10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2008

OR

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

For the transition period from              to             

Commission File Number: 0-25233

PROVIDENT NEW YORK BANCORP

(Exact name of Registrant as Specified in its Charter)

Delaware	80-0091851
(State or Other Jurisdiction of Incorporation on Organization)	(IRS Employer Identification Number)
400 Rella Blvd., Montebello, New York	10901
(Address of Principal Executive Office)	(Zip Code)

(845) 369-8040

(Registrant’s Telephone Number including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange On Which Registered
Common Stock, par value $0.01 per share	The NASDAQ Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act    YES  ¨    NO  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES  ¨    NO  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.  x

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of the common stock as of March 31, 2008 was $457,678,880.

As of December 5, 2008 there were outstanding 39,818,450 shares of the Registrant’s common stock.

DOCUMENT INCORPORATED BY REFERENCE

Proxy Statement for the Annual Meeting of Stockholders (Part III) to be filed within 120 days after the end of the Registrant’s fiscal year ended September 30, 2008.

PROVIDENT NEW YORK BANCORP

FORM 10-K TABLE OF CONTENTS

September 30, 2008

PART I		1
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	29
ITEM 1B.	Unresolved Staff Comments	34
ITEM 2.	Properties	34
ITEM 3.	Legal Proceedings	34
ITEM 4.	Submission of Matters to a Vote of Security Holders	34
PART II		35
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35
ITEM 6.	Selected Financial Data	38
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	55
ITEM 8.	Financial Statements and Supplementary Data	56
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	101
ITEM 9A.	Controls and Procedures	101
ITEM 9B.	Other Information	101
PART III		101
ITEM 10.	Directors and Executive Officers of the Registrant	101
ITEM 11.	Executive Compensation	101
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	102
ITEM 13.	Certain Relationships and Related Transactions	102
ITEM 14.	Principal Accountant Fees and Services	102
PART IV		102
ITEM 15.	Exhibits and Financial Statement Schedules	102
SIGNATURES		105

PART I

ITEM 1. Business

Provident New York Bancorp

Provident New York Bancorp (“Provident Bancorp” or the “Company”) is a Delaware corporation that owns all of the outstanding shares of common stock of Provident Bank (the “Bank”). At September 30, 2008, Provident Bancorp had consolidated assets of $3.0 billion, deposits of $2.0 billion and stockholders’ equity of $399.2 million. As of September 30, 2008, Provident Bancorp had 39,815,213 shares of common stock outstanding.

Provident Bank

Provident Bank, an independent, full-service community bank founded in 1888, is headquartered in Montebello, New York and is the principal bank subsidiary of Provident Bancorp. With $3.0 billion in assets and 547 full-time equivalent employees, Provident Bank accounts for substantially all of Provident Bancorp’s consolidated assets and net income. We operate 33 branches which serve the Hudson Valley region, including 32 branches located in Rockland, Orange, Sullivan, Ulster, Westchester and Putnam Counties in New York, and one branch in Bergen County, New Jersey which operates under the name Towncenter Bank, a division of Provident Bank, New York. Provident Bank offers a complete line of commercial, community business (small business) and retail banking products and services.

We also offer deposit services to municipalities located in the State of New York through Provident Bank’s wholly-owned subsidiary, Provident Municipal Bank.

Provest Services Corp. I is a wholly-owned subsidiary of Provident Bank, holding an investment in a limited partnership that operates an assisted-living facility. A percentage of the units in the facility are for low-income individuals. Provest Services Corp. II is a wholly-owned subsidiary of Provident Bank that has engaged a third-party provider to sell annuities, life and health insurance products to Provident Bank’s customers. Through September 30, 2008, the activities of these subsidiaries have had an insignificant effect on our consolidated financial condition and results of operations. Provident REIT, Inc. and WSB Funding are wholly-owned subsidiaries in the form of a real estate investment trusts and hold both residential and commercial real estate loans.

Provident Bank’s website (www.providentbanking.com) contains a direct link to the Company’s filings with the Securities and Exchange Commission, including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these filings, as well as ownership reports on Forms 3, 4 and 5 filed by the Company’s directors and executive officers. Copies may also be obtained, without charge, by written request to Provident New York Bancorp Investor Relations, Attention: Miranda Grimm, 400 Rella Boulevard, Montebello, New York 10901.

Non-Bank Subsidiaries

In addition to Provident Bank, the Company owns Hardenburgh Abstract Company of Orange County, Inc. (“Hardenburgh’) that was acquired in connection with the acquisition of Warwick Community Bancorp (“WSB”) and Hudson Valley Investment Advisors, LLC (“HVIA), an investment advisory firm that generates investment management fees. Hardenburgh had gross revenue from title insurance policies and abstracts of $0.9 million and net income of $101,067 in 2008, and HVIA generated $2.2 million in fee income in 2008 and net income of $378,073.

Provident Municipal Bank

Provident Municipal Bank, a wholly-owned subsidiary of Provident Bank, is a New York State-chartered commercial bank which is engaged in the business of accepting deposits from municipalities in our market area. New York State law requires municipalities located in the State of New York to deposit funds with commercial banks, effectively forbidding these municipalities from depositing funds with savings banks, including federally chartered savings associations, such as Provident Bank.

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Forward-Looking Statements

From time to time the Company has made and may continue to make written or oral forward-looking statements regarding our outlook or expectations for earnings, revenues, expenses, capital levels, asset quality or other future financial or business performance, strategies or expectations, or the impact of legal, regulatory or supervisory matters on our business operations or performance. This Annual Report on Form 10-K also includes forward-looking statements. With respect to all such forward-looking statements, you should review our Risk Factors discussion in Item 1A. and our Cautionary Statement Regarding Forward-Looking Information included in Item 7.

Market Area

Provident Bank is an independent community bank offering a broad range of financial services to businesses and individuals as an alternative to money center and large regional banks in our market area. At September 30, 2008, our 33 full-service banking offices consisted of 11 offices in Rockland County, New York, 15 offices in Orange County, New York, and six offices in contiguous Ulster, Putnam, Westchester and Sullivan Counties, New York. There is one office located in Lodi, New Jersey operating as Towncenter Bank, a division of Provident Bank, New York. Our primary market for deposits is currently concentrated around the areas where our full-service banking offices are located.

Our primary lending area consists of Rockland and Orange Counties as well as contiguous counties. Rockland and Orange Counties represent a suburban area with a broad employment base. These counties also serve as bedroom communities for nearby New York City and other suburban areas including Westchester County and northern New Jersey. According to data published by the Federal Deposit Insurance Corporation (“FDIC”) as of June 30, 2008, Provident Bank holds the #2 share of deposits in Rockland County and #2 share of deposits in Orange County, and overall has the combined #3 share of deposits in Rockland and Orange Counties, New York.

Lending Activities

General. We originate commercial real estate loans, commercial business loans and acquisition, development and construction loans (collectively referred to as the “commercial loan portfolio”). We also originate in our market area fixed-rate and adjustable-rate (“ARM”) residential mortgage loans collateralized by one- to four-family residential real estate, and consumer loans such as home equity lines of credit, homeowner loans and personal loans. We retain most of the loans we originate, although we may sell longer-term one- to four-family residential loans and participations in some commercial loans.

Commercial Real Estate Lending. We originate real estate loans secured predominantly by first liens on commercial real estate. The commercial properties are predominantly non-residential properties such as office buildings, shopping centers, retail strip centers, industrial and warehouse properties and, to a lesser extent, more specialized properties such as churches, mobile home parks, restaurants and motel/hotels. We may, from time to time, purchase commercial real estate loan participations. We target commercial real estate loans with initial principal balances between $1.0 million and $15.0 million. Loans secured by commercial real estate totaled $554.8 million, or 32.0% of our total loan portfolio at September 30, 2008, and consisted of 1,079 loans outstanding with an average loan balance of approximately $516,000, although there are a large number of loans with balances substantially greater than this average. Substantially all of our commercial real estate loans are secured by properties located in our primary market area.

The majority of our commercial real estate loans are written as five-year adjustable-rate or ten-year fixed-rate mortgages and typically have balloon maturities of ten years. Amortization on these loans is typically based on 20-year payout schedules. Margins generally range from 200 basis points to 300 basis points above the applicable Federal Home Loan Bank advance rate.

In the underwriting of commercial real estate loans, we generally lend up to 75% of the property’s appraised value. Decisions to lend are based on the economic viability of the property and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we primarily emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally targeting a ratio of 120%), computed after deduction for a vacancy factor and property expenses we deem appropriate. In addition, a personal guarantee of the loan or a

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portion thereof is generally required from the principal(s) of the borrower. We require title insurance insuring the priority of our lien, fire and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property. In addition, business interruption insurance or other insurance may be required.

Commercial real estate loans generally carry higher interest rates and have shorter terms than one-to four-family residential mortgage loans. Commercial real estate loans entail significant additional credit risks compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. For commercial real estate loans in which the borrower is the primary occupant, repayment experience also depends on the successful operation of the borrower’s underlying business.

Commercial Business Loans. We make various types of secured and unsecured commercial loans to customers in our market area for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. The terms of these loans generally range from less than one year to seven years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to a lending rate that is determined internally, or a short-term market rate index. At September 30, 2008, we had 2,489 commercial business loans outstanding with an aggregate balance of $243.6 million, or 14.1% of the total loan portfolio. As of September 30, 2008, the average commercial business loan balance was approximately $98,000 although there are a large number of loans with balances substantially greater than this average.

Commercial credit decisions are based upon a credit assessment of the loan applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. An evaluation is made of the applicant to determine character and capacity to manage. Personal guarantees of the principals are generally required, except in the case of not-for-profit corporations. In addition to an evaluation of the loan applicant’s financial statements, a determination is made of the probable adequacy of the primary and secondary sources of repayment to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness. Checking with other banks and trade investigations may also be conducted. Collateral supporting a secured transaction also is analyzed to determine its marketability. For small business loans and lines of credit, generally those not exceeding $400,000, we use a credit scoring system that enables us to process the loan requests quickly and efficiently. Commercial business loans generally bear higher interest rates than residential loans of like duration because they involve a higher risk of default since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any.

One- to Four-Family Real Estate Lending. We offer conforming and non-conforming, fixed-rate and adjustable-rate residential mortgage loans with maturities of up to 30 years and maximum loan amounts generally up to $1.1 million. This portfolio totaled $513.4 million, or 29.6% of our total loan portfolio at September 30, 2008.

We offer both fixed- and adjustable-rate conventional mortgage loans with terms of 10 to 30 years that are fully amortizing with monthly or bi-weekly loan payments. One- to four-family residential mortgage loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines for loans they designate as “A” or A-“. Loans that conform to such guidelines are referred to as “conforming loans.” We generally originate both fixed-rate and ARM loans in amounts up to the maximum conforming loan limits as established by Fannie Mae and Freddie Mac, which are currently $417,000 for single-family homes. Private mortgage insurance is generally required for loans with loan-to-value ratios in excess of 80%. We also originate loans above conforming limits, referred to as “jumbo loans,” which have been underwritten to substantially the same credit standards as conforming loans, which are generally eligible for sale to various firms that specialize in the purchase of such non-conforming loans. During the past year, the market for jumbo loans has been erratic with many of the normal outlets unable to purchase this type of loan, consequently, no loans were sold during fiscal 2008. We retained in our portfolio mainly all loans originated in fiscal 2008, totaling $76.9 million (residential originations only). As of September 30, 2008 there was $189,000 in loans held for sale, which was originated through the State of New York Mortgage Agency (“SONYMA”) program.

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We also originate loans other than jumbo loans that are not saleable to Fannie Mae or Freddie Mac, but which we deem to be acceptable risks. The amount of such loans originated for fiscal 2008 was $7.8 million, all of which were retained in our loan portfolio.

We actively monitor our interest rate risk position to determine the desirable level of investment in fixed-rate mortgages. Depending on market interest rates and our capital and liquidity position, we may retain all of our newly originated longer term fixed-rate residential mortgage loans, or from time to time we may decide to sell all or a portion of such loans in the secondary mortgage market to government sponsored entities such as Fannie Mae and Freddie Mac or other purchasers. Our bi-weekly one- to four-family residential mortgage loans that are retained in our portfolio result in shorter repayment schedules than conventional monthly mortgage loans, and are repaid through an automatic deduction from the borrower’s savings or checking account. As of September 30, 2008, bi-weekly loans totaled $180.2 million, or 35.1% of our residential loan portfolio. We retain the servicing rights on a large majority of loans sold to generate fee income and reinforce our commitment to customer service, although we may also sell non-conforming loans to mortgage banking companies, generally on a servicing-released basis. As of September 30, 2008, loans serviced for others, including loan participations, totaled $129.3 million.

We currently offer several ARM loan products secured by residential properties with rates that are fixed for a period ranging from six months to ten years. After the initial term, if the loan is not already refinanced, the interest rate on these loans generally reset every year based upon a contractual spread or margin above the average yield on U.S. Treasury securities, adjusted to a constant maturity of one year, as published weekly by the Federal Reserve Board and subject to certain periodic and lifetime limitations on interest rate changes. Many of the borrowers who select these loans have shorter-term credit needs than those who select long-term, fixed-rate loans. ARM loans generally pose different credit risks than fixed-rate loans primarily because the underlying debt service payments of the borrowers rise as interest rates rise, thereby increasing the potential for default. At September 30, 2008, our ARM portfolio included $4.4 million in loans that re-price every six months, $29.2 million in loans that re-price once a year, $6.2 million in loans that re-price periodically after an initial fixed-rate period of one year or more and $581,000 that reprice based upon other miscellaneous re-pricing terms. Our adjustable rate loans do not have interest-only or negative amortization features. We do not nor have we in the past originated “subprime” loans, loans which have a low credit score, high loan to value and no income verification and options on payment.

We require title insurance on all of our one- to four-family mortgage loans, and we also require that borrowers maintain fire and extended coverage or all risk casualty insurance (and, if appropriate, flood insurance) in an amount at least equal to the lesser of the loan balance or the replacement cost of the improvements, but in any event in an amount calculated to avoid the effect of any coinsurance clause. Nearly all residential loans are required to have a mortgage escrow account from which disbursements are made for real estate taxes and for hazard and flood insurance.

Construction Loans, Land Acquisition and Development Loans. We originate land acquisition, development and construction loans to builders in our market area. These loans totaled $171.0 million, or 9.9% of our total loan portfolio at September 30, 2008. Acquisition loans help finance the purchase of land intended for further development, including single-family houses, multi-family housing, and commercial income property. In some cases, we may make an acquisition loan before the borrower has received approval to develop the land as planned. In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property, although for certain borrowers we deem to be our lowest risk, higher loan-to-value ratios may be allowed. We also make development loans to builders in our market area to finance improvements to real estate, consisting mostly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs. Builders generally rely on the sale of single-family homes to repay development loans, although in some cases the improved building lots may be sold to another builder. The maximum amount loaned is generally limited to the cost of the improvements plus, infrequently an interest reserve, of which there are $40.8 million in balances associated with these reserves. Advances are made in accordance with a schedule reflecting the cost of the improvements.

We also grant construction loans to area builders, often in conjunction with development loans. In the case of residential subdivisions, these loans finance the cost of completing homes on the improved property. Advances on construction loans are made in accordance with a schedule reflecting the cost of construction. Repayment of construction loans on residential subdivisions is normally expected from the sale of units to individual purchasers. In

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the case of income-producing property, repayment is usually expected from permanent financing upon completion of construction. We commit to provide the permanent mortgage financing on most of our construction loans on income-producing property.

Land acquisition, development and construction lending exposes us to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Consumer Loans. We originate a variety of consumer and other loans, including homeowner loans, home equity lines of credit, new and used automobile loans, and personal unsecured loans, including fixed-rate installment loans and variable lines of credit. As of September 30, 2008, consumer loans totaled $248.7 million, or 14.4% of the total loan portfolio.

At September 30, 2008, the largest group of consumer loans consisted of $225.1 million of loans secured by junior liens on residential properties. We offer fixed-rate, fixed-term second mortgage loans, referred to as homeowner loans, and we also offer adjustable-rate home equity lines of credit. As of September 30, 2008, homeowner loans totaled $58.6 million or 3.4% of our total loan portfolio. The disbursed portion of home equity lines of credit totaled $166.5 million, or 9.6% of our total loan portfolio at September 30, 2008, with $159.5 million remaining undisbursed.

Other consumer loans include personal loans and loans secured by new or used automobiles. As of September 30, 2008, these loans totaled $23.7 million, or 1.4% of our total loan portfolio. We originate consumer loans directly to our customers or on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans, with us listed as loss payee. Personal loans also include secured and unsecured installment loans for other purposes. Unsecured installment loans, which includes most personal loans, generally have shorter terms than secured consumer loans, and generally have higher interest rates than rates charged on secured installment loans with comparable terms. We also offer overdraft lines of credit on an unsecured basis, outstanding balances on these loans totaled $4.7 million with additional undrawn lines totaling $15.2 million.

Our procedures for underwriting consumer loans include an assessment of an applicant’s credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral security, if any, to the proposed loan amount. We generally lend at a 80% loan to value ratio for home equity loans, but will go to 90% loan to value with a strong loan profile and higher pricing.

Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that tend to depreciate rapidly, such as automobiles. In addition, the repayment of consumer loans depends on the borrowers’ continued financial stability, as repayment is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy than a single family mortgage loan.

Student Loans. As of June 30, 2007 the Company no longer originates these student loans and had no student loans held for sale at either September 30, 2007 or September 30, 2008.

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, excluding loans held for sale, by type of loan at the dates indicated.

	September 30,
	2008					2007					2006					2005					2004
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)
One- to four-family residential mortgage loans	$	513,381		29.6	%	$	500,825		30.6	%	$	462,996		31.4	%	$	456,794		33.5	%	$	380,749		38.2	%
Commercial real estate loans		554,811		32.0			535,003		32.8			529,607		35.9			497,936		36.6			327,414		32.8
Commercial business loans		243,642		14.1			207,156		12.6			160,823		10.9			148,825		10.9			105,196		10.6
Construction loans		170,979		9.9			153,074		9.3			96,656		6.6			66,710		4.9			54,294		5.4
Total commercial loans		969,432		56.0			895,233		54.7			787,086		53.4			713,471		52.4			486,904		48.8
Home equity lines of credit		166,491		9.6			162,669		9.9			149,862		10.2			134,997		9.9			80,013		8.0
Homeowner loans		58,569		3.4			59,705		3.6			55,968		3.8			40,221		3.0			26,921		2.7
Other consumer loans		23,680		1.4			19,626		1.2			17,646		1.2			16,590		1.2			23,047		2.3
Total consumer loans		248,740		14.4			242,000		14.7			223,476		15.2			191,808		14.1			129,981		13.0
Total loans		1,731,553		100.0	%		1,638,058		100.0	%		1,473,558		100.0	%		1,362,073		100.0	%		997,634		100.0	%
Allowance for loan losses		(23,101	)				(20,389	)				(20,373	)				(21,047	)				(16,648	)
Total loans, net	$	1,708,452				$	1,617,669				$	1,453,185				$	1,341,026				$	980,986

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Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2008. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	Residential Mortgage				Commercial Real Estate				Commercial Business				Construction (1)				Consumer				Total
Due During the Years Ending September 30,	Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in thousands)
2009	$	6,739	6.78	%	$	42,110	6.01	%	$	86,456	5.47	%	$	94,053	5.68	%	$	9,490	6.53	%	$	238,848	5.73	%
2010 to 2013		11,548	5.75			137,328	6.53			63,607	6.46			70,678	5.57			27,935	7.54			311,096	6.36
2013 and beyond		495,094	5.95			375,373	6.81			93,579	6.23			6,248	4.84			211,315	5.83			1,181,609	6.22
Total	$	513,381	5.96		$	554,811	6.68		$	243,642	6.02		$	170,979	5.60		$	248,740	6.05		$	1,731,553	6.18

⁽¹⁾ Includes demand loans, loans having no stated repayment schedule or maturity, and overdraft loans.

⁽²⁾ Includes land acquisition loans.

⁽¹⁾ Includes land acquisition and development loans.

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2008 that are contractually due after September 30, 2009.

	Fixed		Adjustable		Total
	(In thousands)
Residential mortgage loans	$	464,666	$	41,976	$	506,642
Commercial real estate loans		272,013		240,688		512,701
Commercial business loans		68,876		88,310		157,186
Construction loans		680		76,246		76,926
Total commercial loans		341,569		405,244		746,813
Consumer loans		82,202		157,048		239,250
Total loans	$	888,437	$	604,268	$	1,492,705

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Loan Originations, Purchases, Sales and Servicing. While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon borrower demand, market interest rates, borrower preference for fixed versus adjustable-rate loans, and the interest rates offered on each type of loan by other lenders in our market area. These include competing banks, savings banks, credit unions, mortgage banking companies, life insurance companies and similar financial services firms. Loan originations are derived from a number of sources, including branch office personnel, existing customers, borrowers, builders, attorneys, real estate broker referrals and walk-in customers.

Our loan origination and sales activity may be adversely affected by a rising interest rate environment or period of falling house prices that typically results in decreased loan demand, while declining interest rates may stimulate increased loan demand, as well as being impacted by the level of unemployment and housing sale activity. Accordingly, the volume of loan origination, the mix of fixed and adjustable-rate loans, and the profitability of this activity can vary from period to period. One- to four-family residential mortgage loans are generally underwritten to current Fannie Mae and Freddie Mac seller/servicer guidelines, and closed on standard Fannie Mae/Freddie Mac documents. If such loans are sold, the sales are conducted generally using standard Fannie Mae/Freddie Mac purchase contracts and master commitments as applicable. One- to four-family mortgage loans may be sold to Fannie Mae or Freddie Mac on a non-recourse basis whereby foreclosure losses are generally the responsibility of the purchaser and not Provident Bank. Consistent with its long-standing credit policies, Provident Bank does not originate or hold subprime mortgage loans, which we consider as loans which have a low credit score, high loan to value and no income verification and options on payment. We also hold no subprime loans through our investment portfolio.

We are a qualified loan servicer for both Fannie Mae and Freddie Mac. Our policy generally has been to retain the servicing rights for all conforming loans sold. We therefore continue to collect payments on the loans, maintain tax escrows and applicable fire and flood insurance coverage, and supervise foreclosure proceedings, if necessary. We retain a portion of the interest paid by the borrower on the loans as consideration for our servicing activities.

Loan Approval/Authority and Underwriting. We have four levels of lending authority beginning with the Board of Directors. The Board grants lending authority to the Director Loan Committee, the members of which are Directors. The Director Loan Committee, in turn, may grant authority to the Management Loan Committee and individual loan officers. In addition, designated members of management may grant authority to individual loan officers up to specified limits. Our lending activities are subject to written policies established by the Board. These policies are reviewed periodically.

The Director Loan Committee may approve loans in accordance with applicable loan policies, up to the limits established in our policy governing loans to one borrower. This policy places limits on the aggregate dollar amount of credit that may be extended to any one borrower and related entities. Loans exceeding the maximum loan-to-one borrower limit described below require approval by the Board of Directors. The Management Loan Committee may approve loans of up to an aggregate of $2 million to any one borrower and group of related borrowers. Two loan officers with sufficient loan authority acting together may approve loans up to $1 million. The maximum individual authority to approve an unsecured loan is $50,000, however, for credit-scored small business loans, the maximum individual authority is $150,000.

We have established a risk rating system for our commercial business loans, commercial and multi-family real estate loans, and acquisition, development and construction loans to builders. The risk rating system assesses a variety of factors to rank the risk of default and risk of loss associated with the loan. These ratings are performed by commercial credit personnel who do not have responsibility for loan originations. We determine our maximum loan-to-one-borrower limits based upon the rating of the loan. The large majority of loans fall into three categories. The maximum for the best-rated borrowers is $20 million, $15 million for the next group of borrowers and $12 million for the third group. Sublimits apply based on reliance on any single property, and for commercial business loans. On occasion, the Board of Directors may approve higher exposure limits for loans to one borrower in an amount not to exceed the legal lending limit of the Bank. The Board may also authorize the Director Loan Committee to approve loans for specific borrowers up to a designated Board approved limit in excess of the policy limit, for that borrower.

In connection with our residential and commercial real estate loans, we generally require property appraisals to be performed by independent appraisers who are approved by the Board. Appraisals are then reviewed by the

8

appropriate loan underwriting areas. Under certain conditions, appraisals may not be required for loans under $250,000 or in other limited circumstances. We also require title insurance, hazard insurance and, if indicated, flood insurance on property securing mortgage loans. Title insurance is not required for consumer loans under $100,000, such as home equity lines of credit and homeowner loans and in connection with certain residential mortgage refinances.

Loan Origination Fees and Costs. In addition to interest earned on loans, we also receive loan origination fees. Such fees vary with the volume and type of loans and commitments made, and competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money. We defer loan origination fees and costs, and amortize such amounts as an adjustment to yield over the term of the loan by use of the level yield method. Deferred loan origination costs (net of deferred fees) were $2.7 million at September 30, 2008.

To the extent that originated loans are sold with servicing retained, we capitalize a mortgage servicing asset at the time of the sale. The capitalized amount is amortized thereafter (over the period of estimated net servicing income) as a reduction of servicing fee income. The unamortized amount is fully charged to income when loans are prepaid. Originated mortgage servicing rights with an amortized cost of $655,111 are included in other assets at September 30, 2008. See also Notes 2 and 5 of the “Notes to Consolidated Financial Statements”

Loans to One Borrower. At September 30, 2008, our five largest aggregate amounts loaned to any one borrower and certain related interests (including any unused lines of credit) consisted of secured and unsecured financing of $24.7 million, $24.1 million, $19.4 million, $18.5 million and $16.6 million. See “Regulation—Regulation of Provident Bank—Loans to One Borrower” for a discussion of applicable regulatory limitations.

Delinquent Loans, Other Real Estate Owned and Classified Assets

Collection Procedures for Residential and Commercial Mortgage Loans and Consumer Loans. A computer-generated late notice is sent by the 16th day after the payment due date on a loan requesting the payment due plus any late charge that was assessed. Accounts are distributed to a collector or account officer to contact borrowers, determine the reason for delinquency and arrange for payment, and accounts are monitored electronically for receipt of payments. If payments are not received within 30 days of the original due date, a letter demanding payment of all arrearages is sent and contact efforts are continued. If payment is not received within 60 days of the due date, loans are generally accelerated and payment in full is demanded. Failure to pay within 90 days of the original due date generally results in legal action, notwithstanding ongoing collection efforts. Unsecured consumer loans are generally charged-off after 120 days. For commercial loans, procedures vary depending upon individual circumstances.

Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis, and are placed on non-accrual status when either principal or interest is 90 days or more past due, unless well secured and in the process of collection. In addition, loans are placed on non-accrual status when, in the opinion of management, there is sufficient reason to question the borrower’s ability to continue to meet principal or interest payment obligations. Interest accrued and unpaid at the time a loan is placed on non-accrual status is reversed from interest income related to current year income and charged to the allowance for loan losses with respect to income that was recorded in the prior fiscal year. Interest payments received on non-accrual loans are not recognized as income unless warranted based on the borrower’s financial condition and payment record. At September 30, 2008, we had non-accrual loans of $13.6 million and $3.3 million of loans 90 days past due and still accruing interest, which were well secured and in the process of collection. At September 30, 2007 we had non-accrual loans of $3.5 and $3.7 million of loans 90 days past due and still accruing interest.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned (“REO”) until such time as it is sold.

When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at the lower of book value or fair value less cost to sell. If the fair value of the property is less than the loan balance, the difference is charged against the allowance for loan losses. At September 30, 2008 we had one REO property with a recorded balance of $84,440.

9

Loan Portfolio Delinquencies. The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

	Loans Delinquent For
	60-89 Days			90 Days and Over			Total
	Number	Amount		Number	Amount		Number	Amount
	(Dollars in thousands)
At September 30, 2008
One- to four- family	5	$	1,150	19	$	4,218	24	$	5,368
Commercial real estate	5		363	12		3,832	17		4,195
Construction	—		—	9		5,596	9		5,596
Commercial business	6		171	35		2,811	41		2,982
Consumer	17		109	41		421	58		530
Total	33	$	1,793	116	$	16,878	149	$	18,671
At September 30, 2007
One- to four- family	7	$	1,861	15	$	1,899	22	$	3,760
Commercial real estate	5		1,427	8		2,586	13		4,013
Construction	—		—	2		689	2		689
Commercial business	9		357	19		1,683	28		2,040
Consumer	27		146	30		401	57		547
Total	48	$	3,791	74	$	7,258	122	$	11,049
At September 30, 2006
One- to four- family	6	$	580	10	$	1,102	16	$	1,682
Commercial real estate	—		—	6		2,980	6		2,980
Commercial business	—		—	12		489	12		489
Consumer	18		120	42		453	60		573
Total	24	$	700	70	$	5,024	94	$	5,724
At September 30, 2005
One- to four- family	6	$	638	6	$	1,070	12	$	1,708
Commercial real estate	—		—	3		92	3		92
Commercial business	11		264	3		120	14		384
Consumer	28		150	22		359	50		509
Total	45	$	1,052	34	$	1,641	79	$	2,693
At September 30, 2004
One- to four- family	6	$	762	11	$	1,597	17	$	2,359
Commercial real estate	1		377	4		488	5		865
Commercial business	7		158	7		474	14		632
Consumer	25		107	19		178	44		285
Total	39	$	1,404	41	$	2,737	80	$	4,141

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Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. At each date presented, we had no troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates).

	2008					2007					2006					2005					2004
						(Dollars in thousands)
	90 days past due and still accruing		Non- Accrual			90 days past due and still accruing		Non- Accrual			90 days past due and still accruing		Non- Accrual			90 days past due and still accruing		Non- Accrual			Non- Accrual
Non-performing loans:
One- to four- family	$	2,487	$	1,731		$	1,899	$	—		$	629	$	472		$	1,337	$	65		$	1,597
Commercial real estate		732		3,100			1,487		1,099			613		2,367			92		—			488
Commercial		—		2,811			46		1,637			30		459			—		120			474
Construction loans		—		5,596			45		644			—		—			—		—			—
Consumer		70		351			272		129			310		144			—		27			178
Total non-performing loans	$	3,289	$	13,589		$	3,749	$	3,509		$	1,582	$	3,442		$	1,429	$	212		$	2,737
Real estate owned:
One- to four- family
Total real estate owned				84					139					87					92			—
Total non-performing assets			$	16,962				$	7,397				$	5,111				$	1,733		$	2,737
Ratios:
Non-performing loans to total loans				0.97	%				0.44	%				0.34	%				0.12	%		0.27	%
Non-performing assets to total assets				0.57	%				0.26	%				0.18	%				0.07	%		0.15	%

For the year ended September 30, 2008, gross interest income that would have been recorded had the non-accrual loans at the end of the year remained on accrual status throughout the year amounted to $1.1 million. Interest income actually recognized on such loans totaled $724,000.

Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as “loss” are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as “special mention” As of September 30, 2008, we had $6.5 million of assets designated as “special mention”

When we classify assets as either “substandard” or “doubtful” we allocate a portion of the related general loss allowances to such assets as deemed prudent by management. The allowance for loan losses represents amounts that have been established to recognize losses inherent in the loan portfolio that are both probable and reasonably estimable at the date of the financial statements. When we classify a problem asset as “loss,” we charge-off such amount. Our determination as to the classification of our assets and the amount of our loss allowances are subject to review by our regulatory agencies, which can order the establishment of additional loss allowances. Management regularly reviews our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management’s review of our assets at September 30, 2008, classified assets consisted of substandard assets of $23.0 million and $757,705 of doubtful assets.

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Allowance for Loan Losses. We provide for loan losses based on the allowance method. Accordingly, all loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in management’s judgment, deserve current recognition in estimating probable incurred losses. Management regularly reviews the loan portfolio and makes provisions for loan losses in order to maintain the allowance for loan losses in accordance with accounting principles generally accepted in the United States of America. The allowance for loan losses consists of amounts specifically allocated to non-performing loans and other criticized or classified loans (if any), as well as allowances determined for each major loan category. After we establish a provision for loans that are known to be non-performing, criticized or classified, we calculate a percentage to apply to the remaining loan portfolio to estimate the probable incurred losses inherent in that portion of the portfolio. When the loan portfolio increases, therefore, the percentage calculation results in a higher dollar amount of estimated probable incurred losses than would be the case without the increase, and when the loan portfolio decreases, the percentage calculation results in a lower dollar amount of estimated probable incurred losses than would be the case without the decrease. These percentages are determined by management, based on historical loss experience for the applicable loan category, and are adjusted to reflect our evaluation of:

• levels of, and trends in, delinquencies and non-accruals;

• trends in volume and terms of loans;

• effects of any changes in lending policies and procedures;

• experience, ability, and depth of lending management and staff;

• national and local economic trends and conditions;

• concentrations of credit by such factors as location, industry, inter-relationships, and borrower; and

• for commercial loans, trends in risk ratings.

We consider commercial real estate loans, commercial business loans, and land acquisition, development and construction loans to be riskier than one- to four-family residential mortgage loans. Commercial real estate loans entail significant additional credit risks compared to one- to four-family residential mortgage loans, as they involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and/or business operation of the borrower who is also the primary occupant, and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy. Commercial business loans involve a higher risk of default than residential loans of like duration since their repayment is generally dependent on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Land acquisition, development and construction lending exposes us to greater credit risk than permanent mortgage financing. The repayment of land acquisition, development and construction loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make an acquisition loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Development and construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated. All of these factors are considered as part of the underwriting, structuring and pricing of the loan.

The carrying value of loans is periodically evaluated and the allowance is adjusted accordingly. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, our regulatory agencies periodically review the allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

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Allowance for Loan Losses By Year. The following table sets forth activity in our allowance for loan losses for the years indicated.

	At or For Years Ended September 30,
	2008			2007			2006			2005			2004
Balance at beginning of year	$	20,389		$	20,373		$	21,047		$	16,648		$	10,698
Transfer to reserve for contingent loan commitments		—			—			(395	)		(256	)		(334	)
Charge-offs:
One- to four- family		(97	)		—			—			(23	)		(1	)
Commercial real estate		(627	)		—			—			—			—
Commercial business		(3,596	)		(2,164	)		(1,509	)		(750	)		(284	)
Consumer		(609	)		(329	)		(327	)		(380	)		(199	)
Total charge-offs		(4,929	)		(2,493	)		(1,836	)		(1,153	)		(484	)
Recoveries:
One- to four- family		—			—			—			—			86
Commercial business		291			581			236			69			32
Consumer		150			128			121			109			100
Total recoveries		441			709			357			178			218
Net charge-offs		(4,488	)		(1,784	)		(1,479	)		(975	)		(266	)
Allowance recorded in acquisitions		—			—			—			4,880			5,750
Provision for loan losses		7,200			1,800			1,200			750			800
Balance at end of year	$	23,101		$	20,389		$	20,373		$	21,047		$	16,648
Ratios:
Net charge-offs to average loans outstanding		0.28	%		0.12	%		0.11	%		0.08	%		0.03	%
Allowance for loan losses to non-performing loans		137	%		281	%		406	%		1283	%		608	%
Allowance for loan losses to total loans		1.33	%		1.24	%		1.38	%		1.55	%		1.67	%

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Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category, the total loan balances by category (excluding loans held for sale), and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	September 30,
	2008						2007						2006
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
One- to four- family	$	1,494	$	513,381	29.6	%	$	668	$	500,825	30.6	%	$	765	$	462,996	31.4	%
Commercial real estate		5,793		554,811	32.0			8,157		535,003	32.7			9,382		529,607	35.9
Commercial business		7,051		243,642	14.1			5,223		207,156	12.6			5,461		160,823	10.9
Construction		6,841		170,979	9.9			4,743		153,074	9.3			2,862		96,656	6.6
Consumer		1,922		248,740	14.4			1,598		242,000	14.8			1,903		223,476	15.2
Total	$	23,101	$	1,731,553	100.0	%	$	20,389	$	1,638,058	100.0	%	$	20,373	$	1,473,558	100.0	%

	September 30,
	2005						2004
	Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans		Allowance for Loan Losses		Loan Balances by Category		Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
One- to four- family	$	503	$	456,794	33.5	%	$	1,523	$	380,749	38.2	%
Commercial real estate		10,662		497,936	36.6			7,141		327,414	32.8
Commercial business		5,851		148,825	10.9			4,385		105,196	10.5
Construction		2,343		66,710	4.9			2,005		54,294	5.4
Consumer		1,688		191,808	14.1			1,594		129,981	13.1
Total	$	21,047	$	1,362,073	100.0	%	$	16,648	$	997,634	100.0	%

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Securities Investments

Our securities investment policy is established by our Board of Directors. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and consistency with our interest rate risk management strategy. The Board’s Asset/Liability Committee oversees our investment program and evaluates on an ongoing basis our investment policy and objectives. Our chief financial officer, or our chief financial officer acting with our chief executive officer, is responsible for making securities portfolio decisions in accordance with established policies. Our chief financial officer, chief executive officer and certain other executive officers have the authority to purchase and sell securities within specific guidelines established by the investment policy. In addition, all transactions are reviewed by the Board’s Asset/Liability Committee at least quarterly.

Our current investment policy generally permits securities investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank of New York (federal agency securities) and, to a lesser extent, other equity securities. Securities in these categories are classified as “investment securities” for financial reporting purposes. The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae as well as collateralized mortgage obligations (“CMOs”) issued or backed by securities issued by these government agencies. On September 7, 2008 Freddie Mac and Fannie Mae were placed into conservatorship by the Federal Government. Although repayment of the underlying mortgages are guaranteed by these agencies, no assurance can be placed upon their ability to meet these obligations should the borrowers of the underlying mortgages default. Also permitted are investments in securities issued or backed by the Small Business Administration, privately issued mortgage-backed securities and CMOs, and asset-backed securities collateralized by auto loans, credit card receivables, and home equity and home improvement loans. Our current investment strategy uses a risk management approach of diversified investing in fixed-rate securities with short- to intermediate-term maturities, as well as adjustable-rate securities, which may have a longer term to maturity. The emphasis of this approach is to increase overall investment securities yields while managing interest rate and credit risk.

Statement of Financial Accounting Standard (SFAS) No. 115 requires that, at the time of purchase, we designate a security as held to maturity, available for sale, or trading, depending on our ability to hold and our intent. Securities available for sale are reported at fair value, while securities held to maturity are reported at amortized cost. We do not have a trading portfolio.

Government and Agency Securities. At September 30, 2008, we held government and agency securities available for sale with a fair value of $30.0 million, consisting primarily of Agency obligations with short-term maturities (less than one year). While these securities generally provide lower yields than other investments such as mortgage-backed securities, our current investment strategy is to maintain investments in such instruments to the extent appropriate for liquidity purposes and as collateral for borrowings.

Corporate and Municipal Bonds. At September 30, 2008, we held no corporate debt securities. Although corporate bonds may offer a higher yield than that of a U.S. Treasury or Agency security of comparable duration, corporate bonds also have a higher risk of default due to adverse changes in the creditworthiness of the issuer. In recognition of this risk, our policy limits investments in corporate bonds to securities with maturities of ten years or less and rated “A” or better by at least one nationally recognized rating agency, and to a total investment of no more than $5.0 million per issuer and a total corporate bond portfolio limit of $40.0 million. The policy also limits investments in municipal bonds to securities with maturities of 20 years or less and rated as investment grade by at least one nationally recognized rating agency, and favors issues that are insured unless the issuer is a local government entity within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition, the policy imposes an investment limitation of $5.0 million per municipal issuer and a total municipal bond portfolio limit of 10% of assets. At September 30, 2008, we held $182.2 million in bonds issued by states and political subdivisions, $32.6 million of which were classified as held to maturity at amortized cost and are unrated and $149.6 million of which were classified as available for sale at fair value. We held obligations of one issuer for $5.7 million at September 30, 2008 which was a municipality within our local service area. At September 30, 2008 we held $29.2 million in obligations that were rated less than “A”, but still investment grade.

Equity Securities. At September 30, 2008, our equity securities available for sale had a fair value of $1.0 million and consisted of stock issued by Fannie Mae (120 shares), and certain other equity investments. We also held $28.7 million (at cost) of Federal Home Loan Bank of New York (“FHLBNY”) common stock, a portion of which must be held as a

15

condition of membership in the Federal Home Loan Bank System, with the remainder held as a condition to our borrowing under the Federal Home Loan Bank advance program. Dividends on FHLBNY stock recorded in the year ended September 30, 2008 amounted to $2.5 million. We held no preferred shares of Freddie Mac or Fannie Mae for the year ended September 30, 2008. We also held no “auction rate securities” or “pooled trust preferred securities” during the year ended September 30, 2008.

Mortgage-Backed Securities. We purchase mortgage-backed securities in order to: (i) generate positive interest rate spreads with minimal administrative expense; (ii) lower credit risk as a result of the guarantees provided by Freddie Mac and Fannie Mae; (iii) increase liquidity, and (iv) maintain our status as a thrift for charter purposes and income tax purposes. We invest primarily in mortgage-backed securities issued or sponsored by Freddie Mac, Fannie Mae and Ginnie Mae or private issuers for CMOs. To a lesser extent, we also invest in securities backed by agencies of the U.S. Government, such as Ginnie Mae. At September 30, 2008, our mortgage-backed securities portfolio totaled $621.4 million, consisting of $611.0 million available for sale at fair value and $10.4 million held to maturity at amortized cost. The total mortgage-backed securities portfolio includes CMOs of $37.4 million, consisting of $36.4 million available for sale at fair value and $1.0 million held to maturity at amortized cost, within this total, $12.8 million were issued by private issuers. The remaining mortgage-backed securities of $584.0 million were pass-through securities, consisting of $574.7 million available for sale at fair value and $9.3 million held to maturity at amortized cost.

