for the periods presented. Although certain information and footnote disclosures have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, the Company believes that the disclosures are adequate to make the information presented clear. The results of operations for the three months ended December 31, 2011 are not necessarily indicative of results to be expected for other interim periods or the entire fiscal year ending September 30, 2012. 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, 2011.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expense. Actual results could differ significantly from these estimates. A material estimate that is particularly susceptible to near-term change is the allowance for loan loss (see note 4), which reflects the application of a critical accounting policy.

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

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Guarantor's Obligations Under Guarantees

3 Months Ended

Dec. 31, 2011

Guarantor's Obligations Under Guarantees [Abstract]

Guarantor's Obligations Under Guarantees

11. 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 December 31, 2011, the Company had $17,725 in outstanding letters of credit, of which $171 are cash secured and $7,027 were secured by collateral. The carrying values of these obligations are considered immaterial.