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, 2011

OR

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

For the transition period from                     to                     

Commission File Number: 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 seasoned 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files)   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	¨	Smaller Reporting Company	¨

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

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, 2011 was $343,678,848.

As of December 5, 2011 there were outstanding 37,883,008 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, 2011.

PROVIDENT NEW YORK BANCORP

FORM 10-K TABLE OF CONTENTS

September 30, 2011

PART I
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	35
ITEM 1B.	Unresolved Staff Comments	41
ITEM 2.	Properties	41
ITEM 3.	Legal Proceedings	41
ITEM 4.	Removed and Reserved	41
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
ITEM 6.	Selected Financial Data	44
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	64
ITEM 8.	Financial Statements and Supplementary Data	65
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	128
ITEM 9A.	Controls and Procedures	128
ITEM 9B.	Other Information	128
PART III
ITEM 10.	Directors, Executive Officers, and Corporate Governance	129
ITEM 11.	Executive Compensation	129
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	129
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	129
ITEM 14.	Principal Accountant Fees and Services	129
PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	130
SIGNATURES		133

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, 2011, Provident Bancorp had, on a consolidated basis, assets of $3.1 billion, deposits of $2.3 billion and stockholders’ equity of $431.1 million. As of September 30, 2011, Provident Bancorp had 37,864,008 shares of common stock outstanding.

Provident Bank

Provident Bank, an independent, full-service bank founded in 1888, is headquartered in Montebello, New York and is the principal bank subsidiary of Provident Bancorp. With $3.1 billion in assets and 513 full-time equivalent employees, Provident Bank accounts for substantially all of Provident Bancorp’s consolidated assets and net income. We operate 37 full servicing banking offices consisting of 30 retail branches and 7 commercial banking centers which serve the Hudson Valley region. There are 13 offices located in Rockland, New York, 14 offices in Orange County, New York, 8 offices in contiguous Sullivan, Ulster, Westchester and Putnam Counties in New York, and two offices in Bergen County, New Jersey which operate under the name PBNY 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. Additionally, the Company announced on October 31, 2011 its intention to expand into New York City, with the employment of a market area president and intends to staff a commercial banking center with several teams of relationship bankers servicing middle market clients commercial business.

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 Corporation 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. The activities of these subsidiaries have had an insignificant effect on our consolidated financial condition and results of operations to date. Provident REIT, Inc. and WSB Funding are subsidiaries in the form of real estate investment trusts and hold commercial real estate loans. Also, the Bank maintains several corporations which hold foreclosed properties acquired by Provident Bank.

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, 400 Rella Boulevard, Montebello, New York 10901, Attention: Miranda Grimm. Provident Bank’s website is not part of this Annual Report on Form 10-K.

Non-Bank Subsidiaries

In addition to Provident Bank, the Company owns Hardenburgh Abstract Company, Inc. (“Hardenburgh”) that was acquired in connection with the acquisition of Warwick Community Bancorp (“WSB”) and Hudson Valley Investment Advisors, LLC, an investment advisory firm that generates investment management fees. Hardenburgh had gross revenue from title insurance policies and abstracts of $1.2 million and net income of

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$220,000 in 2011, Hudson Valley Investment Advisors, LLC generated $2.4 million in fee income in 2011 and net income of $276,000 and Provident Risk Management, Inc. a captive insurance company, generated $1.2 million in intercompany revenues and $980,000 in net income.

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.

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

We operate 37 full servicing banking offices consisting of 30 retail branches and 7 commercial banking centers which serve the Hudson Valley region. There are 13 offices located in Rockland, New York, 14 offices in Orange County, New York, 8 offices in contiguous Sullivan, Ulster, Westchester and Putnam Counties in New York, and two offices in Bergen County, New Jersey which operate under the name PBNY 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. Additionally, the Company announced on October 31, 2011 its intention to expand into New York City, with the employment of a market area president and intend to staff a commercial banking center with several teams of relationship bankers servicing middle market client’s commercial business.