Mortgage-backed securities are created by pooling mortgages and issuing a security collateralized by the pool of mortgages with an interest rate that is less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although most of our mortgage-backed securities are collateralized by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors, such as us, and guarantee the payment of principal and interest to these investors. Investments in mortgage-backed securities involve a risk in addition to the guarantee of repayment of principal outstanding that actual prepayments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments, thereby affecting the net yield and duration of such securities. We review prepayment estimates for our mortgage-backed securities at purchase to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates, and to determine the yield and estimated maturity of the mortgage-backed securities portfolio. Periodic reviews of current prepayment speeds are performed in order to ascertain whether prepayment estimates require modification that would cause amortization or accretion adjustments.

A portion of our mortgage-backed securities portfolio is invested in CMOs or collateralized mortgage obligations, including Real Estate Mortgage Investment Conduits (“REMICs”), backed by Fannie Mae and Freddie Mac and certain private issuers. CMOs and REMICs are types of debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. Our practice is to limit fixed-rate CMO investments primarily to the early-to-intermediate tranches, which have the greatest cash flow stability. Floating rate CMOs are purchased with emphasis on the relative trade-offs between lifetime rate caps, prepayment risk, and interest rates.

16

Available for Sale Portfolio. The following table sets forth the composition of our available for sale portfolio at the dates indicated.

	September 30,
	2008				2007				2006
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
					(In thousands)
Investment Securities:
U.S. Government securities	$	—	$	—	$	—	$	—	$	17,012	$	16,718
Federal agency obligations		30,022		30,041		84,005		83,857		272,494		269,462
State and municipal securities		159,334		149,601		140,026		139,338		95,405		95,970
Equity securities		1,146		1,030		105		111		947		879
Total investment securities available for sale		190,502		180,672		224,136		223,306		385,858		383,029
Mortgage-Backed Securities:
Pass-through securities:
Fannie Mae		385,138		384,672		383,308		378,384		404,168		396,484
Freddie Mac		189,113		189,989		152,972		152,253		132,921		131,119
Ginnie Mae		2,300		2,300		2,877		2,838		3,798		3,701
CMOs and REMICs		34,521		34,055		38,249		38,216		37,668		37,396
Total mortgage-backed securities available for sale		611,072		611,016		577,406		571,691		578,555		568,700
Total securities available for sale	$	801,574	$	791,688	$	801,542	$	794,997	$	964,413	$	951,729

At September 30, 2008, our available for sale federal agency securities portfolio, at fair value, totaled $30.0 million, or 1.0% of total assets. Of the federal agency portfolio, based on amortized cost, $30.0 million had maturities of one year or less and a weighted average yield of 2.08%, and $47,000 had maturities of between five and ten years and a weighted average yield of 2.64%. The agency securities portfolio currently includes primarily non-callable debentures.

State and municipal securities portfolio, available for sale, based on amortized cost, had $5.3 million in securities with a final maturity of one year or less and a weighted average yield of 2.90%; $12.7 million maturing in one to five years with a weighted average yield of 3.42%; $34.2 million maturing in five to ten years with a weighted average yield of 3.90% and $107.1 million maturing in greater than ten years with a weighted average yield of 4.09%. Equity securities available for sale at September 30, 2008 had a fair value of $1.0 million.

At September 30, 2008, $611.0 million of our available for sale mortgage-backed securities, at fair value, consisted of pass-through securities, which totaled 20.5% of total assets and $34.5 of CMO securities, at fair value. The total amortized cost of these pass- through securities was $611.1 million and consisted of $385.1 million, $189.1 million and $2.3 million of Fannie Mae, Freddie Mac and Ginnie Mae MBS, respectively, with respective weighted averages yields of 4.94%, 5.21% and 5.01%. At the same date, the fair value of our available for sale CMO portfolio totaled $34.1 million, or 1.1% of total assets, and consisted of CMOs issued by government sponsored agencies such as Fannie Mae, Freddie Mac and $12.8 million sold by private party issuers. The amortized cost of these CMOs result in a weighted average yield of 4.86%. We own both fixed-rate and floating-rate CMOs. The underlying mortgage collateral for our portfolio of CMOs available for sale at September 30, 2008 had contractual maturities of over ten years. However, as with mortgage-backed pass-through securities, the actual maturity of a CMO may be less than its stated contractual maturity due to prepayments of the underlying mortgages and the terms of the CMO tranche owned.

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Held to Maturity Portfolio. The following table sets forth the composition of our held to maturity portfolio at the dates indicated.

	September 30,
	2008				2007				2006
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Investment Securities:
State and municipal securities	$	32,604	$	32,391	$	23,078	$	23,187	$	40,892	$	40,927
Other		58		60		57		60		156		160
Total investment securities held to maturity		32,662		32,451		23,135		23,247		41,048		41,087
Mortgage-Backed Securities:
Pass-through securities:
Fannie Mae		4,929		4,987		6,540		6,527		9,102		8,982
Freddie Mac		4,297		4,335		6,398		6,402		9,138		9,058
Ginnie Mae		87		89		148		152		232		238
CMOs and REMICs		1,038		1,037		1,225		1,256		1,467		1,511
Total mortgage-backed securities held to maturity		10,351		10,448		14,311		14,337		19,939		19,789
Total securities held to maturity	$	43,013	$	42,899	$	37,446	$	37,584	$	60,987	$	60,876

At September 30, 2008, our held to maturity mortgage-backed securities portfolio totaled $10.4 million at amortized cost, consisting of: $41,000 with a weighted average yield of 5.07% and contractual maturities of one year or less and $114,000 with a weighted average yield of 6.94% and contractual maturities within five years and $3.3 million with a weighted average yield of 5.73% and contractual maturities of five to ten years and $6.9 million with a weighted average yield of 4.79% with contractual maturities of greater than ten years; CMOs of $1.0 million are included in this portfolio. While the contractual maturity of the CMOs underlying collateral is greater than ten years, the actual period to maturity of the CMOs may be shorter due to prepayments on the underlying mortgages and the terms of the CMO tranche owned.

State and municipal securities totaled $32.7 million at amortized cost (primarily unrated obligations) and consisted of $17.3 million, with a final maturity of one year or less and a weighted average yield of 2.86%; $7.3 million, maturing in one to five years, with a weighted average yield of 4.0%; $4.1 million maturing in five to ten years, with a weighted average yield of 4.16% and $4.0 million, maturing in greater than ten years, with a weighted average yield of 3.98%.

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Portfolio Maturities and Yields. The following table summarizes the composition and maturities of the investment debt securities portfolio and the mortgage backed securities portfolio at September 30, 2008. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. State and municipal securities yields have not been adjusted to a tax-equivalent basis.

	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Available for Sale:
Mortgage-Backed Securities
Fannie Mae	$	—	—	%	$	9,058	4.67	%	$	21,026	4.21	%	$	355,054	5.00	%	$	385,138	$	384,672	4.94	%
Freddie Mac		69	4.94			4,614	4.02			9,738	4.19			174,692	5.30			189,113		189,989	5.21
Ginnie Mae		—	—			1	6.13			21	6.37			2,278	5.00			2,300		2,300	5.01
CMOs and REMICs		—	—			—	—			2,787	4.24			31,734	4.92			34,521		34,055	4.86
Total		69	4.94			13,673	4.45			33,572	4.21			563,758	5.08			611,072		611,016	5.02
Investment Securities
U.S. Government and agency securities		29,975	2.08			—	—			47	2.64			—	—			30,022		30,041	2.08
Equity securities		1,146	3.13			—	—			—	—			—	—			1,146		1,030	0.59
State and municipal		5,313	2.90			12,691	3.42			34,180	3.90			107,151	4.09			159,334		149,601	3.95
Total		36,434	2.20			12,691	3.42			34,227	3.79			107,151	4.09			190,502		180,672	3.64
Total debt securities available for sale	$	36,503	2.24	%	$	26,364	3.95	%	$	67,799	4.05	%	$	670,909	4.92	%	$	801,574	$	791,688	4.69	%
Held to Maturity:
Mortgage-Backed Securities
Fannie Mae	$	27	5.31	%	$	—	—	%	$	2,056	5.72	%	$	2,847	4.30	%	$	4,930	$	4,987	4.90	%
Freddie Mac		14	4.62			27	5.57			1,273	5.76			2,983	5.34			4,297		4,335	5.46
Ginnie Mae		—	—			87	7.41			—	—			—	—			87		89	7.39
CMOs and REMICs		—	—			—	—			—	—			1,037	4.53			1,037		1,037	4.53
Total		41	5.07			114	6.94			3,329	5.73			6,867	4.79			10,351		10,448	5.12
Investment Securities
State and municipal securities		17,192	2.86			7,272	4.00			4,117	4.16			4,023	3.98			32,604		32,391	3.42
Other		58	3.11			—	—			—	—			—	—			58		60	3.11
Total		17,250	2.86			7,272	4.00			4,117	4.16			4,023	3.98			32,662		32,451	3.42
Total debt securities held to maturity	$	17,291	2.87	%	$	7,386	4.04	%	$	7,446	4.87	%	$	10,890	4.49	%	$	43,013	$	42,899	3.83	%

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Sources of Funds

General. Deposits, borrowings, repayments and prepayments of loans and securities, proceeds from sales of loans and securities, proceeds from maturing securities and cash flows from operations are the primary sources of our funds for use in lending, investing and for other general purposes.

Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, NOW accounts, checking accounts, money market accounts, club accounts, certificates of deposit and IRAs and other qualified plan accounts. In fiscal 2006 we introduced our ‘power money market account.’ With this account, interest is earned at a higher rate, but requires substantial balances and a checking account relationship. We provide a variety of commercial checking accounts and other products for businesses. In addition, we provide low-cost checking account services for low-income customers.

At September 30, 2008, our deposits totaled $2.0 billion. Interest-bearing deposits totaled $1.5 billion, and non-interest-bearing demand deposits totaled $487.9 million. NOW, savings and money market deposits totaled $975.4 million at September 30, 2008. Also at that date, we had a total of $525.9 million in certificates of deposit, of which $487.4 million had maturities of one year or less. Although we have a significant portion of our deposits in shorter-term certificates of deposit, our management monitors activity on these accounts and, based on historical experience and our current pricing strategy, we believe we will retain a large portion of such accounts upon maturity, although we may have to match competitive rates to retain many of these accounts.

Our deposits are obtained predominantly from the areas in which our branch offices are located. We rely on our favorable locations, customer service and competitive pricing to attract and retain these deposits. While we accept certificates of deposit in excess of $100,000 for which we may provide preferential rates, we do not actively solicit such deposits as they are more difficult to retain than core deposits. Our limited purpose commercial bank subsidiary, Provident Municipal Bank, accepts municipal deposits. Municipal time accounts (certificates of deposit) are generally obtained through a bidding process, and tend to carry higher average interest rates than retail certificates of deposit of similar term. At September 30, 2008 we had $16.6 million in brokered certificates of deposit.

Distribution of Deposit Accounts by Type. The following table sets forth the distribution of total deposit accounts, by account type, at the dates indicated.

	For the year ended September 30,
	2008				2007				2006
	Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)
Demand deposits:
Retail	$	162,161	8.1	%	$	162,518	9.5	%	$	163,582	9.4	%
Commercial & municipal		325,729	16.4			201,213	11.7			203,265	11.8
Total demand deposits		487,890	24.5			363,731	21.2			366,847	21.2
Business & municipal NOW deposits		217,462	10.9			51,679	3.0			50,546	2.9
Personal NOW deposits		115,442	5.8			110,858	6.5			103,186	6.0
Savings deposits		335,986	16.9			346,430	20.2			378,337	21.9
Money market deposits		306,504	15.4			277,793	16.2			238,977	13.8
Subtotal		1,463,284	73.5			1,150,491	67.1			1,137,893	65.8
Certificates of deposit		525,913	26.5			563,193	32.9			591,766	34.2
Total deposits	$	1,989,197	100.0	%	$	1,713,684	100.0	%	$	1,729,659	100.0	%

As of September 30, 2008 and September 30, 2007 the Company had $460.8 million and $176.5 million, respectively, in municipal deposits.

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The following table sets forth the distribution of average deposit accounts by account category with the average rates paid at the dates indicated.

	September 30,
	2008						2007						2006
	Average Balance		Interest		Average Rate Paid		Average Balance		Interest		Average Rate Paid		Average Balance		Interest		Average Rate Paid
Non interest bearing deposits	$	351,995		—	—		$	347,956		—	—		$	356,869		—	—
NOW deposits		189,524	$	1,015	0.54	%		153,869	$	622	0.40	%		154,708	$	511	0.33	%
Savings deposits(1)		356,854		1,243	0.35	%		377,079		1,930	0.51	%		445,419		2,258	0.51	%
Money market deposits		285,119		5,299	1.86	%		252,925		6,671	2.64	%		230,933		4,178	1.81	%
Certificates of deposit		556,973		20,787	3.73	%		600,422		27,216	4.53	%		538,045		19,855	3.69	%
Total interest bearing deposits		1,388,470	$	28,344	2.04	%		1,384,295	$	36,439	2.63	%		1,369,105	$	26,802	1.96	%
Total deposits	$	1,740,465					$	1,732,251					$	1,725,974

(1) Includes club accounts and mortgage escrow balances.

Certificates of Deposit by Interest Rate Range. The following table sets forth information concerning certificates of deposit by interest rate ranges at the dates indicated.

	At September 30, 2008
	Period to Maturity
	Less than		One to Two		Two to Three		More than				Percent of		Total at September 30,
	One Year		Years		Years		Three Years		Total		Total		2007		2006
	(Dollars in thousands)
Interest Rate Range:
2.00% and below	$	5,869	$	—	$	—	$	—	$	5,869	1.1	%	$	—	$	2,043
2.01% to 3.00%		408,421		14,062		170		19		422,672	80.4	%		3,929		25,167
3.01% to 4.00%		15,898		7,041		2,526		3,091		28,556	5.4	%		27,124		139,912
4.01% to 5.00%		55,476		2,702		1,294		7,254		66,726	12.7	%		426,792		313,955
5.01% to 6.00%		1,746		—		—		334		2,080	0.4	%		105,348		110,689
6.01% and above		10		—		—		—		10	0.0	%		—		—
Total	$	487,420	$	23,805	$	3,990	$	10,698	$	525,913	100	%	$	563,193	$	591,766

Certificates of Deposit by Time to Maturity. The following table sets forth certificates of deposit by time remaining until maturity as of September 30, 2008.

	Maturity
	3 months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
Certificates of deposit less than $100,000	$	140,146	$	83,422	$	84,740	$	31,279	$	339,587
Certificates of deposit of $100,000 or more (¹)		135,266		25,016		18,829		7,215		186,326
Total of certificates of deposit	$	275,412	$	108,438	$	103,569	$	38,494	$	525,913

^(¹) The weighted interest rates for these accounts, by maturity period, are 2.55% for 3 months or less; 2.79% for 3 to 6 months; 3.13% for 6 to 12 months; and 3.61% for over 12 months. The overall weighted average interest rate for accounts of $100,000 or more was 2.66%.

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Short-term Borrowings. Our short-term borrowings (less than one year) consist of advances, repurchase agreements and overnight borrowings. At September 30, 2008, we had access to additional Federal Home Loan Bank advances of up to an additional $142.0 million on a collateralized basis. The following table sets forth information concerning balances and interest rates on our short-term borrowings at the dates and for the years indicated.

	At or For the Years Ended September 30,
	2008			2007			2006
	(Dollars in thousands)
Balance at end of year	$	153,893		$	376,753		$	538,437
Average balance during year		257,942			418,363			373,471
Maximum outstanding at any month end		372,021			556,457			538,437
Weighted average interest rate at end of year		2.16	%		5.13	%		5.46	%
Average interest rate during year		3.50	%		5.35	%		4.96	%

Competition

We face significant competition in both originating loans and attracting deposits. The New York metropolitan area has a high concentration of financial institutions, many of which are significantly larger institutions with greater financial resources than us, and many of which are our competitors to varying degrees. Our competition for loans comes principally from commercial banks, savings banks, mortgage banking companies, credit unions, insurance companies and other financial service companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. We have emphasized personalized banking and the advantage of local decision-making in our banking business and this strategy appears to have been well received in our market area. We do not rely on any individual, group, or entity for a material portion of our deposits. Given the turmoil that has existed in the financial markets and related credit dislocations, many banks have been aggressively seeking deposits by utilizing interest rates which lack correlation to the current federal funds market. Although we have not been required to do so, net interest income could be adversely affected should competitive pressures cause us to increase our interest rates paid on deposits in order to maintain our market share.

Employees

As of September 30, 2008, we had 496 full-time employees and 97 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.

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Regulation

General

As a savings and loan holding company, Provident Bancorp and its federal savings bank subsidiary, Provident Bank, are supervised and regulated by the Office of Thrift Supervision (“OTS”). As a state-chartered, insured bank, Provident Municipal Bank is regulated by the New York State Department of Banking and the Federal Deposit Insurance Corporation (“FDIC”). Because it is an FDIC-insured institution, Provident Bank also is subject to regulation by the FDIC. Provident Bank’s relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters concerning the ownership of deposit accounts and the form and content of Provident Bank’s loan documents. As a regulated financial services firm, our relationships and good standing with regulators are of fundamental importance to the continuation and growth of our businesses. The OTS, SEC, and other regulators have broad enforcement powers, and powers to approve, deny, or refuse to act upon our applications or notices to conduct new activities, acquire or divest businesses or assets, or reconfigure existing operations.

Provident Bancorp and its subsidiaries are subject to numerous governmental regulations, some of which are summarized below. These summaries are not complete and you should refer to these laws and regulations for more information. There are numerous rules governing the regulation of financial services institutions and their holding companies. Accordingly, the following discussion is general in nature and does not purport to be complete or to describe all of the laws and regulations that apply to us. Failure to comply with applicable laws and regulations could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. Applicable laws and regulations may change in the future and any such change could have a material adverse impact on Provident Bancorp, Provident Bank or Provident Municipal Bank.

In addition, Provident Bancorp and its subsidiaries are subject to examination by regulators, which results in examination reports and ratings (which are not publicly available) that can impact the conduct and growth of our businesses. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. An examination downgrade by any of our federal bank regulators potentially can result in the imposition of significant limitations on our activities and growth. These regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. This supervisory framework could materially impact the conduct, growth and profitability of our operations.

Holding Company Regulation

Provident Bancorp is a unitary savings and loan holding company because it owns only one savings association. The OTS has supervisory and enforcement authority over Provident Bancorp and its non-bank subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a risk to Provident Bank.

Provident Bancorp must generally limit its activities to those permissible for (i) financial holding companies under the Bank Holding Company Act, or (ii) multiple savings and loan holding companies under the Savings and Loan Holding Company Act. Activities in which a financial holding company may engage are those considered financial in nature or those incidental or complementary to financial activities. These activities include lending, trust and investment advisory activities, insurance agency activities, and securities and insurance underwriting activities. Activities permitted to multiple savings and loan holding companies include certain real estate investment activities, and other activities permitted to bank holding companies under the Bank Holding Company Act.

Federal law prohibits Provident Bancorp, directly or indirectly, or through one or more subsidiaries, from acquiring control of another savings association or a savings and loan holding company, without prior written approval of the OTS. It also prohibits the acquisition or retention of, with specified exceptions, more than 5% of the voting shares of a savings association or savings and loan holding company that is not already a subsidiary, without prior written approval of the OTS. In evaluating applications for acquisition, the OTS must consider the financial and managerial resources and future prospects of the company and association involved, the effect of the acquisition on the association, the risk to the Deposit Insurance Fund, the convenience and needs of the community to be served, and competitive factors.

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As a public company with securities registered under the Securities Exchange Act of 1934, Provident Bancorp also is subject to that statute and to the Sarbanes-Oxley Act.

Dividends

Provident Bancorp is a legal entity separate and distinct from its savings association and other subsidiaries, and its principal sources of funds are cash dividends paid by these subsidiaries. OTS regulations limit the amount of capital distributions, including cash dividends, stock repurchases, and other transactions charged to the institution’s capital account, that can be made by Provident Bank. Furthermore, because Provident Bank is a subsidiary of a holding company, it must file a notice with the OTS at least 30 days before Provident Bank’s Board of Directors declares a dividend or approves a capital distribution. This notice may be denied if the OTS finds that:

• the savings association would be undercapitalized or worse following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or the capital distribution would violate a prohibition contained in any statute, regulation, agreement with the OTS, or OTS-imposed condition.

Provident Bank must file an application (rather than a notice) with the OTS if, among other things, the total amount of all capital distributions, including the proposed distribution, for the calendar year exceeds the institution’s net income for that year, plus retained net income for the preceding two years.

As of October 1, 2008, the maximum amount of dividends that could be declared by Provident Bank for fiscal 2009, without regulatory approval, was net income for fiscal 2009, less $1.4 million.

In the future, Provident New York Bancorp’s ability to pay dividends may be subject to additional limitations, which are described below under the heading “Recent Regulatory Initiatives—Capital Purchase Program.”

Capital Requirements

As a savings and loan holding company, Provident Bancorp is not currently subject to any regulatory capital requirements. However, as a federal savings association, Provident Bank is subject to OTS capital requirements. The OTS regulations require savings associations to meet three minimum capital standards: at least an 8% risk-based capital ratio, a 4% leverage ratio (3% for institutions receiving the highest supervisory rating), and at least a 1.5% tangible capital ratio.

The OTS’ risk-based capital standards require a savings association to maintain at least a Tier 1 (core) capital ratio to risk-weighted assets of at least 4%, and a total (core plus supplementary) capital ratio to risk-weighted assets of at least 8%. To determine these ratios, the regulations define core capital as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of fully consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. Supplementary capital is defined as including cumulative perpetual preferred stock, mandatory convertible securities, subordinated debt, intermediate preferred stock, allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor ranging from 0% to 100%, assigned by the OTS capital regulation based on the risks inherent in the type of asset.

The OTS’ leverage ratio is defined as the ratio of core capital to adjusted total assets. The tangible capital ratio is defined as the ratio of tangible capital (the components of which are very similar to those of core capital) to adjusted total assets.

As an FDIC-insured bank, Provident Municipal Bank is subject to the risk-based capital and leverage capital requirements of the FDIC. These requirements are similar to the OTS risk-based capital and leverage capital requirements described above.

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In addition to the foregoing, the OTS, the FDIC and other federal banking agencies possess broad powers under current federal law to take “prompt corrective action” in connection with depository institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories for insured depository institution: “well-capitalized”, “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well capitalized,” an institution must maintain a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, a leverage capital ratio of 5% or greater, and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An “adequately capitalized” institution must have a Tier 1 capital ratio of at least 4%, a total capital ratio of at least 8%, and a leverage capital ratio of at least 4%.

If an institution fails to meet these capital requirements, progressively more severe restrictions are placed on the institution’s operations, management and capital distributions, depending on the capital category in which an institution is placed. Any institution that is determined to be “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” is required to raise additional capital. In addition, numerous mandatory supervisory actions become immediately applicable to the insured depository institution, including, but not limited to, restrictions on growth, investment activities, capital distributions, and affiliate transactions. The federal banking agencies also may take any one of a number of discretionary supervisory actions against undercapitalized institutions, including the replacement of senior executive officers and directors. The agencies also may appoint a receiver or conservator for a savings association that is “critically undercapitalized.”

At September 30, 2008, the capital of Provident Bank and Provident Municipal Bank exceeded all applicable capital requirements, and each met the requirements to be treated as a “well-capitalized” institution.

Deposit Insurance

The FDIC insures deposit accounts in Provident Bank and Provident Municipal Bank generally up to a maximum of $100,000 per separately-insured depositor, and up to a maximum of $250,000 per separately-insured depositor for certain retirement accounts As FDIC-insured depository institutions, Provident Bank and Provident Municipal Bank are required to pay deposit insurance premiums based on the risk each institution poses to the Deposit Insurance Fund. Currently, the annual FDIC assessment rate ranges from $0.05 to $0.43 per $100 of insured deposits, based on the institution’s relative risk to the Deposit Insurance Fund, as measured by the institution’s regulatory capital position and other supervisory factors. The FDIC also has the authority to raise or lower assessment rates on insured deposits, subject to limits, and to impose special additional assessments.

As a result of the Emergency Economic Stabilization Act of 2008 (“EESA”) signed into law on October 3, 2008, the $100,000 limit on insured deposits has been increased to $250,000, matching the limit on qualified retirement accounts, through December 31, 2009. In addition, under the FDIC’s Temporary Liquidity Guaranty Program (“TLGP”), non-interest bearing transaction deposit accounts and interest –bearing transaction accounts paying 50 basis points or less will be fully insured above and beyond the $250,000 limit through the same date. While this unlimited insurance coverage is in effect, covered deposits in excess of the $250,000 limit are subject to a surcharge of $0.10 per $100 of deposits by the FDIC.

In addition, the FDIC collects funds from insured institutions sufficient to pay interest on debt obligations of the Financing Corporation (FICO). FICO is a government-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation.

For the quarter ended September 30, 2008, the annualized FICO assessment was equal to $0.012 for each $100 of insured domestic deposits maintained at an institution. We were allocated $759,792 in DIF assessment credits as of January 1, 2008. Remaining DIF assessment credits at September 30, 2008 were approximately $210 217.

Regulation of Provident Bank

Business Activities. As a federal savings association, Provident Bank derives its deposit, lending and investment powers from the Home Owners’ Loan Act and the regulations of the OTS. Under these laws and regulations, Provident Bank may offer any type of deposit accounts, make or invest in mortgage loans secured by residential and commercial real estate, make and invest in commercial and consumer loans, certain types of debt securities and certain other loans and assets, subject in certain cases to certain limits. Provident Bank also may establish and operate subsidiaries that engage in activities permissible for Provident Bank, as well as service corporation subsidiaries that engage in activities

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not permissible for Provident Bank to engage in directly (such as real estate investment, and securities and insurance brokerage). Pursuant to this authority, Provident Bank operates certain subsidiaries, including Provest Services Corp., which holds an investment in a limited partnership that operates an assisted living facility; Provest Services Corp. II, through which Provident Bank offers annuities and insurance products to its customers. Provident Bank also controls Provident REIT, Inc. and WSB Funding to hold residential and commercial real estate loans. Certain of Provident Bank’s subsidiaries are subject to separate regulatory requirements, such as those applicable to insurance agencies and investment advisors. Hardenburgh Abstract Company of Orange County Inc., a title insurance company; and Hudson Valley Investment Advisors, LLC, an investment advisory firm are subsidiaries of Provident New York Bancorp.

Qualified Thrift Lender Test. As a federal savings association, Provident Bank must meet the qualified thrift lender (“QTL”) test. Under the QTL test, Provident Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association, less the sum of certain specified liquid assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings association’s business. “Qualified thrift investments” are primarily mortgage loans and securities, and other investments related to housing, home equity loans, credit card loans, education loans and other consumer loans to a certain percentage of assets. Provident Bank also may satisfy the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of 1986. If Provident Bank were to fail the QTL test, it would be required to either convert to a bank charter or operate under specified restrictions.

At September 30, 2008, Provident Bank maintained approximately 85% of its portfolio assets in qualified thrift investments, and satisfied the QTL test.

Loans to One Borrower. Provident Bank generally may not make loans or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus on an unsecured basis. An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of September 30, 2008, Provident Bank was in compliance with the loans-to-one-borrower limitations.

Transactions with Affiliates. Provident Bank is subject to restrictions on transactions with affiliates that are the same as those applicable to commercial banks under Sections 23A and 23B of the Federal Reserve Act, as well as certain additional restrictions imposed on federal savings associations by the Home Owners’ Loan Act. The term “affiliate” under these laws means any company that controls or is under common control with a savings association and includes Provident Bancorp and its non-bank subsidiaries. Transactions between Provident Bank and certain affiliates are restricted to an aggregate percentage of Provident Bank’s capital, and in general must be collateralized with certain specified assets. The Home Owners’ Loan Act further prohibit a savings association from lending to any affiliate that is engaged in activities not permissible for a bank holding company and from purchasing or investing in securities issued by any affiliate other than with respect to shares of a subsidiary. Permissible transactions with affiliates must be on terms that are as favorable to the savings association as comparable transactions with non-affiliates.

Provident Bank also is restricted in its ability to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, to the same extent as such restrictions apply to commercial banks. Extensions of credit to insiders must (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons; (ii) not involve more than the normal risk of repayment or present other unfavorable features; and (iii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate. In addition, extensions of credit in excess of certain limits must be approved by Provident Bank’s Board of Directors.

Safety and Soundness Regulations. Federal law requires each federal banking agency to prescribe certain safety and soundness standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems, and audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; compensation; and other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines Establishing Standards for Safety and Soundness to implement the safety and soundness requirements of federal law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If a deficiency persists, the agency must issue an order that requires the institution to correct the deficiency, in addition to taking other statutorily-mandated or discretionary actions.

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Enforcement. The OTS has primary enforcement responsibility over federal savings associations such as Provident Bank, and has the authority to bring enforcement action against all “institution-affiliated parties,” including controlling stockholders and attorneys, appraisers, and accountants who knowingly or recklessly participate in wrongful action likely to have a significant adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order, to removal of officers or directors of the institution, receivership, conservatorship, or the termination of deposit insurance. Civil money penalties may be imposed for a wide range of violations and actions. The FDIC also has the authority to recommend to the Director of the OTS that enforcement action be taken with respect to a particular savings association. If action is not taken by the OTS, the FDIC has authority to take action under specified circumstances.

Community Reinvestment Act and Fair Lending Laws. All savings associations have a responsibility under the Community Reinvestment Act (“CRA”) and related regulations of the OTS to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The OTS is required to assess the savings association’s record of compliance with the CRA, and to assign one of four possible ratings to an institution’s CRA performance, including “outstanding,” “satisfactory,” “needs to improve,” and “substantial noncompliance.” The Equal Credit Opportunity Act and the Fair Housing Act also prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. A savings association’s failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OTS, as well as other federal regulatory agencies and the Department of Justice. Provident Bank received an “outstanding” Community Reinvestment Act rating in its most recent federal examination.

Federal Home Loan Bank System. Provident Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions. As a member of the Federal Home Loan Bank of New York, Provident Bank is required to acquire and hold shares of capital stock in the Federal Home Loan Bank of New York in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or  ¹/20 of its borrowings from the Federal Home Loan Bank, whichever is greater. As of September 30, 2008, Provident Bank was in compliance with this requirement.

Other Regulations. Provident Bank is subject to federal consumer protection statutes and regulations promulgated under these laws, including, but not limited to, the:

• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

• Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information;

• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

• Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Provident Bank also is subject to federal laws protecting the confidentiality of consumer financial records, and limiting the ability of the institution to share non-public personal information with third parties.

Finally, Provident Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures. These laws and regulations also prohibit financial institutions from engaging in business with foreign shell banks; require financial institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and improve information sharing between financial institutions and the U.S. government. Provident Bank has established policies and procedures intended to comply with these provisions.

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Recent Regulatory Initiatives

Capital Purchase Program. Under the Capital Purchase Program (“CPP”) announced by the U.S. Department of the Treasury on October 14, 2008, as part of the Troubled Asset Relief Program (“TARP”), Treasury will invest up to $250 billion in eligible institutions in the form of non-voting senior preferred stock. Treasury has agreed to purchase up to $58.4 million of Provident Bancorp non-voting preferred stock. The transaction is subject to proper documentation and approval by the Company’s Board of Directors. If Provident Bancorp elects to participate, the Company will issue shares of a new series of senior preferred stock. The newly issued senior preferred stock will have an annual dividend of 5%, increasing to 9% after five years. The senior preferred stock will be callable after five years. In addition to purchasing the senior preferred stock, Treasury will receive 10-year warrants to acquire Provident Bancorp common shares with an aggregate market price of approximately $8.8 million, or 15% of the amount of the senior preferred stock investment.

If the senior preferred stock is issued, it will count as Tier 1 capital for regulatory capital purposes. Under the CPP rules, once the senior preferred stock is issued to Treasury, dividend payments on, and repurchases of, Provident Bancorp’s outstanding common and preferred stock are subject to certain limitations. For as long as any senior preferred stock is outstanding, no dividends may be declared or paid on Provident Bancorp’s outstanding preferred and common stock until all accrued and unpaid dividends on the senior preferred stock are fully paid. In addition, Treasury’s consent is required for any increase in dividends declared on shares of common stock above the dividend rate in effect as of October 14, 2008 before the third anniversary of the issuance of the senior preferred stock unless the senior preferred stock is redeemed by Provident Bancorp or transferred in whole by Treasury. Treasury’s consent also is required for any repurchase of any equity securities or trust preferred securities except for repurchases of the senior preferred stock or repurchases of common shares in connection with benefit plans consistent with past practice before the third anniversary of the issuance of the senior preferred stock unless redeemed by Provident Bancorp or transferred in whole by Treasury. As a result of the issuance of the senior preferred stock, Provident Bancorp and Provident Bank would be subject to certain restrictions on executive compensation. Treasury is requiring entities receiving TARP funds through a CPP investment to enter into a standard Securities Purchase Agreement. Under the terms of this form Securities Purchase Agreement, Treasury, as the investor, may unilaterally amend any term of the Agreement to the extent required to comply with any changes in applicable federal statutes enacted after the date the Agreement is executed. As a result, it is possible that the future changes in applicable federal law could result in changes in the terms of the Securities Purchase Agreement that would be adverse to Provident Bancorp.

TLGP. Provident Bancorp and Provident Bank participate in the TLGP. As a result, Provident Bank’s non-interest-bearing transaction deposits accounts (such as business checking accounts) and interest bearing transaction accounts paying 50 basis points or less, and IOLTA accounts will be fully insured through December 31, 2009, as described above under the heading “Deposit Insurance.” In addition the FDIC will guarantee all newly issued senior unsecured debt (e.g., promissory notes, unsubordinated unsecured notes and commercial paper) up to prescribed limits issued by participating entities beginning on October 14, 2008 and continuing through June 30, 2009. For eligible debt issued by that date, the FDIC will provide the guarantee coverage until the earlier of the maturity date of the debt or June 30, 2012 If Provident Bancorp or Provident Bank did issue debt that was eligible for the guarantee, it would have to pay the FDIC an annualized fee of $0.50 to $1.00 for each $100 of debt depending on the term of the debt.

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ITEM 1A. Risk Factors

Recent Legislation in Response to Market and Economic Conditions May Significantly Affect Our Operations, Financial Condition, and Earnings.

Instability and volatility in the credit markets has led to the adoption of legislation and regulatory actions which have the potential to significantly affect financial institutions and holding companies, including us. Under the Emergency Economic Stabilization Act of 2008 (“EESA”), the U.S. Department of the Treasury has the authority to expend up to $700 billion to assist in stabilizing and providing liquidity to the U.S. financial system. Although it was originally contemplated that these funds would be used primarily to purchase troubled assets under TARP on October 14, 2008, the Treasury announced the CPP under which it will purchase up to $250 billion of non-voting senior preferred shares of certain qualified financial institutions in an attempt to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. In addition, Congress has temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009. The FDIC has also announced the creation of the TLGP which is intended to strengthen confidence and encourage liquidity in the U.S. financial institutions by temporarily guaranteeing newly issued senior unsecured debt of participating organizations and providing full coverage for noninterest-bearing transaction deposit accounts (such as business checking accounts, interest-bearing transaction accounts paying 50 basis points or less and IOLTA accounts), regardless of dollar amount until December 31, 2009.

We can provide no assurances that these actions will have the beneficial effects that are intended, particularly with respect to the extreme levels of volatility and limited credit availability currently being experienced. These new laws, regulations, and changes will increase our FDIC insurance premiums and may also increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. At this time, we cannot fully determine the extent of these effects, or any other effects, on us caused by these and future laws and regulations. However, they may significantly affect the markets in which we do business, the markets for and value of our investments, and our ongoing operations, costs and profitability.

Participants in the CPP Are Subject to Certain Restrictions on Dividends, Repurchases of Common Stock, and Executive Compensation.

Treasury has agreed to purchase up to $58.4 million of Provident Bancorp non-voting cumulative senior preferred stock. The transaction is subject to proper documentation and approval by the Company’s Board of Directors. If we elect to participate, we will be subject to restrictions on dividends, repurchases of common stock, and executive compensation. Compliance with these restrictions and other restrictions may increase our costs and limit our ability to pursue business opportunities. Additionally, any reduction of, or the elimination of, our common stock dividend in the future could adversely affect the market price of our common stock. Unless leveraged and introducing additional interest rate risk our earnings and earnings per share would be adversely impacted by participation in the CPP.

Difficult Market Conditions Have Adversely Affected Our Industry.

Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosure, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative and cash securities, in turn, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets may adversely affect our business, financial condition and results of operations. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry. In particular, we may face the following risks in connection with these events:

• We expect to face increased regulation of our industry, including as a result of the EESA. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

• Our ability to assess the creditworthiness of our customers or to estimate the values of our assets may be impaired if the models and approaches we use become less predictive of future behaviors, valuations,

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assumptions or estimates. The process we use to estimate losses inherent in our credit exposure or estimate the value of certain assets requires difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans or impact the value of assets, which may no longer be capable of accurate estimation which may, in turn, impact the reliability of the process.

• Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

• We may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.

Lack of Consumer Confidence in Financial Institutions May Decrease Our Level of Deposits

Our level of deposits may be affected by lack of consumer confidence in financial institutions, which have caused fewer depositors to be willing to maintain deposits that are not FDIC-insured accounts. That may cause depositors to withdraw deposits and place them in other institutions or to invest uninsured funds in investments perceived as being more secure, such as securities issued by the United States Treasury. These consumer preferences may cause us to be forced to pay higher interest rates to retain deposits and may constrain liquidity as we seek to meet funding needs caused by reduced deposit levels.

Market Volatility and Returns May Lead to Reductions in Investment Management Revenues

Our investment management revenues depend in large part on the level of assets under management. Market volatility that lead customers to liquidate investments as well as lower asset values caused by poor investment returns can reduce our level of assets under management and thereby decrease our investment management revenues.

Future Legislative or Regulatory Actions Responding to Perceived Financial and Market Problems Could Impair Our Rights Against Borrowers.

In particular, there have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. Were proposals such as these, or other proposals limiting our rights as a creditor, to be implemented, we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.

An Inadequate Allowance for Loan Losses Would Negatively Impact Our Results of Operations.

We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to avoid losses. Credit losses are inherent in the lending business and could have a material adverse effect on our operating results. Volatility and deterioration in the broader economy may also increase our risk of credit losses. The determination of an appropriate level of allowance for loan losses is an inherently uncertain process and is based on numerous assumptions. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, that may be beyond our control, and charge-offs may exceed current estimates. We evaluate the collectability of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as, including, but not limited to: the risk characteristics of various classifications of loans; previous loan loss experience; specific loans that have loss potential; delinquency trends; the estimated fair market value of the collateral; current economic conditions; the views of our regulators; and geographic and industry loan concentrations. If any of our evaluations are incorrect and borrower defaults result in losses exceeding our allowance for loan losses, our results of operations could be significantly and adversely affected. We cannot assure you that our allowance will be adequate to cover probable loan losses inherent in our portfolio.

The Need to Account for Assets at Market Prices May Adversely Affect Our Results of Operations.

We report certain assets, including investments and securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their fair value, we may incur losses even if the asset in question presents minimal credit risk. Given the continued disruption in the capital markets, we may be required to recognize other-than-temporary impairments in future periods with respect to securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of the securities and our estimation of the anticipated recovery period.

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Our Commercial Real Estate, Commercial Business and Construction Loans Expose Us to Increased Credit Risks.

At September 30, 2008, our portfolio of commercial real estate loans totaled $554.8 million, or 32.0% of total loans, our commercial business loan portfolio totaled $243.6 million, or 14.1% of total loans, and our portfolio of construction loans totaled $171.0 million, or 10.0% of total loans. We plan to continue to emphasize the origination of these types of loans. Commercial real estate, commercial business and construction loans generally have greater credit risk than one- to four-family residential mortgage loans because repayment of these loans often depends on the successful business operations of the borrowers. These loans typically have larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Many of our borrowers also have more than one commercial real estate, commercial business or construction loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship may expose us to significantly greater risk of loss, compared to an adverse development with respect to a one- to four-family residential mortgage loan.

Changes in the Value of Goodwill and Intangible Assets Could Reduce Our Earnings.

We are required by U.S. generally accepted accounting principles to test goodwill and other intangible assets for impairment at least annually. Testing for impairment of goodwill and intangible assets involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. As of September 30, 2008, if our goodwill and intangible assets were fully impaired and we were required to charge-off all of our goodwill, the pro forma reduction to our stockholders’ equity would be approximately $4.04 per share.

Our Continuing Concentration of Loans in Our Primary Market Area May Increase Our Risk.

Our success depends primarily on the general economic conditions in the counties in which we conduct business, and in the New York metropolitan area in general. Unlike large banks that are more geographically diversified, we provide banking and financial services to customers primarily in Rockland and Orange Counties, New York. We also have a branch presence in Ulster, Sullivan and Putnam Counties in New York and in Bergen County, New Jersey. The local economic conditions in our market area have a significant impact on our loans, the ability of the borrowers to repay these loans and the value of the collateral securing these loans. A significant decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control, would affect the local economic conditions and could adversely affect our financial condition and results of operations. Additionally, because we have a significant amount of commercial real estate loans, decreases in tenant occupancy also may have a negative effect on the ability of many of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

Changes in Market Interest Rates Could Adversely Affect Our Financial Condition and Results of Operations.

Our financial condition and result of operations are significantly affected by changes in market interest rates. Our results of operations substantially depend on our net interest income, which is the difference between the interest income that we earn on our interest-earning assets and the interest expense that we pay on our interest-bearing liabilities. Our interest-bearing liabilities generally reprice or mature more quickly than our interest-earning assets. If rates increase rapidly as a result of an improving economy, we may have to increase the rates paid on our deposits and borrowed funds more quickly than loans and investments reprice, resulting in a negative impact on interest spreads and net interest income. In addition, the impact of rising rates could be compounded if deposit customers move funds from savings accounts back to higher rate certificate of deposit accounts. Conversely, should market interest rates continue to fall below current levels, our net interest margin could also be negatively affected, as competitive pressures could keep us from further reducing rates on our deposits, and prepayments and curtailments on assets may continue. Such movements may cause a decrease in our interest rate spread and net interest margin. Since 2005, after the completion of the second step conversion and the ENB and WSB acquisitions shifts in short term market rates led to an inverted yield curve and consequently fierce competition for deposits. The overall increase in interest bearing deposits due to this competition and eventual migration of deposits to higher rate products increased interest bearing funding costs from 2.6% in 2006 to 3.3% in 2007. Subsequent to this funding costs have declined in 2008 to 2.6% in response to Federal Reserve Bank interest rate cuts. Average wholesale funding costs, as measured by the cost of borrowings, decreased from 4.3% in 2006 to 3.9% in 2008. These decreases outpaced the tax equivalent average yield on earning assets, which increased from 5.8% in 2006 to 6.1%

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in 2008. The overall result was that tax equivalent net interest income has increased from $87.0 million in 2006, $87.9 million in 2007 and $99.0 million in 2008. A decline in net interest margin may occur, offsetting a portion, or all gains in net interest income generated from an increasing volume of assets, if competitive market pressures limit our ability to reduce liability costs as the level of short-term interest rates decrease, or liability costs increase in response to increasing short-term rates. In this regard, we have $302.5 million in structured/callable advances with FHLB. The advances have interest rates that are below the level of comparable fixed term borrowings at the time of issue. If interest rates rise the borrowings may be called whereby the funds would need to be replaced at higher levels.

We also are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the average life of loans and mortgage-related securities. Decreases in interest rates often result in increased prepayments of loans and mortgage-related securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we are subject to reinvestment risk to the extent that we are unable to reinvest the cash received from such prepayments in loans or other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Additionally, increases in interest rates may decrease loan demand and/or may make it more difficult for borrowers to repay adjustable rate loans.

Changes in interest rates also affect the value of our interest earning assets and in particular our securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. At September 30, 2008, our investment and mortgage-backed securities available for sale totaled $791.7 million. Unrealized losses on securities available for sale, net of tax, amounted to $5.9 million and are reported as a separate component of stockholders’ equity. Further, decreases in the fair value of securities available for sale, therefore, could have an adverse effect on stockholders’ equity.

A Breach of Information Security Could Negatively Affect Our Earnings.

Increasingly, we depend upon data processing, communication and information exchange on a variety of computing platforms and networks, and over the internet. We cannot be certain all our systems are entirely free from vulnerability to attack, despite safeguards we have instituted. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. Disruptions to our vendors’ systems may arise from events that are wholly or partially beyond our vendors’ control (including, for example, computer viruses or electrical or telecommunications outages). If information security is breached, despite the controls we have instituted, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. These costs or losses could materially exceed the amount of insurance coverage, if any, which would adversely affect our earnings.

We Are Subject to Extensive Regulatory Oversight

We and our subsidiaries are subject to extensive regulation and supervision. Regulators have intensified their focus on bank lending criteria and controls, and on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance requirements. There is also increased scrutiny of our compliance with the rules enforced by the Office of Foreign Assets Control. In order to comply with regulations, guidelines and examination procedures in the anti-money laundering area, we have been required to adopt new policies and procedures and to install new systems. We cannot be certain that the policies, procedures and systems we have in place are flawless. Therefore, there is no assurance that in every instance we are in full compliance with these requirements. Our failure to comply with these and other regulatory requirements can lead to, among other remedies, administrative enforcement actions, and legal proceedings. In addition, recently enacted, proposed and future legislation and regulations have had, will continue to have or may have significant impact on the financial services industry. Regulatory or legislative changes could make regulatory compliance more difficult or expensive for us, and could cause us to change or limit some of our products and services, or the way we operate our business.

We Are Subject to Competition from Both Banks and Non-Banking Companies.

The financial services industry, including commercial banking, is highly competitive, and we encounter strong competition for deposits, loans and other financial services in our market area. Our principal competitors include commercial banks, other savings banks and savings and loan associations, mutual funds, money market funds, finance companies, trust companies, insurers, leasing companies, credit unions, mortgage companies, real estate investment trusts (REITs), private issuers of debt obligations, venture capital firms, and suppliers of other investment alternatives, such as securities firms. Many of our non-bank competitors are not subject to the same degree of regulation as we are and have advantages over us in providing certain services. Many of our competitors

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are significantly larger than we are and have greater access to capital and other resources. Also, our ability to compete effectively is dependent on our ability to adapt successfully to technological changes within the banking and financial services industry.

Various Factors May Make Takeover Attempts More Difficult to Achieve.

Our Board of Directors has no current intention to sell control of Provident Bancorp. Provisions of our certificate of incorporation and bylaws, federal regulations, Delaware law and various other factors may make it more difficult for companies or persons to acquire control of Provident Bancorp without the consent of our Board of Directors. One may want a take over attempt to succeed because, for example, a potential acquirer could offer a premium over the then prevailing market price of our common stock. The factors that may discourage takeover attempts or make them more difficult include:

Certificate of Incorporation and Statutory Provisions. Provisions of the certificate of incorporation and bylaws of Provident Bancorp and Delaware law may make it more difficult and expensive to pursue a takeover attempt that management opposes. These provisions also would make it more difficult to remove our current Board of Directors or management, or to elect new directors. These provisions also include limitations on voting rights of beneficial owners of more than 10% of our common stock, supermajority voting requirements for certain business combinations and the election of directors to staggered terms of three years. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors.

Required Change in Control Payments and Issuance of Stock Options and Recognition and Retention Plan Shares. We have entered into employment agreements with executive officers, that require payments to be made to them in the event their employment is terminated following a change in control of Provident Bancorp or Provident Bank. We have issued stock grants and stock options in accordance with the 2004 Provident Bancorp Inc. Stock Incentive Plan. The majority of grants under the plan were made in 2005 and generally vest over five years. In the event of a change in control, the vesting of stock and option grants accelerate. In 2006 we adopted the Provident Bank & Affiliates Transition Benefit Plan. The plan calls for severance payments ranging from 12 weeks to one year for employees not covered by separate agreements if they are terminated in connection with a change in control of the Company. These payments and the acceleration of grants would increase the cost of acquiring Provident Bancorp, thereby discouraging future takeover attempts.

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ITEM 1B. Unresolved Staff Comments

Not Applicable.

ITEM 2. Properties

We maintain our executive offices, commercial lending division and investment management and trust department at a leased facility located at 400 Rella Boulevard, Montebello, NY consisting of 40,923 square feet. At September 30, 2008, we conducted our business through 33 full-service branches. Of our 33 branches 15 are located in Orange County, NY, 11 in Rockland County, NY, 2 in Ulster County, NY, 2 in Sullivan County, NY, 1 in Putnam County, NY, 1 in Westchester County and 1 in Bergen County, NJ. Additionally, 17 of our branches are owned and 16 are leased. The square footage of our branches range from 300 to 16,000 square feet.

In addition to our branch network and corporate headquarters we lease 6 and own 5 additional properties which are held for general corporate purposes. The total square footage of these properties is 31,278 square feet and they are located in Orange, Rockland, Sullivan and Ulster counties. See note 7 of the “Notes to Consolidated Financial Statements” filed herewith in Item 8, “Financial Statements and Supplementary Data” for further detail on our premises and equipment

ITEM 3. Legal Proceedings

Provident Bancorp is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts that are believed by management to be immaterial to Provident Bancorp’s financial condition and results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of stockholders during the quarter ended September 30, 2008.

34

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(A)

The shares of common stock of Provident New York Bancorp are quoted on the NASDAQ Global Select (“NASDAQ”) under the symbol “PBNY.” As of September 30, 2008, Provident New York Bancorp had 11 registered market makers, 5,919 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 39,815,213 shares outstanding.

Market Price and Dividends. The following table sets forth market price and dividend information for the common stock for the past two fiscal years.

Quarter Ended	High		Low		Cash Dividends Declared
September 30, 2008	$	14.53	$	10.21	$	0.06
June 30, 2008		14.65		11.06		0.06
March 31, 2008		14.20		11.45		0.06
December 31, 2007		14.02		11.70		0.06
September 30, 2007	$	14.39	$	11.51	$	0.05
June 30, 2007		14.58		13.13		0.05
March 31, 2007		15.21		12.88		0.05
December 31, 2006		15.83		13.58		0.05

Payment of dividends on Provident New York Bancorp’s common stock is subject to determination and declaration by the Board of Directors and depends on a number of factors, including capital requirements, regulatory limitations on the payment of dividends, the results of operations and financial condition, tax considerations and general economic conditions. No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends will continue. Additionally, participation in the CPP would limit our ability to pay and increase dividends, as discussed above under “Recent Regulatory Initiatives.” Repurchases of the Company’s shares of common stock during the fourth quarter of the fiscal year ended September 30, 2008 are detailed in (C) below. There were no sales of unregistered securities during the quarter ended September 30, 2008.

Set forth below is a stock performance graph comparing the yearly total return on our shares of common stock, commencing with the closing price on September 30, 2002, with (a) the cumulative total return on stocks included in the NASDAQ Composite Index, and (b) the cumulative total return on stocks included in the SNL Mid-Atlantic Thrift Index.

There can be no assurance that our stock performance in the future will continue with the same or similar trend depicted in the graph below. We will not make or endorse any predictions as to future stock performance.

35

PROVIDENT NEW YORK BANCORP

	Period Ending
Index	09/30/03	09/30/04	09/30/05	09/30/06	09/30/07	09/30/08
Provident New York Bancorp	100.00	125.57	126.61	150.87	146.67	150.66
NASDAQ Composite	100.00	106.15	120.41	126.39	151.18	117.06
SNL Mid-Atlantic Thrift Index	100.00	115.29	116.30	129.97	129.84	111.55

source: SNL Financial

This stock performance graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Form 10-K under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Provident New York Bancorp specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

(B)

Not Applicable

36

(C)

Issuer Purchases of Equity Securities

	Total Number of Shares (or Units) Purchased (1)	Average Price Paid per share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may yet be Purchased Under the Plans or Programs
Period (2008)					1,165,901
July 1 - July 31	—	$	—	—	1,165,901
August 1 - August 31	3,461		13.10	—	1,165,901
September 1 - September 30	30,661		13.22	—	1,165,901
Total	34,122	$	13.21	—

¹ The total number of shares purchased during the periods includes shares deemed to have been received from employees who exercised stock options by submitting previously acquired shares of common stock in satisfaction of the exercise price, or shares withheld for tax purposes (34,122), as is permitted under the Company’s stock benefit plans and shares repurchased as part of a previously authorized repurchase program.

² The Company announced its fourth repurchase program on August 24, 2007 authorizing the repurchase of 2,000,000 shares. Participation in the CPP would limit the Company’s ability to repurchase shares of common stock, as discussed above under “Recent Regulatory Initiatives.”

37

ITEM 6. Selected Financial Data

The following financial condition data and operating data are derived from the audited consolidated financial statements of Provident New York Bancorp. Additional information is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included as Item 7 and Item 8 of this report, respectively.

	At September 30,
	2008		2007		2006		2005		2004
	(In thousands)
Selected Financial Condition Data:
Total assets	$	2,984,371	$	2,802,099	$	2,841,337	$	2,598,323	$	1,826,856
Loans, net (1)		1,708,452		1,617,669		1,453,185		1,341,026		980,986
Securities available for sale		791,688		794,997		951,729		822,952		534,297
Securities held to maturity		43,013		37,446		60,987		70,949		69,078
Deposits		1,989,197		1,713,684		1,729,659		1,726,401		1,239,532
Borrowings		566,008		661,242		682,739		442,203		214,909
Equity		399,158		405,089		405,286		395,157		349,512
	Years Ended September 30,
	2008		2007		2006(11)		2005(9)		2004(8)
	(In thousands)
Selected Operating Data:
Interest and dividend income	$	148,982	$	151,626	$	135,616	$	116,171	$	74,946
Interest expense		53,642		66,888		50,859		29,400		12,982
Net interest income		95,340		84,738		84,757		86,771		61,964
Provision for loan losses		7,200		1,800		1200		750		800
Net interest income after provision for loan losses		88,140		82,938		83,557		86,021		61,164
Non-interest income		21,042		19,845		17,152		17,007		11,135
Non-interest expense		75,500		74,590		71,256		70,582		56,146
Income before income tax expense		33,682		28,193		29,453		32,446		16,153
Income tax expense		9,904		8,566		9,258		11,204		5,136
Net income	$	23,778	$	19,627	$	20,195	$	21,242	$	11,017
		footnotes on following page

38

	At or For the Years Ended September 30,
	2008			2007		2006			2005(9)			2004(8)
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)		0.84	%	0.70	%		0.75	%		0.84	%		0.69	%
Return on equity (ratio of net income to average equity)		5.88		4.82			5.15			5.16			3.94
Average interest rate spread (2)		3.48		2.97			3.19			3.63			4.02
Net interest margin (3)		3.96		3.57			3.68			3.98			4.34
Efficiency ratio(4)		61.20		66.40			65.30			63.70			68.80
Non-interest expense to average total assets		2.68		2.68			2.63			2.79			3.49
Ratio of average interest-earning assets to average interest-bearing liabilities		122.26		122.34			122.48			126.07			135.27
Per Share Related Data: (9)
Basic earnings per share (7)	$	0.61		0.48		$	0.49		$	0.49		$	0.30
Diluted earnings per share(7)		0.61		0.48			0.49			0.49			0.29
Dividends per share		0.24		0.20			0.20			0.17			0.15
Book value per share (6)		10.03		9.82			9.49			9.08			8.82
Dividend payout ratio (5)		39.34	%	41.67	%		40.82	%		34.69	%		50.00	%
Asset Quality Ratios:
Non-performing assets to total assets		0.57	%	0.26	%		0.18	%		0.07	%		0.15	%
Non-performing loans to total loans		0.97		0.44			0.34			0.12			0.27
Allowance for loan losses to non-performing loans		137		281			406			1,283			608
Allowance for loan losses to total loans		1.33		1.24			1.38			1.55			1.67
Capital Ratios:
Equity to total assets at end of year		13.37	%	14.46	%		14.26	%		15.21	%		19.14	%
Average equity to average assets		14.34		14.61			14.49			16.26			17.41
Tier 1 leverage ratio (bank only)		8.0		8.1			7.8			8.2			11.3
Other Data:
Number of full service offices		33		33			33			35			27

⁽¹⁾ Excludes loans held for sale.

⁽²⁾ The average interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

⁽³⁾ The net interest margin represents net interest income as a percent of average interest-earning assets for the period. Net interest income is commonly presented on a tax-equivalent basis. This is to the extent that some component of the institution’s net interest income will be exempt from taxation (e.g. was received yet the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added back to the net interest income total. This adjustment is considered helpful in comparing one financial institution’s net interest income (pre-tax) to that of another institution, as each will have a different proportion of tax-exempt items in their portfolios. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution. We follow these practices.

⁽⁴⁾ The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income. As in the case of net interest income, generally, net interest income as utilized in calculating the efficiency ratio is typically expressed on a tax-equivalent basis. Moreover, most financial institutions, in calculating the efficiency ratio, also adjust both noninterest expense and noninterest income to exclude from these items (as calculated under generally accepted accounting principles) certain component elements, such as non-recurring charges, other real estate expense and amortization of intangibles (deducted from noninterest expense) and securities transactions and other non-recurring items (excluded from noninterest income). We follow these practices.

39

⁽⁵⁾ The dividend payout ratio represents dividends per share divided by basic earnings per share.

⁽⁶⁾ Book value per share is based on total stockholders’ equity and 39,815,213, 41,230,618, 42,699,046, 43,505,659 and 39,618,373 outstanding common shares at September 30, 2008, 2007, 2006, 2005 and 2004, respectively. For this purpose, common shares include unallocated employee stock ownership plan shares but exclude treasury shares.

⁽⁷⁾ Prior period share information has been adjusted to reflect the 4.4323-to-one exchange ratio in connection with the Company’s second step conversion in January 2004.

⁽⁸⁾ Includes $5.0 million ($3.0 million after tax) and $773,000 ($464,000 after tax) for the establishment of the charitable foundation and merger integration costs, respectively.

⁽⁹⁾ Includes $1.124 million ($674,000 after tax) of merger integration costs.

40

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. Results of operations are also significantly affected by general economic and competitive conditions, as well as changes in market interest rates, government policies and actions of regulatory authorities. The Federal Reserve Board, through a series of reductions to the federal funds target rate, has acted to increase liquidity in the credit markets. These rate reductions significantly lowered yields on the short end of the treasury yield curve rather than the long end of the curve, resulting in a steeper yield curve than existed at the prior fiscal year-end.

Net income for the year ended September 30, 2008, increased 21.2% to $23.8 million, or $0.61 per diluted share from $19.6 million, or $0.48 per diluted share for the year ended September 30, 2007. Net income for the year ended September 30, 2006 was $20.2 million, or $0.49 per diluted share. Net interest income on a tax equivalent basis increased $10.6 million or 12.5% for the year ended September 30, 2008 as compared to the year ended 2007, but was relatively unchanged between fiscal 2006 and fiscal 2007. Net interest margin increased from 3.57% for fiscal 2007 to 3.96% for fiscal 2008. Average loans have grown from $1.4 billion in 2006 to $1.5 billion in 2007 and to $1.6 billion in 2008, the provision for loan losses increased from $1.2 million in 2006, to $1.8 million in 2007 and to $7.2 million in 2008 primarily due to an increase in charge-offs from $1.8 million in 2007, to $2.5 million in 2007 to $4.5 million in 2008 due to a softer economy in addition to the growth of the portfolio. Charge-offs increased due to the slow down in economic activity in 2008.

Non interest income was $17.2 million in 2006 increasing $3.9 million (resulting from banking fees as well as investment management fees and gains on sales of investment securities) to $ 19.8 million in 2007 and $21.0 million in 2008. Non interest expense was $71.3 million in 2006 increasing to $74.6 million in 2007 and $75.5 million in 2008.

Total assets increased to $3.0 billion at September 30, 2008 as compared to $2.8 billion at September 30, 2007. As the Company furthered its commercial lending and banking initiatives, loans increased by 5.7% and investment securities remained relatively unchanged compared to the year ended September 30, 2007.

The following is an analysis of the financial condition and results of the Company’s operations. This item should be read in conjunction with the consolidated financial statements and related notes filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data” and the description of the Company’s business filed here within Part I, Item 1, “Business.”

41

Critical Accounting Policies

Our accounting and reporting policies are prepared in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Accounting policies considered critical to our financial results include the allowance for loan losses, accounting for goodwill and other intangible assets, accounting for deferred income taxes and the recognition of interest income.

The methodology for determining the allowance for loan losses is considered by management to be a critical accounting policy due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the allowance for loan losses considered necessary. We evaluate our loans at least quarterly, and review their risk components as a part of that evaluation. See Note 1, “Basis of Financial Statement Presentation and Summary of Significant Accounting Policies” in our “Notes to Consolidated Financial Statements” for a discussion of the risk components. We consistently review the risk components to identify any changes in trends.

Accounting for goodwill is considered to be a critical policy because goodwill must be tested for impairment at least annually using a “two-step” approach that involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions utilized. If goodwill is determined to be impaired, it would be expensed in the period in which it became impaired.

We also use judgment in the valuation of other intangible assets. A core deposit base intangible asset has been recorded for core deposits (defined as checking, money market and savings deposits) that were acquired in acquisitions that were accounted for as purchase business combinations. The core deposit base intangible asset has been recorded using the assumption that the acquired deposits provide a more favorable source of funding than more expensive wholesale borrowings. An intangible asset has been recorded for the present value of the difference between the expected interest to be incurred on these deposits and interest expense that would be expected if these deposits were replaced by wholesale borrowings, over the expected lives of the core deposits. If we find these deposits have a shorter life than was estimated, we will write down the asset by expensing the amount that is impaired. Other intangible assets have been recorded in connection with the acquisition of HVIA for non-competition and customer intangibles. As of September 30, 2008, the Company had $7.7 million recorded in core deposit and other intangibles.

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change.

Interest income on loans, securities and other interest-earning assets is accrued monthly unless management considers the collection of interest to be doubtful. Loans are placed on non-accrual status when payments are contractually past due 90 days or more, or when management has determined that the borrower is unlikely to meet contractual principal or interest obligations, unless the assets are well secured and in the process of collection. At such time, unpaid interest is reversed by charging interest income for interest in the current fiscal year or the allowance for loan losses with respect to prior year income. Interest payments received on non-accrual loans (including impaired loans) are not recognized as income unless future collections are reasonably assured. Loans are returned to accrual status when collectability is no longer considered doubtful.

42

Management Strategy

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

Operating as a Community Bank. As an independent community bank, we emphasize the local nature of our decision-making to respond more effectively to the needs of our customers while providing a full range of financial services to the businesses, individuals, and municipalities in our market area. We offer a broad range of financial products to meet the changing needs of the marketplace, including internet banking, cash management services and, on a selective basis, sweep accounts. In addition, we offer asset management services to meet the investing needs of individuals, corporations and not-for-profit entities. As a result, we are able to provide, at the local level, the financial services required to meet the needs of the majority of existing and potential customers in our market.

Enhancing Customer Service. We are committed to providing superior customer service as a way to differentiate us from our competition. As part of our commitment to service, we have been engaged in Sunday banking since 1995 and extended service hours, since 1987. In addition, we offer multiple access channels to our customers, including our branch and ATM network, internet banking, our Customer Care Telephone Center and our Automated Voice Response system. We reinforce in our employees a commitment to customer service through extensive training, recognition programs and measurement of service standards. In 2006 we launched our Service Excellence Program designed to maintain the highest level of service to our customer base.

Growing and maintaining a Diversified Loan Portfolio. We offer a broad range of loan products to commercial businesses, real estate owners, developers and individuals. To support this activity, we maintain commercial, consumer and residential loan departments staffed with experienced professionals to promote the continued growth and prudent management of loan assets. We have experienced consistent and significant growth in our commercial loan portfolio while continuing to grow our residential mortgage and consumer lending businesses. As a result, we believe that we have developed a high quality diversified loan portfolio with a favorable mix of loan types, maturities and yields.

Expanding our Banking Franchise. Management intends to continue the expansion of the banking franchise and to increase the number of customers served and products used by businesses and consumers in our market area. Our strategy is to deliver exceptional customer service, which depends on up-to-date technology and multiple access channels, as well as courteous personal contact from a trained and motivated workforce. This approach has resulted in a relatively high level of core deposits, which improves our overall cost of funds. Management intends to maintain this strategy, which will require ongoing investment in banking locations and technology to support exceptional service levels for Provident Bank’s customers.

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

Total assets as of September 30, 2008 were $3.0 billion, an increase of $182.3 million, or 6.5%, from September 30, 2007. The increase from September 30, 2007 was due to increases seen in the loan portfolio of $93.5 million, or 5.7%, and an increase in cash and due from banks of $78.5 million, due to a large deferred cash letter received on September 30, 2008. Core deposit and other intangibles decreased by $2.6 million. Goodwill decreased by $293,000 due to expiration of merger related tax items. The Company had $189,000 in loans held for sale as of September 30, 2008 and none at September 30, 2007.

Net loans as of September 30, 2008 were $1.7 billion, an increase of $90.8 million, or 5.6%, over net loan balances of $1.6 billion at September 30, 2007. Commercial loans, primarily commercial business loans, increased by $74.2 million, or 8.3%, over balances at September 30, 2007. Consumer loans increased by $6.7 million, or 2.8%, during the fiscal year ended September 30, 2008, while residential loans increased by $12.6 million, or 2.5%. Total loan originations, excluding loans originated for sale were $596.6 million for the fiscal year ended September 30, 2008, while repayments were $498.6 million for the fiscal year ended September 30, 2008.

Total securities increased by $2.3 million, to $834.7 million at September 30, 2008 from $832.4 million at September 30, 2007, primarily due to local municipal investments classified as held to maturity.

43

Deposits as of September 30, 2008 were $2.0 billion, an increase of $275.5 million, or 16.1%, from September 30, 2007. Included in the figures for September 30, 2008 were approximately $242.3 million in short-term seasonal municipal deposits. As of September 30, 2008 retail and commercial transaction accounts were 41.3% of deposits compared to 30.7% at September 30, 2007. The decrease in savings deposits of $10.4 million, or 3.0%, was largely due to the migration of the lower-yielding accounts to our certificate of deposit and money market deposit products or, in some cases, to other institutions offering higher yields (see “Liquidity and Capital Resources”). Certificates of deposit decreased $37.3 million or 6.6% as the Company, while maintaining competitive rate structures, did not compete with the highest pricing in the market place. These decreases were offset by an increase of $28.7 million, or 10.3%, in money market deposit accounts. Transaction accounts increased $294.5 million or 56.0%, primarily due to the aforementioned seasonal municipal deposits.

Borrowings decreased by $95.2 million, or 14.4%, from September 2007, to $566.0 million. The decrease is related to the borrowings being paid down by maturing investment securities and seasonal municipal deposits paying down short-term borrowings.

Stockholders’ equity decreased $5.9 million from September 30, 2007 to $399.2 million at September 30, 2008, due to purchases of treasury stock. Treasury stock repurchases were minimal during the fourth quarter of fiscal 2008 and totaled 1.6 million shares for the 2008 fiscal year, at a cost of $20.2 million. These purchases were partially offset by increases in the Company’s retained earnings of $14.3 million and stock based compensation vesting of $5.1 million. A decline in other comprehensive income (loss) of $5.4 million, added to the overall decrease in capital.

As of September 30, 2008 the Company had authorization to purchase up to an additional 1,165,901 shares of common stock (see item I Business: “Recent Regulatory Initiatives’). Bank Tier I capital to assets was 8.0% at September 30, 2008. Tangible capital at the holding company level was 8.48%.

44

The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. Tax-exempt securities are reported on a tax-equivalent basis, using a 35% federal tax rate. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	Years Ended September 30,
	2008							2007							2006
	Average Outstanding Balance		Interest			Yield/Rate		Average Outstanding Balance		Interest			Yield/Rate		Average Outstanding Balance		Interest			Yield/Rate
	(Dollars in Thousands)
Interest Earning Assets:
Loans(1)	$	1,644,388	$	107,633		6.55	%	$	1,541,279	$	109,940		7.13	%	$	1,391,562	$	95,531		6.87	%
Securities taxable		647,167		31,947		4.94			736,423		33,479		4.55			836,265		34,378		4.11
Securities-tax exempt		173,541		10,511		6.06			146,602		8,899		6.07			108,925		6,441		5.91
Other		35,103		2,570		7.32			34,042		2,422		7.11			30,852		1,520		4.93
Total Interest-earnings assets		2,500,199		152,661		6.11			2,458,346		154,740		6.29			2,367,604		137,870		5.82
Non-interest earning assets		320,765							329,016							337,815
Total assets	$	2,820,964						$	2,787,362						$	2,705,419
Interest Bearing Liabilities:
NOW deposits	$	189,524		1,015		0.54		$	153,869		622		0.40		$	154,708		511		0.33
Savings deposits(2)		356,854		1,243		0.35			377,079		1,930		0.51			445,419		2,258		0.51
Money market deposits		285,119		5,299		1.86			252,925		6,671		2.64			230,933		4,178		1.81
Certificates of deposit		556,973		20,787		3.73			600,422		27,216		4.53			538,045		19,855		3.69
Borrowings		656,538		25,298		3.85			625,139		30,449		4.87			564,006		24,057		4.27
Total interest-bearing liabilities		2,045,008		53,642		2.62			2,009,434		66,888		3.33			1,933,111		50,859		2.63
Non-interest bearing deposits		351,995							347,956							356,869
Other non-interest bearing liabilities		19,565							22,638							23,510
Total liabilities		2,416,568							2,380,028							2,313,490
Stockholders’ equity		404,396							407,334							391,929
Total liabilities and
Stockholders’ equity	$	2,820,964						$	2,787,362						$	2,705,419
Net interest rate spread(3)						3.49	%						2.97	%						3.19	%
Net Interest-earning assets(4)	$	455,191						$	448,912						$	434,493
Net interest margin(5)				99,019		3.96	%				87,852		3.57	%				87,011		3.68	%
Less tax equivalent adjustment				(3,679	)						(3,114	)						(2,254	)
Net Interest income			$	95,340						$	84,738						$	84,757
Ratio of interest-earning assets to interest bearing liabilities				122.26	%						122.34	%						122.48	%

⁽¹⁾ Balances include the effect of net deferred loan origination fees and costs, and the allowance for the loan losses. Includes prepayment fees and late charges.

⁽²⁾ Includes club accounts and interest-bearing mortgage escrow balances.

⁽³⁾ Net interest rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average interest-bearing liabilities.

⁽⁴⁾ Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

⁽⁵⁾ Net interest margin represents net interest income (tax equivalent) divided by average total interest-earning assets.

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The following table presents the dollar amount of changes in interest income (on a fully tax-equivalent basis) and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

	2008 vs. 2007									2007 vs. 2006
	Increase (Decrease) Due to						Total Increase (Decrease)			Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate						Volume			Rate
	(In thousands)
Interest-earning assets:
Loans	$	7,321		$	(9,628	)	$	(2,307	)	$	11,053		$	3,357		$	14,410
Securities taxable		(4,262	)		2,730			(1,532	)		(3,384	)		2,485			(899	)
Securities tax exempt		1,627			(15	)		1,612			2,279			179			2,458
Other earning assets		76			72			148			171			731			902
Total interest-earning assets		4,762			(6,841	)		(2,079	)		10,119			6,752			16,871
Interest-bearing liabilities:
NOW deposits		145			248			393			(1	)		112			111
Savings deposits		(100	)		(587	)		(687	)		(321	)		(41	)		(362	)
Money market deposits		775			(2,147	)		(1,372	)		429			2,064			2,493
Certificates of deposit		(1,869	)		(4,560	)		(6,429	)		2,483			4,878			7,361
Borrowings		1,470			(6,621	)		(5,151	)		2,773			3,653			6,426
Total interest-bearing liabilities		421			(13,667	)		(13,246	)		5,363			10,666			16,029
Less tax equivalent adjustment		565						565			(804	)		(56	)		(860	)
Change in net interest income	$	4,906		$	6,826		$	11,732		$	3,952		$	(3,970	)	$	(18	)

Analysis of Net Interest Income

Net interest income is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them, respectively.

Comparison of Operating Results for the Years Ended September 30, 2008 and September 30, 2007

Net income for the year ended September 30, 2008 was $23.8 million. This compares to $19.6 million for the year ended September 30, 2007. Diluted earnings per share were $0.61 for the year ended September 30, 2008 compared to $0.48 for the prior fiscal year.

Interest Income. Interest income for the year ended September 30, 2008 decreased to $149.0 million, a decrease of $2.6 million, or 1.7%, compared to the prior year. The decrease was primarily due to declines in general market interest rates on variable rate loans, as well as a decline in the average balances of taxable securities. Average interest-earning assets for the year ended September 30, 2008 were $2.5 billion, an increase of $41.9 million, or 1.7%, over average interest-earning assets for the year ended September 30, 2007 of $2.5 billion. Average loan balances grew by $103.1 million and average balances of securities and other earning assets decreased by $61.3 million. On a tax-equivalent basis, average yields on interest earning assets decreased by 18 basis points to 6.11% for the year ended September 30, 2008, from 6.29% for the year ended September 30, 2007. The repricing of floating rate assets was the primary reason for the decrease in asset yields.

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Interest income on loans for the year ended September 30, 2008, decreased 2.1% to $107.6 million from $109.9 million for the prior fiscal year. Interest income on commercial loans for the year ended September 30, 2008 decreased to $63.5 million, from commercial loan interest income of $64.9 million for the prior fiscal year. Average balances of commercial loans grew $71.9 million to $901.6 million, with a 79 basis point decrease in the average yield. The decrease in yield relates to the decline in the prime rate of 2.75% during fiscal 2008. Commercial loans adjustable with the prime rate totaled $298.2 million at September 30, 2008. Interest income on consumer loans decreased by $2.5 million, or 14.7% and $154.5 million of consumer loans adjust with the prime rate. Income earned on residential mortgage loans was $29.9 million for the year ended September 30, 2008, up $1.6 million, or 5.7%, from the prior year.

Tax-equivalent interest income on securities and other earning assets increased to $45.0 million for the year ended September 30, 2008, compared to $44.8 million for the prior year. This was due to a tax-equivalent increase of 37 basis points in yields offset in part by a $62.3 million decline in the average balances of securities and other earning assets. During fiscal 2008 $92.5 million matured and were reinvested at current market rates.

Interest Expense. Interest expense for the year ended September 30, 2008 decreased by $13.2 million to $53.6 million, a decrease of 19.8% compared to interest expense of $66.9 million for the prior fiscal year. The decrease in interest expense was primarily due to a decrease in the average rates paid on interest-bearing liabilities for the year ended September 30, 2008 of 2.62% compared to 3.33% in fiscal 2007. The average interest rate paid on certificates of deposit decreased by 80 basis points to 3.73% for the year ended September 30, 2008, from 4.53% for the prior year. The average interest rate paid on savings decreased to 0.35% for the year ended September 30, 2008 from 0.51% paid during fiscal 2007. The average rate paid on money market rates also declined, 78 basis points to 1.86% for the year ended September 30, 2008. Due to increases in municipal deposits the rates paid on NOW accounts increased 14 basis points for fiscal 2008 as compared to fiscal 2007. Furthermore, this average cost of borrowings decreased 102 basis points which reflect the general market conditions during fiscal 2008.

Net Interest Income for the fiscal year ended September 30, 2008 was $95.3 million, compared to $84.7 million for the year ended September 30, 2007. The net interest margin increased by 39 basis points to 3.96%, while the net interest spread increased by 52 basis points to 3.49%. The 10-year US treasury rate was an average of 4.72% for the fiscal year ended September 30, 2007 compared to 3.90% for the year ended September 30, 2008 The Bank’s average cost of interest-bearing liabilities has decreased and, although the average asset yields also decreased during this period, they did so at a slower pace due to the asset/liability mix of the Company’s balance sheet. Further, the greater increase of interest earning assets compared to interest bearing liabilities improved net interest income.

Provision for Loan Losses. We recorded $7.2 million and $1.8 million in loan loss provisions for the year ended September 30, 2008 and September 30, 2007, respectively. At September 30, 2008, the allowance for loan losses totaled $23.1 million, or 1.33% of the loan portfolio, compared to $20.4 million, or 1.24% of the loan portfolio at September 30, 2007. Net charge-offs for the years ended September 30, 2008 and 2007 were $4.5 million and $1.8 million, respectively (an annual rate of 0.28% and 0.12%, respectively, of the average loan portfolio). Our credit-scored small business loan portfolio continued to account for the large majority of our charge-offs. During the year we recorded Net charge-offs of $3.5 million in this portfolio, on average outstanding balances of $99.9 million. While we respond promptly to any loans that are delinquent, we also monitor the portfolio to identify loans that are showing signs of weakness other than delinquencies. During the year we also moderately tightened credit standards in our underwriting process, in particular with applicants in industries we have identified as particularly vulnerable in this economy.

Our non-performing loans increased to $16.9 million at September 30, 2008 from $7.3 million at September 30, 2007. The majority of the increase came from the commercial sector and was centered in three real estate relationships. Negotiations are currently underway with the principals to restructure two of the obligations. Subsequent to year end, the Company received a deed in lieu of foreclosure on the third relationship. The remainder of the increase is attributed to other commercial loans and residential mortgages.

We increased the provision for loan losses to reflect the increase in charge-offs and non-performing loans. We also increased the provision for loan losses due to data showing slowing sales and declining values in one-to-four family homes in our market area, increasing unemployment, and credit and liquidity concerns in the financial markets, leading to an overall downturn in the economy. Based on our experience in integrating the loan portfolios acquired in the Ellenville and Warwick acquisitions in 2004, and further analysis of delinquency trends in our commercial

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mortgage portfolio, we decreased the percentage estimate of losses for the overall commercial mortgage and noncredit-scored commercial and industrial portfolios. Overall growth in the portfolio, particularly in the commercial mortgage and noncredit-scored commercial and industrial portfolios resulted in an increase in our estimate of the required allowance for loan losses as well.

Non-interest income consists primarily of banking fees and service charges, and net increases in the cash surrender value of bank-owned life insurance (“BOLI”) contracts, title insurance fees and investment management fees. Non-interest income was $21.0 million for the fiscal year ended September 30, 2008 compared to $19.8 million for the prior fiscal year. Deposit fees and service charges increased by $995,000, or 8.7%. Income derived from the Company’s BOLI investments decreased by $212,000, or 10.4%, due to $403,000 in death benefit proceeds received in 2007. Title insurance fee income derived from the Hardenburgh Abstract Company, Inc. decreased $262,000 due to the continued slow down in the real estate markets. Investment management fees increased $191,000 which is related to increased balances under management. During the year ended September 30, 2008, the Company also recorded gains on sales of investment securities totaling $983,000 compared to a $8,000 loss for the prior year.

Non-interest expense consists primarily of salaries and employee benefits, stock-based compensation, occupancy and office expenses, advertising and promotion expense, professional fees, intangible assets amortization and data processing expenses. Non-interest expense for the fiscal year ended September 30, 2008 increased by $910,000, or 1.2% to $75.5 million, compared to $74.6 million for the same period in 2007. Compensation and employee benefits increased by $3.6 million, or 10.6%, to $37.0 million for the year ended September 30, 2008. The increase was primarily attributable to increases in employee benefits, and additional employees hired in 2008, as the Company experienced increases in its health insurance programs, 401K matching and profit sharing expenses and added resources to its municipal bank business and opened a new branch location. Occupancy and office operations increased $998,000, or 8.7%, as the Company invested in branch relocations in 2008. Stock-based compensation decreased by $1.9 million due to lower acceleration of vesting of restricted stock awards and its first step ESOP loan maturing in December 2007 requiring less share allocations going forward. Marketing expenses decreased $899,000 to $3.3 million at September 30, 2008 as compared to $4.2 million at September 30, 2007 due primarily to the production costs associated with our 2007 media campaigns.

Income Taxes. Income tax expense was $9.9 million for the fiscal year ended September 30, 2008 compared to $8.6 million for fiscal 2007, representing effective tax rates of 29.4% and 30.4%, respectively. The lower tax rate in 2008 was primarily due to the continued shift to tax-exempt securities, as well as the maturity of the first-step ESOP loan, which was primarily non-deductible expense.

Comparison of Operating Results for the Years Ended September 30, 2007 and September 30, 2006

Net income for the year ended September 30, 2007 was $19.6 million. This compares to $20.2 million for the year ended September 30, 2006. Diluted earnings per share were $0.48 for the year ended September 30, 2007 compared to $0.49 for the prior fiscal year.

Interest Income. Interest income for the year ended September 30, 2007 increased to $151.6 million, an increase of $16.0 million, or 11.8%, compared to the prior year. The increase was primarily due to higher average balances of loans offset by declines in average securities, along with higher yields in both asset classes. Average interest-earning assets for the year ended September 30, 2007 were $2.5 billion, an increase of $90.7 million, or 3.8%, over average interest-earning assets for the year ended September 30, 2006 of $2.4 billion. Average loan balances grew by $149.7 million and average balances of securities and other earning assets decreased by $59.0 million. On a tax-equivalent basis, average yields on interest earning assets increased by 47 basis points to 6.29% for the year ended September 30, 2007, from 5.82% for the year ended September 30, 2006. New security purchases and loan originations at higher market interest rates, as well as the repricing of floating rate assets were the primary reasons for the increase in asset yields.

Interest income on loans for the year ended September 30, 2007, grew 15.1% to $109.9 million from $95.5 million for the prior fiscal year. Interest income on commercial loans for the year ended September 30, 2007 increased to $64.9 million, up 18.1% from commercial loan interest income of $55.0 million for the prior fiscal year. Average balances of commercial loans grew $101.7 million to $829.7 million, with a 28 basis point increase in the average yield. Interest income on consumer loans increased by $3.1 million, or 23.2%. Our fixed-rate consumer loans have shorter average maturities, and our adjustable-rate consumer loans float with the prime rate. Income earned on residential mortgage loans was $28.3 million for the year ended September 30, 2007, up $1.3 million, or 4.8%, from the prior year.

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Interest income on securities and other earning assets increased to $44.8 million for the year ended September 30, 2007, compared to $42.3 million for the prior year. This was due to a tax-equivalent increase of 55 basis points in yields offset in part by a $59.0 million decline in the average balances of securities and other earning assets.

Interest Expense. Interest expense for the year ended September 30, 2007 increased by $16.0 million to $66.9 million, an increase of 31.5% compared to interest expense of $50.9 million for the prior fiscal year. This increase was net of the recognition of accretion of $0.5 million in premiums recorded on called Federal Home Loan Bank borrowings that were assumed in acquisitions compared to $1.5 million in similar premium accretion in the prior year. The increase in interest expense was primarily due to an increase in the average balance of interest-bearing liabilities of $76.3 million, or 3.9%. In addition, average rates paid on interest-bearing liabilities for the year ended September 30, 2007 increased by 70 basis points to 3.33% from 2.63% in fiscal 2006. The average interest rate paid on certificates of deposit increased by 84 basis points to 4.53% for the year ended September 30, 2007, from 3.69% for the prior year. For the year ended September 30, 2007, average balances of lower cost savings decreased by $68.3 million, or 15.3%, while average balances of certificates of deposit increased by $62.4 million compared to the year ended September 30, 2006. The average interest rate paid on savings remained unchanged at 0.51% for the year ended September 30, 2007, while money market rates increased 83 basis points to 2.64% for the year ended September 30, 2007.