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, 2011, Provident Bank holds the #2 share of deposits in Rockland County and #3 share of deposits in Orange County, and overall has the combined #2 share of deposits in Rockland and Orange Counties, New York.

Management Strategy

We operate as an independent 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, especially transaction accounts and quality loan growth with emphasis on growing commercial loan balances which provides a favorable platform for long-term sustainable growth. We seek to maintain a disciplined pricing strategy on deposit generation that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs. Imperatives for the Company will be to grow revenue and earnings by expanding client acquisitions, continuing to improve credit metrics and to significantly improve efficiency levels. To achieve these goals we will focus on high value client

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segments, expand delivery channels and distribution to increase client acquisitions, execute effectively by creating a highly productive performance culture, reduce operating costs, and to proactively manage enterprise risk. Highlights of management’s business strategy are as follows:

Operating within a defined market. As an independent 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. 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. Initiated in 2006, our Service Excellence Program is an active part of the culture of the bank, 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 provide our residential mortgage and consumer lending services. 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. We have currently deemphasized acquisition and development lending for residential housing development of single family homes, as this area has been the most affected by the economy of the region.

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 drives a lower 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. Recent expansion efforts have been focused on the greater New York area through the addition of commercial teams. We intend to concentrate on certain segments of the market, in particular focusing on business with revenues of $5 million to $100 million, small business with revenues of $500,000 to $5 million and financially savvy families.

Lending Activities

General. The loans we originate in our general market are; primarily commercial real estate loans, multifamily real estate, commercial business loans, and are deemphasizing acquisition, development and construction loans (“loan portfolio”). We also originate loans in our market area on a fixed-rate and adjustable-rate (“ARM”) basis 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.

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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 assisted living and nursing homes, churches, mobile home parks, restaurants and motel/hotels. We may, from time to time, purchase commercial real estate loan participations. Recently we began seeking multifamily properties to diversify the portfolio. We target commercial real estate loans with initial principal balances between $1.0 million and $15.0 million. At September 30, 2011, loans secured by commercial real estate totaled $703.4 million, or 41.4% of our total loan portfolio and consisted of 982 loans outstanding, although there are a large number of loans with balances substantially greater than the 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 up to ten years. Amortization on these loans is typically based on 25-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 minimum 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 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.

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 typically involve significant 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 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, 2011, we had 1,871 commercial business loans outstanding with an aggregate balance of $209.9 million, or 12.3% of the total loan portfolio. As of September 30, 2011, the average commercial business loan balance was approximately $111,800, although there are a large number of loans with balances substantially greater than this average.

Commercial credit decisions are based on 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 $100,000, we use a modified credit scoring system that enables us to process the loan requests more quickly and efficiently.

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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 that are fully amortizing with monthly or bi-weekly loan payments. This portfolio totaled $389.8 million, or 22.9% of our total loan portfolio at September 30, 2011.

One- to four-family residential mortgage loans are generally underwritten according to Fannie Mae and Freddie Mac guidelines for loans they designate as acceptable for purchase. Loans that conform to such guidelines are referred to as “conforming loans.” We generally originate fixed-rate 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 or higher in certain areas as determined by the Federal Housing Finance Agency. Private mortgage insurance is generally required for loans with loan-to-value ratios in excess of 80%. In order to reduce exposure to rising interest rates, we sold or securitized a portion of conforming fixed rate 1-4 family residential loans originated, totaling $52.5 million and $49.0 million in proceeds for the fiscal years ending September 30, 2011 and 2010, respectively.

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. These loans are generally intended to be held in our portfolios.

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, 2011, bi- weekly loans totaled $89.5 million, or 23% 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, 2011, loans serviced for others, excluding loan participations, totaled $173.8 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 resets 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, 2011, our ARM portfolio included $2.2 million in loans that re-price every six months, $42.5 million in loans that re-price once a year, $19.1 million in loans that re-price periodically after an initial fixed-rate period of one year or more and $429,000 that re-price 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, i.e., loans to borrowers with subprime credit scores combined with either high loan-to-value or high debt-to-income ratios.