Net Interest Income for the fiscal year ended September 30, 2007 was $84.7 million, comparable to levels for the year ended September 30, 2006. The net interest margin declined by 11 basis points to 3.57%, while the net interest spread declined by 22 basis points to 2.97%. The change in short-term rates, which affected funding costs to a larger degree than existing earning assets (which are primarily fixed-rate until maturity) was disproportionately large as compared to the change in longer term market interest rates, and has decreased net interest margin. The 10-year US treasury rate was an average of 4.75% for the fiscal year ended September 30, 2006 compared to 4.72% for the year ended September 30, 2007. The Bank’s average cost of interest-bearing liabilities increased and, although the average asset yields increased during this period, they did so at a slower pace due to continued market pressure. This was offset somewhat by a greater increase of interest earning assets compared to interest bearing liabilities.

Provision for Loan Losses. We recorded $1.8 million and $1.2 million in loan loss provisions for the year ended September 30, 2007 and September 30, 2006, respectively. At September 30, 2007 the allowance for loan losses totaled $20.4 million, or 1.24% of the loan portfolio, compared to $20.4 million, or 1.38% of the loan portfolio at September 30, 2006. Net charge-offs for the years ended September 30, 2007 and 2006 were $1.8 million and $1.5 million, respectively (an annual rate of 0.12% and 0.11%, respectively, of the average loan portfolio).

The increase in the provision for loan losses was primarily attributable to growth in the loan portfolio of $164.5 million, representing an increase of 11.2%. Higher risk loan categories, primarily commercial real estate loans and commercial business loans, provided most of this increase. Non-performing loans increased $2.2 million from September 30, 2006, to $7.3 million at September 30, 2007 and represent 0.44% of loans compared to $5.0 million or 0.34% of loans as of September 30, 2006.

Non-interest income was $19.8 million for the fiscal year ended September 30, 2007 compared to $17.2 million for the prior fiscal year. Deposit fees and service charges increased by $745,000, or 7.0% to $11.4 million. Income derived from the Company’s BOLI investments increased by $403,000, or 24.6%, due to death benefit proceeds received in 2007. Title insurance fee income derived from the Hardenburgh Abstract Company, Inc. decreased $519,000 due to a slow down in the real estate markets. Investment management fees increased $1.3 million which is related to HVIA acquired on June 1, 2006. During the year ended September 30, 2007, the Company also recorded gains on sales of loans totaling $155,000 compared to $116,000 for the prior year.

Non-interest expense for the fiscal year ended September 30, 2007 increased by $3.3 million, or 4.7% to $74.6 million, compared to $71.3 million for the same period in 2006. Compensation and employee benefits increased by $1.3 million, or 4.1%, to $33.5 million for the year ended September 30, 2007. The increase was primarily attributable to savings from retirement plan changes implemented the prior year, a decrease of $1.3 million in pension expense, offset by a $910,000 increase in 401-K expense as the Company increased its contribution percentage, and by scheduled salary increases, severance expense and higher incentive compensation. Marketing expenses increased $1.8 million to $4.2 million at September 30, 2007 as compared to $2.4 million at September 30, 2006, as the Company invested in marketing and development to improve market share and strengthen the franchise. Stock-based compensation decreased by $120,000 due to lower acceleration of vesting of restricted stock awards and ESOP forfeitures partially offset by a $177,000 increase in stock option expense. Occupancy and office operations remained unchanged at $11.4 million at both September 30, 2007 and 2006. Data and check processing expense decreased $467,000, or 15.1%, due to the transfer of our data processing operations in-house in November 2005. Other expenses increased by $370,000, or 4.6%. ATM and debit card expense increased $316,000, or 20.2%, primarily as a result of the increase in volume of transactions processed.

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Income Taxes. Income tax expense was $8.6 million for the fiscal year ended September 30, 2007 compared to $9.3 million for fiscal 2006, representing effective tax rates of 30.4% and 31.4%, respectively. The lower tax rate in 2007 was primarily due to the shift to tax-exempt securities, which represented 16.6% of the average securities portfolio in 2007, compared to 11.5% of the average securities portfolio for 2006, as well as non-taxable BOLI death benefit proceeds received in 2007 more than offsetting a tax benefit from a land donation in 2006 resulting in a 2006 federal benefit of $212,000.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used by the Company for general corporate purposes or for customer needs.

The Company’s off-balance sheet arrangements, which principally include lending commitments, are described below. At September 30, 2008 and 2007, the Company had no interests in non-consolidated special purpose entities.

Lending Commitments. Lending commitments include loan commitments, letters of credit and unused credit lines. These instruments are not recorded in the consolidated balance sheet until funds are advanced under the commitments. The Company provides these lending commitments to customers in the normal course of business.

For commercial customers, loan commitments generally take the form of revolving credit arrangements to finance customers’ working capital requirements, or for development and construction in the case of real estate businesses. For retail customers, loan commitments are generally lines of credit secured by residential property. At September 30, 2008, commercial and retail loan commitments totaled $121.4 million. Approved closed undrawn lines of credit totaled $166.4 million, $159.5 million and $15.2 million for commercial, retail accounts, and overdraft protection lines, respectively. Letters of credit totaled $27.9 million. Letters of credit issued by 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. Standby letters of credit are conditional commitments to support performance, typically of a contract or the financial integrity, of a customer to a third party, and represent an independent undertaking by the Company to the third party.

Provident Bank applies essentially the same credit policies and standards as it does in the lending process when making these commitments. See Note 15 to “Consolidated Financial Statements” in Item 8 hereof for additional information regarding lending commitments.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment.

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Payments Due by Period. The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2008. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.

	Payments Due by Period
Contractual Obligations	Less than One Year		One to Three Years		Three to Five Years		More Than Five Years		Total
FHLB and other borrowings	$	153,893	$	85,090	$	57,924	$	269,101	$	566,008
Letters of credits		7,346		13,429		280		6,853		27,908
Undrawn lines of credit		341,069		0		0		0		341,069
Operating leases		2,174		3,810		3,615		20,585		30,184
Total	$	504,482	$	102,329	$	61,819	$	296,539	$	965,169
Commitments to extend credit	$	79,247		42,157		0		0	$	121,404

Impact of Inflation and Changing Prices

The financial statements and related notes of Provident New York Bancorp have been prepared in accordance with U.S. GAAP. U.S. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

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 years ended September 30, 2008, 2007 and 2006, our loan originations, including origination of loans held for sale, totaled $596.6 million, $626.7 million and $624.5 million, respectively. Purchases of securities available for sale totaled $263.9 million, $179.0 million and $259.0 million for the years ended September 30, 2008, 2007 and 2006, respectively. Purchases of securities held to maturity totaled $19.2 million, $7.8 million and $22.6 million for the years ended September 30, 2008, 2007 and 2006, respectively. These activities were funded primarily by borrowings and by principal repayments on loans and securities. Loan origination commitments totaled $121.4 million at September 30, 2008, and consisted of $115.2 million at adjustable or variable rates and $6.2 million at fixed rates. Unused lines of credit granted to customers were $341.1 million at September 30, 2008. We anticipate that we will have sufficient funds available to meet current loan commitments and lines of credit.

The Company invested an additional $5.0 million in BOLI during fiscal 2008. These investments are illiquid and are therefore classified as other assets. Earnings from BOLI are derived from the net increase in cash surrender value of the BOLI contracts and the proceeds from the payment on the insurance policies, if any. The recorded value of BOLI contracts totaled $47.6 million and $40.8 million at September 30, 2008 and September 30, 2007, respectively.

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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)/increase in total deposits was $275.5 million, $(15.9) million and $3.4 million for the years ended September 30, 2008, 2007 and 2006, respectively. Certificates of deposit that are scheduled to mature in one year or less from September 30, 2008 totaled $487.4 million. Based upon prior experience and our current pricing strategy, management believes that a significant portion of such deposits will remain with us, although we may be required to compete for many of the maturing certificates in a highly competitive environment.

In September 2008, the credit markets virtually collapsed causing the interest rate spreads for all credit except U.S. Treasury securities to widen. Further, due to the market uncertainty, there is a lack of demand for many credit products causing the market price obtained to have less than normal price stability. The result is that the volatility in price has become more pronounced. In addition, recent downgrades on insurers of many of the state and local government bonds we hold has negatively impacted our ability to borrow against or liquidate these securities should a need to raise additional funds arise from our banking operations. Due to the market disruptions, many banks have been seeking deposit funding. At present the historical relationships of deposit pricing in the market place have been dislocated and we may have to increase our deposit pricing in order to compete for deposits.

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 $566.0 million was outstanding at September 30, 2008. At September 30, 2008, we had the ability to borrow an additional $142.5 million under our credit facilities with the Federal Home Loan Bank. The Bank may borrow an additional $32.9 million by pledging securities not required to be pledged for other purposes as of September 30, 2008. Further, at September 30, 2008 we had only $16.6 million in Brokered Certificates of Deposit and have relationships with several brokers to utilize this sources of funding should conditions warrant further sources of funds. Provident Bank is subject to regulatory capital requirements that are discussed in “Capital Requirements” under “Regulation”.

Overall liquidity is represented by the following sources of funds (in thousands) as of September 30, 2008:

Cash and Due from Banks	$	125,810
Investment Securities		32,900
Available advances from FHLB		142,500
Total immediate funding	$	301,210

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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 matters regarding or affecting Provident New York Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions.

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

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

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

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

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

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

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

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

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

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

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

53

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

• The current levels of volatility in the market are unprecedented and have adversely affected us and the financial services industry as a whole. The market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets affect our business, financial condition and results of operations.

• We could agree to the Troubled Asset Relief Program (“TARP”) Capital Purchase Plan (“CPP”). Should we choose to participate, certain capital management programs would likely be curtailed. Specifically, our ability to increase dividends and repurchase shares of common stock will be limited and subject to the approval of the United States Treasury. Additionally, warrants will be granted for 15% of the amount received in preferred stock. The preferred stock will carry non deductible dividends of 5% for the first five years and 9% thereafter. Unless leveraged, the preferred stock issuance and warrants will have a dilutive effect on earnings available to common shareholders. Decreasing the dilutive effect may expose us to additional interest rate or credit risks. Limits on executive compensation may impact our ability to retain or attract executives for our company. Further within the agreement the U.S. Treasury as an investor, may unilaterally amend any term of the Agreement to the extent required to comply with any changes in applicable federal statutes enacted after the date the agreement is executed.

54

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Management of Interest Rate 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 all, or a portion of such longer-term loans, generally on a servicing-retained basis. We also invest in short-term securities, which generally have lower yields compared to longer-term investments. Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. These strategies may adversely affect net interest income due to lower initial yields on these investments in comparison to longer-term, fixed-rate loans and investments.

Management monitors interest rate sensitivity primarily through the use of a model that simulates net interest income (“NIM”) 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. Both models assume estimated loan prepayment rates, reinvestment rates and deposit decay rates that seem reasonable, based on historical experience during prior interest rate changes.

Estimated Changes in NPV and NIM. The table below sets forth, as of September 30, 2008, the estimated changes in our NPV and our net interest income that would result from the designated instantaneous changes in the U.S. Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.

Change in Interest Rates	Estimated		Estimated Increase (Decrease) in NPV					Estimated Net Interest		Increase (Decrease) in Estimated Net Interest Income
(basis points)	NPV		Amount			Percent		Income		Amount			Percent
(Dollars in thousands)
+300	$	290,360	$	(130,381	)	-31.0	%	$	95,190	$	(3,740	)	-3.8	%
+200		332,811		(87,930	)	-20.9	%		97,832		(1,098	)	-1.1	%
+100		394,721		(26,020	)	-6.2	%		100,056		1,126		1.1	%
0		420,741		0		0.0	%		98,930		0		0.0	%
-100		408,819		(11,922	)	-2.8	%		96,121		(2,809	)	-2.8	%
-200		371,488		(49,253	)	-11.7	%		92,482		(6,448	)	-6.5	%

The table set forth above indicates that at September 30, 2008, in the event of an immediate 100 basis point decrease in interest rates, we would be expected to experience a 2.8% decrease in NPV and a 2.8% decrease in net interest income. In the event of an immediate 200 basis point increase in interest rates, we would be expected to experience a 20.9% decrease in NPV and a 1.1% decrease in net interest income.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV and net interest income requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The NPV and net interest income table

55

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

During the past fiscal year, the federal funds rate declined from 4.75% to 2.00% as the Federal Open Market Committee (“FOMC”) cut the target overnight lending rate six times between October, 2007 and March, 2008. U.S. Treasury yields in the two year maturities decreased by 202 basis points from 3.98% to 1.96% during fiscal year 2008 while the yield on U.S. Treasury 10 year notes decreased 76 basis points from 4.59% to 3.82% over the same time period. The disproportional lower rate of decrease on longer term maturities has resulted in the 2-10 year treasury yield curve being much steeper at the end of the past fiscal year than it was when the year began. The steeper yield curve caused a reduction in rates paid on deposits and short-term borrowings as well as rates charged on loans and other assets tied to the prime rate and similar indices. Nevertheless, the full impact of the favorably sloped yield curve was not realized as liquidity problems in the credit markets caused many financial institutions to maintain higher rates on deposits, despite FOMC rate reductions, in order to attract much needed liquidity. Should credit markets stabilize, the FOMC could reverse direction and increase the target federal funds rate. This could cause the shorter end of the yield curve to rise disproportionably more than the longer end thereby resulting in margin compression.

In September 2008, the credit markets virtually collapsed causing the interest rate spreads for all credit except U.S. Treasury securities to widen. Further, due to the market uncertainty, there is a lack of demand for many credit products causing the market price obtained to have less than normal price stability. The result is that the volatility in price has become more pronounced. In addition, recent downgrades on insurers of many of the state and local government bonds we hold has negatively impacted our ability to borrow against or liquidate these securities should a need to raise additional funds arise from our banking operations. Due to the market disruptions, many banks have been seeking deposit funding. At present the historical relationships of deposit pricing in the market place have been disrupted and we may have to increase our deposit pricing in order to compete for deposits.

ITEM 8. Financial Statements and Supplementary Data

The following are included in this item:

(A) Report of Management on Internal Control Over Financial Reporting

(B) Report of Independent Registered Public Accounting Firm — Internal Control Over Financial Reporting

(C) Report of Independent Registered Public Accounting Firm – Financial Statements

(D) Report of KPMG – Prior Independent Registered Public Accounting Firm

(E) Consolidated Statements of Financial Condition as of September 30, 2008 and 2007

(F) Consolidated Statements of Income for the years ended September 30, 2008, 2007 and 2006

(G) Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2008, 2007 and 2006

(H) Consolidated Statements of Cash Flows for the years ended September 30, 2008, 2007 and 2006

(I) Notes to Consolidated Financial Statements

The supplementary data required by this item (selected quarterly financial data) is provided in Note 20 of the Notes to Consolidated Financial Statements.

56

Report of Management on Internal Control Over Financial Reporting

The Board of Directors and Stockholders

Provident New York Bancorp:

The management of Provident New York Bancorp (“the Company”) is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s system of internal controls is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles.

All internal control systems have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the Company’s internal control over financial reporting as of September 30, 2008. This assessment was based on criteria for effective internal control over financial reporting established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we have concluded that, as of September 30, 2008, the Company’s internal control over financial reporting is effective.

The Company’s independent registered public accounting firm has issued an audit report on the effective operation of the Company’s internal control over financial reporting as of September 30, 2008. This report appears on the following page.

	/s/ George Strayton
By:	George Strayton
	President and Chief Executive Officer
	(Principal Executive Officer)
	December 9, 2008
	/s/ Paul Maisch
By:	Paul Maisch
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)
	December 9, 2008

57

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Board of Directors and Stockholders

Provident New York Bancorp

We have audited Provident New York Bancorp’s (“the Company”) internal control over financial reporting as of September 30, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Provident New York Bancorp’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Provident New York Bancorp maintained, in all material respects, effective internal control over financial reporting as of September 30, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Provident New York Bancorp as of September 30, 2008 and 2007 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the two years then ended and our report dated December 10, 2008 expressed an unqualified opinion on those consolidated financial statements.

	/s/ Crowe Horwath LLP
Livingston, New Jersey
December 10, 2008

58

Report of Independent Registered Public Accounting Firm on Financial Statements

Board of Directors and Stockholders

Provident New York Bancorp

We have audited the accompanying consolidated statements of financial condition of Provident New York Bancorp (“the Company”) as of September 30, 2008 and 2007 and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the two years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Provident New York Bancorp as of September 30, 2008 and 2007 and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles. generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Provident New York Bancorp’s internal control over financial reporting as of September 30, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 10, 2008 expressed an unqualified opinion thereon.

	/s/ Crowe Horwath LLP
Livingston, New Jersey
December 10, 2008

59

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Provident New York Bancorp:

We have audited the accompanying consolidated statements of income, changes in stockholders’ equity and cash flows of Provident New York Bancorp and Subsidiaries for the year ended September 30, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the results of their operations and their cash flows of Provident New York Bancorp and Subsidiaries for the year ended September 30, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

New York, New York

December 11, 2006

60

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(Dollars in thousands, except per share data)

	September 30,
	2008			2007
ASSETS
Cash and due from banks	$	125,810		$	47,291
Securities (including $765,334 and $563,030 pledged as collateral for borrowings and deposits in 2008 and 2007, respectively):
Available for sale, at fair value (note 3)		791,688			794,997
Held to maturity, at amortized cost (fair value of $42,899 and $37,584 in 2008 and 2007, respectively) (note 4)		43,013			37,446
Total Securities		834,701			832,443
Loans held for sale		189			—
Loans (note 5):
One to four family residential mortgage loans		513,381			500,825
Commercial real estate, commercial business and construction loans		969,432			895,233
Consumer loans		248,740			242,000
Gross Loans		1,731,553			1,638,058
Allowance for loan losses		(23,101	)		(20,389	)
Total loans, net		1,708,452			1,617,669
Federal Home Loan Bank (“FHLB”) stock, at cost		28,675			32,801
Accrued interest receivable (note 6)		10,881			12,641
Premises and equipment, net (note 7)		36,716			30,079
Goodwill (note 2)		160,861			161,154
Core deposit and other intangible assets (note 2)		7,674			10,273
Bank owned life insurance		47,650			40,818
Other assets (notes 5, 10 and 11)		22,762			16,930
Total Assets	$	2,984,371		$	2,802,099
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits (note 8)	$	1,989,197		$	1,713,684
FHLB and other borrowings (including repurchase agreements of $260,166 and $205,073 in 2008 and 2007, respectively) (note 9)		566,008			661,242
Mortgage escrow funds (note 5)		7,272			5,982
Other (note 10)		22,736			16,102
Total liabilities		2,585,213			2,397,010
STOCKHOLDERS’ EQUITY (note 14):
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; 39,815,213 and 41,230,618 shares outstanding in 2008 and 2007 respectively)		459			459
Additional paid-in capital		352,882			348,734
Unallocated common stock held by employee stock ownership plan (“ESOP”) (note 11)		(7,635	)		(8,221	)
Treasury stock, at cost (6,114,339 shares in 2008 and 4,698,934 in 2007)		(75,687	)		(57,422	)
Retained Earnings		138,720			125,743
Accumulated other comprehensive loss, net of taxes of $(6,532) in 2008 and $(2,874) in 2007 (note 12)		(9,581	)		(4,204	)
Total stockholders’ equity		399,158			405,089
Total liabilities and stockholders’ equity	$	2,984,371		$	2,802,099

See accompanying notes to consolidated financial statements.

61

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Consolidated Statements of Income

For the years ended September 30,

(Dollars in thousands, except per share data)

	2008		2007			2006
Interest and dividend income:
Loans, including fees	$	107,633	$	109,940		$	95,531
Taxable securities		31,947		33,479			34,379
Non-taxable securities		6,832		5,785			4,186
Other earning assets		2,570		2,422			1,520
Total interest and dividend income		148,982		151,626			135,616
Interest expense:
Deposits		28,344		36,439			26,802
Borrowings		25,298		30,449			24,057
Total interest expense		53,642		66,888			50,859
Net interest income		95,340		84,738			84,757
Provision for loan losses		7,200		1,800			1,200
Net interest income after provision for loan losses		88,140		82,938			83,557
Non-interest income:
Deposit fees and service charges		12,429		11,434			10,689
Net gain on sale of securities available for sale		983		(8	)		—
Title insurance fees		919		1,181			1,700
Bank owned life insurance		1,832		2,044			1,641
Investment management fees		3,012		2,821			1,490
Other earning assets		1,867		2,373			1,632
Total non-interest income		21,042		19,845			17,152
Non-interest expense:
Compensation and employee benefits		37,045		33,490			32,182
Stock-based compensation plans		3,809		5,706			5,826
Occupancy and office operations		12,434		11,436			11,435
Advertising and promotion		3,338		4,237			2,445
Professional fees		3,339		3,833			3,450
Data and check processing		2,551		2,621			3,088
Amortization of intangible assets		2,599		3,039			3,288
ATM/debit card expense		1,936		1,881			1,565
Other		8,449		8,347			7,977
Total non-interest expense		75,500		74,590			71,256
Income before income tax expense		33,682		28,193			29,453
Income tax expense		9,904		8,566			9,258
Net Income	$	23,778	$	19,627		$	20,195
Weighted average common shares:
Basic		38,907,372		40,782,643			40,953,010
Diluted		39,226,641		41,266,816			41,441,859
Per common share (note 13)
Basic	$	0.61	$	0.48		$	0.49
Diluted	$	0.61	$	0.48		$	0.49

See accompanying notes to consolidated financial statements

62

PROVIDENT BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

Years Ended September 30, 2008, 2007 and 2006

(Dollars in thousands, except per share data)

	Number of Shares		Common Stock		Additional Paid-in Capital			Unallocated ESOP Shares			Common Stock Awards Under RRP			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at September 30, 2005	43,505,659		$	459	$	345,631		$	(10,045	)	$	(8,810	)	$	(28,195	)	$	104,484		$	(8,367	)	$	395,157
Net income																		20,195						20,195
Other comprehensive income (note 12)																					765			765
Total comprehensive income																								20,960
Reclassification in accordance with SFAS No.123R	—			—		(8,810	)		—			8,810			—			—			—			—
Purchase of Hudson Valley Investment Advisors, Inc.	208,331			—		57			—			—			2,683			—			—			2,740
Deferred compensation transactions	—			—		1,220			—			—			—			—			—			1,220
Stock option transactions, net	168,079			—		1,510			—			—			2,130			(1,393	)		—			2,247
ESOP shares allocated or committed to be released for allocation (212,622 shares)	—			—		1,651			946			—			—			—			—			2,597
RRP awards	24,000			—		(311	)		—			—			307			4			—			—
Vesting of RRP shares	—			—		1,822			—			—			—			—			—			1,822
Other RRP transactions	(45,129	)		—		804			—			—			(562	)		—			—			242
Purchase of treasury stock	(1,161,894	)		—		—			—			—			(13,336	)		—			—			(13,336	)
Cash dividends paid ($0.20 per common share)	—			—		—			—			—			—			(8,363	)		—			(8,363	)
Balance at September 30, 2006	42,699,046			459		343,574			(9,099	)		—			(36,973	)		114,927			(7,602	)		405,286
Implementation of SAB 108	—			—		(69	)		—			—			—			361						292
Balance as adjusted at October 1, 2006	42,699,046			459		343,505			(9,099	)		—			(36,973	)		115,288			(7,602	)		405,578
Net income																		19,627						19,627
Other comprehensive income (note 12)																					3,685			3,685
Total comprehensive income																								23,312
Adjustment to initially apply SFAS No. 158, net of tax (note 11a)	—			—		—			—			—			—			—			(287	)		(287	)
Deferred compensation transactions	—			—		48			—			—			—			—			—			48
Stock option transactions, net	112,362			—		1,307			—			—			984			(894	)		—			1,397
ESOP shares allocated or committed to be released for allocation (187,827 shares)	—			—		1,765			878			—			—			—			—			2,643
RRP awards	5,000			—		(70	)		—			—			70			—			—			—
Vesting of RRP shares	—			—		2,007			—			—			—			—			—			2,007
Other RRP transactions	(45,319	)		—		172			—			—			(590	)		—			—			(418	)
Purchase of treasury stock	(1,540,471	)		—		—			—			—			(20,913	)		—			—			(20,913	)
Cash dividends paid ($0.20 per common share)	—			—		—			—			—			—			(8,278	)		—			(8,278	)
Balance at September 30, 2007	41,230,618			459		348,734			(8,221	)		—			(57,422	)		125,743			(4,204	)		405,089
Net income																		23,778						23,778
Other comprehensive income (note 12)																					(5,377	)		(5,377	)
Total comprehensive income																								18,401
Deferred compensation transactions	—			—		40			—			—			—			—			—			40
Stock option transactions, net	183,494			—		1,582			—			—			1,899			(1,291	)		—			2,190
ESOP shares allocated or committed to be released for allocation (84,429 shares)	—			—		492			586			—			—			—			—			1,078
RRP awards	6,000			—		(81	)		—			—			66			15			—			—
Vesting of RRP shares	—			—		1,811			—			—			—			—			—			1,811
Other RRP transactions	(34,142	)		—		—			—			—			(451	)		—			—			(451	)
Purchase of treasury stock	(1,570,757	)		—		—			—			—			(19,779	)		—			—			(19,779	)
Cash dividends paid ($0.24 per common share)	—			—		—			—			—			—			(9,525	)		—			(9,525	)
Other	—			—		304			—			—			—			—			—			304
Balance at September 30, 2008	39,815,213		$	459	$	352,882		$	(7,635	)		—		$	(75,687	)	$	138,720		$	(9,581	)	$	399,158

See accompanying notes to consolidated financial statements.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended September 30, 2008, 2007 and 2006

(Dollars in thousands)

	2008			2007			2006
Cash flows from operating activities:
Net income	$	23,778		$	19,627		$	20,195
Adjustments to reconcile net income to net cash provided by operating activities
Provisions for loan losses		7,200			1,800			1,200
Depreciation and amortization of premises and equipment		4,616			4,451			4,049
Amortization of intangibles		2,599			3,148			3,288
Net (Gain) / loss on sale of securities available for sale		(983	)		8			—
Gains on loans held for sale		—			(155	)		(117	)
Gain on sales of fixed assets		—			(212	)		—
Net amortization (accretion) of premium and discounts on securities		(47	)		836			2,957
Accretion of premiums on borrowings (includes calls on borrowings)		(739	)		(1,654	)		(2,923	)
ESOP and RRP expense		2,889			4,900			4,771
ESOP forfeitures		(293	)		(250	)		—
Stock option compensation expense		1,196			1,307			1,129
Originations of loans held for sale		(189	)		(20,243	)		(16,022	)
Proceeds from sales of loans held for sale		—			27,871			8,666
Increase in cash surrender value of bank owned life insurance		(1,832	)		(1,693	)		(1,641	)
Deferred income tax (expense) benefit		(2,528	)		1,271			1,886
Net changes in accrued interest receivable and payable		134			2,341			(523	)
Other adjustments (principally net changes in other assets and other liabilities)		4,504			(8,111	)		(3,088	)
Net cash provided by operating activities		40,305			35,242			23,827
Cash flows from investing activities:
Purchases of securities:
Available for sale		(263,857	)		(178,979	)		(258,996	)
Held to maturity		(19,248	)		(7,793	)		(22,610	)
Proceeds from maturities, calls and other principal payments on securities
Available for sale		223,492			330,251			128,413
Held to maturity		13,623			31,252			32,486
Proceeds from sales of securities available for sale		40,438			10,838			—
Cash paid for securities purchased, not yet settled		—			—			(7,392	)
Loan originations		(596,593	)		(626,726	)		(624,524	)
Loan principal payments		498,610			461,486			511,680
Sale (purchase) of FHLB stock, net		4,126			717			(12,185	)
Settlement of HVIA (Hudson Valley Investment Advisors, Inc.) earnout		—			(750	)		—
Purchase of HVIA, net of cash and cash equivalents acquired		—			—			(2,622	)
Purchases of premises and equipment		(11,253	)		(4,303	)		(3,883	)
Proceeds from the sale of fixed assets		—			1,725			196
Proceeds from sales of other real estate owned		—			742			—
Purchases of BOLI		(5,000	)		183			—
Other investing activities		—			—			331
Net cash (used in) provided by investing activities		(115,662	)		18,643			(259,106	)

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows Continued

Years Ended September 30, 2008, 2007 and 2006

(Dollars in thousands)

	2008			2007			2006
Cash flows from financing activities
Net increase in transaction, savings and money market deposits		312,793			12,663			(116,897	)
Net increase (decrease) in time deposits		(37,267	)		(28,606	)		120,263
Net increase (decrease) in short-term borrowings		(230,400	)		55,464			95,861
Gross repayments of long-term borrowings		(14,161	)		(300,307	)		(107,402	)
Gross proceeds from long-term borrowings		150,066			225,000			255,000
Net increase in mortgage escrow funds		1,290			1,370			490
Treasury shares purchased		(20,230	)		(21,503	)		(13,898	)
Stock option transactions		1,270			90			737
Tax (expense) benefits generated from equity transactions		—			—			640
Other stock-based compensation transactions		40			220			2,024
Cash dividends paid		(9,525	)		(8,278	)		(8,363	)
Net cash provided by (used in) financing activities		153,876			(63,887	)		228,455
Net increase (decrease) in cash and cash equivalents		78,519			(10,002	)		(6,824	)
Cash and cash equivalents at beginning of year		47,291			57,293			64,117
Cash and cash equivalents at end of year	$	125,810		$	47,291		$	57,293
Supplemental Cash Flow Information:
Interest payments	$	55,268		$	65,134		$	48,748
Income tax payments		13,227			8,879			2,530
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Acquisition of Hudson Valley Investment Advisors, Inc. (2006) accounted for under the purchase method:
Fair value of assets (incl. intangible assets)	$	—		$	—		$	5,240
Fair value of liabilities assumed		—			—			—
Net fair value		—			—			5,240
Cash portion of purchase transaction		—			750			2,500
Stock portion of purchase transaction		—			—			2,740
Total consideration paid for acquisitions	$	—		$	750			5,240
Loans transferred to real estate owned	$	—		$	710		$	—
Net change in unrealized gains (losses) recorded on securities available for sale		(3,341	)		6,139			1,118
Change in deferred taxes on unrealized gains on securities available for sale		1,370			(2,524	)		(466	)
Issuance of RRP shares		81			70			311

See accompanying notes to consolidated financial statements.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(1) Basis of Financial Statement Presentation and Summary of Significant Accounting Policies

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

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

(a) Nature of Business

Provident New York Bancorp (“Provident Bancorp” or the “Company”), a unitary savings and loan holding company, is a Delaware corporation that owns all of the outstanding shares of Provident Bank (the “Bank”). Provident Bancorp was formed in connection with the second step offering on January 14, 2004.

On June 29, 2005, Provident Bancorp, Inc. changed its name to Provident New York Bancorp in order to differentiate itself from the numerous bank holding companies with similar names. It began trading on the NASDAQ under the stock symbol “PBNY” on that date. Prior to that date, from January 7, 1999 its common stock traded under the stock symbol “PBCP.”

The Bank is a community bank offering financial services to individuals and businesses primarily in Rockland and Orange Counties, New York and the contiguous Sullivan, Ulster, Westchester and Putnam Counties, New York and Bergen County, New Jersey. The Bank’s principal business is accepting deposits and, together with funds generated from operations and borrowings, investing in various types of loans and securities. The Bank is a federally-chartered savings association and its deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC). The Office of Thrift Supervision (OTS) is the primary regulator for the Bank and for Provident New York Bancorp. Of the Bank’s loans 88% are collateralized or dependent on real estate.

(b) Use of estimates

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. An estimate that is particularly susceptible to significant near-term change is the allowance for loan losses, which is discussed below. Also subject to change are estimates involving mortgage servicing rights, benefit plans, deferred income taxes and fair values of financial instruments.

(c) Cash Flows

For purposes of reporting cash flows, cash equivalents include highly liquid, short-term investments such as overnight federal funds, as well as cash and deposits with other financial institutions. Net cash flows are reported for customer and deposit transactions and short-term borrowings with an original maturity of 90 days or less.

(d) Long Term Assets

Premises and equipment, core deposit and other intangible assets are reviewed annually for impairment or when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(e) Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

(f) Adoption of New Accounting Standards

FASB Statement No. 157:

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

FSP No. 157-3:

On October 10, 2008 the FASB issued Staff Position (FSP) 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active, which provides an example that illustrates key considerations in determining the fair value of a financial instrument when the market for that instrument is not active. The FSP does not change existing generally accepted accounting principles. The FSP provides clarification for how to consider various inputs in determining fair value under current market conditions consistent with the principles of SFAS 157. The FSP includes only one example, as the FASB emphasized the need to apply reasonable judgment to each specific fact pattern. Several additional concepts addressed in the FSP include distressed sales; the use of 3^rd party pricing information, the use of internal assumptions and the relevance of observable data, among others. The FSP was effective upon issuance, including prior periods for which financial statements have not yet been issued. Therefore, it first applies to September 30, 2008 annual consolidated financial statements. The impact of adoption will not be material to the Company’s consolidated financial condition or results of operations.

FASB 159:

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

FASB 161:

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

SAB 108:

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), which was adopted on October 1, 2006. SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement. SAB 108 requires public companies to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Adjustments considered immaterial in prior years under the method previously used, but now considered material under the dual approach required by SAB 108, are to be recorded upon initial adoption of SAB 108.

As a result of the implementation of SAB 108, the Company corrected immaterial errors which resulted in $292 being credited to retained earnings, net of taxes of $49 as of October 1, 2006. The components of the SAB 108 adjustments are as follows:

	Pre Tax Effect			Tax Effect			Net Capital Effect
SFAS No. 5 Contingencies	$	1,333		$	(422	)	$	911
Lease Corrections		(529	)		216			(313	)
Post Retirement Benefits		(394	)		157			(237	)
Real Estate Investment Trust Minority Interest		(69	)		—			(69	)
	$	341		$	(49	)	$	292

The Company considered these adjustments to be immaterial, individually and in the aggregate, to its prior consolidated financial statements.

SAB 110:

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

(g) Securities

Securities include U.S. Treasury, U.S. Government Agency and Government Sponsored Agencies, municipal and corporate bonds, mortgage backed securities, collateralized mortgage obligations and marketable equity securities.

The Company can classify its securities among three categories: held to maturity, trading, and available for sale. Management determines the appropriate classification of the Company’s securities at the time of purchase.

Held-to-maturity securities are limited to debt securities for which management has the intent and the Company has the ability to hold to maturity. These securities are reported at amortized cost.

Trading securities are debt and equity securities held principally for the purpose of selling them in the near term. These securities are reported at fair value, with unrealized gains and losses included in earnings. The Company does not engage in security trading activities.

All other debt and marketable equity securities are classified as available for sale. These securities are reported at fair value, with unrealized gains and losses (net of the related deferred income tax effect) excluded from earnings and reported in a separate component of stockholders’ equity (accumulated other comprehensive income or loss). Available-for-sale securities include securities that management intends to hold for an indefinite period of time, such as securities to be used as part of the Company’s asset/liability management strategy or securities that may be sold in response to changes in interest rates, changes in prepayment risks, the need to increase capital, or similar factors.

Premiums and discounts on debt securities are recognized in interest income on a level-yield basis over the period to maturity. Amortization of premiums and accretion of discounts on mortgage backed securities are based on the estimated cash flows of the mortgage backed securities, periodically adjusted for changes in estimated lives, on a level yield basis. The cost of securities sold is determined using the specific identification method. Unrealized losses are charged to earnings when management determines that the decline in fair value of a security is other than temporary.

Securities deemed to be other-than-temporarily impaired are permanently written down from their original cost basis to reflect the adjusted fair value subsequent to a measurement for impairment. The impairment is deemed other-than-temporary if there are serious credit concerns regarding a particular debt issuer, or severe fluctuation in interest rates. The other-than-temporary adjustment is charged to current earnings in the period of measurement. Declines in the fair value of securities below their cost that are other than temporary are reflected in earnings as realized losses. In estimating other-than –temporary losses, management considers the length of time and extent that fair value has been less than cost,

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(2) the financial condition and near term prospects of the issuer, and (3) the Company’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery of fair value. Realized other than temporary impairment losses are calculated using the period end fair value of the specific security identified. There were no securities deemed to be other than temporary impaired as of September 30, 2008.

(h) Loans

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. Mortgage loans originated and held for sale in the secondary market (if any) are reported at the lower of aggregate cost or estimated fair value. Fair value is estimated based on outstanding investor commitments or, in the absence of such commitments, based on current investor yield requirements. Net unrealized losses, if any, are recognized in a valuation allowance by a charge to earnings. 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, related to the current year and 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.

(i) Allowance for Loan Losses

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 OTS, 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 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.

(j) Mortgage Servicing Assets

Servicing assets represent the allocated value of retained servicing rights on loans sold (as well as the cost of purchased rights). Servicing assets are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the assets, using groupings of the underlying loans as to interest rates and then, secondarily, as to loan type and investor. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance, to the extent that fair value is less than the capitalized amount for a grouping. Upon adoption of SFAS 156 the Company elected to continue to use the amortization method.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(k) Federal Home Loan Bank Stock

As a member of the Federal Home Loan Bank (FHLB) of New York, the Bank is required to hold a certain amount of FHLB stock. This stock is a non-marketable equity security and, accordingly, is reported at cost.

(l) Premises and Equipment

Land is reported at cost, while premises and equipment are reported at cost, less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three years for equipment and 40 years for premises. Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases, including renewal options, or the estimated useful lives of the improvements, whichever is shorter. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized.

(m) Goodwill and Other Intangible Assets

Goodwill recorded in acquisitions is not amortized to expense, but instead, is evaluated for impairment at least annually. The core deposit intangibles recorded in acquisitions are amortized to expense using an accelerated method over their estimated lives of approximately eight years. Other intangible assets are evaluated for impairment at least annually. Intangibles related to HVIA are amortized over 10 years on a straight-line basis. Impairment losses on intangible assets are charged to expense, if and when they occur.

(n) Real Estate Owned

Real estate properties acquired through loan foreclosures are recorded initially at estimated fair value, less expected sales costs, with any resulting write-down charged to the allowance for loan losses. Subsequent valuations are performed by management, and the carrying amount of a property is adjusted by a charge to expense to reflect any subsequent declines in estimated fair value. Fair value estimates are based on recent appraisals and other available information. Routine holding costs are charged to expense as incurred, while significant improvements are capitalized. Gains and losses on sales of real estate owned are recognized upon disposition. Real estate owned is included in other assets.

(o) Securities Repurchase Agreements

In securities repurchase agreements, the Company transfers securities to a counterparty under an agreement to repurchase the identical securities at a fixed price on a future date. These agreements are accounted for as secured financing transactions since the Company maintains effective control over the transferred securities and the transfer meets other specified criteria. Accordingly, the transaction proceeds are recorded as borrowings and the underlying securities continue to be carried in the Company’s securities portfolio. Disclosure of the pledged securities is made in the consolidated statements of financial condition if the counterparty has the right by contract to sell or repledge such collateral.

(p) Income Taxes

Net deferred taxes are recognized for the estimated future tax effects attributable to “temporary differences” between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws or rates is recognized in income tax expense in the period that includes the enactment date of the change.

A deferred tax liability is recognized for all temporary differences that will result in future taxable income. A deferred tax asset is recognized for all temporary differences that will result in future tax deductions, subject to reduction of the asset by a valuation allowance in certain circumstances. This valuation allowance is recognized if, based on an analysis of available evidence, management determines that it is more likely than not that some portion, or all of the deferred tax asset will not be realized. The valuation allowance is subject to ongoing adjustment based on changes in circumstances that affect management’s judgment about the realizability of the deferred tax asset. Adjustments to increase or decrease the valuation allowance are charged or credited, respectively, to income tax expense. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. See note 10 of the “Notes to Consolidated Financial Statements”.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(q) Bank Owned Life Insurance (BOLI)

The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at its cash surrender value (or the amount that can be realized).

(r) Stock-Based Compensation Plans

Compensation expense is recognized for the ESOP equal to the fair value of shares that have been allocated or committed to be released for allocation to participants. Any difference between the fair value at that time and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). The cost of ESOP shares that have not yet been allocated or committed to be released for allocation is deducted from stockholders’ equity.

The Company applies Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Accounting for Stock-Based Compensation,” and related interpretations in accounting for its stock option plan. SFAS No. 123R, issued in December 2004, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans, and required adoption for all publicly owned companies for fiscal periods ending after June 15, 2005. As of October 1, 2005, the Company began to expense these grants as required by SFAS No. 123R. Stock-based employee compensation cost pertaining to stock options is reflected in net income, as all unvested options granted under the Company’s stock option plans had a value based on the fair value calculations using the Black-Scholes option pricing model, even though the exercise prices were equal to the market value of the underlying common stock on the date of the grant. Prior to October 1, 2005, the Company applied the requirements of APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations, in accounting for its stock-based plans. Under APB 25, no compensation expense was recognized for the Company’s stock-based plans regarding employee stock-options. The Company did, however, recognize expense for its plans, which were compensatory under APB 25, and had grant-date intrinsic value such as restricted stock grants (RRPs).

The Company elected the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS No. 123R apply to all awards granted, vested or modified after the date of adoption. During 2008, 2007 and 2006 the Company issued 275,134, 70,958 and 141,000 new stock-based option awards and recognized total non-cash stock-based compensation cost of $1,196 $1,307 and 1,129 primarily for shares awarded during the transition period, along with the fair value of these new grants. As of September 30, 2008, the total remaining unrecognized compensation cost related to non-vested stock options was $1.4 million. In addition to the recording requirements, the Company has disclosure requirements under SFAS No. 123R.

The Company’s stock-based compensation plans allow for accelerated vesting when employees retire under circumstance in accordance with the terms of the plans. Under SFAS No. 123R, grants issued subsequent to adoption of SFAS 123R, which are subject to such accelerated vesting, are expensed over the shorter of the time to retirement age or the vesting schedule in accordance with the grant. Thus the vesting period can be less than the plan’s five-year vesting period depending upon the age of the grantee. As of September 30, 2008, 230,500 restricted shares and 170,340 stock options were potentially subject to accelerated vesting, but will not be expensed over a shorter time period, unless acceleration is deemed to have occurred. The Company recognized expense associated with the acceleration of 30,100, 21,980 and 10,000 restricted shares in 2006, 2007 and 2008, respectively.

(s) Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period.

Diluted EPS is computed in a similar manner, except that the weighted average number of common shares is increased to include incremental shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive stock options were exercised and unvested RRP shares became vested during the periods. For purposes of computing both basic and diluted EPS, outstanding shares exclude unallocated ESOP shares.

(t) Segment Information

Public companies are required to report certain financial information about significant revenue- producing segments of the business for which such information is available and utilized by the chief operating decision maker. As a community-

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

oriented financial institution, substantially all of the Company’s operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of the community banking operation, which constitutes the Company’s only operating segment for financial reporting purposes.

(2) Acquisitions

On June 1, 2006 the Company acquired the net assets of Hudson Valley Investment Advisors, Inc. for $2.5 million in cash and 208,331 shares of its common stock, for total consideration of $5.2 million. In connection with this acquisition, the Company formed Hudson Valley Investment Advisors, LLC (“HVIA”) as a subsidiary of the Company. In connection with the acquisition, the Company recorded $2.8 million in amortizable intangible assets and $2.5 million in goodwill. The amortizable intangible assets consist of $2.3 million of the value of the non-competition rights and $0.5 million of the value of a customer list. Such intangible assets are being amortized over 10 years, equal to the term of the exclusive management contract established with the principal manager of HVIA. The manager receives a fee, payable quarterly, equal to 50% of the net revenues, as defined, and was initially eligible to receive an additional $1.0 million earnout over a five year period if certain revenues were achieved. The earnout was settled in 2007 for $750 which was recorded as additional goodwill. The Company has an option to purchase the management contract under certain circumstances.

This acquisition was accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded by the Company at their fair values at the acquisition date.

Summary of Acquisition Transactions. Below is the summary of the acquisition transactions for Warwick Community Bancorp (2005) “WSB”, Ellenville National Bank (2004) “ENB”, National Bank of Florida (2002) “NBF” and one purchase in 2005 of a branch office of HSBC Bank USA, National Association (“HSBC”).

	HVIA		HSBC			WSB		ENB		NBF		Total
At Acquisition Date
Number of shares issued		208,331		—			6,257,896		3,969,676		—		10,435,903
Loans acquired	$	—	$	2,045		$	284,522	$	213,730	$	23,112	$	523,409
Deposits assumed		—		23,319			475,150		327,284		88,182		913,935
Cash paid/(received)		2,500		(18,938	)		72,601		36,773		28,100		121,036
Goodwill		2,531		—			91,576		51,794		13,063		158,964
Core deposit/other intangibles		2,830		1,690			10,395		6,624		1,787		23,326
At September 30, 2008
Goodwill	$	3,279	$	—		$	92,145	$	52,102	$	13,335	$	160,861
Accumulated core deposit/other amortization		660		1,073			6,557		5,735		1,626		15,651
Net core deposit/other intangible		2,170		616			3,838		889		161		7,674

The changes to goodwill, reflected above, are due to tax related items in connection with acquisitions and the $750 settlement of the earnout provision for HVIA in 2007.

Future Amortization of Core Deposit and Other Intangible Assets. The following table sets forth the future amortization of core deposit and other intangible assets:

At September 30, 2008	Amortization
Less than one year	$	2,192
One to two years		1,848
Two to three years		1,358
Three to four years		941
Four to five years		580
Beyond five years		755
Total	$	7,674

Goodwill is not amortized to expense and is reviewed for impairment at least annually, with impairment losses charged to expense, if and when they occur. The core deposit and other intangible assets are recognized apart from goodwill and they are amortized to expense over their estimated useful life’s and evaluated at least annually for impairment.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(3) Securities Available for Sale

The following is a summary of securities available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2008
Mortgage-backed securities
Fannie Mae	$	385,138	$	1,719	$	(2,185	)	$	384,672
Freddie Mac		189,113		1,694		(818	)		189,989
Other		36,821		650		(1,116	)		36,355
		611,072		4,063		(4,119	)		611,016
Investment securities
U.S. Government securities		—		—		—			—
Federal agencies		30,022		19		—			30,041
State and municipal securities		159,334		125		(9,858	)		149,601
Equities		1,146		—		(116	)		1,030
		190,502		144		(9,974	)		180,672
Total available for sale	$	801,574	$	4,207	$	(14,093	)	$	791,688
September 30, 2007
Mortgage-backed securities
Fannie Mae	$	383,308	$	368	$	(5,292	)	$	378,384
Freddie Mac		152,972		559		(1,278	)		152,253
Other		41,126		272		(344	)		41,054
		577,406		1,199		(6,914	)		571,691
Investment securities
U.S. Government securities		—		—		—			—
Federal agencies		84,005		118		(266	)		83,857
State and municipal securities		140,026		338		(1,026	)		139,338
Equities		105		7		(1	)		111
		224,136		463		(1,293	)		223,306
Total available for sale	$	801,542	$	1,662	$	(8,207	)	$	794,997

Equity securities principally consist of corporate stock and 120 shares of Fannie Mae common stock in 2007 and 2008.

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.

	September 30, 2008
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	35,288	$	35,322
One to five years		12,691		12,709
Five to ten years		34,227		33,422
Greater than ten years		107,150		98,189
Total	$	189,356	$	179,642

73

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Proceeds from sales of securities available for sale during the years ended September 30, 2008 and 2007 totaled $40,438 and $10,838, respectively. These sales resulted in gross realized gains of $983 and $3 for the years ended September 30, 2008 and 2007, respectively, and gross realized loss of $0 and $11 in fiscal year 2008 and 2007, respectively. There were no sales of securities for the year ended September 30, 2006.

Securities, including held to maturity securities, with carrying amounts of $323,694 and $342,873 were pledged as collateral for borrowings at September 30, 2008 and September 30, 2007, respectively. U.S. Government and municipal securities with carrying amounts of $441,640 and $220,157 were pledged as collateral for municipal deposits and other purposes at September 30, 2008 and September 30, 2007, 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 September 30, 2008	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities	$	259,247	$	(3,675	)	$	22,492	$	(444	)	$	281,739	$	(4,119	)
U.S. Government and agency securities		—		—			47		—			47		—
State and municipal securities		113,509		(7,535	)		19,241		(2,323	)		132,750		(9,858	)
Equity securities		926		(115	)		104		(1	)		1,030		(116	)
Total	$	373,682	$	(11,325	)	$	41,884	$	(2,768	)	$	415,566	$	(14,093	)
	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of September 30, 2007	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities	$	133,490	$	(631	)	$	305,640	$	(6,283	)	$	439,130	$	(6,914	)
U.S. Government and agency securities		—		—			53,802		(266	)		53,802		(266	)
State and municipal securities		59,117		(710	)		31,292		(316	)		90,409		(1,026	)
Equity securities		—		—			104		(1	)		104		(1	)
Total	$	192,607	$	(1,341	)	$	390,838	$	(6,866	)	$	583,445	$	(8,207	)

Substantially all of the unrealized losses at September 30, 2008 relate to investment grade securities and are attributable to changes in market interest rates and credit risk spreads subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at September 30, 2008. A total of 552 available for sale securities were in a continuous unrealized loss position for less than 12 months and 100 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. Because the Company has the ability and intent to hold securities with unrealized losses until a market price recovery (which, for fixed maturities, may be until maturity) the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2008.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(4) Securities Held to Maturity

The following is a summary of securities held to maturity:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2008
Mortgage-backed securities
Fannie Mae	$	4,929	$	62	$	(4	)	$	4,987
Freddie Mac		4,297		69		(31	)		4,335
Ginnie Mae & Other		1,125		2		(1	)		1,126
		10,351		133		(36	)		10,448
Investment securities
State and municipal securities		32,604		236		(449	)		32,391
Equities		58		2		—			60
		32,662		238		(449	)		32,451
Total held to maturity	$	43,013	$	371	$	(485	)	$	42,899
September 30, 2007
Mortgage-backed securities
Fannie Mae	$	6,540	$	40	$	(53	)	$	6,527
Freddie Mac		6,398		34		(30	)		6,402
Ginnie Mae & Other		1,373		35		—			1,408
		14,311		109		(83	)		14,337
Investment securities
State and municipal securities		23,078		248		(139	)		23,187
Equities		57		3		—			60
		23,135		251		(139	)		23,247
Total held to maturity	$	37,446	$	360	$	(222	)	$	37,584

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.

	September 30, 2008
	Amortized Cost		Fair Value
Remaining period to contractual maturity
Less than one year	$	17,272	$	17,166
One to five years		7,250		7,334
Five to ten years		4,117		4,139
Greater than ten years		4,023		3,812
Total	$	32,662	$	32,451

There were no sales of securities held to maturity during the years ended September 30, 2008, 2007 and 2006.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per 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 September 30, 2008	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities	$	3,654	$	(5	)	$	1,282	$	(31	)	$	4,936	$	(36	)
State and municipal securities		13,136		(420	)		540		(29	)		13,676		(449	)
Other securities												—		—
Total	$	16,790	$	(425	)	$	1,822	$	(60	)	$	18,612	$	(485	)
	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
As of September 30, 2007	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Mortgage-backed securities	$	—	$	—		$	7,608	$	(83	)	$	7,608	$	(83	)
State and municipal securities		890		(1	)		4,879		(138	)		5,769		(139	)
Other securities		—		—			—		—			—		—
Total	$	890	$	(1	)	$	12,487	$	(221	)	$	13,377	$	(222	)

Substantially all of the unrealized losses on held to maturity securities at September 30, 2008 relate to investment grade securities or local municipal general obligation bonds and are attributable to changes in market interest rates and credit risk spreads subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at September 30, 2008. A total of 37 held-to-maturity securities were in a continuous unrealized loss position for less than 12 months, and 5 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. Because the Company has the ability and intent to hold securities with unrealized losses until maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2008.

76

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(5) Loans

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

	September 30,
	2008			2007
One- to four-family residential mortgage loans:
Fixed rate	$	472,536		$	454,429
Adjustable rate		40,845			46,396
		513,381			500,825
Commercial real estate loans		554,811			535,003
Commercial business loans		243,642			207,156
Acquisition, development & construction loans		170,979			153,074
		969,432			895,233
Consumer loans:
Home equity lines of credit		166,491			162,669
Homeowner loans		58,569			59,705
Other consumer loans, including overdrafts		23,680			19,626
		248,740			242,000
Total loans		1,731,553			1,638,058
Allowance for loan losses		(23,101	)		(20,389	)
Total loans, net	$	1,708,452		$	1,617,669

Total loans include net deferred loan origination costs of $2,711 and $3,456 at September 30, 2008 and September 30, 2007, respectively.

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 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 principal balances of non-performing loans were as follows:

	2008				2007
	90 days past due and still accruing		Non-Accrual		90 days past due and still accruing		Non-Accrual
One- to four-family residential mortgage loans	$	2,487	$	1,731	$	1,899	$	—
Commercial real estate loans		732		3,100		1,487		1,099
Commercial business loans		—		2,811		46		1,637
Acquisition, development & construction loans		—		5,596		45		644
Consumer loans		70		351		272		129
Total non-performing loans	$	3,289	$	13,589	$	3,749	$	3,509

Gross interest income that would have been recorded if the foregoing non-accrual loans had remained current in accordance with their contractual terms totaled $1,129, $362 and $372, for the years ended September 30, 2008, 2007 and 2006, respectively, compared to interest income actually recognized (including income recognized on a cash basis) of $724, $105 and $127, respectively.

77

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

The Company had recorded investment in impaired loans of $13.2 million as defined by SFAS No. 114, at September 30, 2008 and $3.4 million impaired loans as of September 30, 2007. Substantially all of these loans were collateral-dependent loans measured based on the fair value of the collateral. The Company determines the need for an allowance for loan impairment under SFAS No. 114 on a loan-by-loan basis. An impairment allowance for impaired loans was $1.3 million and $0 as of September 30, 2008 and 2007, respectively. The Company’s average recorded investment in impaired loans was $9.5 million and $1.5 during the years ended September 30, 2008 and 2007, respectively. Interest income recognized (including income recognized on a cash basis) for impaired loans was $698 and $91 for the years ended September 30, 2008 and 2007, respectively.

Activity in the allowance for loan losses is summarized as follows:

	Year ended September 30,
	2008			2007			2006
Balance at beginning of year	$	20,389		$	20,373		$	21,047
Transfer to reserve for contingent loan commitments		—			—			(395	)
Provision for loan losses		7,200			1,800			1,200
Charge-offs		(4,929	)		(2,493	)		(1,836	)
Recoveries		441			709			357
Net Charge offs		(4,488	)		(1,784	)		(1,479	)
Balance at end of year	$	23,101		$	20,389		$	20,373

Provisions for losses and other activity in the allowance for losses on real estate owned were insignificant during the years ended September 30, 2008, 2007 and 2006.

Certain residential mortgage and student loans originated by the Company are sold in the secondary market. Other non-interest income includes net gains on such sales of $0 in fiscal 2008, $155 in fiscal 2007, and $117 in fiscal 2006. At September 30, 2008 and 2007 there were $189 and $0 residential mortgage loans and no student loans held for sale, respectively. The Company ceased originating student loans in 2007.

Other assets at September 30, 2008 and 2007 include capitalized mortgage servicing rights with an amortized cost of $655 and $768, respectively, which are recorded at the lower of amortized cost or fair market value. The Company generally retains the servicing rights on mortgage loans sold. Servicing loans for others involves collecting payments, maintaining escrow accounts, making remittances to investors and, if necessary, processing foreclosures. Mortgage loans serviced for others, including loan participations, totaled approximately $129,331, $122,279 and $131,291 at September 30, 2008, 2007 and 2006, respectively. Mortgage escrow funds include balances of $766 and $644 at September 30, 2008 and 2007, respectively, related to loans serviced for others.

(6) Accrued Interest Receivable

The components of accrued interest receivable were as follows:

	September 30,
	2008		2007
Loans	$	5,984	$	6,658
Securities		4,897		5,983
Total accrued interest receivable	$	10,881	$	12,641

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(7) Premises and Equipment, Net

Premises and equipment are summarized as follows:

	September 30,
	2008			2007
Land and land improvements	$	3,779		$	3,779
Buildings		26,916			20,081
Leasehold improvements		8,559			9,077
Furniture, fixtures and equipment		29,086			25,029
		68,340			57,966
Accumulated depreciation and amortization		(31,624	)		(27,887	)
Total premises and equipment, net	$	36,716		$	30,079

(8) Deposits

Deposit balances and weighted average interest rates at September 30, 2008 and 2007 are summarized as follows:

	September 30,
	2008				2007
	Amount		Rate		Amount		Rate
Non interest bearing Demand deposits:
Retail	$	162,161	—	%	$	162,518	—	%
Commercial an municipal		325,729	—			201,213	—
Business and municipal NOW deposits		217,462	0.49			51,679	0.58
Personal NOW deposits		115,442	0.10			110,858	0.14
Savings deposits		335,986	0.33			346,430	0.42
Money market deposits		306,504	1.46			277,793	2.78
Certificates of deposit		525,913	2.79			563,193	4.44
Total deposits	$	1,989,197	1.08	%	$	1,713,684	2.01	%

Municipal deposits held by PMB totaled $460.8 million and $176.5 million at September 30, 2008 and September 30, 2007, respectively. See Note 3, “Securities Available for Sale,” for the amount of securities that are pledged as collateral for municipal deposits and other purposes.

Certificates of deposit had remaining periods to contractual maturity as follows:

	September 30,
	2008		2007
Remaining period to contractual maturity:
Less than one year	$	487,419	$	509,681
One to two years		23,805		44,330
Two to three years		3,990		5,257
Three to four years		2,523		1,016
Four to five years		8,176		2,909
Total certificates of deposit	$	525,913	$	563,193

Certificate of deposit accounts with a denomination of $100 or more totaled $186,326 and $209,405 at September 30, 2008 and 2007, respectively. The Company had $16.6 million and $14.2 million of brokered deposits as of September 30, 2008 and 2007, respectively.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Interest expense on deposits is summarized as follows:

	Years ended September 30,
	2008		2007		2006
Savings deposits	$	1,244	$	1,930	$	2,258
Money market and NOW deposits		6,313		7,293		4,689
Certificates of deposit		20,787		27,216		19,855
Total interest expense	$	28,344	$	36,439	$	26,802

(9) FHLB and Other Borrowings

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

	September 30,
	2008				2007
	Amount		Rate		Amount		Rate
By type of borrowing:
Advances	$	305,842	3.20	%	$	456,169	4.99	%
Repurchase agreements		260,166	3.85	%		205,073	4.09	%
Total borrowings	$	566,008	3.50	%	$	661,242	4.71	%
By remaining period to maturity:
Less than one year	$	153,893	2.16	%	$	376,753	5.13	%
One to two years		52,961	3.62	%		34,766	3.68	%
Two to three years		32,129	3.88	%		15,745	3.91	%
Three to four years		22,500	4.03	%		4,677	4.23	%
Four to five years		35,424	3.96	%		—	0.00	%
Greater than five years		269,101	4.09	%		229,301	4.24	%
Total borrowings	$	566,008	3.50	%	$	661,242	4.71	%

As a member of the FHLB, 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 September 30, 2008 and September 30, 2007, the Bank had pledged mortgages totaling $385,279 and $382,502, respectively. The Bank had also pledged securities with carrying amounts of $323,694 and $342,873 as of September 30, 2008 and September 30, 2007, respectively, to secure repurchase agreements. Based on total outstanding borrowings with the FHLB which totaled $555,252 and $650,247 as of September 30, 2008 and September 30, 2007, the bank had unused borrowing capacity under the FHLB Line of Credit of $142,000 and $46,100, respectively. As of September 30, 2008, the Bank may borrow additional amounts by pledging securities and mortgages not required to be pledged for other purposes with a market value of $32,946 and $142,532. FHLB advances are subject to prepayment penalties if repaid prior to maturity.

Securities repurchase agreements had weighted average remaining terms to maturity of approximately 6.4 years and 6.9 years at September 30, 2008 and 2007, respectively. Average borrowings under securities repurchase agreements were $254,189 and $215,364 during the years ended September 30, 2008 and 2007, respectively, and the maximum outstanding month-end balance was $299,564 and $275,764, respectively.

FHLB borrowings of $302.5 million and $289.5 million at September 30, 2008 and 2007 respectively are callable quarterly, at the discretion of the FHLB. These borrowings have a weighted average remaining term to the contractual maturity dates of approximately 7.3 years and 7.5 years and weighted average interest rates of 4.24% and 4.45% at September 30, 2008 and 2007, respectively. No borrowings with associated premiums were called in 2008. The FHLB called $16.2 million in borrowings assumed in acquisitions resulting in the write-off of $520 in associated premiums and a corresponding reduction in interest expense for the year ended September 30 2007. No such borrowings were called in fiscal 2008.

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PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(10) Income Taxes

Income tax expense consists of the following:

	Years ended September 30,
	2008			2007		2006
Current tax expense:
Federal	$	10,774		$	6,462	$	6,647
State		1,658			833		725
		12,432			7,295		7,372
Deferred tax expense (benefit):
Federal		(2,056	)		1,015		1,526
State		(472	)		256		360
		(2,528	)		1,271		1,886
Total income tax expense	$	9,904		$	8,566	$	9,258

Actual income tax expense differs from the tax computed based on pre-tax income and the applicable statutory Federal tax rate, for the following reasons:

	Years ended September 30,
	2008			2007			2006
Tax at Federal statutory rate of 34%	$	11,789		$	9,868		$	10,309
State income taxes, net of Federal tax benefit		771			708			705
Tax-exempt interest		(2,241	)		(1,783	)		(1,372	)
Nondeductible portion of ESOP expense		112			551			578
BOLI income		(641	)		(715	)		(574	)
Low-income housing and other tax credits		—			(55	)		(72	)
Other, net		114			(8	)		(316	)
Actual income tax expense	$	9,904		$	8,566		$	9,258
Effective income tax rate		29.4	%		30.4	%		31.4	%

81

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are summarized below. The net amount is reported in other assets or other liabilities in the consolidated statements of financial condition.

	September 30,
	2008		2007
Deferred tax assets:
Allowance for loan losses	$	9,381	$	8,378
Deferred compensation		3,702		3,935
Purchase accounting adjustments		282		688
Other comprehensive income		6,546		2,850
Goodwill		213		722
Accrued post retirement expense		1,102		1,097
Other		580		1,012
Total deferred tax assets		21,806		18,682
Deferred tax liabilities:
Undistributed earnings of subsidiary not consolidated for tax return purposes (REIT Income)		6,723		7,590
Prepaid pension costs		2,035		1,807
Core deposit intangibles		939		1,876
Purchase accounting fair value adjustments		249		377
Depreciation of premises and equipment		150		1,163
Other		1,156		1,539
Total deferred tax liabilities		11,252		14,352
Net deferred tax asset	$	10,554	$	4,330

Based on management’s consideration of historical and anticipated future pre-tax income, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance for deferred tax assets was not considered necessary at September 30, 2008 and 2007.

The Bank is subject to special provisions in the Federal and New York State tax laws regarding its allowable tax bad debt deductions and related tax bad debt reserves. Tax bad debt reserves consist of a defined “base-year” amount, plus additional amounts accumulated after the base year. Deferred tax liabilities are recognized with respect to reserves accumulated after the base year, as well as any portion of the base-year amount that is expected to become taxable (or recaptured) in the foreseeable future. The Bank’s base-year tax bad debt reserves for Federal tax purposes were $9,313 at both September 30, 2008 and 2007. The Bank’s tax bad debt reserves for NY State purposes were $48,423 and $46,835 at September 30, 2008 and 2007, respectively. Associated deferred tax liabilities of $5,976 and $5,857 have not been recognized at those dates since the Company does not expect that the Federal base-year reserves ($3,260) and New York State bad debt reserves ($2,716) and $2,597, net of federal benefit) will become taxable in the foreseeable future. Under the tax laws, events that would result in taxation of certain of these reserves include (i) redemptions of the Bank’s stock or certain excess distributions by the Bank to Provident New York Bancorp and (ii) failure of the Bank to maintain a specified qualifying-assets ratio or meet other thrift definition tests for New York State tax purposes.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at October 1, 2007	$	1,171
Additions for tax positions of prior years		28
Reductions due to the statute of limitations		(603	)
Balance at September 30, 2008	$	596

Of this total $11 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The remainder represents potential disallowances related to acquisitions. The Company does not expect that the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

82

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

The total amount of interest and penalties recorded in the income statement in income tax expense for the year ended September 30, 2008 was $58, and the amount accrued for interest and penalties at September 30, 2007 was $69.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the state of New York and various other state income taxes. The tax years that are currently open for audit are 2005 for both federal and for New York State income tax.

(11) Employee Benefit Plans and Stock-Based Compensation Plans

(a) Pension Plan

The Company has a noncontributory defined benefit pension plan covering substantially all of its employees. Employees who are twenty-one years of age or older and have worked for the Company for one year are eligible to participate in the plan. The Company’s funding policy is to contribute annually an amount sufficient to meet statutory minimum funding requirements, but not in excess of the maximum amount deductible for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for benefits expected to be earned in the future. As part of the acquisitions of ENB and WSB the Company assumed the ENB and WSB Pension Plans, both of which were defined benefit plans. The ENB plan was frozen in connection with the merger of ENB into the Company. The WSB Pension Plan, which was already frozen at the time of acquisition, has also been assumed by the Company.

In April, 2006 the Company approved merging both the ENB and WSB pension plans into the Provident Bank Pension Plan, effective April 30, 2006. As a result, the discount rate to determine the accumulated pension obligation was increased from 5.75% to 6.25%. This reduced unrecognized loss on plan assets from $3.8 million to $1.8 million. As the unrecognized loss fell to below 10% of the projected benefit obligation or plan assets, amortization of the unrecognized loss was discontinued as of April 30, 2006.

In July, 2006 the Board of Directors of the Company approved a curtailment to the Provident Bank Defined Benefit Pension Plan (“the Plan”) as of September 30, 2006. At that time, all benefit accruals for future service ceased and no new participants may enter the plan. The purpose of the Plan curtailment was to afford flexibility in the retirement benefits the Company provides, while preserving all retirement plan participants’ earned and vested benefits, and to manage the increasing costs associated with the defined benefit pension plan. The Company recorded a curtailment gain, which reduced the unrecognized net losses in the Plan by $1.6 million with no gain or loss recognized in the financial statements of the Company.

In addition, the Board approved amending the Provident Bank 401(k) and Profit Sharing Plan, a 401(k) plan available to all employees who are age 21 or older. The amendment to the 401(k) plan added a profit sharing contribution for employees, which was 3% of eligible compensation for fiscal 2008.

83

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

The following is a summary of changes in the projected benefit obligation and fair value of plan assets. The Company uses a September 30 measurement date for its pension plans.

	September 30,
	2008			2007
Changes in projected benefit obligation:
Beginning of year	$	29,092		$	28,264
Service cost		—			—
Interest cost		1,558			1,735
Actuarial (gain) loss		(2,187	)		346
Curtailments		—			—
Contract conversion (1)		(3,964	)		—
Benefits paid		(1,399	)		(1,253	)
End of year		23,100			29,092
Changes in fair value of plan assets:
Beginning of year		31,701			30,116
Actual gain (loss) on plan assets		(5,412	)		2,824
Employer contributions		—			14
Contract conversion (1)		(3,964	)
Benefits and distributions paid		(1,399	)		(1,253	)
End of year		20,926			31,701
Funded status at end of year	$	(2,174	)	$	2,609
(1)    On October 2, 2007 certain pension obligations related to retired employees of an acquired bank (ENB) were assumed by the insurance carrier responsible for benefit payments.

Amounts recognized in accumulated other comprehensive loss at September 30, 2008 and 2007 consisted of:

	2008			2007
Unrecognized actuarial loss	$	7,185		$	1,848
Deferred tax asset		(2,913	)		(750	)
Net amount recognized in accumulated other comprehensive loss	$	4,272		$	1,098

Discount rates of 7.0% and 6.25% were used in determining the actuarial present value of the projected benefit obligation at September 30, 2008 and 2007 respectively. No compensation increases were used as the plan is frozen. The weighted average long-term rate of return on plan assets was 7.75% for fiscal years ended 2008 and 2007. The accumulated benefit obligation was $23,100 and $29,092 at year end September 30, 2008 and 2007 respectively.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

2009	$	1,231
2010		1,332
2011		1,386
2012		1,468
2013		1,574
2014 - 2018		9,456

84

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

The components of the net periodic pension expense were as follows:

	Years ended September 30,
	2008			2007			2006
Service cost	$	—		$	—		$	1,232
Interest cost		1,558			1,735			1,716
Expected return on plan assets		(2,110	)		(2,285	)		(2,209	)
Amortization of prior service cost		—			—			(11	)
Amortization of net transition obligation		—			—			—
Recognized net actuarial loss		—			55			129
Net periodic pension expense (benefit)	$	(552	)	$	(495	)	$	857

Weighted-average pension plan asset allocations based on the fair value of such assets at September 30, 2008, and September 30, 2007 and target allocations for 2009, by asset category, are as follows:

	September 30, 2007		September 30, 2008		Target Allocation 2009
Equity securities	65	%	71	%	70	%
Fixed income	34	%	29	%	30	%
Cash	1	%	0	%	0	%

The expected long-term rate of return assumption as of each measurement date was determined by taking into consideration asset allocations as of each such date, historical returns on the types of assets held, and current economic factors. The Company’s investment policy for determining the asset allocation targets was developed based on the desire to optimize total return while placing a strong emphasis on preservation of capital. In general, it is hoped that, in the aggregate, changes in the fair value of plan assets will be less volatile than similar changes in appropriate market indices. Returns on invested assets are periodically compared with target market indices for each asset type to aid management in evaluating such returns.

There were no pension plan assets consisting of Provident New York Bancorp equity securities (common stock) at September 30, 2008 or at September 30, 2007.

The Company makes contributions to its funded qualified pension plans as required by government regulation or as deemed appropriate by management after considering the fair value of plan assets, expected returns on such assets, and the present value of benefit obligations of the plans. At this time, the Company does not expect to make any material contributions in 2009.

The Company has also established a non-qualified Supplemental Executive Retirement Plan 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 $82, $78 and $181 for the years ended September 30, 2008, 2007 and 2006, respectively. The actuarial present value of the projected benefit obligation was $1,353 and $1,330 at September 30, 2008 and 2007, respectively, and the vested benefit obligation was $1,353 and $1,330 for the same periods, respectively, all of which is unfunded.

(b) Other Postretirement Benefit Plans

The Company’s postretirement plans, which are unfunded, provide optional medical, dental and life insurance benefits to retirees or death benefit payments to beneficiaries of employees covered by the Company and Bank Owned Life Insurance policies. In accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” the cost of postretirement benefits is accrued over the years in which employees provide services to the date of their full eligibility for such benefits. As permitted by SFAS No. 106, the Company has elected to amortize the transition obligation for accumulated benefits to retirees as an expense over a 20-year period. In connection with the implementation of SAB 108 the actuarial present value of payments payable to BOLI covered employees’ beneficiaries were recorded as a liability as of October 1, 2006 in the amount of $394.

85

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Data relating to the postretirement benefit plan follows:

	September 30,
	2008			2007
Change in accumulated postretirement benefit obligation:
Beginning of year	$	1,341		$	1,063
Adjustment for implementation of SAB 108		—			394
Service cost		17			19
Interest cost		94			79
Actuarial (gain)		(168	)		(151	)
Plan participants’ contributions		92			88
Amendments		498			—
Benefits paid		(154	)		(151	)
End of year	$	1,720		$	1,341
Changes in fair value of plan assets:
Beginning of year	$	—		$	—
Employer contributions		62			63
Plan participants’ contributions		92			88
Benefits paid		(154	)		(151	)
End of year	$	—		$	—
Funded status	$	(1,720	)	$	(1,341	)

	For years ended September 30,
	2008			2007			2006
Service Cost	$	17		$	19		$	26
Interest Cost		94			79			60
Amortization of transition obligation		10			10			10
Amortization of prior service cost		20			7			10
Amortization of actuarial gain		(115	)		(132	)		(143	)
Total	$	26		$	(17	)	$	(37	)

The following benefit payments are expected to be paid in future years:

2008	$	128
2009		133
2010		134
2011		138
2012		147
2013-2017		805

86

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Assumptions used for plan	2008		2007
Medical trend rate next year	4.50	%	4.50	%
Ultimate trend rate	4.50	%	4.50	%
Discount rate	7.25	%	6.25	%
Discount rate used to value periodic cost	6.25	%	6.00	%

There is no impact of a 1% increase or decrease in health care trend rate due to the Company’s cap on cost.

Amounts recognized in accumulated other comprehensive income (loss) at September 30, 2008 and 2007 consisted of:

	2008			2007
Post retirement plan unrecognized gain	$	1,499		$	1,510
Post retirement plan unrecognized service cost		(509	)		(31	)
Post retirement unrecognized transition obligation		(70	)		(81	)
Post retirement SERP		(7	)		(30	)
Post employment BOLI		66			(3	)
Subtotal		979			1,365
Deferred tax liability		(396	)		(554	)
Net amount recognized in accumulated other comprehensive income (loss)	$	583		$	811

As of September 30, 2007, the Company adopted the provisions of SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans”. Accordingly, the Company recorded a charge of $287, net of taxes, to accumulated other comprehensive loss related to our pension and other postretirement plans for the year ended September 30, 2007, as follows:

Pension Plan unrecognized actuarial loss	$	(1,848	)
Post retirement plan unrecognized gain		1,510
Post retirement plan unrecognized service cost		(31	)
Post retirement plan unrecognized transition obligation		(81	)
Post retirement SERP		(30	)
Subtotal		(480	)
Net deferred tax asset		193
Net amount recognized in accumulated other comprehensive income	$	(287	)

(c) Employee Savings Plan

The Company also sponsors a defined contribution plan established under Section 401(k) of the IRS Code. Eligible employees may elect to contribute up to 50% of their compensation to the plan. The Company currently makes matching contributions equal to 50% of a participant’s contributions up to a maximum matching contribution of 3% of eligible compensation. Effective after September 30, 2006, the Bank amended the plan to include a profit sharing component which was 3% of eligible compensation, in addition to the matching contributions for 2008. Voluntary matching and profit sharing contributions are invested, in accordance with the participant’s direction, in one or a number of investment options. Savings plan expense was $1,626, $1,368, and $458 for the years ended September 30, 2008, 2007 and 2006, respectively.

(d) Employee Stock Ownership Plan

In connection with the Company’s reorganization and initial common stock offering in 1999, Provident Federal established an ESOP for eligible employees who meet certain age and service requirements. The ESOP borrowed $3,760 from the Bank and used the funds to purchase 1,370,112 shares of common stock in the open market subsequent to the

87

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Offering. The Bank made periodic contributions to the ESOP sufficient to satisfy the debt service requirements of the loan which matured December 31, 2007 The ESOP uses these contributions, any dividends received by the ESOP on unallocated shares and forfeitures beginning in 2007, to make principal and interest payments on the loan.

In connection with the Second-Step Stock Conversion and Offering in January 2004, the Company established an additional ESOP loan for eligible employees. The ESOP borrowed $9,987 from Provident New York Bancorp and used the funds to purchase 998,650 shares of common stock in the offering. The term of the second ESOP loan is twenty years.

ESOP shares are held by the plan trustee in a suspense account until allocated to participant accounts. Shares released from the suspense account are allocated to participants on the basis of their relative compensation in the year of allocation. Participants become vested in the allocated shares over a period not to exceed five years. Any forfeited shares were allocated to other participants in the same proportion as contributions through 2006 and beginning in 2007 are used by the plan to reduce debt service. A total of $293 and $250 was reversed against expense for the years ended September 30, 2008 and 2007, respectively.

ESOP expense was $802 (net of forfeitures), $2,393 (net of forfeitures), and $2,595 for the years ended September 30, 2008, 2007 and 2006, respectively. Through September 30, 2008 and 2007, a cumulative total of 1,605,214 shares and 1,520,785 shares, respectively, have been allocated to participants or committed to be released for allocation, respectively. The cost of ESOP shares that have not yet been allocated to participants or committed to be released for allocation is deducted from stockholders’ equity (763,554 shares with a cost of $7,635 and a fair value of approximately $10,094 at September 30, 2008 and 847,983 shares with a cost of $8,221 and a fair value of approximately $11,117 at September 30, 2007, respectively).

The Company’s ESOP was funded by two loans, in which approximately 187,700 shares were released each year. The first loan, initiated in connection with the first public offering, was paid off in December 2007. The second loan, initiated in connection with the second step public offering, matures in December 2023 and is expected to result in the release of 49,932 shares annually. For the year ended September 30, 2008, the ESOP expense for the shares released under the first and second loans totaled $440 and $638 respectively.

A supplemental savings plan has also been established for certain senior officers to compensate executives for benefits provided under the Bank’s tax qualified plans (employee’s savings plan and ESOP) that are limited by the IRS Code. Expense recognized for this plan including the defined benefit component was $234, $195, and $270 for the years ended September 30, 2008, 2007 and 2006, respectively. Amounts accrued and recorded in other liabilities at September 30, 2008 and 2007 including the defined benefit component were $2.4 million and $2.2 million respectively.

(e) Recognition and Retention Plan

In February 2000, the Company’s stockholders approved the Provident Bank 2000 Recognition and Retention Plan (the RRP). The principal purpose of the RRP is to provide executive officers and directors a proprietary interest in the Company in a manner designed to encourage their continued performance and service. A total of 856,320 shares were awarded under the RRP in February 2000, and the grant-date fair value of these shares of $2,995 was charged to stockholders’ equity. The awards vested at a rate of 20% on each of five annual vesting dates, the first of which was September 30, 2000. As of September 30, 2008 27,413 shares remain available for future grant from this plan. In January 2005, the Company’s stockholders approved the Provident Bancorp, Inc. 2004 Stock Incentive Plan, under the terms of which the Company is authorized to issue up to 798,920 shares of common stock as restricted stock awards. On March 10, 2005 a total of 762,400 shares were awarded under the RRP, and the grant-date fair value of $12.84 per share $(9,789), was charged to stockholders’ equity. The awards vested 10% on September 30, 2005. The remainder will vest 20% on each of four annual vesting dates beginning on September 30, 2006 and 10% on March 10, 2010. Employees who retire under circumstances in accordance with the terms of the Plan may be entitled to accelerate the vesting of individual awards. Such acceleration would require a charge to earnings for the award shares that would then vest. As of September 30, 2008, 230,500 shares were potentially subject to accelerated vesting. The Company granted an additional 6,000 shares in 2008 at an average grant date fair value of $13.46, vesting 20% each year.

Under the 2004 restricted stock plan, 49,620 shares of authorized but un-issued shares remain available for future grant at September 30, 2008. The Company also can fund the restricted stock plan with treasury stock. The fair market value of the shares awarded under the restricted stock plan is being amortized to expense on a straight-line basis over the five year vesting period of the underlying shares. Compensation expense related to the restricted stock plan was $1.8 million, $2.0 million and $2.2 million for the years ended September 30, 2008, 2007 and 2006, respectively. The remaining unearned

88

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

compensation cost is $2.7 million as of September 30, 2008 and is recorded as a reduction of additional paid in capital. On grant date, shares awarded under the restricted stock plan were transferred from treasury stock at cost with the difference between the fair market value on the grant and the cost basis of the shares recorded as a reduction to retained earnings or an increase to additional paid-in capital, as applicable. Upon adoption of SFAS No.123R the balance of unearned compensation as of October 1, 2006 was transferred to additional paid-in capital. The fair value of the shares awarded, measured as of the grant date continues to be recognized and amortized on a straight-line basis to compensation expense over the vesting period of the awards.

A summary of restricted stock award activity under the plan for the year ended September 30, 2008, is presented below:

	Number of Shares		Grant-Date Fair Value
Nonvested shares at September 30, 2007	340,700		$	12.87
Granted	6,000			13.46
Vested	(140,750	)		12.86
Forfeited	—
Nonvested shares at September 30, 2008	205,950		$	12.89

The total fair value of restricted stock vested for fiscal year ended September 30, 2008, 2007 and 2006 was $1.9 million, $2.1 million and $2.3 million, respectively. The intrinsic value of shares vested during 2008 was $68.

(f) Stock Option Plan

The Company’s stockholders approved the Provident Bank 2000 Stock Option Plan (the Stock Option Plan) in February 2000. A total of 1,712,640 shares of authorized but unissued common stock was reserved for issuance under the Stock Option Plan, although the Company may also fund option exercises using treasury shares. The Company’s stockholders also approved the Provident Bancorp, Inc. 2004 Stock Incentive Plan, in February 2005. Under terms of the plan, a total of 1,997,300 shares of authorized but un-issued common stock was reserved for issuance under the Stock Option Plan. In March, 2005, 1,718,300 options were granted. Under both plans, options have a ten-year term and may be either non-qualified stock options or incentive stock options. Reload options may be granted under the terms of the 2000 Stock Option Plan and provide for the automatic grant of a new option at the then-current market price in exchange for each previously owned share tendered by an employee in a stock-for-stock exercise. The 2004 Plan options do not contain reload options. However, the 2004 plan allows for the grant of Stock appreciation rights. Each option entitles the holder to purchase one share of common stock at an exercise price equal to the fair market value of the stock on the grant date. Employees who retire under circumstances, in accordance with the terms of the Plan, may be entitled to accelerate the vesting of individual awards. As of September 30, 2008 170,340 shares were potentially subject to accelerated vesting. Substantially, all stock options outstanding are expected to vest. Compensation expense related to stock option plans was $1.2 million, $1.3 million and $1.1 million for the years ended September 30, 2008, 2007 and 2006, respectively.

The following is a summary of activity in the Stock Option Plan:

	Shares subject to option		Weighted average exercise price
Outstanding at September 30, 2007	2,504,294		$	10.20
Granted	275,134			13.11
Exercised	(249,628	)		5.83
Forfeited	(48,637	)		12.94
Outstanding at September 30, 2008	2,481,163		$	10.91

The total intrinsic value of stock options vested for fiscal years ended September 30, 2008, 2007 and 2006 was $5.6 million, $3.9 million and $18.0 million, respectively. The unrecognized compensation cost associated with stock options was $1.4 million as of September 30, 2008. The intrinsic value of stock options exercised during 2008 was $1.8 million.

At September 30, 2008 and 2007, respectively, there were 305,454 and 464,647 shares available for future grant. The aggregate intrinsic value of options outstanding as of September 30, 2008 was $5.8 million. The aggregate intrinsic value

89

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading date of the year ended September 30, 2008 and the exercise price, multiplied by the number of in the money options). The cash received from option exercises was $414 and $401 for fiscal 2008 and 2007 respectively. There was no tax benefit to the Company from the exercise of options for either fiscal 2008 or fiscal 2007.

A summary of stock options at September 30, 2008 follows:

	Outstanding				Exercisable
		Weighted-Average				Weighted-Average
	Number of Stock Options	Exercise Price		Life (in Years)	Number of Stock Options	Exercise Price		Life (in Years)
Range of Exercise Price
$3.50 to $7.31	528,505	$	3.82	1.4	528,505	$	3.82	1.4
$10.61 to $11.85	166,898		11.60	4.5	157,898		11.63	4.4
$12.42 to $15.66	1,785,760		12.94	6.2	1,264,720		12.91	4.2
	2,481,163	$	10.91	5.1	1,951,123	$	10.34	3.5

The aggregate intrinsic value of options currently exercisable as of September 30, 2008 was $5.7 million.

The Company used an option pricing model to estimate the grant date present value of stock options granted. The weighted-average estimated value per option granted was $2.99 in 2008, $3.07 in 2007 and $4.08 in 2006. The fair value of options granted was determined using the following weighted-average assumptions as of the grant date:

	2008		2007		2006
Risk-free interest rate (1)	3.4	%	4.8	%	4.9	%
Expected term in years	5.5		2.9		8.6
Expected stock price volatility	28	%	30	%	25	%
Dividend yield (2)	1.9	%	1.6	%	1.6	%
(1)    represents the yield on a risk free rate of return (either the US Treasury curve or the SWAP curve, in periods with high volatility in US Treasury securities) with a remaining term equal to the expected option term (2)    represents the approximate annualized cash dividend rate paid with respect to a share of common stock at or near the grant date

90

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(12) Comprehensive Income (Loss)

Comprehensive income (loss) represents the sum of net income and items of other comprehensive income or loss that are reported directly in stockholders’ equity, such as the change during the period in the after-tax net unrealized gain or loss on securities available for sale and change in the funded status of defined benefit plans. The Company has reported its comprehensive income in the consolidated statements of changes in stockholders’ equity.

The components of other comprehensive income (loss) are summarized as follows:

	Year ended September, 30,
	2008			2007			2006
Net unrealized holding gain (loss) arising during the year on securities available for sale, net of related income tax expense (benefit) of $(1,769) $2,521 and $466, respectively	$	(2,559	)	$	3,620		$	652
Reclassification adjustment for net realized (losses)/ gains included in net income, net of related income tax expense (benefit) of $399, $(3) and $0, respectively		584			(5	)		—
		(1,975	)		3,615			652
*Minimum pension liability adjustment, net of related income tax expense of $0, $48 and $75		—			70			113
Change in funded status of defined benefit plans, net of related income tax benefit of $2,326 and $0		(3,402	)		—			—
	$	(5,377	)	$	3,685		$	765
*       Excludes initial impact of the adoption of FAS 158 of $(287)

The Company’s accumulated other comprehensive loss included in stockholders’ equity at September 30, 2008 and 2007 consists of the after-tax net unrealized loss on available for sale securities of $5,892 and $3,917 respectively, and the recognition of the funded status of defined benefit plans of $(3,689) and $(287), after tax, at September 30, 2008 and 2007, respectively.

91

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(13) Earnings Per Common Share

The following is a summary of the calculation of earnings per share (EPS):

	Years ended September 30,
	2008		2007		2006
	(in thousands)
Net income	$	23,778	$	19,627	$	20,195
Weighted average common shares outstanding for computation of basic EPS(1)		38,907		40,783		40,953
Common-equivalent shares due to the dilutive effect of stock options and RRP awards(2)		320		484		489
Weighted average common shares for computation of diluted EPS		39,227		41,267		41,442
Earnings per common share:
Basic	$	0.61	$	0.48	$	0.49
Diluted	$	0.61	$	0.48	$	0.49
(1)    Excludes unallocated ESOP shares. (2)    Represents incremental shares computed using the treasury stock method.

As of September 30, 2008 and 2007 there were 1,155,653 and 1,676,894 stock options, respectively, that were considered anti-dilutive for these periods and were not included in common-equivalent shares.

(14) Stockholders’ Equity

(a) Regulatory Capital Requirements

OTS regulations require banks to maintain a minimum ratio of tangible capital to total adjusted assets of 1.5%, a minimum ratio of Tier 1 (core) capital to total adjusted assets of 4.0%, and a minimum ratio of total (core and supplementary) capital to risk-weighted assets of 8.0%.

Under its prompt corrective action regulations, the OTS is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on the institution’s financial statements.

The regulations establish a framework for the classification of banks into five categories: well capitalized; adequately capitalized; undercapitalized; significantly undercapitalized; and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a Tier 1 (core) capital ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.

The foregoing capital ratios are based, in part, on specific quantitative measures of assets, liabilities and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OTS about capital components, risk weightings and other factors. These capital requirements apply only to the Bank, and do not consider additional capital retained by Provident New York Bancorp.

Management believes that, as of September 30, 2008 and 2007 the Bank met all capital adequacy requirements to which it was subject. Further, the most recent OTS notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank’s capital classification.

The following is a summary of the Bank’s actual regulatory capital amounts and ratios at September 30, 2008 and 2007, compared to the OTS requirements for minimum capital adequacy and for classification as a well-capitalized institution. PMB is also subject to certain regulatory capital requirements, which it satisfied as of September 30, 2008 and 2007.

92

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

					OTS requirements
	Bank actual				Minimum capital adequacy				Classification as well capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2008:
Tangible capital	$	226,053	8.0	%	$	42,357	1.5	%	$	—	—
Tier 1 (core) capital		226,053	8.0			112,952	4.0			141,191	5.0	%
Risk-based capital:
Tier 1		226,053	11.6			—	—			116,709	6.0
Total		249,154	12.8			155,612	8.0			194,515	10.0
September 30, 2007:
Tangible capital	$	212,497	8.1	%	$	39,578	1.5	%	$	—	—
Tier 1 (core) capital		212,497	8.1			105,541	4.0			131,926	5.0	%
Risk-based capital:
Tier 1		212,497	11.6			—	—			109,656	6.0
Total		232,886	12.7			146,208	8.0			182,760	10.0

Tangible and Tier 1 capital amounts represent the stockholder’s equity of the Bank, less intangible assets and after-tax net unrealized gains (losses) on securities available for sale and any other disallowed assets, such as deferred income taxes. Total capital represents Tier 1 capital plus the allowance for loan losses up to a maximum amount equal to 1.25% of risk-weighted assets.

The following is a reconciliation of the Bank’s total stockholder’s equity under accounting principles generally accepted in the United States of America (“GAAP”) and its regulatory capital:

	September 30,
	2008			2007
Total GAAP stockholder’s equity (Provident Bank)	$	378,554		$	376,013
Goodwill and certain intangible assets		(162,200	)		(164,870	)
Other disallowed assets (deferred income taxes)		—			(2,850	)
Unrealized losses on securities available for sale included in other accumulated comprehensive loss		5,824			3,917
Other Comprehensive Loss		3,875			287
Tangible, tier 1 core and Tier 1 risk-based capital		226,053			212,497
Allowance for loan losses		23,101			20,389
Total risk-based capital	$	249,154		$	232,886

(b) Dividend Payments

Under OTS regulations, savings associations such as the Bank generally may declare annual cash dividends up to an amount equal to the sum of net income for the current year and net income retained for the two preceding calendar years. Dividend payments in excess of this amount require OTS approval. After September 30, 2008 the amount that can be paid to Provident New York Bancorp by Provident Bank is net income in fiscal 2009 for Provident Bank less $1.4 million. The Bank paid $19 million dividends to Provident New York Bancorp during the year ended September 30, 2008 ($25 million during the year ended September 30, 2007 and $20 million during the year ended September 30, 2006).

Unlike the Bank, Provident New York Bancorp is not subject to OTS regulatory limitations on the payment of dividends to its stockholders.

93

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(c) Stock Repurchase Programs

The Company announced its fourth stock repurchase program on August 24, 2007, authorizing the repurchase of 2,000,000 shares, of which 1,165,901 remain to be purchased.

The total number of shares repurchased under repurchase programs during the fiscal year ended September 30, 2008, 2007 and 2006, was 1,570,757 , 1,540,471, and 1,161,894 respectively at a total cost of $19.8 million, $20.9 million, and $13.3 million, respectively.

(d) Liquidation Rights

Upon completion of the second-step conversion in January 2004, the Bank established a special “liquidation account” in accordance with OTS regulations. The account was established for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders (as defined in the plan of conversion) in an amount equal to the greater of (i) the Mutual Holding Company’s ownership interest in the retained earnings of Provident Federal as of the date of its latest balance sheet contained in the prospectus, or (ii) the retained earnings of the Bank at the time that the Bank reorganized into the Mutual Holding Company in 1999. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at the Bank would be entitled, in the event of a complete liquidation of the Bank, to a pro rata interest in the liquidation account prior to any payment to the stockholders of the Holding Company. The liquidation account is reduced annually on December 31 to the extent that Eligible Account Holders and Supplemental Eligible Account Holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases in deposits do not restore such account holder’s interest in the liquidation account. The Bank may not pay cash dividends or make other capital distributions if the effect thereof would be to reduce its stockholder’s equity below the amount of the liquidation account.

(15) Off-Balance-Sheet Financial Instruments

In the normal course of business, the Company is a party to off-balance-sheet financial instruments that involve, to varying degrees, elements of credit risk and interest rate risk in addition to the amounts recognized in the consolidated financial statements. The contractual or notional amounts of these instruments, which reflect the extent of the Company’s involvement in particular classes of off-balance-sheet financial instruments, are summarized as follows:

	September 30,
	2008		2007
Lending-related instruments:
Loan origination commitments	$	121,404	$	100,378
Unused lines of credit		341,069		347,607
Letters of credit		27,908		23,811

As of September 30, 2008 and September 30 2007 96% of lending related off balance sheet instruments were variable rates.

The contractual amounts of loan origination commitments, unused lines of credit and letters of credit represent the Company’s maximum potential exposure to credit loss, assuming (i) the instruments are fully funded at a later date, (ii) the borrowers do not meet the contractual payment obligations, and (iii) any collateral or other security proves to be worthless. The contractual amounts of these instruments do not necessarily represent future cash requirements since certain of these instruments may expire without being funded and others may not be fully drawn upon. Substantially all of these lending-related instruments have been entered into with customers located in the Company’s primary market area described in Note 5 (“Loans”).

Loan origination commitments are legally-binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments have fixed expiration dates (generally ranging up to 60 days) or other termination clauses, and may require payment of a fee by the customer. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, obtained by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral varies but may include mortgages on residential and commercial real estate, deposit accounts with the Company, and other property. The Company’s loan origination commitments at September 30, 2008 provide for interest rates ranging principally from 3.63% to 8.50%.

94

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

Unused lines of credit are legally-binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates or other termination clauses. The amount of collateral obtained, if deemed necessary by the Company, is based on management’s credit evaluation of the borrower.

Letters of credit are commitments issued by the Company on behalf of its customer 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 nearly all standby letters of credit and 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 September 30, 2008, the Company had $27,908 in outstanding letters of credit, of which $13,893 were secured by cash collateral.

(16) Commitments and 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. Future minimum rental payments due under non-cancelable operating leases with initial or remaining terms of more than one year at September 30, 2008 were as follows (for fiscal years ending September 30^th):

2009	$	2,174
2010		1,929
2011		1,881
2012		1,870
2013		1,745
2014 and thereafter		20,585
	$	30,184

Occupancy and office operations expense includes net rent expense of $2,398, $1,992 and $1,892, for the years ended September 30, 2008, 2007 and 2006, respectively.

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.

95

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(17) Fair Values of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of 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. 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 SFAS No. 107 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):

	September 30,
	2008						2007
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Financial assets:
Cash and due from banks	$	125,810		$	125,810		$	47,291		$	47,291
Securities available for sale		791,688			791,688			794,997			794,997
Securities held to maturity		43,013			42,899			37,446			37,584
Loans		1,708,452			1,721,499			1,617,669			1,606,687
Loans held for sale		189			189			—			—
Accrued interest receivable		10,881			10,881			12,641			12,641
FHLB stock		28,675			NA			32,801			NA
Financial liabilities:
Deposits		(1,989,197	)		(1,988,880	)		(1,713,684	)		(1,714,135	)
FHLB and other borrowings		(566,008	)		(550,213	)		(661,242	)		(661,347	)
Mortgage escrow funds		(7,272	)		(7,155	)		(5,982	)		(5,970	)
Accrued interest payable		(4,240	)		(4,240	)		(5,866	)		(5,866	)

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

(a) Securities

The estimated fair values of securities were based on quoted market prices.

(b) Loans

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

96

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(c) FHLB Stock

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(d) Deposits and Mortgage Escrow Funds

In accordance with SFAS No. 107, deposits with no stated maturity (such as savings, demand and money market deposits) were assigned fair values equal to the carrying amounts payable on demand. Certificates of deposit and mortgage escrow funds were segregated by account type and original term, and fair values were estimated by discounting the contractual cash flows. The discount rate for each account grouping was equivalent to the current market rates for deposits of similar type and maturity.

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

(e) FHLB and Other Borrowings

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

(f) Other Financial Instruments

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

The fair values of the Company’s off-balance-sheet financial instruments described in Note 15 (“Off Balance Sheet Financial Instruments”) were estimated based on current market terms (including interest rates and fees), considering the remaining terms of the agreements and the credit worthiness of the counterparties. At September 30, 2008 and 2007, the estimated fair values of these instruments approximated the related carrying amounts, which were insignificant.

(18) Recent Accounting Standards and Interpretations

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States (the GAAP hierarchy). The hierarchical guidance provided by SFAS No. 162 did not have a significant impact on the Company’s financial statements.

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

At its September 2006 meeting, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 06-04, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be

97

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

accounted for under SFAS No. 106 or Accounting Principles Board Opinion (“APB”) No. 12, “Omnibus Opinion – 1967.” The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after December 15, 2007. The provisions of Issue 06-04 should be applied through either a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption or retrospective application. The Company has one endorsement split-dollar life insurance policy that it inherited through certain acquisitions that are associated with employees who are no longer active, the effect, of which, is immaterial.

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

In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140, (“SFAS 155”). SFAS 155 amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS 133”) and SFAS 140. SFAS 155 resolves issues addressed in SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS 155 permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives, or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”) to eliminate the prohibition of a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 did not have a material impact on the consolidated earnings or financial position of the Company.

Please see Note 1 for a discussion of additional new accounting standards.

(19) Condensed Parent Company Financial Statements

Set forth below are the condensed statements of financial condition of Provident New York Bancorp and the related condensed statements of income and cash flows:

	September 30,
	2008		2007
Condensed Statements of Financial Condition
Assets:
Cash	$	3,252	$	9,846
Loan receivable from ESOP		8,562		9,316
Securities available for sale at fair value		926		—
Investment in Provident Bank		379,480		376,732
Non-bank subsidiaries		7,341		7,512
Other assets		769		2,890
Total assets	$	400,330	$	406,296
Liabilities	$	1,172	$	1,207
Stockholders’ equity		399,158		405,089
Total liabilities & stockholders’ equity	$	400,330	$	406,296

98

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

	Year ended September 30,
	2008			2007			2006
Condensed Statements of Income
Interest income	$	473		$	687		$	847
Dividend income on equity securities		27
Dividends from Provident Bank		19,000			25,000			20,000
Dividends from non-bank subsidiaries		650			650			600
Non-interest expense		(3,807	)		(3,993	)		(3,724	)
Income tax benefit		962			1,025			924
Income before equity in undistributed earnings of subsidiaries		17,305			23,369			18,647
Equity in undistributed (Excess distributed) earnings of:
Provident Bank		6,644			(3,757	)		1,598
Non-bank subsidiaries		(171	)		15			(50	)
Net income	$	23,778		$	19,627		$	20,195
	Year ended September 30,
	2008			2007			2006
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income	$	23,778		$	19,627		$	20,195
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in (undistributed) excess distributed earnings of
Provident Bank		(6,644	)		3,757			(1,598	)
Non-bank subsidiaries		171			(15	)		50
Other adjustments, net		760			(3,027	)		5,324
Net cash provided by operating activities		18,065			20,342			23,971
Cash flows from investing activities:
Acquisitions		—			—			2,740
Purchase of equity securities, available for sale		(1,041	)		—			—
ESOP loan principal repayments		754			739			725
Net cash provided by (used in) investing activities		(287	)		739			3,465
Cash flows from financing activities:
Capital contribution to subsidiaries		—			(750	)		(5,390	)
Treasury shares purchased		(20,230	)		(21,503	)		(13,898	)
Cash dividends paid		(9,525	)		(8,278	)		(8,363	)
Stock option transactions including RRP		4,001			2,986			2,247
Other equity transactions		1,382			3,233			501
Net cash used in financing activities		(24,372	)		(24,312	)		(24,903	)
Net increase (decrease) in cash		(6,594	)		(3,231	)		2,533
Cash at beginning of year		9,846			13,077			10,544
Cash at end of year	$	3,252		$	9,846		$	13,077

99

PROVIDENT NEW YORK BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollars in thousands, except per share data)

(20) Quarterly Results of Operations (Unaudited)

The following is a condensed summary of quarterly results of operations for the years ended September 30, 2008 and 2007:

	First quarter		Second quarter		Third quarter		Fourth quarter
Year ended September 30, 2008
Interest and dividend income	$	38,845	$	37,365	$	36,066	$	36,706
Interest expense		16,471		14,124		11,878		11,169
Net interest income		22,374		23,241		24,188		25,537
Provision for loan losses		700		3,000		1,400		2,100
Non-interest income		4,959		5,753		5,024		5,306
Non-interest expense		18,122		18,924		18,955		19,499
Income before income tax expense		8,511		7,070		8,857		9,244
Income tax expense		2,617		1,987		2,551		2,749
Net income	$	5,894	$	5,083	$	6,306	$	6,495
Earnings per common share:
Basic	$	0.15	$	0.13	$	0.16	$	0.17
Diluted		0.15		0.13		0.16		0.17
Year ended September 30, 2007
Interest and dividend income	$	37,340	$	37,265	$	37,986	$	39,035
Interest expense		17,644		16,797		15,655		16,792
Net interest income		19,696		20,468		22,331		22,243
Provision for loan losses		400		400		400		600
Non-interest income		5,034		4,905		4,988		4,918
Non-interest expense		17,924		18,571		19,050		19,045
Income before income tax expense		6,406		6,402		7,869		7,516
Income tax expense		1,795		1,970		2,433		2,368
Net income	$	4,611	$	4,432	$	5,436	$	5,148
Earnings per common share:
Basic	$	0.11	$	0.11	$	0.13	$	0.13
Diluted		0.11		0.11		0.13		0.13

100

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2008, under the supervision and with the participation of Provident New York Bancorp’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level in timely alerting them to material information required to be included in Provident New York Bancorp’s periodic SEC reports. There were no changes in the Company’s internal controls over financial reporting during the fourth fiscal quarter of 2008 that have materially affected or a reasonably likely to materially affect the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting (see “Report of Management on Internal Control Over Financial Reporting”)

Provident New York Bancorp’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of the management of Provident New York Bancorp’s, including Provident New York Bancorp’s CEO and CFO, Provident New York Bancorp conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2008 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission which is also referred to as COSO. Based on that evaluation, management of Provident New York Bancorp concluded that the Company’s internal control over financial reporting was effective as of September 30, 2008. Management’s assessment of the effectiveness of internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

The effectiveness of the Company’s internal control over financial reporting as of September 30, 2008 has been audited by Crowe Horwath LLP, as stated in their report which is included elsewhere herein.

ITEM 9B. Other Information

Not applicable.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

The “Proposal I — Election of Directors” section of Provident New York Bancorp’s Proxy Statement for the Annual Meeting of Stockholders to be held in February 2009 (the “Proxy Statement”) is incorporated herein by reference.

ITEM 11. Executive Compensation

The “Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.

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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Provident New York Bancorp does not have any equity compensation programs that were not approved by stockholders, other than its employee stock ownership plan.

Set forth below is certain information as of September 30, 2008, regarding equity compensation that has been approved by stockholders.

Equity compensation plans approved by stockholders	Number of securities to be issued upon exercise of outstanding options and rights	Weighted average Exercise price		Number of securities remaining available for issuance under plan
Stock Option Plans	2,481,163	$	10.91	305,454
Recognition and Retention Plan (1)	205,950		12.89	77,033
Total (2)	2,687,113	$	11.06	382,487

(1) Represents shares that have been granted but have not yet vested.

(2) Weighted average exercise price represents Stock Option Plan only, since RRP shares have no exercise price.

The “Proposal I — Election of Directors” section of the Proxy Statement is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

The “Transactions with Certain Related Persons” section of the Proxy Statement is incorporated herein by reference.

ITEM 14. Principal Accountant Fees and Services

The “Independent Registered Public Accounting Firm” section of the proxy statement is incorporated herein by reference.

PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(1) Financial Statements

The financial statements filed in Item 8 of this Form 10-K are as follows:

(A) Report of Independent Registered Public Accounting Firm

(B) Consolidated Statements of Financial Condition as of September 30, 2008 and 2007

(C) Consolidated Statements of Income for the years ended September 30, 2008, 2007 and 2006

(D) Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2008, 2007 and 2006

(E) Consolidated Statements of Cash Flows for the years ended September 30, 2008, 2007 and 2006

(F) Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

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(3) Exhibits

3.1	Certificate of Incorporation of Provident New York Bancorp1
3.2	Bylaws of Provident New York Bancorp, as amended2
10.2	Employment Agreement with George Strayton3*
10.3	Employment Agreement with Daniel Rothstein3*
10.4	Deferred Compensation Agreement, as amended and restated4*
10.5	Provident Amended and Restated 1995 Supplemental Executive Retirement Plan5*
10.5.1	Provident 2005 Supplemental Executive Retirement Plan6*
10.6	Executive Officer Incentive Program7*
10.7	1996 Long-Term Incentive Plan for Officers and Directors, as amended8*
10.8	Provident Bank 2000 Stock Option Plan9*
10.9	Provident Bank 2000 Recognition and Retention Plan10*
10.10	Employment Agreement with Paul A. Maisch3*
10.11	Provident Bancorp, Inc. 2004 Stock Incentive Plan11*
10.12	Provident Bank Executive Officer Incentive Plan12*
10.13	Employment Agreement with Stephen Dormer3*
10.14	Employment Agreement with Richard Jones13*
21	Subsidiaries of Registrant3
23.1	Consent of Horwath LLP3
23.2	Consent of KPMG LLP3, 15
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 20023
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 20023
32	Certification Pursuant to 18 U.S.C. Section 1350, as amended by Section 906 of the Sarbanes-Oxley Act of 20023
99	Report of Independent Registered Public Accounting Firm (KPMG) dated December 11, 200614

¹ Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 (File No. 333-108795), originally filed with the Commission on September 15, 2003.

² Incorporated by reference to Exhibit 3.2 of Amendment No. 2 to the 2007 10-K (File No. 0-25233), filed with the Commission on January 1, 2008.

³ Filed herewith.

⁴ Incorporated by reference to Exhibit 10.4 of the Registration Statement on Form S-1 of Provident Bancorp, Inc. (File No. 333-63593), filed with the Commission on September 17, 1998.

⁵ Incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 11, 2008.

⁶ Incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q (File No. 0-25233), filed with the Commission on August 11, 2008.

⁷ Incorporated by reference to Exhibit 10.6 of the 2007 10-K (File No. 0-25233), filed with the Commission on December 13, 2007.

⁸ Incorporated by reference to Exhibit 10.7 of Amendment No. 1 to the Registration Statement on Form S-1 of Provident Bancorp, Inc. (File No. 333-63593), filed with the Commission on September 17, 1998.

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⁹ Incorporated by reference to Appendix A of the Proxy Statement for the 2000 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 18, 2000.

¹⁰ Incorporated by reference to Appendix B of the Proxy Statement for the 2000 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 18, 2000.

¹¹ Incorporated by reference to Appendix A to the Proxy Statement for the 2005 Annual Meeting of Stockholders of Provident Bancorp Inc., (File No. 0-25233), filed with the Commission on January 19, 2005.

¹² Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K (File No. 0-25233), filed with the Commission on December 5, 2005

¹³ Incorporated by reference to Exhibit 10.14 of the 2006 10-K (File No. 0-25233), filed with the Commission on December 13, 2006

¹⁴ Incorporated by reference to Item 8 of the Company’s 2008 Form 10-K.

¹⁵ Provident New York Bancorp has agreed to indemnify and hold KPMG LLP (KPMG) harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the incorporation by reference of its audit report on the Company’s past financial statements.

* Indicates management contract or compensatory plan or arrangement.

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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:	December 09, 2008	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By:	/s/ George Strayton	By:	/s/ Paul A. Maisch
	George Strayton		Paul A. Maisch
	President, Chief Executive Officer and		Executive Vice President
	Director		Chief Financial Officer
	Principal Executive Officer		Principal Accounting Officer
Date:	December 09, 2008		Principal Financial Officer
		Date:	December 09, 2008
By:	/s/ William F. Helmer	By:	/s/ Dennis L. Coyle
	William F. Helmer		Dennis L. Coyle
	Chairman of the Board		Vice Chairman
Date:	December 09, 2008	Date:	December 09, 2008

By:	/s/ Judith Hershaft	By:	/s/ Thomas F. Jauntig, Jr.	By:	/s/ Thomas G. Kahn
	Judith Hershaft		Thomas F. Jauntig, Jr.		Thomas G. Kahn
	Director		Director		Director
Date:	December 09, 2008	Date:	December 09, 2008	Date:	December 09, 2008
By:	/s/ R. Michael Kennedy	By:	/s/ Victoria Kossover	By:	/s/ Donald T. McNelis
	R. Michael Kennedy		Victoria Kossover		Donald T. McNelis
	Director		Director		Director
Date:	December 09, 2008	Date:	December 09, 2008	Date:	December 09, 2008
By:	/s/ Richard A. Nozell	By:	/s/ Carl Rosenstock	By:	/s/ William Sichol Jr.
	Richard A. Nozell		Carl Rosenstock		William Sichol Jr.
	Director		Director		Director
	December 09, 2008		December 09, 2008		December 09, 2008
By:	/s/ Burt Steinberg
	Burt Steinberg
	Director
Date	December 09, 2008

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT WITH GEORGE STRAYTON

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the 8^th day of December, 2008 (“Effective Date”), by and between Provident Bank, a savings bank organized and existing under the laws of the United States of America and having its executive offices at 400 Rella Boulevard, Montebello, New York 10901 (“Bank”), and George Strayton (“Executive”). The Bank is a wholly-owned subsidiary of Provident New York Bancorp (“Company”).

WITNESSETH:

WHEREAS, Executive currently serves as an executive officer of the Bank pursuant to the Amended and Restated Employment Agreement entered into as of October 31, 2006 (the “Prior Agreement”); and

WHEREAS, in order to comply with new Internal Revenue Code Section 409A, the Prior Agreement is being restated and is superseded in its entirety by this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Bank and Executive hereby agree as follows:

1. Employment. The Bank hereby agrees to continue the employment of the Executive and the Executive hereby agrees to continue such employment, during the period and upon the terms and conditions set forth in this Agreement. All actions that may be undertaken by the Bank with respect to the Executive’s employment with the Bank pursuant to this Agreement shall be undertaken by the Board of Directors of the Bank.

2. Employment Period.

(a) Three Year Contract; Daily Renewal. The Executive’s period of employment with the Bank (“Employment Period”) shall begin on the Effective Date and shall renew daily, such that the remaining unexpired term of the Agreement shall always be thirty-six (36) months, until the date that the Bank gives the Executive written notice of non-renewal (“Non-Renewal Notice”). The Employment Period shall end on the date that is thirty-six (36) months after the date of the Non-Renewal Notice, unless the parties agree that the Employment Period shall end on an earlier date. Notwithstanding the preceding provisions of this Section 2(a), the Employment Period under this Agreement shall automatically terminate on the last day of the calendar month in which the Executive attains age 68.

(b) Annual Performance Evaluation. On either a fiscal year or calendar year basis, (consistently applied from year to year), the Bank shall conduct an annual evaluation of the Executive’s performance. The annual performance evaluation proceedings shall be included in the minutes of the Board meeting that next follows such annual performance review.

(c) Continued Employment Following Termination of Employment Period. Nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the Employment Period upon such terms and conditions as the Bank and the Executive may mutually agree.

3. Duties.

(a) Title; Reporting Responsibility. The Executive shall serve as the President and Chief Executive Officer of the Bank, with power, authority and responsibility commensurate with those of a senior officer. As Chief Executive Officer, the Executive shall directly report to the Board. The Executive shall also be nominated as a member of the Board of Directors of the Bank, subject to election by shareholders.

(b) Time Commitment. The Executive shall devote his full business time and attention to the business and affairs of the Bank and shall use his best efforts to advance the interests of the Bank.

4. Annual Compensation.

(a) Base Salary.

(i) Annual Salary. In consideration for the services performed by the Executive under this Agreement, the Bank shall pay to the Executive an annual salary (“Base Salary”). The Base Salary shall be paid in approximately equal installments in accordance with the Bank’s customary payroll practices. The Bank shall review the Executive’s Base Salary at least annually for possible upward adjustment, but, the Executive’s Base Salary shall not be reduced without the Executive’s consent. For the fiscal year that began on October 1, 2005, the Executive’s Base Salary is $450,000.

(ii) Automatic Adjustment Following a Change in Control. For each calendar year that begins on or after the date on which a Change in Control (as defined in Section 9) occurs, and continuing through the remainder of the Employment Period, the Executive’s Base Salary shall automatically increase by the greater of (1) six percent (6%) or (2) the average annual rate of base salary increases provided for the immediately preceding calendar year to individuals employed by the Bank at the level of assistant vice president or above (but excluding the Executive from the determination of such average).

(b) Incentive Compensation. The Executive shall be eligible to participate in any bonus and incentive compensation programs (not including equity compensation programs, which are covered by Section 4(c) of this Agreement) established by the Bank from time to time for senior executive officers, including the Bank’s Executive Officer Management Incentive Program. Compensation payable pursuant to such programs shall be referred to herein as “Incentive Compensation.” For the fiscal year that ended on September 30, 2005, the Executive received Incentive Compensation of $100,800.

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(c) Equity Compensation. The Executive shall be eligible to participate in any equity compensation programs established by the Bank from time to time for senior executive officers, including, but not limited to, the 2004 Stock Incentive Plan.

(d) Employee Benefit Plans; Paid Time Off

(i) Benefit Plans. During the Employment Period, the Executive shall be an employee of the Bank and shall be entitled to participate in the Bank’s (i) tax-qualified retirement plans (i.e., the Bank’s Defined Benefit Pension Plan, 401(k) Plan and Employee Stock Ownership Plan (including, for purposes of this Agreement, any successor plans thereto)); (ii) nonqualified retirement plans (i.e., the Bank’s 2005 Supplemental Executive Retirement Plan (including any predecessor or successor plan thereto, the “SERP”)); (iii) group life, health and disability insurance plans; and (iv) any other employee benefit plans and programs in accordance with the Bank’s customary practices, provided he is a member of the class of employees authorized to participate in such plans or programs.

(ii) Paid Time Off. The Executive shall be entitled to a minimum of five (5) weeks of paid vacation time each year during the Employment Period (measured on a fiscal or calendar year basis, in accordance with the Bank’s usual practices), as well as sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior executives. Any unused paid time off during an annual period shall be treated in accordance with the Bank’s personnel policies as in effect from time to time.

5. Outside Activities and Board Memberships

During the term of this Agreement, the Executive shall not, directly or indirectly, provide services on behalf of any competitive financial institutions, any insurance company or agency, any mortgage or loan broker or any other competitive entity or on behalf of any subsidiary or affiliate of any such competitive entity, as an employee, consultant, independent contractor, agent, sole proprietor, partner, joint venturer, corporate officer or director; nor shall the Executive acquire by reason of purchase during the term of this Agreement the ownership of more than 5% of the outstanding equity interest in any such competitive entity. In addition, during the term of this Agreement, the Executive shall not, directly or indirectly, acquire a beneficial interest, or engage in any joint venture in real estate with the Bank. Subject to the foregoing, and to the Executive’s right to continue to serve as an officer and/or director or trustee of any business organization as to which he was so serving on the Effective Date of this Agreement, the Executive may serve on boards of directors of unaffiliated corporations, subject to Board approval, which shall not be unreasonably withheld, and such services shall be presumed for these purposes to be for the benefit of the Bank. Except as specifically set forth herein, the Executive may engage in personal business and investment activities, including real estate investments and personal investments in the stocks, securities and obligations of other financial institutions (or their holding companies). Notwithstanding the foregoing, in no event shall the Executive’s outside activities, services, personal business and investments materially interfere with the performance of his duties under this Agreement.

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6. Working Facilities and Expenses

(a) Working Facilities. The Executive’s principal place of employment shall be at the Bank’s principal executive office or at such other location upon which the Bank and the Executive may mutually agree.

(b) Expenses.

(i) Ordinary Expenses. The Bank shall reimburse the Executive for his ordinary and necessary business expenses, incurred in connection with the performance of his duties under this Agreement, upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require and subject to the following conditions: (A) the expenses reimbursed by the Bank in one calendar year shall not affect the expenses paid or reimbursed by the Bank in another calendar year, (B) reimbursement for an expense shall be made within a reasonable period of time following the date on which the Bank receives the Executive’s documentation of the expense, provided that no reimbursement for an expense shall be made after the last day of the calendar year following the calendar year in which the expense was incurred.

(ii) Automobile. The Bank shall provide the Executive with an automobile suitable to the Executive’s position and such automobile may be used by the Executive in carrying out his duties under this Agreement, including commuting between his residence and his principal place of employment and other personal use. The Bank shall be responsible for the cost of maintenance and servicing such automobile and for insurance, gasoline and oil for such automobile. The Executive shall be responsible for the payment of any taxes on account of his personal use of such automobile.

7. Termination of Employment with Bank Liability

(a) Reasons for Termination. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of:

(i) The Executive’s voluntary resignation from employment with the Bank within one year after any event constituting “Good Reason”, where “Good Reason” means any of the following events (provided that, in the case of (A), (B), (D) and (F), no such event shall constitute “Good Reason” unless the Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof and the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties)):

(A) the failure to re-appoint the Executive to the officer position set forth under Section 3 and, with respect to the Executive’s service as a director, the failure to re-nominate the Executive for election to the Board;

4

(B) a material change in Executive’s functions, duties, or responsibilities, including those with respect to the Company, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope;

(C) liquidation or dissolution of the Bank or the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the Executive;

(D) a material breach of this Agreement by the Bank; or

(E) a Change in Control Date of the Bank as defined in Section 9, except to the extent that Section 7(c) hereof would apply to the Executive’s termination of employment, in which event Executive will be deemed to have terminated his employment pursuant to the provisions of Section 7(c) instead;

(F) the effective date of a Non-Renewal Notice, delivered by the Bank to the Executive pursuant to Section 2(a); or

(ii) the discharge of the Executive by the Bank for any reason other than for “Cause” as defined in Section 8(a); or

(iii) the termination of the Executive’s employment with the Bank as a result of the Executive’s “total and permanent disability” which, for purposes of this Agreement, shall be determined by the Bank, based upon competent and independent medical evidence that the Executive’s physical or mental condition is such that he is totally and permanently incapable of performing the essential tasks of his position hereunder, and, to the extent that any payments hereunder on account of disability are subject to Section 409A of the Internal Revenue Code of 1986 (“Code”), “disability” shall have the meaning set forth in Code Section 409A and the regulations thereunder;

then the Bank shall provide the benefits and pay to the Executive the amounts provided for under Section 7(b).

(b) Severance Pay. Subject to the limitations set forth in Sections 7(e) and (f) below, upon the termination of the Executive’s employment with the Bank under circumstances described in Section 7(a) of this Agreement, the Bank shall pay to the Executive (or, in the event of the Executive’s death after the event described in Section 7(a) has occurred, the Bank shall pay to the Executive’s surviving spouse, beneficiary or estate) an amount equal to the following, provided that, in each case where an amount to be paid below is the “present value” of an amount, such “present value” shall be determined using a discount rate that is equal to the short-term “applicable federal rate” with monthly compounding published by the Internal Revenue Service for the month preceding the Executive’s termination of employment:

(i) within 60 days following his termination of employment, his earned but unpaid Base Salary as of the date of his termination of employment with the Bank;

5

(ii) the benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans, payable in accordance with the terms of such plans;

(iii) continued life insurance coverage and non-taxable health insurance benefits which will provide the Executive with coverage for the remaining unexpired Employment Period equivalent to the coverage to which he would have been entitled if he had continued working for the Bank during the remaining unexpired Employment Period with the same Base Salary as was in effect on the date of his termination of employment and life insurance coverage and non-taxable health insurance benefits for the remainder of the Executive’s lifetime and the lifetime of the Executive’s spouse, equal to the greater of (A) the insurance coverage provided to retirees of the Bank as of the Effective Date of this Agreement or (B) the insurance coverage provided to retirees of the Bank as of the effective date of the Executive’s termination of employment with the Bank;

(iv) within 60 days following his termination of employment, a lump sum payment, as liquidated damages, in an amount equal to the present value of the Base Salary that the Executive would have earned (but offset by any payments made under any short-term or long-term disability plan or program maintained by the Bank) if he had continued working for the Bank and serving as a director for the remaining unexpired Employment Period at his final rate of Base Salary;

(v) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the benefits to which the Executive would be entitled under the Bank’s Defined Benefit Pension Plan if he had the additional years of service that he would have had accrued if he had continued working for the Bank during the remaining unexpired Employment Period earning his final rate of Base Salary during that period, over (B) the present value of the benefits to which he is actually entitled under the Bank’s Defined Benefit Pension Plan as of the date of his termination;

(vi) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the Bank’s contributions that would have been made on his behalf under the Bank’s 401(k) Plan and Employee Stock Ownership Plan if the Executive had continued working for the Bank for the remaining unexpired Employment

6

Period assuming (A) the Executive earned his final rate of Base Salary during that period; (B) the Executive made the maximum amount of employee contributions permitted, if any, under such plans; and (C) the Bank’s contributions are at least equal to the rate of contributions made to the Plan during the plan year immediately preceding his termination of employment;

(vii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of (A) the present value of the benefits to which he would be entitled under the SERP (and any other deferred compensation plan for management or highly compensated employees that are maintained by the Bank), if he had continued working for the Bank for the remaining unexpired Employment Period following his termination of employment earning his final rate of Base Salary during the remaining unexpired Employment Period, over (B) the present value of the benefits to which he is actually entitled under any such plan, as of the date of his termination of employment with the Bank;

(viii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to three (3) times the average of the prior three (3) years Incentive Compensation earned or received by him under all incentive compensation plans or programs adopted and maintained by the Bank; and

(ix) stock options shall vest in accordance with the terms of the stock plan under which they were granted.

(c) Change in Control. Notwithstanding the foregoing, upon the termination of the Executive’s employment with the Bank following a Change in Control, the Bank: (1) shall provide the employee benefits described in Section 7(b)(iii) for a period of thirty-six (36) months following the termination of employment date; (2) shall pay the Executive (or in the event of his death, to his surviving spouse or such other beneficiary as the Executive may designate in writing, or if there is neither, to his estate), the amounts described in Sections 7(b)(iv) through 7(b)(viii) above as if the “remaining unexpired Employment Period” under the Agreement is thirty-six (36) months from the termination of employment date; and (3) shall credit the Executive with full vesting of all stock or stock-based awards granted to the Executive under any plan adopted by the Bank or the Company. The Company and the Executive have entered into a separate agreement with respect to reimbursing the Executive for any additional income or excise taxes that may apply, on a grossed up basis, with respect to any “excess parachute payment” under Code Section 280G. Notwithstanding anything to the contrary herein, to the extent that payments and benefits are payable pursuant to this Section 7(c), no payments or benefits shall be paid to Executive under Sections 7(b)(iii) through 7(b)(viii).

(d) Damages. The Bank and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the Effective Date of this Agreement and that such liquidated damages constitute reasonable damages under the circumstances.

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(e) OTS Limitation on Severance Pay. Notwithstanding the foregoing, to the extent required by regulations or interpretations of the Office of Thrift Supervision, all severance payments under the Agreement shall be reduced not to exceed three (3) times the Executive’s average annual compensation (as defined in such regulations or interpretations) over the most recent five (5) taxable years.

(f) Section 409A Delay in Payment.

(i) Notwithstanding the foregoing provisions of this Agreement, if a payment under this Agreement is due to a “separation from service” for purposes of the rules under Title 26 of the Code of Federal Regulations (the “Treasury Regulations”) Section 1.409A-3(i)(2) (the “Six Month Delay Rule”) and the Executive is determined to be a “specified employee” (as determined under Treasury Regulation Section 1.409A-1(i) and related Company procedures), such payment shall, to the extent necessary to comply with the requirements of Code Section 409A, be made on the later of the date specified by the foregoing provisions of this Section 7 or the date that is six months after the date of the Executive’s separation from service. If any cash payment is delayed pursuant to this Section 7(f)(i), interest on such delayed payment (determined using the short-term “applicable federal rate” compounded monthly as published by the Internal Revenue Service for the month preceding the Executive’s separation from service) shall accrue and be paid at the same time as the delayed payment.

(ii) To the extent that the Six Month Delay Rule applies to the provision of life insurance coverage to the Executive as described in Section 7(b)(iii) (the “Life Insurance Coverage”), such Life Insurance Coverage shall nonetheless be provided to the Executive during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Executive pays to the Bank, on a monthly basis in advance, an amount equal to the monthly cost of such Life Insurance Coverage. The Bank shall reimburse the Executive for any such payments made by the Executive in a lump sum not later than 60 days following the sixth month anniversary of the Executive’s separation from service. For purposes of this Section 7(f)(ii), “monthly cost” means the minimum dollar amount which, if paid by the Executive on a monthly basis in advance, results in the Executive not being required to recognize any federal income tax on receipt of the Life Insurance Coverage during the Six Month Period.

8. Termination without Additional Bank Liability

(a) Termination for Cause.

(i) The Bank may terminate the Executive’s employment at any time, but any

8

termination other than termination for “cause,” as defined herein, shall not prejudice the Executive’s right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for “cause.” Termination for “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, breach of the Bank’s Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the reputation of the Company or the Bank, willfully engaging in actions that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Company or Bank, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract.

(ii) For purposes of this Section, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure to act, based upon the direction of the Board or based upon the advice of counsel for the Bank shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank.

(iii) If the Bank wishes to terminate the Executive’s employment for “cause,” such determination shall require the affirmative vote of three-fourths of the members of the Board and such vote shall not be made prior to the expiration of the 60-day period following the date on which the Board shall, by written notice to the Executive, furnish him a statement of its grounds for proposing to make such determination, during which period the Executive shall be afforded a reasonable opportunity to make oral and written presentations to the members of the Board, and to be represented by his legal counsel at such presentations, to refute the grounds for proposed termination.

(b) Death; Voluntary Resignation Without Good Reason; Retirement. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of any of the reasons set forth in this Section 8(b), then the Bank shall have no further obligations under this Agreement, other than the payment to the Executive, within sixty (60) days after the termination of his employment, of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans and programs and compensation plans and programs in accordance with the terms of such plans and programs. Termination of employment under this Section 8(b) shall mean termination of employment due to the following events:

(i) The Executive’s death;

(ii) The Executive’s voluntary resignation from employment with the Bank for any reason other than the “Good Reasons” specified in Section 7(a)(i); or

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(iii) The automatic termination of the Employment Period as of the last day of the calendar month following the Executive’s attainment of age 68, which shall be treated as his “retirement date” (i.e., “retirement” is not a “Good Reason” termination as described in Section 7(a)(i) that would entitle the Executive to severance benefits under Section 7(b)).

9. Change in Control

(a) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) a change in control of a nature that would be required to be reported in response to Item 5.01(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or

(ii) a change in control of the Bank or the Company within the meaning of the Home Owners Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or

(iii) any of the following events, upon which a Change in Control shall be deemed to have occurred:

(A) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities except for any securities purchased by the Bank’s employee stock ownership plan or trust; or

(B) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this subsection (B), considered as though he were a member of the Incumbent Board; or

(C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction occurs in which the Bank or Company is not the surviving institution; or

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(D) a proxy statement is issued soliciting proxies from stockholders of the Company by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or

(E) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

(b) For purposes of this Agreement, the term “Change in Control Date” shall mean the first date during the Employment Period on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive’s employment with the Bank is terminated and if it is reasonably demonstrated by the Executive that such termination of Employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Change in Control Date” shall mean the date immediately prior to the date of such termination of employment.

10. Confidentiality. Unless he obtains prior written consent from the Bank, the Executive shall keep confidential and shall refrain from using for the benefit of himself, or any person or entity other than the Bank, the Company or any entity which is a subsidiary or affiliate of the Bank or the Company or of which the Bank or the Company is a subsidiary or affiliate, any material document or information obtained from the Bank, the Company or from any of their respective parents, subsidiaries or affiliates, in the course of his employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of his own) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this Section shall prevent the Executive, with or without the Bank’s or the Company’s consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law.

11. Non-Solicitation; Non-Competition; Post-Termination Cooperation.

(a) The Executive hereby covenants and agrees that, for a period of one year following his termination of employment with the Bank, he shall not, without the written consent of the Bank, either directly or indirectly:

(i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any

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officer or employee of the Bank, the Company or any of their respective subsidiaries or affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or the Company or any of their direct or indirect subsidiaries or affiliates or has headquarters or offices within the counties in which the Bank or the Company has business operations or has filed an application for regulatory approval to establish an office;

(ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other entity competing with the Bank or its affiliates in the same geographic locations where Provident Bank or its affiliates has material business interests; provided, however, that this restriction shall not apply if the Executive’s employment is terminated following a Change in Control; or

(iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or the Company to terminate an existing business or commercial relationship with the Bank or the Company.

(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank and/or the Company, as may reasonably be required by the Bank and/or the Company, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, the Company or any of its subsidiaries or affiliates.

(c) All payments and benefits to the Executive under this Agreement shall be subject to the Executive’s compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive’s breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive’s experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank and the Company from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from the Executive.

12. Additional Termination and Suspension Provisions

(a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal

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Deposit Insurance Act, as amended (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, in its discretion (but subject in all events to the requirements of Code Section 409A), (i) pay the Executive all of the compensation withheld while the Bank’s obligations under this Agreement were suspended and (ii) reinstate (in whole) any of the Bank’s obligations which were suspended, and in exercising such discretion, the Bank shall consider the facts and make a decision promptly following such dismissal of charges and act in good faith in deciding whether to pay any withheld compensation to the Executive and to reinstate any suspended obligations of the Bank.

(b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(c) If the Bank is in default, as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1813 (x)(1)), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the parties.

(d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the OTS (the “Director”) or his designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, as amended; or (ii) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

(e) If any regulation applicable to the Bank shall hereafter be adopted, amended or modified or if any new regulation applicable to the Bank and effective after the date of this Agreement:

(i) shall require the inclusion in this Agreement of a provision not presently included in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent necessary to give effect in this Agreement to any such amended, modified or new regulation; and

(ii) shall permit the exclusion of a limitation in this Agreement on the payment to the Executive of an amount or benefit provided for presently in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent permissible to exclude from this Agreement any such limitation previously required to be included in this Agreement by a regulation prior to its amendment, modification or repeal.

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13. Arbitration; Legal Fees.

(a) Arbitration. In the event that any dispute should arise between the parties as to the meaning, effect, performance, enforcement, or other issue in connection with this Agreement, which dispute cannot be resolved by the parties, the dispute shall be decided by final and binding arbitration of a panel of three arbitrators. Proceedings in arbitration and its conduct shall be governed by the rules of the American Arbitration Association (“AAA”) applicable to commercial arbitrations (the “Rules”) except as modified by this Section. The Executive shall appoint one arbitrator, the Bank shall appoint one arbitrator, and the third shall be appointed by the two arbitrators appointed by the parties. The third arbitrator shall be impartial and shall serve as chairman of the panel. The parties shall appoint their arbitrators within thirty (30) days after the demand for arbitration is served, failing which the AAA promptly shall appoint a defaulting party’s arbitrator, and the two arbitrators shall select the third arbitrator within fifteen (15) days after their appointment, or if they cannot agree or fail to so appoint, then the AAA promptly shall appoint the third arbitrator. The arbitrators shall render their decision in writing within thirty (30) days after the close of evidence or other termination of the proceedings by the panel, and the decision of a majority of the arbitrators shall be final and binding upon the parties, nonappealable, except in accordance with the Rules and enforceable in accordance with the applicable state law. Any hearings in the arbitration shall be held in Rockland County, New York unless the parties shall agree upon a different venue, and shall be private and not open to the public. Each party shall bear the fees and expenses of its arbitrator, counsel, and witnesses, and the fees and expenses of the third arbitrator shall be shared equally by the parties. The costs of the arbitration, including the fees of AAA, shall be borne as directed in the decision of the panel.

(b) Legal Fees. Unless it is determined that a claim made by the Executive was either frivolous or made in bad faith, the Bank agrees to pay as incurred (but in any event such payments shall be made within 2  ¹/2 months after the end of the calendar year in which the amount was incurred), to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of or in connection with his consultation with legal counsel or arising out of any action, suit, proceeding or contest (regardless of the outcome thereof) by the Bank, the Executive or others regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest, at the applicable federal rate provided for in Code Section 7872(f)(2)(A), on any payment delayed by more than sixty (60) days following the receipt by the Bank and/or the Company of the Executive’s request for the payment of fees or expenses under this Section 13(b).

14. Indemnification and Insurance.

(a) The Executive (including his heirs, executors and administrators) shall be provided with coverage under a standard directors’ and officers’ liability insurance policy at the Bank’s expense, and the Executive (and his heirs, executors and administrators) shall be indemnified to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be

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involved by reason of his having been an officer of the Bank (whether or not he continues to be an officer at the time of incurring such expenses or liabilities and for a period of six years following his termination of employment with the Bank), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the Board). Any indemnification shall be made consistent with OTS Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359.

(b) Notwithstanding the foregoing, no indemnification shall be made by the Bank unless the Bank gives the OTS at least 60 days’ notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board shall be sent to the Regional Director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto.

15. Notices. The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section. Any notice or other communication given pursuant to the provisions of this Section shall be deemed to have been given (i) if sent by messenger, upon personal delivery to the party to whom the notice is directed; (ii) if sent by reputable overnight courier, one business day after delivery to such courier; (iii) if sent by facsimile, upon electronic or telephonic confirmation of receipt from the receiving facsimile machine and (iv) if sent by mail, three business days following deposit in the United States mail, properly addressed, postage prepaid, certified or registered mail with return receipt requested. All notices required or permitted to be given hereunder shall be addressed as follows:

If to the Executive:
If to the Bank:	Provident Bank
	400 Rella Boulevard
	Montebello, New York 10901
	Attention: Chairman of the Board

16. Amendment. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

17. Miscellaneous.

(a) Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and estate and intestate distributees, and the Bank, its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business

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of the Bank may be sold or otherwise transferred. Any such successor of the Bank shall be deemed to have assumed this Agreement and to have become obligated hereunder to the same extent as the Bank, and the Executive’s obligations hereunder shall continue in favor of such successor.

(b) Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof.

(c) Waiver. Failure to insist upon strict compliance with any terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment or any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement.

(e) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of law principles, except to the extent governed by federal law in which case federal law shall govern. Any payments made to the Executive pursuant to this Agreement, or otherwise are subject to all applicable banking laws and regulations, including, without limitation, 12 USC 1828 (i) and any regulations promulgated thereunder.

(f) Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any Section. Any reference to a Section number shall refer to a Section of this Agreement, unless otherwise specified.

(g) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, including without limitation, the employment agreement between the Executive and the Bank and the Company dated as of October 31, 2006.

(h) Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the Effective Date specified above.

	EXECUTIVE
December 12, 2008	/s/ George Strayton
Date	George Strayton
	PROVIDENT BANK
December 12, 2008	By:	/s/ William F. Helmer
Date		Chairman of the Board

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EX-10.3

Exhibit 10.3

10.3 EOMPLOYMENT AGREEMENT DANIEL ROTHSTEIN

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the 8th day of December, 2008 (“Effective Date”), by and between Provident Bank, a savings bank organized and existing under the laws of the United States of America and having its executive offices at 400 Rella Boulevard, Montebello, New York 10901 (“Bank”), and Daniel G. Rothstein (“Executive”). The Bank is the wholly-owned subsidiary of Provident New York Bancorp (“Company”).

WITNESSETH:

WHEREAS, Executive currently serves as an executive officer of the Bank pursuant to the Amended and Restated Employment Agreement entered into as of October 31, 2006 (the “Prior Agreement”); and

WHEREAS, in order to comply with new Internal Revenue Code Section 409A, the Prior Agreement is being amended and restated in its entirety as herein set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Bank and Executive hereby agree as follows:

1. Employment. The Bank hereby agrees to continue the employment of the Executive and the Executive hereby agrees to continue such employment, during the period and upon the terms and conditions set forth in this Agreement. All actions that may be undertaken by the Bank with respect to the Executive’s employment with the Bank pursuant to this Agreement may be undertaken by the Chief Executive Officer of the Bank (“CEO”), provided that the CEO shall report such actions to the Bank’s Board of Directors (“Board”) and such actions shall be subject to ratification by the Board in accordance with the Bank’s by-laws.

2. Employment Period.

(a) Three Year Contract; Daily Renewal. The Executive’s period of employment with the Bank (“Employment Period”) shall begin on the Effective Date and shall renew daily such that the remaining unexpired term of the Agreement shall be thirty-six (36) months, until the date that the Bank gives the Executive written notice of non-renewal (“Non-Renewal Notice”). The Employment Period shall end on the date that is thirty-six (36) months after the date of the Non-Renewal Notice, unless the parties agree that the Employment Period shall end on an earlier date. Notwithstanding the preceding provisions of this Section 2(a), the Employment Period under this Agreement shall automatically terminate on the last day of the calendar month in which the Executive attains age 65.

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(b) Annual Performance Evaluation. On either a fiscal year or calendar year basis, (consistently applied from year to year), the Bank shall conduct an annual evaluation of the Executive’s performance, unless notice of non-renewal has been given. The annual performance evaluation proceedings shall be included in the minutes of the Board meeting that next follows such annual performance review.

(c) Continued Employment Following Termination of Employment Period. Nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the Employment Period upon such terms and conditions as the Bank and the Executive may mutually agree.

3. Duties.

(a) Title; Reporting Responsibility. The Executive shall serve as the Executive Vice President, Chief Risk Officer and General Counsel of the Bank, with power, authority and responsibility commensurate with those of a senior officer. The Executive shall directly report to the CEO.

(b) Time Commitment. The Executive shall devote his full business time and attention to the business and affairs of the Bank and shall use his best efforts to advance the interests of the Bank.

4. Annual Compensation.

(a) Base Salary.

(i) Annual Salary. In consideration for the services performed by the Executive under this Agreement, the Bank shall pay to the Executive an annual salary (“Base Salary”). The Base Salary shall be paid in approximately equal installments in accordance with the Bank’s customary payroll practices. The Bank shall review the Executive’s Base Salary at least annually for possible upward adjustment, but the Executive’s Base Salary shall not be reduced without the Executive’s consent. For the fiscal year that began on October 1, 2005, the Executive’s Base Salary is $233,000.

(ii) Automatic Adjustment Following a Change in Control. For each calendar year that begins on or after the date on which a Change in Control (as defined in Section 9) occurs, and continuing through the remainder of the Employment Period, the Executive’s Base Salary shall automatically increase by the greater of (1) six percent (6%) or (2) the average annual rate of base salary increases provided for the immediately preceding calendar year to individuals employed by the Bank at the level of assistant vice president or above (but excluding the Executive from the determination of such average).

(b) Incentive Compensation. The Executive shall be eligible to participate in any bonus and incentive compensation programs (not including equity compensation programs, which are covered by Section 4(c) of this Agreement) established by the Bank from time to time for senior

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executive officers, including the Bank’s Executive Officer Management Incentive Program. Compensation payable pursuant to such programs shall be referred to herein as “Incentive Compensation.” For the fiscal year that ended on September 30, 2005, the Executive received a bonus of $32,800.

(c) Equity Compensation. The Executive shall be eligible to participate in any equity compensation programs established by the Bank from time to time for senior executive officers, including, but not limited to, the 2004 Stock Incentive Plan.

(d) Employee Benefit Plans; Paid Time Off

(i) Benefit Plans. During the Employment Period, the Executive shall be an employee of the Bank and shall be entitled to participate in the Bank’s (i) tax-qualified retirement plans, (i.e., the Bank’s Defined Benefit Pension Plan, 401(k) Plan and Employee Stock Ownership Plan (including, for purposes of this Agreement, any successor plans thereto)); (ii) nonqualified retirement plans (i.e., the Bank’s 2005 Supplemental Executive Retirement Plan (including any predecessor or successor plan thereto, the “SERP”)); (iii) group life, health and disability insurance plans; and (iv) any other employee benefit plans and programs in accordance with the Bank’s customary practices, provided he is a member of the class of employees authorized to participate in such plans or programs.

(ii) Paid Time Off. The Executive shall be entitled to a minimum of four (4) weeks of paid vacation time each year during the Employment Period (measured on a fiscal or calendar year basis, in accordance with the Bank’s usual practices), as well as sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior executives. Any unused paid time off during an annual period shall be treated in accordance with the Bank’s personnel policies as in effect from time to time.

5. Outside Activities and Board Memberships

During the term of this Agreement, the Executive shall not, directly or indirectly, provide services on behalf of any competitive financial institutions, any insurance company or agency, any mortgage or loan broker or any other competitive entity or on behalf of any subsidiary or affiliate of any such competitive entity, as an employee, consultant, independent contractor, agent, sole proprietor, partner, joint venturer, corporate officer or director; nor shall the Executive acquire by reason of purchase during the term of this Agreement the ownership of more than 5% of the outstanding equity interest in any such competitive entity. In addition, during the term of this Agreement, the Executive shall not, directly or indirectly, acquire a beneficial interest, or engage in any joint venture in real estate with the Bank. Subject to the foregoing, and to the Executive’s right to continue to serve as an officer and/or director or trustee of any business organization as to which he was so serving on the Effective Date of this Agreement, the Executive may serve on boards of directors of unaffiliated corporations, subject to Board approval, which shall not be unreasonably withheld, and such services shall be presumed for these purposes to be for the benefit of the Bank. Except as specifically set forth herein, the Executive may engage in personal business and investment activities, including real estate investments and personal investments in the stocks,

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securities and obligations of other financial institutions (or their holding companies). Notwithstanding the foregoing, in no event shall the Executive’s outside activities, services, personal business and investments materially interfere with the performance of his duties under this Agreement.

6. Working Facilities and Expenses

(a) Working Facilities. The Executive’s principal place of employment shall be at the Bank’s principal executive office or at such other location upon which the Bank and the Executive may mutually agree.

(b) Expenses. The Bank shall reimburse the Executive for his ordinary and necessary business expenses and travel and entertainment expenses incurred in connection with the performance of his duties under this Agreement, upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require and subject to the following conditions: (A) the expenses reimbursed by the Bank in one calendar year shall not affect the expenses paid or reimbursed by the Bank in another calendar year, (B) reimbursement for an expense shall be made within a reasonable period of time following the date on which the Bank receives the Executive’s documentation of the expense, provided that no reimbursement for an expense shall be made after the last day of the calendar year following the calendar year in which the expense was incurred.

7. Termination of Employment with Bank Liability

(a) Reasons for Termination. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of:

(i) The Executive’s voluntary resignation from employment with the Bank within one year after any event constituting “Good Reason”, where “Good Reason” means any of the following events (provided that, in the case of (A), (B) and (D), no such event shall constitute “Good Reason” unless the Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof and the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties)):

(A) the failure to re-appoint the Executive to the position set forth under Section 3;

(B) a material change in Executive’s functions, duties, or responsibilities, including those with respect to the Company, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope;

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(C) liquidation or dissolution of the Bank or the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the Executive;

(D) a material breach of this Agreement by the Bank; or

(E) a Change in Control Date of the Bank as defined in Section 9, except to the extent that Section 7(c) hereof would apply to the Executive’s termination of employment, in which event Executive will be deemed to have terminated his employment pursuant to the provisions of Section 7(c) instead; or

(ii) the discharge of the Executive by the Bank for any reason other than for “Cause” as defined in Section 8(a); or

(iii) the termination of the Executive’s employment with the Bank as a result of the Executive’s “total and permanent disability” which, for purposes of this Agreement, shall be determined by the Bank, based upon competent and independent medical evidence that the Executive’s physical or mental condition is such that he is totally and permanently incapable of performing the essential tasks of his position hereunder, and, to the extent that any payments hereunder on account of disability are subject to Section 409A of the Internal Revenue Code of 1986 (“Code”), “disability” shall have the meaning set forth in Code Section 409A and the regulations thereunder;

then the Bank shall provide the benefits and pay to the Executive the amounts provided for under Section 7(b).

(b) Severance Pay. Subject to the limitations set forth in Sections 7(e) and (f) below, upon the termination of the Executive’s employment with the Bank under circumstances described in Section 7(a) of this Agreement, the Bank shall pay to the Executive (or, in the event of the Executive’s death after the event described in Section 7(a) has occurred, the Bank shall pay to the Executive’s surviving spouse, beneficiary or estate) an amount equal to the following, provided that, in each case where an amount to be paid below is the “present value” of an amount, such “present value” shall be determined using a discount rate that is equal to the short-term “applicable federal rate” with monthly compounding published by the Internal Revenue Service for the month preceding the Executive’s termination of employment:

(i) within 60 days following his termination of employment, his earned but unpaid Base Salary as of the date of his termination of employment with the Bank;

(ii) the benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans, payable in accordance with the terms of such plans;

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(iii) continued life insurance coverage and non-taxable health insurance benefits which will provide the Executive with coverage for the remaining unexpired Employment Period equivalent to the coverage to which he would have been entitled if he had continued working for the Bank during the remaining unexpired Employment Period with the same Base Salary as was in effect on the date of his termination of employment;

(iv) within 60 days following his termination of employment, a lump sum payment, as liquidated damages, in an amount equal to the present value of the Base Salary that the Executive would have earned (but offset by any payments made under any short-term or long-term disability plan or program maintained by the Bank) if he had continued working for the Bank for the remaining unexpired Employment Period at his final rate of Base Salary;

(v) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the benefits to which the Executive would be entitled under the Bank’s Defined Benefit Pension Plan if he had the additional years of service that he would have had accrued if he had continued working for the Bank during the remaining unexpired Employment Period earning his final rate of Base Salary during that period, over (B) the present value of the benefits to which he is actually entitled under the Bank’s Defined Benefit Pension Plan as of the date of his termination;

(vi) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the Bank’s contributions that would have been made on his behalf under the Bank’s 401(k) Plan and Employee Stock Ownership Plan if the Executive had continued working for the Bank for the remaining unexpired Employment Period assuming (A) the Executive earned his final rate of Base Salary during that period; (B) the Executive made the maximum amount of employee contributions permitted, if any, under such plans; and (C) the Bank’s contributions are at least equal to the rate of contributions made to the Plan during the plan year immediately preceding his termination of employment;

(vii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of (A) the present value of the benefits to which he would be entitled under the SERP (and any other deferred compensation plan for management or highly compensated employees that are maintained by the Bank), if he had continued working for the Bank for the remaining unexpired Employment Period following his termination of employment earning his final rate of Base Salary during the remaining unexpired Employment Period, over (B) the present value of the benefits to which he is actually entitled under any such plan, as of the date of his termination of employment with the Bank;

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(viii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to three (3) times the average of the prior three (3) years Incentive Compensation earned or received by him under all incentive compensation plans or programs adopted and maintained by the Bank; and

(ix) stock options shall vest in accordance with the terms of the stock plan under which they were granted.

(c) Change in Control. Notwithstanding the foregoing, upon the termination of the Executive’s employment with the Bank following a Change in Control, the Bank: (1) shall provide the employee benefits described in Section 7(b)(iii) for a period of thirty-six (36) months following the termination of employment date; (2) shall pay the Executive (or in the event of his death, to his surviving spouse or such other beneficiary as the Executive may designate in writing, or if there is neither, to his estate), the amounts described in Sections 7(b)(iv) through 7(b)(viii) above as if the “remaining unexpired Employment Period” under the Agreement is thirty-six (36) months from the termination of employment date; and (3) shall credit the Executive with full vesting of all stock or stock-based awards granted to the Executive under any plan adopted by the Bank or the Company. The Company and the Executive have entered into a separate agreement with respect to reimbursing the Executive for any additional income or excise taxes that may apply, on a grossed up basis, with respect to any “excess parachute payment” under Code Section 280G. Notwithstanding anything to the contrary herein, to the extent that payments and benefits are payable pursuant to this Section 7(c), no payments or benefits shall be paid to Executive under Sections 7(b)(iii) through 7(b)(viii).

(d) Damages. The Bank and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the Effective Date of this Agreement and that such liquidated damages constitute reasonable damages under the circumstances.

(e) OTS Limitation on Severance Pay. Notwithstanding the foregoing, to the extent required by regulations or interpretations of the Office of Thrift Supervision, all severance payments under the Agreement shall be reduced not to exceed three (3) times the Executive’s average annual compensation (as defined in such regulations or interpretations) over the most recent five (5) taxable years.

(f) Section 409A Delay in Payment.

(i) Notwithstanding the foregoing provisions of this Agreement, if a payment under this Agreement is due to a “separation from service” for purposes of the rules under Title 26 of the Code of Federal Regulations (the “Treasury Regulations”) Section 1.409A-3(i)(2) (the “Six Month Delay Rule”) and the Executive is determined to be a “specified employee” (as determined under

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Treasury Regulation Section 1.409A-1(i) and related Company procedures), such payment shall, to the extent necessary to comply with the requirements of Code Section 409A, be made on the later of the date specified by the foregoing provisions of this Section 7 or the date that is six months after the date of the Executive’s separation from service. If any cash payment is delayed pursuant to this Section 7(f)(i), interest on such delayed payment (determined using the short-term “applicable federal rate” compounded monthly as published by the Internal Revenue Service for the month preceding the Executive’s separation from service) shall accrue and be paid at the same time as the delayed payment.

(ii) To the extent that the Six Month Delay Rule applies to the provision of life insurance coverage to the Executive as described in Section 7(b)(iii) (the “Life Insurance Coverage”), such Life Insurance Coverage shall nonetheless be provided to the Executive during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Executive pays to the Bank, on a monthly basis in advance, an amount equal to the monthly cost of such Life Insurance Coverage. The Bank shall reimburse the Executive for any such payments made by the Executive in a lump sum not later than 60 days following the sixth month anniversary of the Executive’s separation from service. For purposes of this Section 7(f)(ii), “monthly cost” means the minimum dollar amount which, if paid by the Executive on a monthly basis in advance, results in the Executive not being required to recognize any federal income tax on receipt of the Life Insurance Coverage during the Six Month Period.

8. Termination without Bank Liability

(a) Termination for Cause.

(i) The Bank may terminate the Executive’s employment at any time, but any termination other than termination for “cause,” as defined herein, shall not prejudice the Executive’s right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for “cause.” Termination for “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, breach of the Bank’s Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the reputation of the Company or the Bank, willfully engaging in actions that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Company or Bank, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. The Bank shall furnish the Executive with a statement of the grounds for termination for cause and shall afford the Executive a reasonable opportunity to refute the grounds for the proposed termination.

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(ii) For purposes of this Section, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure to act, based upon the direction of the CEO or based upon the advice of counsel for the Bank shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank.

(b) Death; Voluntary Resignation Without Good Reason; Retirement. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of any of the reasons set forth in this Section 8(b), then the Bank shall have no further obligations under this Agreement, other than the payment to the Executive, within sixty (60) days after the termination of his employment, of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans and programs and compensation plans and programs in accordance with the terms of such plans and programs. Termination of employment under this Section 8(b) shall mean termination of employment due to the following events:

(i) The Executive’s death;

(ii) The Executive’s voluntary resignation from employment with the Bank for any reason other than the “Good Reasons” specified in Section 7(a)(i); or

(iii) The automatic termination of the Employment Period as of the last day of the calendar month following the Executive’s attainment of age 65, which shall be treated as his “retirement date” (i.e., “retirement” is not a “Good Reason” termination as described in Section 7(a)(i) that would entitle the Executive to severance benefits under Section 7(b)).

9. Change in Control

(a) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) a change in control of a nature that would be required to be reported in response to Item 5.01(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or

(ii) a change in control of the Bank or the Company within the meaning of the Home Owners Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or

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(iii) any of the following events, upon which a Change in Control shall be deemed to have occurred:

(A) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities except for any securities purchased by the Bank’s employee stock ownership plan or trust; or

(B) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this subsection (B), considered as though he were a member of the Incumbent Board; or

(C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction occurs in which the Bank or Company is not the surviving institution; or

(D) a proxy statement is issued soliciting proxies from stockholders of the Company by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or

(E) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

(b) For purposes of this Agreement, the term “Change in Control Date” shall mean the first date during the Employment Period on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive’s employment with the Bank is terminated and if it is reasonably demonstrated by the Executive that such termination of Employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Change in Control Date” shall mean the date immediately prior to the date of such termination of employment.

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10. Confidentiality. Unless he obtains prior written consent from the Bank, the Executive shall keep confidential and shall refrain from using for the benefit of himself, or any person or entity other than the Bank, the Company or any entity which is a subsidiary or affiliate of the Bank or the Company or of which the Bank or the Company is a subsidiary or affiliate, any material document or information obtained from the Bank, the Company or from any of their respective parents, subsidiaries or affiliates, in the course of his employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of his own) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this Section shall prevent the Executive, with or without the Bank’s or the Company’s consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law.

11. Non-Solicitation; Non-Competition; Post-Termination Cooperation.

(a) The Executive hereby covenants and agrees that, for a period of one year following his termination of employment with the Bank, he shall not, without the prior written consent of the Bank, either directly or indirectly:

(i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank, the Company or any of their respective subsidiaries or affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or the Company or any of their direct or indirect subsidiaries or affiliates or has headquarters or offices within the counties in which the Bank or the Company has business operations or has filed an application for regulatory approval to establish an office;

(ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other entity competing with the Bank or its affiliates in the same geographic locations where Provident Bank or its affiliates has material business interests; provided, however, that this restriction shall not apply if the Executive’s employment is terminated following a Change in Control ; or

(iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or the Company to terminate an existing business or commercial relationship with the Bank or the Company.

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(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank and/or the Company, as may reasonably be required by the Bank and/or the Company, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, the Company or any of its subsidiaries or affiliates.

(c) All payments and benefits to the Executive under this Agreement shall be subject to the Executive’s compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive’s breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive’s experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank and the Company from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from the Executive.

12. Additional Termination and Suspension Provisions

(a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (but subject in all events to the requirements of Code Section 409A), (i) pay the Executive all of the compensation withheld while the Bank’s obligations under this Agreement were suspended and (ii) reinstate (in whole) any of the Bank’s obligations which were suspended, and in exercising such discretion, the Bank shall consider the facts and make a decision promptly following such dismissal of charges and act in good faith in deciding whether to pay any withheld compensation to the Executive and to reinstate any suspended obligations of the Bank.

(b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(c) If the Bank is in default, as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1813 (x)(1)), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the parties.

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(d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the OTS (the “Director”) or his designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, as amended; or (ii) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

(e) If any regulation applicable to the Bank shall hereafter be adopted, amended or modified or if any new regulation applicable to the Bank and effective after the date of this Agreement:

(i) shall require the inclusion in this Agreement of a provision not presently included in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent necessary to give effect in this Agreement to any such amended, modified or new regulation; and

(ii) shall permit the exclusion of a limitation in this Agreement on the payment to the Executive of an amount or benefit provided for presently in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent permissible to exclude from this Agreement any such limitation previously required to be included in this Agreement by a regulation prior to its amendment, modification or repeal.

13. Arbitration. Any dispute or controversy arising out of, under, in connection with, or relating to this Agreement and any amendment hereof shall be submitted to binding arbitration before one arbitrator in Rockland County in accordance with the Commercial Arbitration Rules of the American Arbitration Association for expedited arbitration, and any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

14. Indemnification and Insurance.

(a) The Executive (including his heirs, executors and administrators) shall be provided with coverage under a standard directors’ and officers’ liability insurance policy at the Bank’s expense, and the Executive (and his heirs, executors and administrators) shall be indemnified to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been an officer of the Bank (whether or not he continues to be an officer at the time of incurring such expenses or liabilities and for a period of six years following his termination of employment with the Bank), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the CEO). Any such indemnification shall be made consistent with OTS Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359.

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(b) Notwithstanding the foregoing, no indemnification shall be made by the Bank unless the Bank gives the OTS at least 60 days’ notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board shall be sent to the Regional Director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto.

15. Notices. The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section. Any notice or other communication given pursuant to the provisions of this Section shall be deemed to have been given (i) if sent by messenger, upon personal delivery to the party to whom the notice is directed; (ii) if sent by reputable overnight courier, one business day after delivery to such courier; (iii) if sent by facsimile, upon electronic or telephonic confirmation of receipt from the receiving facsimile machine and (iv) if sent by mail, three business days following deposit in the United States mail, properly addressed, postage prepaid, certified or registered mail with return receipt requested. All notices required or permitted to be given hereunder shall be addressed as follows:

If to the Executive:
If to the Bank:
	Provident Bank
	400 Rella Boulevard
	Montebello, New York 10901
	Attention: George Strayton, President & Chief Executive Officer

16. Amendment. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

17. Miscellaneous.

(a) Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and estate and intestate distributees, and the Bank, its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Bank may be sold or otherwise transferred. Any such successor of the Bank shall be deemed to have assumed this Agreement and to have become obligated hereunder to the same extent as the Bank, and the Executive’s obligations hereunder shall continue in favor of such successor.

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(b) Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof.

(c) Waiver. Failure to insist upon strict compliance with any terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment or any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement.

(e) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of law principles, except to the extent governed by federal law in which case federal law shall govern. Any payments made to the Executive pursuant to this Agreement or otherwise are subject to all applicable banking laws and regulations, including, without limitation, 12 USC 1828 (i) and any regulations promulgated thereunder.

(f) Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any Section. Any reference to a Section number shall refer to a Section of this Agreement, unless otherwise specified.

(g) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, including without limitation, the employment agreement dated as of October 31, 2006 between the Executive and the Bank and the Company.

(h) Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.

[Signatures on next page]

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the Effective Date specified above.

	EXECUTIVE
December 8, 2008	/s/ Daniel G. Rothstein
Date	Daniel G. Rothstein
	PROVIDENT BANK
December 8, 2008	By:	/s/ George Strayton
Date		George Strayton, President and
		Chief Executive Officer

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EX-10.10

Exhibit 10.10

EMPLOYMENT AGREEMENT WITH PAUL MAISCH

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the 8th day of December, 2008 (“Effective Date”), by and between Provident Bank, a savings bank organized and existing under the laws of the United States of America and having its executive offices at 400 Rella Boulevard, Montebello, New York 10901 (“Bank”), and Paul A. Maisch (“Executive”). The Bank is the wholly-owned subsidiary of Provident New York Bancorp (“Company”).

WITNESSETH:

WHEREAS, Executive currently serves as an executive officer of the Bank pursuant to the Amended and Restated Employment Agreement entered into as of October 31, 2006 (the “Prior Agreement”); and

WHEREAS, in order to comply with new Internal Revenue Code Section 409A, the Prior Agreement is being amended and restated in its entirety as herein set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Bank and Executive hereby agree as follows:

1. Employment. The Bank hereby agrees to continue the employment of the Executive and the Executive hereby agrees to continue such employment, during the period and upon the terms and conditions set forth in this Agreement. All actions that may be undertaken by the Bank with respect to the Executive’s employment with the Bank pursuant to this Agreement may be undertaken by the Chief Executive Officer of the Bank (“CEO”), provided that the CEO shall report such actions to the Bank’s Board of Directors (“Board”) and such actions shall be subject to ratification by the Board in accordance with the Bank’s by-laws.

2. Employment Period.

(a) Two Year Contract; Daily Renewal. The Executive’s period of employment with the Bank (“Employment Period”) shall begin on the Effective Date and shall renew daily such that the remaining unexpired term of the Agreement shall be twenty-four (24) months, until the date that the Bank gives the Executive written notice of non-renewal (“Non-Renewal Notice”). The Employment Period shall end on the date that is twenty-four (24) months after the date of the Non-Renewal Notice, unless the parties agree that the Employment Period shall end on an earlier date. Notwithstanding the preceding provisions of this Section 2(a), the Employment Period under this Agreement shall automatically terminate on the last day of the calendar month in which the Executive attains age 65.

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(b) Annual Performance Evaluation. On either a fiscal year or calendar year basis, (consistently applied from year to year), the Bank shall conduct an annual evaluation of the Executive’s performance , unless notice of non-renewal has been given. The annual performance evaluation proceedings shall be included in the minutes of the Board meeting that next follows such annual performance review.

(c) Continued Employment Following Termination of Employment Period. Nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the Employment Period upon such terms and conditions as the Bank and the Executive may mutually agree.

3. Duties.

(a) Title; Reporting Responsibility. The Executive shall serve as the Executive Vice President, Chief Financial Officer of the Bank, with power, authority and responsibility commensurate with those of a senior officer. The Executive shall directly report to the CEO.

(b) Time Commitment. The Executive shall devote his full business time and attention to the business and affairs of the Bank and shall use his best efforts to advance the interests of the Bank.

4. Annual Compensation.

(a) Base Salary.

(i) Annual Salary. In consideration for the services performed by the Executive under this Agreement, the Bank shall pay to the Executive an annual salary (“Base Salary”). The Base Salary shall be paid in approximately equal installments in accordance with the Bank’s customary payroll practices. The Bank shall review the Executive’s Base Salary at least annually for possible upward adjustment, but the Executive’s Base Salary shall not be reduced without the Executive’s consent. For the fiscal year that began on October 1, 2005, the Executive’s Base Salary is $200,000.

(ii) Automatic Adjustment Following a Change in Control. For each calendar year that begins on or after the date on which a Change in Control (as defined in Section 9) occurs, and continuing through the remainder of the Employment Period, the Executive’s Base Salary shall automatically increase by the greater of (1) six percent (6%) or (2) the average annual rate of base salary increases provided for the immediately preceding calendar year to individuals employed by the Bank at the level of assistant vice president or above (but excluding the Executive from the determination of such average).

(b) Incentive Compensation. The Executive shall be eligible to participate in any bonus and incentive compensation programs (not including equity compensation programs, which are

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covered by Section 4(c) of this Agreement) established by the Bank from time to time for senior executive officers, including the Bank’s Executive Officer Management Incentive Program. Compensation payable pursuant to such programs shall be referred to herein as “Incentive Compensation.” For the fiscal year that ended on September 30, 2005, the Executive received Incentive Compensation of $27,700.

(c) Equity Compensation. The Executive shall be eligible to participate in any equity compensation programs established by the Bank from time to time for senior executive officers, including, but not limited to, the 2004 Stock Incentive Plan.

(d) Employee Benefit Plans; Paid Time Off

(i) Benefit Plans. During the Employment Period, the Executive shall be an employee of the Bank and shall be entitled to participate in the Bank’s (i) tax-qualified retirement plans, (i.e., the Bank’s Defined Benefit Pension Plan, 401(k) Plan and Employee Stock Ownership Plan (including, for purposes of this Agreement, any successor plans thereto)); (ii) nonqualified retirement plans (i.e., the Bank’s 2005 Supplemental Executive Retirement Plan(including any predecessor or successor plan thereto, the “SERP”)); (iii) group life, health and disability insurance plans; and (iv) any other employee benefit plans and programs in accordance with the Bank’s customary practices, provided he is a member of the class of employees authorized to participate in such plans or programs.

(ii) Paid Time Off. The Executive shall be entitled to a minimum of four (4) weeks of paid vacation time each year during the Employment Period (measured on a fiscal or calendar year basis, in accordance with the Bank’s usual practices), as well as sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior executives. Any unused paid time off during an annual period shall expire at the end of that period, such that unused paid time off shall not be carried forward into the following year and the Executive shall not be compensated for unused paid time off.

5. Outside Activities and Board Memberships

During the term of this Agreement, the Executive shall not, directly or indirectly, provide services on behalf of any competitive financial institutions, any insurance company or agency, any mortgage or loan broker or any other competitive entity or on behalf of any subsidiary or affiliate of any such competitive entity, as an employee, consultant, independent contractor, agent, sole proprietor, partner, joint venturer, corporate officer or director; nor shall the Executive acquire by reason of purchase during the term of this Agreement the ownership of more than 5% of the outstanding equity interest in any such competitive entity. In addition, during the term of this Agreement, the Executive shall not, directly or indirectly, acquire a beneficial interest, or engage in any joint venture in real estate with the Bank. Subject to the foregoing, and to the Executive’s right to continue to serve as an officer and/or director or trustee of any business organization as to which he was so serving on the Effective Date of this Agreement, the Executive may serve on boards of directors of unaffiliated corporations, subject to Board approval, which shall not be unreasonably

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withheld, and such services shall be presumed for these purposes to be for the benefit of the Bank. Except as specifically set forth herein, the Executive may engage in personal business and investment activities, including real estate investments and personal investments in the stocks, securities and obligations of other financial institutions (or their holding companies). Notwithstanding the foregoing, in no event shall the Executive’s outside activities, services, personal business and investments materially interfere with the performance of his duties under this Agreement.

6. Working Facilities and Expenses

(a) Working Facilities. The Executive’s principal place of employment shall be at the Bank’s principal executive office or at such other location upon which the Bank and the Executive may mutually agree.

(b) Expenses. The Bank shall reimburse the Executive for his ordinary and necessary business expenses and travel and entertainment expenses incurred in connection with the performance of his duties under this Agreement, upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require and subject to the following conditions: (A) the expenses reimbursed by the Bank in one calendar year shall not affect the expenses paid or reimbursed by the Bank in another calendar year, (B) reimbursement for an expense shall be made within a reasonable period of time following the date on which the Bank receives the Executive’s documentation of the expense, provided that no reimbursement for an expense shall be made after the last day of the calendar year following the calendar year in which the expense was incurred.

7. Termination of Employment with Bank Liability

(a) Reasons for Termination. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of:

(i) The Executive’s voluntary resignation from employment with the Bank within one year after any event constituting “Good Reason”, where “Good Reason” means any of the following events (provided that, in the case of (A), (B) and (D), no such event shall constitute “Good Reason” unless the Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof and the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties)):

(A) the failure to re-appoint the Executive to the position set forth under Section 3;

(B) a material change in Executive’s functions, duties, or responsibilities, including those with respect to the Company, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope;

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(C) liquidation or dissolution of the Bank or the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the Executive;

(D) a material breach of this Agreement by the Bank; or

(E) a Change in Control Date of the Bank as defined in Section 9, except to the extent that Section 7(c) hereof would apply to the Executive’s termination of employment, in which event Executive will be deemed to have terminated his employment pursuant to the provisions of Section 7(c) instead; or

(ii) the discharge of the Executive by the Bank for any reason other than for “Cause” as defined in Section 8(a); or

(iii) the termination of the Executive’s employment with the Bank as a result of the Executive’s “total and permanent disability” which, for purposes of this Agreement, shall be determined by the Bank, based upon competent and independent medical evidence that the Executive’s physical or mental condition is such that he is totally and permanently incapable of performing the essential tasks of his position hereunder, and, to the extent that any payments hereunder on account of disability are subject to Section 409A of the Internal Revenue Code of 1986 (“Code”), “disability” shall have the meaning set forth in Code Section 409A and the regulations thereunder;

then the Bank shall provide the benefits and pay to the Executive the amounts provided for under Section 7(b).

(b) Severance Pay. Subject to the limitations set forth in Sections 7(e) and (f) below, upon the termination of the Executive’s employment with the Bank under circumstances described in Section 7(a) of this Agreement, the Bank shall pay to the Executive (or, in the event of the Executive’s death after the event described in Section 7(a) has occurred, the Bank shall pay to the Executive’s surviving spouse, beneficiary or estate) an amount equal to the following, provided that, in each case where an amount to be paid below is the “present value” of an amount, such “present value” shall be determined using a discount rate that is equal to the short-term “applicable federal rate” with monthly compounding published by the Internal Revenue Service for the month preceding the Executive’s termination of employment:

(i) within 60 days following his termination of employment, his earned but unpaid Base Salary as of the date of his termination of employment with the Bank;

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(ii) the benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans, payable in accordance with the terms of such plans;

(iii) continued life insurance coverage and non-taxable health insurance benefits which will provide the Executive with coverage for the remaining unexpired Employment Period equivalent to the coverage to which he would have been entitled if he had continued working for the Bank during the remaining unexpired Employment Period with the same Base Salary as was in effect on the date of his termination of employment;

(iv) within 60 days following his termination of employment, a lump sum payment, as liquidated damages, in an amount equal to the present value of the Base Salary that the Executive would have earned (but offset by any payments made under any short-term or long-term disability plan or program maintained by the Bank) if he had continued working for the Bank for the remaining unexpired Employment Period at his final rate of Base Salary;

(v) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the benefits to which the Executive would be entitled under the Bank’s Defined Benefit Pension Plan if he had the additional years of service that he would have had accrued if he had continued working for the Bank during the remaining unexpired Employment Period earning his final rate of Base Salary during that period, over (B) the present value of the benefits to which he is actually entitled under the Bank’s Defined Benefit Pension Plan as of the date of his termination;

(vi) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the Bank’s contributions that would have been made on his behalf under the Bank’s 401(k) Plan and Employee Stock Ownership Plan if the Executive had continued working for the Bank for the remaining unexpired Employment Period assuming (A) the Executive earned his final rate of Base Salary during that period; (B) the Executive made the maximum amount of employee contributions permitted, if any, under such plans; and (C) the Bank’s contributions are at least equal to the rate of contributions made to the Plan during the plan year immediately preceding his termination of employment;

(vii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of (A) the present value of the benefits to which he would be entitled under the SERP (and any other deferred compensation plan for management or highly

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compensated employees that are maintained by the Bank), if he had continued working for the Bank for the remaining unexpired Employment Period following his termination of employment earning his final rate of Base Salary during the remaining unexpired Employment Period, over (B) the present value of the benefits to which he is actually entitled under any such plan, as of the date of his termination of employment with the Bank;

(viii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to two (2) times the average of the prior two (2) years Incentive Compensation earned or received by him under all incentive compensation plans or programs adopted and maintained by the Bank; and

(ix) stock options shall vest in accordance with the terms of the stock plan under which they were granted.

(c) Change in Control. Notwithstanding the foregoing, upon the termination of the Executive’s employment with the Bank following a Change in Control, the Bank: (1) shall provide the employee benefits described in Section 7(b)(iii) for a period of thirty-six (36) months following the termination of employment date; (2) shall pay the Executive (or in the event of his death, to his surviving spouse or such other beneficiary as the Executive may designate in writing, or if there is neither, to his estate), the amounts described in Sections 7(b)(iv) through 7(b)(viii) above as if the “remaining unexpired Employment Period” under the Agreement is thirty-six (36) months from the termination of employment date; and (3) shall credit the Executive with full vesting of all stock or stock-based awards granted to the Executive under any plan adopted by the Bank or the Company. Notwithstanding anything to the contrary herein, to the extent that payments and benefits are payable pursuant to this Section 7(c), no payments or benefits shall be paid to Executive under Sections 7(b)(iii) through 7(b)(viii).

(d) Damages. The Bank and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the Effective Date of this Agreement and that such liquidated damages constitute reasonable damages under the circumstances.

(e) OTS Limitation on Severance Pay. Notwithstanding the foregoing, to the extent required by regulations or interpretations of the Office of Thrift Supervision, all severance payments under the Agreement shall be reduced not to exceed three (3) times the Executive’s average annual compensation (as defined in such regulations or interpretations) over the most recent five (5) taxable years.

(f) Section 409A Delay in Payment.

(i) Notwithstanding the foregoing provisions of this Agreement, if a payment under this Agreement is due to a “separation from service” for purposes of

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the rules under Title 26 of the Code of Federal Regulations (the “Treasury Regulations”) Section 1.409A-3(i)(2) (the “Six Month Delay Rule”) and the Executive is determined to be a “specified employee” (as determined under Treasury Regulation Section 1.409A-1(i) and related Company procedures), such payment shall, to the extent necessary to comply with the requirements of Code Section 409A, be made on the later of the date specified by the foregoing provisions of this Section 7 or the date that is six months after the date of the Executive’s separation from service. If any cash payment is delayed pursuant to this Section 7(f)(i), interest on such delayed payment (determined using the short-term “applicable federal rate” compounded monthly as published by the Internal Revenue Service for the month preceding the Executive’s separation from service) shall accrue and be paid at the same time as the delayed payment.

(ii) To the extent that the Six Month Delay Rule applies to the provision of life insurance coverage to the Executive as described in Section 7(b)(iii) (the “Life Insurance Coverage”), such Life Insurance Coverage shall nonetheless be provided to the Executive during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Executive pays to the Bank, on a monthly basis in advance, an amount equal to the monthly cost of such Life Insurance Coverage. The Bank shall reimburse the Executive for any such payments made by the Executive in a lump sum not later than 60 days following the sixth month anniversary of the Executive’s separation from service. For purposes of this Section 7(f)(ii), “monthly cost” means the minimum dollar amount which, if paid by the Executive on a monthly basis in advance, results in the Executive not being required to recognize any federal income tax on receipt of the Life Insurance Coverage during the Six Month Period.

8. Termination without Bank Liability

(a) Termination for Cause.

(i) The Bank may terminate the Executive’s employment at any time, but any termination other than termination for “cause,” as defined herein, shall not prejudice the Executive’s right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for “cause.” Termination for “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, breach of the Bank’s Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the reputation of the Company or the Bank, willfully engaging in actions that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Company or Bank, intentional failure to perform stated duties, willful

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violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. The Bank shall furnish the Executive with a statement of the grounds for termination for cause and shall afford the Executive a reasonable opportunity to refute the grounds for the proposed termination.

(ii) For purposes of this Section, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure to act, based upon the direction of the CEO or based upon the advice of counsel for the Bank shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank.

(b) Death; Voluntary Resignation Without Good Reason; Retirement. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of any of the reasons set forth in this Section 8(b), then the Bank shall have no further obligations under this Agreement, other than the payment to the Executive, within sixty (60) days after the termination of his employment, of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans and programs and compensation plans and programs in accordance with the terms of such plans and programs. Termination of employment under this Section 8(b) shall mean termination of employment due to the following events:

(i) The Executive’s death;

(ii) The Executive’s voluntary resignation from employment with the Bank for any reason other than the “Good Reasons” specified in Section 7(a)(i); or

(iii) The automatic termination of the Employment Period as of the last day of the calendar month following the Executive’s attainment of age 65, which shall be treated as his “retirement date” (i.e., “retirement” is not a “Good Reason” termination as described in Section 7(a)(i) that would entitle the Executive to severance benefits under Section 7(b)).

9. Change in Control

(a) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) a change in control of a nature that would be required to be reported in response to Item 5.01(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or

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(ii) a change in control of the Bank or the Company within the meaning of the Home Owners Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or

(iii) any of the following events, upon which a Change in Control shall be deemed to have occurred:

(A) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities except for any securities purchased by the Bank’s employee stock ownership plan or trust; or

(B) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this subsection (B), considered as though he were a member of the Incumbent Board; or

(C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction occurs in which the Bank or Company is not the surviving institution; or

(D) a proxy statement is issued soliciting proxies from stockholders of the Company by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or

(E) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

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(b) For purposes of this Agreement, the term “Change in Control Date” shall mean the first date during the Employment Period on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive’s employment with the Bank is terminated and if it is reasonably demonstrated by the Executive that such termination of Employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Change in Control Date” shall mean the date immediately prior to the date of such termination of employment.

10. Confidentiality. Unless he obtains prior written consent from the Bank, the Executive shall keep confidential and shall refrain from using for the benefit of himself, or any person or entity other than the Bank, the Company or any entity which is a subsidiary or affiliate of the Bank or the Company or of which the Bank or the Company is a subsidiary or affiliate, any material document or information obtained from the Bank, the Company or from any of their respective parents, subsidiaries or affiliates, in the course of his employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of his own) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this Section shall prevent the Executive, with or without the Bank’s or the Company’s consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law.

11. Non-Solicitation; Non-Competition; Post-Termination Cooperation.

(a) The Executive hereby covenants and agrees that, for a period of one year following his termination of employment with the Bank, he shall not, without the prior written consent of the Bank, either directly or indirectly:

(i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank, the Company or any of their respective subsidiaries or affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or the Company or any of their direct or indirect subsidiaries or affiliates or has headquarters or offices within the counties in which the Bank or the Company has business operations or has filed an application for regulatory approval to establish an office;

(ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other entity competing with the Bank or its affiliates in the same geographic locations where Provident Bank or its affiliates has material business interests; provided, however, that this restriction shall not apply if the Executive’s employment is terminated following a Change in Control; or

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(iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or the Company to terminate an existing business or commercial relationship with the Bank or the Company.

(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank and/or the Company, as may reasonably be required by the Bank and/or the Company, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, the Company or any of its subsidiaries or affiliates.

(c) All payments and benefits to the Executive under this Agreement shall be subject to the Executive’s compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive’s breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive’s experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank and the Company from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from the Executive.

12. Additional Termination and Suspension Provisions

(a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (but subject in all events to the requirements of Code Section 409A), (i) pay the Executive all of the compensation withheld while the Bank’s obligations under this Agreement were suspended and (ii) reinstate (in whole) any of the Bank’s obligations which were suspended, and in exercising such discretion, the Bank shall consider the facts and make a decision promptly following such dismissal of charges and act in good faith in deciding whether to pay any withheld compensation to the Executive and to reinstate any suspended obligations of the Bank.

(b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal

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Deposit Insurance Act, as amended (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(c) If the Bank is in default, as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1813 (x)(1)), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the parties.

(d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the OTS (the “Director”) or his designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, as amended; or (ii) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

(e) If any regulation applicable to the Bank shall hereafter be adopted, amended or modified or if any new regulation applicable to the Bank and effective after the date of this Agreement:

(i) shall require the inclusion in this Agreement of a provision not presently included in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent necessary to give effect in this Agreement to any such amended, modified or new regulation; and

(ii) shall permit the exclusion of a limitation in this Agreement on the payment to the Executive of an amount or benefit provided for presently in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent permissible to exclude from this Agreement any such limitation previously required to be included in this Agreement by a regulation prior to its amendment, modification or repeal.

13. Arbitration. Any dispute or controversy arising out of, under, in connection with, or relating to this Agreement and any amendment hereof shall be submitted to binding arbitration before one arbitrator in Rockland County in accordance with the Commercial Arbitration Rules of the American Arbitration Association for expedited arbitration, and any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

14. Indemnification and Insurance.

(a) The Bank shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at

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the Bank’s expense, and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been an officer of the Bank (whether or not he continues to be an officer at the time of incurring such expenses or liabilities and for a period of six years following his termination of employment with the Bank), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the CEO). Any such indemnification shall be made consistent with OTS Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359.

(b) Notwithstanding the foregoing, no indemnification shall be made by the Bank unless the Bank gives the OTS at least 60 days’ notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board shall be sent to the Regional Director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto.

15. Notices. The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section. Any notice or other communication given pursuant to the provisions of this Section shall be deemed to have been given (i) if sent by messenger, upon personal delivery to the party to whom the notice is directed; (ii) if sent by reputable overnight courier, one business day after delivery to such courier; (iii) if sent by facsimile, upon electronic or telephonic confirmation of receipt from the receiving facsimile machine and (iv) if sent by mail, three business days following deposit in the United States mail, properly addressed, postage prepaid, certified or registered mail with return receipt requested. All notices required or permitted to be given hereunder shall be addressed as follows:

If to the Executive:
If to the Bank:	Provident Bank
	400 Rella Boulevard
	Montebello, New York 10901
	Attention: George Strayton, President & Chief Executive Officer

16. Amendment. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

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17. Miscellaneous.

(a) Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and estate and intestate distributees, and the Bank, its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Bank may be sold or otherwise transferred. Any such successor of the Bank shall be deemed to have assumed this Agreement and to have become obligated hereunder to the same extent as the Bank, and the Executive’s obligations hereunder shall continue in favor of such successor.

(b) Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof.

(c) Waiver. Failure to insist upon strict compliance with any terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment or any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement.

(e) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of law principles, except to the extent governed by federal law in which case federal law shall govern. Any payments made to the Executive pursuant to this Agreement or otherwise are subject to all applicable banking laws and regulations, including, without limitation, 12 USC 1828 (i) and any regulations promulgated thereunder.

(f) Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any Section. Any reference to a Section number shall refer to a Section of this Agreement, unless otherwise specified.

(g) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, including without limitation, the employment agreement dated as of October 31, 2006 between the Executive and the Bank and the Company.

(h) Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.

[Signatures on next page]

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the Effective Date specified above.

		EXECUTIVE
December 8, 2008		/s/ Paul A. Maisch
Date		Paul A. Maisch
		PROVIDENT BANK
December 8, 2008	By:	/s/ George Strayton
Date		George Strayton, President and
		Chief Executive Officer

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EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT WITH STEPHEN DORMER

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the 8th day of December, 2008 (“Effective Date”), by and between Provident Bank, a savings bank organized and existing under the laws of the United States of America and having its executive offices at 400 Rella Boulevard, Montebello, New York 10901 (“Bank”), and Stephen G. Dormer (“Executive”). The Bank is the wholly-owned subsidiary of Provident New York Bancorp (“Company”).

WITNESSETH:

WHEREAS, Executive currently serves as an executive officer of the Bank pursuant to the Amended and Restated Employment Agreement entered into as of October 31, 2006 (the “Prior Agreement”); and

WHEREAS, in order to comply with new Internal Revenue Code Section 409A, the Prior Agreement is being amended and restated in its entirety as herein set forth.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the Bank and Executive hereby agree as follows:

1. Employment. The Bank hereby agrees to continue the employment of the Executive and the Executive hereby agrees to continue such employment, during the period and upon the terms and conditions set forth in this Agreement. All actions that may be undertaken by the Bank with respect to the Executive’s employment with the Bank pursuant to this Agreement may be undertaken by the Chief Executive Officer of the Bank (“CEO”), provided that the CEO shall report such actions to the Bank’s Board of Directors (“Board”) and such actions shall be subject to ratification by the Board in accordance with the Bank’s by-laws.

2. Employment Period.

(a) Two Year Contract; Daily Renewal. The Executive’s period of employment with the Bank (“Employment Period”) shall begin on the Effective Date and shall renew daily such that the remaining unexpired term of the Agreement shall be twenty-four (24) months, until the date that the Bank gives the Executive written notice of non-renewal (“Non-Renewal Notice”). The Employment Period shall end on the date that is twenty-four (24) months after the date of the Non-Renewal Notice, unless that parties agree that the Employment Period shall end on an earlier date. Notwithstanding the preceding provisions of this Section 2(a), the Employment Period under this Agreement shall automatically terminate on the last day of the calendar month in which the Executive attains age 65.

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(b) Annual Performance Evaluation. On either a fiscal year or calendar year basis, (consistently applied from year to year), the Bank shall conduct an annual evaluation of the Executive’s performance, unless notice of non-renewal has been given. The annual performance evaluation proceedings shall be included in the minutes of the Board meeting that next follows such annual performance review.

(c) Continued Employment Following Termination of Employment Period. Nothing in this Agreement shall mandate or prohibit a continuation of the Executive’s employment following the expiration of the Employment Period upon such terms and conditions as the Bank and the Executive may mutually agree.

3. Duties.

(a) Title; Reporting Responsibility. The Executive shall serve as the Executive Vice President, Commercial Lending and Strategic Planning of the Bank, with power, authority and responsibility commensurate with those of a senior officer. The Executive shall directly report to the CEO.

(b) Time Commitment. The Executive shall devote his full business time and attention to the business and affairs of the Bank and shall use his best efforts to advance the interests of the Bank.

4. Annual Compensation.

(a) Base Salary.

(i) Annual Salary. In consideration for the services performed by the Executive under this Agreement, the Bank shall pay to the Executive an annual salary (“Base Salary”). The Base Salary shall be paid in approximately equal installments in accordance with the Bank’s customary payroll practices. The Bank shall review the Executive’s Base Salary at least annually for possible upward adjustment, but the Executive’s Base Salary shall not be reduced without the Executive’s consent. For the fiscal year that began on October 1, 2005, the Executive’s Base Salary is $210,000.

(ii) Automatic Adjustment Following a Change in Control. For each calendar year that begins on or after the date on which a Change in Control (as defined in Section 9) occurs, and continuing through the remainder of the Employment Period, the Executive’s Base Salary shall automatically increase by the greater of (1) six percent (6%) or (2) the average annual rate of base salary increases provided for the immediately preceding calendar year to individuals employed by the Bank at the level of assistant vice president or above (but excluding the Executive from the determination of such average).

(b) Incentive Compensation. The Executive shall be eligible to participate in any bonus and incentive compensation programs (not including equity compensation programs, which are

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covered by Section 4(c) of this Agreement) established by the Bank from time to time for senior executive officers, including the Bank’s Executive Officer Management Incentive Program. Compensation payable pursuant to such programs shall be referred to herein as “Incentive Compensation.” For the fiscal year that ended on September 30, 2005, the Executive received Incentive Compensation of $28,300.

(c) Equity Compensation. The Executive shall be eligible to participate in any equity compensation programs established by the Bank from time to time for senior executive officers, including, but not limited to, the 2004 Stock Incentive Plan.

(d) Employee Benefit Plans; Paid Time Off

(i) Benefit Plans. During the Employment Period, the Executive shall be an employee of the Bank and shall be entitled to participate in the Bank’s (i) tax-qualified retirement plans, (i.e., the Bank’s Defined Benefit Pension Plan, 401(k) Plan and Employee Stock Ownership Plan (including, for purposes of this Agreement, any successor plans thereto)); (ii) nonqualified retirement plans (i.e., the Bank’s 2005 Supplemental Executive Retirement Plan (including any predecessor or successor plan thereto, the “SERP”)); (iii) group life, health and disability insurance plans; and (iv) any other employee benefit plans and programs in accordance with the Bank’s customary practices, provided he is a member of the class of employees authorized to participate in such plans or programs.

(ii) Paid Time Off. The Executive shall be entitled to a minimum of four (4) weeks of paid vacation time each year during the Employment Period (measured on a fiscal or calendar year basis, in accordance with the Bank’s usual practices), as well as sick leave, holidays and other paid absences in accordance with the Bank’s policies and procedures for senior executives. Any unused paid time off during an annual period shall expire at the end of that period, such that unused paid time off shall not be carried forward into the following year and the Executive shall not be compensated for unused paid time off.

5. Outside Activities and Board Memberships

During the term of this Agreement, the Executive shall not, directly or indirectly, provide services on behalf of any competitive financial institutions, any insurance company or agency, any mortgage or loan broker or any other competitive entity or on behalf of any subsidiary or affiliate of any such competitive entity, as an employee, consultant, independent contractor, agent, sole proprietor, partner, joint venturer, corporate officer or director; nor shall the Executive acquire by reason of purchase during the term of this Agreement the ownership of more than 5% of the outstanding equity interest in any such competitive entity. In addition, during the term of this Agreement, the Executive shall not, directly or indirectly, acquire a beneficial interest, or engage in any joint venture in real estate with the Bank. Subject to the foregoing, and to the Executive’s right to continue to serve as an officer and/or director or trustee of any business organization as to which he was so serving on the Effective Date of this Agreement, the Executive may serve on boards of directors of unaffiliated corporations, subject to Board approval, which shall not be unreasonably

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withheld, and such services shall be presumed for these purposes to be for the benefit of the Bank. Except as specifically set forth herein, the Executive may engage in personal business and investment activities, including real estate investments and personal investments in the stocks, securities and obligations of other financial institutions (or their holding companies). Notwithstanding the foregoing, in no event shall the Executive’s outside activities, services, personal business and investments materially interfere with the performance of his duties under this Agreement.

6. Working Facilities and Expenses

(a) Working Facilities. The Executive’s principal place of employment shall be at the Bank’s principal executive office or at such other location upon which the Bank and the Executive may mutually agree.

(b) Expenses. The Bank shall reimburse the Executive for his ordinary and necessary business expenses and travel and entertainment expenses incurred in connection with the performance of his duties under this Agreement, upon presentation to the Bank of an itemized account of such expenses in such form as the Bank may reasonably require and subject to the following conditions: (A) the expenses reimbursed by the Bank in one calendar year shall not affect the expenses paid or reimbursed by the Bank in another calendar year, (B) reimbursement for an expense shall be made within a reasonable period of time following the date on which the Bank receives the Executive’s documentation of the expense, provided that no reimbursement for an expense shall be made after the last day of the calendar year following the calendar year in which the expense was incurred.

7. Termination of Employment with Bank Liability

(a) Reasons for Termination. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of:

(i) The Executive’s voluntary resignation from employment with the Bank within one year after any event constituting “Good Reason”, where “Good Reason” means any of the following events (provided that, in the case of (A), (B) and (D), no such event shall constitute “Good Reason” unless the Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof and the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties)):

(A) the failure to re-appoint the Executive to the position set forth under Section 3;

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(B) a material change in Executive’s functions, duties, or responsibilities, including those with respect to the Company, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope;

(C) liquidation or dissolution of the Bank or the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of the Executive;

(D) a material breach of this Agreement by the Bank; or

(E) a Change in Control Date of the Bank as defined in Section 9, except to the extent that Section 7(c) hereof would apply to the Executive’s termination of employment, in which event Executive will be deemed to have terminated his employment pursuant to the provisions of Section 7(c) instead; or

(ii) the discharge of the Executive by the Bank for any reason other than for “Cause” as defined in Section 8(a); or

(iii) the termination of the Executive’s employment with the Bank as a result of the Executive’s “total and permanent disability” which, for purposes of this Agreement, shall be determined by the Bank, based upon competent and independent medical evidence that the Executive’s physical or mental condition is such that he is totally and permanently incapable of performing the essential tasks of his position hereunder, and, to the extent that any payments hereunder on account of disability are subject to Section 409A of the Internal Revenue Code of 1986 (“Code”), “disability” shall have the meaning set forth in Code Section 409A and the regulations thereunder;

then the Bank shall provide the benefits and pay to the Executive the amounts provided for under Section 7(b).

(b) Severance Pay. Subject to the limitations set forth in Sections 7(e) and (f) below, upon the termination of the Executive’s employment with the Bank under circumstances described in Section 7(a) of this Agreement, the Bank shall pay to the Executive (or, in the event of the Executive’s death after the event described in Section 7(a) has occurred, the Bank shall pay to the Executive’s surviving spouse, beneficiary or estate) an amount equal to the following, provided that, in each case where an amount to be paid below is the “present value” of an amount, such “present value” shall be determined using a discount rate that is equal to the short-term “applicable federal rate” with monthly compounding published by the Internal Revenue Service for the month preceding the Executive’s termination of employment:

(i) within 60 days following his termination of employment, his earned but unpaid Base Salary as of the date of his termination of employment with the Bank;

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(ii) the benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans, payable in accordance with the terms of such plans;

(iii) continued life insurance coverage and non-taxable health insurance benefits which will provide the Executive with coverage for the remaining unexpired Employment Period equivalent to the coverage to which he would have been entitled if he had continued working for the Bank during the remaining unexpired Employment Period with the same Base Salary as was in effect on the date of his termination of employment;

(iv) within 60 days following his termination of employment, a lump sum payment, as liquidated damages, in an amount equal to the present value of the Base Salary that the Executive would have earned (but offset by any payments made under any short-term or long-term disability plan or program maintained by the Bank) if he had continued working for the Bank for the remaining unexpired Employment Period at his final rate of Base Salary;

(v) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of: (A) the present value of the benefits to which the Executive would be entitled under the Bank’s Defined Benefit Pension Plan if he had the additional years of service that he would have had accrued if he had continued working for the Bank during the remaining unexpired Employment Period earning his final rate of Base Salary during that period, over (B) the present value of the benefits to which he is actually entitled under the Bank’s Defined Benefit Pension Plan as of the date of his termination;

(vi) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the present value of the Bank’s contributions that would have been made on his behalf under the Bank’s 401(k) Plan and Employee Stock Ownership Plan if the Executive had continued working for the Bank for the remaining unexpired Employment Period assuming (A) the Executive earned his final rate of Base Salary during that period; (B) the Executive made the maximum amount of employee contributions permitted, if any, under such plans; and (C) the Bank’s contributions are at least equal to the rate of contributions made to the Plan during the plan year immediately preceding his termination of employment;

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(vii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to the excess, if any, of (A) the present value of the benefits to which he would be entitled under the SERP (and any other deferred compensation plan for management or highly compensated employees that are maintained by the Bank), if he had continued working for the Bank for the remaining unexpired Employment Period following his termination of employment earning his final rate of Base Salary during the remaining unexpired Employment Period, over (B) the present value of the benefits to which he is actually entitled under any such plan, as of the date of his termination of employment with the Bank;

(viii) within 60 days following his termination of employment with the Bank, a lump sum payment in an amount equal to two (2) times the average of the prior two (2) years Incentive Compensation earned or received by him under all incentive compensation plans or programs adopted and maintained by the Bank; and

(ix) stock options shall vest in accordance with the terms of the stock plan under which they were granted.

(c) Change in Control. Notwithstanding the foregoing, upon the termination of the Executive’s employment with the Bank following a Change in Control, the Bank: (1) shall provide the employee benefits described in Section 7(b)(iii) for a period of thirty-six (36) months following the termination of employment date; (2) shall pay the Executive (or in the event of his death, to his surviving spouse or such other beneficiary as the Executive may designate in writing, or if there is neither, to his estate), the amounts described in Sections 7(b)(iv) through 7(b)(viii) above as if the “remaining unexpired Employment Period” under the Agreement is thirty-six (36) months from the termination of employment date; and (3) shall credit the Executive with full vesting of all stock or stock-based awards granted to the Executive under any plan adopted by the Bank or the Company. Notwithstanding anything to the contrary herein, to the extent that payments and benefits are payable pursuant to this Section 7(c), no payments or benefits shall be paid to Executive under Sections 7(b)(iii) through 7(b)(viii).

(d) Damages. The Bank and the Executive hereby stipulate that the damages which may be incurred by the Executive following any such termination of employment are not capable of accurate measurement as of the Effective Date of this Agreement and that such liquidated damages constitute reasonable damages under the circumstances.

(e) OTS Limitation on Severance Pay. Notwithstanding the foregoing, to the extent required by regulations or interpretations of the Office of Thrift Supervision, all severance payments under the Agreement shall be reduced not to exceed three (3) times the Executive’s average annual compensation (as defined in such regulations or interpretations) over the most recent five (5) taxable years.

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(f) Section 409A Delay in Payment.

(i) Notwithstanding the foregoing provisions of this Agreement, if a payment under this Agreement is due to a “separation from service” for purposes of the rules under Title 26 of the Code of Federal Regulations (the “Treasury Regulations”) Section 1.409A-3(i)(2) (the “Six Month Delay Rule”) and the Executive is determined to be a “specified employee” (as determined under Treasury Regulation Section 1.409A-1(i) and related Company procedures), such payment shall, to the extent necessary to comply with the requirements of Code Section 409A, be made on the later of the date specified by the foregoing provisions of this Section 7 or the date that is six months after the date of the Executive’s separation from service. If any cash payment is delayed pursuant to this Section 7(f)(i), interest on such delayed payment (determined using the short-term “applicable federal rate” compounded monthly as published by the Internal Revenue Service for the month preceding the Executive’s separation from service) shall accrue and be paid at the same time as the delayed payment.

(ii) To the extent that the Six Month Delay Rule applies to the provision of life insurance coverage to the Executive as described in Section 7(b)(iii) (the “Life Insurance Coverage”), such Life Insurance Coverage shall nonetheless be provided to the Executive during the first six months following his separation from service (the “Six Month Period”), provided that, during such Six-Month Period, the Executive pays to the Bank, on a monthly basis in advance, an amount equal to the monthly cost of such Life Insurance Coverage. The Bank shall reimburse the Executive for any such payments made by the Executive in a lump sum not later than 60 days following the sixth month anniversary of the Executive’s separation from service. For purposes of this Section 7(f)(ii), “monthly cost” means the minimum dollar amount which, if paid by the Executive on a monthly basis in advance, results in the Executive not being required to recognize any federal income tax on receipt of the Life Insurance Coverage during the Six Month Period.

8. Termination without Bank Liability

(a) Termination for Cause.

(i) The Bank may terminate the Executive’s employment at any time, but any termination other than termination for “cause,” as defined herein, shall not prejudice the Executive’s right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for “cause.” Termination for “cause” shall include termination because of the Executive’s personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, breach of the Bank’s Code of Ethics, material violation of the Sarbanes-Oxley requirements for officers of public companies that

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in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the reputation of the Company or the Bank, willfully engaging in actions that in the reasonable opinion of the Board will likely cause substantial financial harm or substantial injury to the business reputation of the Company or Bank, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than routine traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of the contract. The Bank shall furnish the Executive with a statement of the grounds for termination for cause and shall afford the Executive a reasonable opportunity to refute the grounds for the proposed termination.

(ii) For purposes of this Section, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Bank. Any act, or failure to act, based upon the direction of the CEO or based upon the advice of counsel for the Bank shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Bank.

(b) Death; Voluntary Resignation Without Good Reason; Retirement. In the event that the Executive’s employment with the Bank shall terminate during the Employment Period on account of any of the reasons set forth in this Section 8(b), then the Bank shall have no further obligations under this Agreement, other than the payment to the Executive, within sixty (60) days after the termination of his employment, of his earned but unpaid salary as of the date of the termination of his employment, and the provision of such benefits, if any, to which he is entitled as a former employee under the Bank’s employee benefit plans and programs and compensation plans and programs in accordance with the terms of such plans and programs. Termination of employment under this Section 8(b) shall mean termination of employment due to the following events:

(i) The Executive’s death;

(ii) The Executive’s voluntary resignation from employment with the Bank for any reason other than the “Good Reasons” specified in Section 7(a)(i); or

(iii) The automatic termination of the Employment Period as of the last day of the calendar month following the Executive’s attainment of age 65, which shall be treated as his “retirement date” (i.e., “retirement” is not a “Good Reason” termination as described in Section 7(a)(i) that would entitle the Executive to severance benefits under Section 7(b)).

9. Change in Control

(a) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) a change in control of a nature that would be required to be reported in response to Item 5.01(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or

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(ii) a change in control of the Bank or the Company within the meaning of the Home Owners Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or

(iii) any of the following events, upon which a Change in Control shall be deemed to have occurred:

(A) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities except for any securities purchased by the Bank’s employee stock ownership plan or trust; or

(B) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this subsection (B), considered as though he were a member of the Incumbent Board; or

(C) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction occurs in which the Bank or Company is not the surviving institution; or

(D) a proxy statement is issued soliciting proxies from stockholders of the Company by someone other than the current management of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are to be exchanged for or converted into cash or property or securities not issued by the Company; or

(E) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

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(b) For purposes of this Agreement, the term “Change in Control Date” shall mean the first date during the Employment Period on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Executive’s employment with the Bank is terminated and if it is reasonably demonstrated by the Executive that such termination of Employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Change in Control Date” shall mean the date immediately prior to the date of such termination of employment.

10. Confidentiality. Unless he obtains prior written consent from the Bank, the Executive shall keep confidential and shall refrain from using for the benefit of himself, or any person or entity other than the Bank, the Company or any entity which is a subsidiary or affiliate of the Bank or the Company or of which the Bank or the Company is a subsidiary or affiliate, any material document or information obtained from the Bank, the Company or from any of their respective parents, subsidiaries or affiliates, in the course of his employment with any of them concerning their properties, operations or business (unless such document or information is readily ascertainable from public or published information or trade sources or has otherwise been made available to the public through no fault of his own) until the same ceases to be material (or becomes so ascertainable or available); provided, however, that nothing in this Section shall prevent the Executive, with or without the Bank’s or the Company’s consent, from participating in or disclosing documents or information in connection with any judicial or administrative investigation, inquiry or proceeding to the extent that such participation or disclosure is required under applicable law.

11. Non-Solicitation; Non-Competition; Post-Termination Cooperation.

(a) The Executive hereby covenants and agrees that, for a period of one year following his termination of employment with the Bank, he shall not, without the prior written consent of the Bank, either directly or indirectly:

(i) solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank, the Company or any of their respective subsidiaries or affiliates to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank or the Company or any of their direct or indirect subsidiaries or affiliates or has headquarters or offices within the counties in which the Bank or the Company has business operations or has filed an application for regulatory approval to establish an office;

(ii) become an officer, employee, consultant, director, independent contractor, agent, sole proprietor, joint venturer, greater than 5% equity-owner or stockholder, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union,

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bank or bank holding company, insurance company or agency, any mortgage or loan broker or any other entity competing with the Bank or its affiliates in the same geographic locations where Provident Bank or its affiliates has material business interests; provided, however, that this restriction shall not apply if the Executive’s employment is terminated following a Change in Control; or

(iii) solicit, provide any information, advice or recommendation or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any customer of the Bank or the Company to terminate an existing business or commercial relationship with the Bank or the Company.

(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Bank and/or the Company, as may reasonably be required by the Bank and/or the Company, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between the Executive and the Bank, the Company or any of its subsidiaries or affiliates.

(c) All payments and benefits to the Executive under this Agreement shall be subject to the Executive’s compliance with this Section. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of the Executive’s breach of this Section, agree that, in the event of any such breach by the Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by the Executive and all persons acting for or with the Executive. The Executive represents and admits that the Executive’s experience and capabilities are such that the Executive can obtain employment in a business engaged in other lines and/or of a different nature than the Bank, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank and the Company from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from the Executive.

12. Additional Termination and Suspension Provisions

(a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Bank under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (but subject in all events to the requirements of Code Section 409A), (i) pay the Executive all of the compensation withheld while the Bank’s obligations under this Agreement were suspended and (ii) reinstate (in whole) any of the Bank’s obligations which were suspended, and in exercising such discretion, the Bank shall consider the facts and make a decision promptly following such dismissal of charges and act in good faith in deciding whether to pay any withheld compensation to the Executive and to reinstate any suspended obligations of the Bank.

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(b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the parties shall not be affected.

(c) If the Bank is in default, as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 1813 (x)(1)), all obligations under this Agreement shall terminate as of the date of default, but this provision shall not affect any vested rights of the parties.

(d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the OTS (the “Director”) or his designee, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, as amended; or (ii) by the Director or his designee, at the time the Director or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action.

(e) If any regulation applicable to the Bank shall hereafter be adopted, amended or modified or if any new regulation applicable to the Bank and effective after the date of this Agreement:

(i) shall require the inclusion in this Agreement of a provision not presently included in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent necessary to give effect in this Agreement to any such amended, modified or new regulation; and

(ii) shall permit the exclusion of a limitation in this Agreement on the payment to the Executive of an amount or benefit provided for presently in this Agreement, then the foregoing provisions of this Section shall be deemed amended to the extent permissible to exclude from this Agreement any such limitation previously required to be included in this Agreement by a regulation prior to its amendment, modification or repeal.

13. Arbitration. Any dispute or controversy arising out of, under, in connection with, or relating to this Agreement and any amendment hereof shall be submitted to binding arbitration before one arbitrator in Rockland County in accordance with the Commercial Arbitration Rules of the American Arbitration Association for expedited arbitration, and any judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

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14. Indemnification and Insurance.

(a) The Bank shall provide the Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at the Bank’s expense, and shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been an officer of the Bank (whether or not he continues to be an officer at the time of incurring such expenses or liabilities and for a period of six years following his termination of employment with the Bank), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the CEO). Any such indemnification shall be made consistent with OTS Regulations and Section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder in 12 C.F.R. Part 359.

(b) Notwithstanding the foregoing, no indemnification shall be made by the Bank unless the Bank gives the OTS at least 60 days’ notice of its intention to make such indemnification. Such notice shall state the facts on which the action arose, the terms of any settlement, and any disposition of the action by a court. Such notice, a copy thereof, and a certified copy of the resolution containing the required determination by the Board shall be sent to the Regional Director of the OTS, who shall promptly acknowledge receipt thereof. The notice period shall run from the date of such receipt. No such indemnification shall be made if the OTS advises the Bank in writing within such notice period, of its objection thereto.

15. Notices. The persons or addresses to which mailings or deliveries shall be made may change from time to time by notice given pursuant to the provisions of this Section. Any notice or other communication given pursuant to the provisions of this Section shall be deemed to have been given (i) if sent by messenger, upon personal delivery to the party to whom the notice is directed; (ii) if sent by reputable overnight courier, one business day after delivery to such courier; (iii) if sent by facsimile, upon electronic or telephonic confirmation of receipt from the receiving facsimile machine and (iv) if sent by mail, three business days following deposit in the United States mail, properly addressed, postage prepaid, certified or registered mail with return receipt requested. All notices required or permitted to be given hereunder shall be addressed as follows:

If to the Executive:
If to the Bank:	Provident Bank
	400 Rella Boulevard
	Montebello, New York 10901
	Attention: George Strayton, President & Chief Executive Officer

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16. Amendment. No modifications of this Agreement shall be valid unless made in writing and signed by the parties hereto.

17. Miscellaneous.

(a) Successors and Assigns. This Agreement will inure to the benefit of and be binding upon the Executive, his legal representatives and estate and intestate distributees, and the Bank, its successors and assigns, including any successor by merger or consolidation or a statutory receiver or any other person or firm or corporation to which all or substantially all of the assets and business of the Bank may be sold or otherwise transferred. Any such successor of the Bank shall be deemed to have assumed this Agreement and to have become obligated hereunder to the same extent as the Bank, and the Executive’s obligations hereunder shall continue in favor of such successor.

(b) Severability. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the validity or enforceability of any other provision hereof.

(c) Waiver. Failure to insist upon strict compliance with any terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition. A waiver of any provision of this Agreement must be made in writing, designated as a waiver, and signed by the party against whom its enforcement is sought. Any waiver or relinquishment or any right or power hereunder at any one or more times shall not be deemed a waiver or relinquishment of such right or power at any other time or times.

(d) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same Agreement.

(e) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to conflicts of law principles, except to the extent governed by federal law in which case federal law shall govern. Any payments made to the Executive pursuant to this Agreement or otherwise are subject to all applicable banking laws and regulations, including, without limitation, 12 USC 1828 (i) and any regulations promulgated thereunder.

(f) Headings and Construction. The headings of sections in this Agreement are for convenience of reference only and are not intended to qualify the meaning of any Section. Any reference to a Section number shall refer to a Section of this Agreement, unless otherwise specified.

(g) Entire Agreement. This instrument contains the entire agreement of the parties relating to the subject matter hereof, and supersedes in its entirety any and all prior agreements, understandings or representations relating to the subject matter hereof, including without limitation, the employment agreement dated as of October 31, 2006 between the Executive and the Bank and the Company.

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(h) Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank.

[Signatures on next page]

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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and the Executive has hereunto set his hand, all as of the Effective Date specified above.

	EXECUTIVE
December 8, 2008	/s/ Stephen G. Dormer
Date	Stephen G. Dormer
	PROVIDENT BANK
December 8, 2008	By:	/s/ George Strayton
Date		George Strayton, President and
		Chief Executive Officer

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EX-21

Exhibit 21

Subsidiaries of the Registrant

The following is a list of the subsidiaries of Provident New York Bancorp:

Name	State of Incorporation
Hardenburgh Abstract Company of Orange County, Inc.	New York
High Barney Road LLC	New York
Hudson Valley Investment Advisors, LLC	Delaware
Provident Bank	United States of America
Provest Services Corp.	New York (inactive)
Provest Services Corp. I	New York
Provest Services Corp. II	New York
Provident REIT, Inc.	New York
Provident Municipal Bank	New York
Warsave Development Co.	New York
WSB Funding, Inc.	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-123089, 333-123079, 333-112171, 333-153276 of Provident New York Bancorp, on Form S-8 and Registration Statement No. 333-125855 of Provident New York Bancorp, on Form S-3D of our reports dated December 10, 2008, with respect to the consolidated financial statements of Provident New York Bancorp, and the effectiveness of internal control over financial reporting, which reports appear in this Annual Report on Form 10-K of Provident New York Bancorp for the year ended September 30, 2008.

/s/ Crowe Horwath LLP

Livingston, New Jersey

December 10, 2008

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Provident New York Bancorp:

We consent to the incorporation by reference in the annual report on Form 10-K of Provident New York Bancorp and subsidiaries of our report dated December 11, 2006 relating to the consolidated statements of income, changes in stockholders’ equity and cash flows of Provident New York Bancorp and subsidiaries for the year ended September 30, 2006 , which report appears in the September 30, 2008 annual report on Form 10-K of Provident New York Bancorp and subsidiaries.

/s/ KPMG LLP

New York, New York

December 13, 2008

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

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

I, George Strayton, certify that:

1. I have reviewed this Annual Report on Form 10-K 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:	December 11, 2008	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

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

I, Paul A. Maisch, certify that:

1. I have reviewed this Annual Report on Form 10-K 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:	December 11, 2008	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Principal Executive Officer and Principal Financial Officer

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

George Strayton, Chief Executive Officer and Paul A. Maisch, Chief Financial Officer of Provident New York Bancorp (the “Company”) each certify in his capacity as an officer of the Company that he has reviewed the Annual report on Form 10-K for the year ended September 30, 2008 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:	December 11, 2008	By:	/s/ George Strayton
			George Strayton
			President, Chief Executive Officer and Director
			(Principal Executive Officer)
Date:	December 11, 2008	By:	/s/ Paul A. Maisch
			Paul A. Maisch
			Executive Vice President
			Chief Financial Officer
			Principal Accounting Officer
			(Principal Financial Officer)

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