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

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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 first mortgage loans are required to have a mortgage escrow account from which disbursements are made for real estate taxes and for hazard and flood insurance.

Acquisition, Development and Construction Loans. Historically, we originated land acquisition, development and construction (“ADC”) loans to builders in our market area. In the past year, we have deemphasized this lending due to the economic slow down and declines in the real estate market. Effective August 2011, our policy is to consider acquisition or development loans only on an exception basis. These loans totaled $175.9 million, or 10.3% of our total loan portfolio at September 30, 2011, a decline of $55.3 million as we have de-emphasized this business. 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 mainly 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 limited approval of soft costs. In general, we do not originate loans with interest reserves. A portion of our ADC loans acquired through the purchase of participations do carry interest reserves. The total of these ADC participation loans with interest reserves at September 30, 2011 were $12.6 million. Advances are made in accordance with a schedule reflecting the cost of the improvements.

We also make construction loans to area builders which are not affected by our new policy. 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 except in cases of owner occupied construction loans. Owner occupied commercial construction loans totaled $6.9 million at September 30, 2011. In 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. Collateral coverage and risk profile is maintained by restricting the number of model or speculative units in each project.

ADC lending exposes us to greater credit risk than permanent mortgage financing. The repayment of ADC 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. In recent years as a result of the economic downturn, most projects have performed behind schedule, requiring the borrowers to carry these projects for a longer period than was originally contemplated when we approved the credit facilities. As a result many of the borrowers have been utilizing other sources to maintain debt service or have been unable to maintain debt service requirements. As of September 30, 2011 $11.7 million of acquisition and development loans are being amortized from outside sources of cash flow.

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, 2011, consumer loans totaled $224.8 million, or 13.1% of the total loan portfolio.

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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 secured by junior liens on residential properties. As of September 30, 2011, homeowner loans totaled $41.0 million or 2.4% of our total loan portfolio. The disbursed portion of home equity lines of credit totaled $174.5 million, or 10.2% of our total loan portfolio at September 30, 2011, with $129.0 million remaining undisbursed.

Other consumer loans include personal loans and loans secured by new or used automobiles. As of September 30, 2011, these loans totaled $9.3 million, or less than 1% 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 include 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 included above totaled $4.2 million with additional undrawn lines totaling $14.2 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 an 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. Loans secured by junior liens have been more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy than a single family mortgage loan.

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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,
	2011						2010						2009						2008						2007
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(Dollars in thousands)
One-to four-family residential mortgage loans	$	389,765			22.9	%	$	434,900			25.5	%	$	460,728			27.0	%	$	513,381			29.6	%	$	500,825			30.6
Commercial real estate loans		703,356			41.4			579,232			34.0			546,767			32.6			554,811			32.0			535,003			32.8
Commercial business loans		209,923			12.3			217,927			12.8			242,629			14.2			243,642			14.1			207,156			12.6
Acquisition, development, construction		175,931			10.3			231,258			13.6			201,611			11.4			170,979			9.9			153,074			9.3
Total commercial loans		1,089,210			64.0			1,028,417			60.4			991,007			58.2			969,432			56.0			895,233			54.7
Home equity lines of credit		174,521			10.2			176,134			10.4			180,205			10.6			166,491			9.6			162,669			9.9
Homeowner loans		40,969			2.4			48,941			2.9			54,941			3.2			58,569			3.4			59,705			3.6
Other consumer loans		9,334			0.5			13,149			0.8			16,376			1.0			23,680			1.4			19,626			1.2
Total consumer loans		224,824			13.1			238,224			14.1			251,522			14.8			248,740			14.4			242,000			14.7
Total loans		1,703,799			100.0	%		1,701,541			100.0	%		1,703,257			100.0	%		1,731,553			100.0	%		1,638,058			100.0
Allowance for loan losses		(27,917	)					(30,843	)					(30,050	)					(23,101	)					(20,389	)
Total loans, net	$	1,675,882					$	1,670,698					$	1,673,207					$	1,708,452					$	1,617,669

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2011. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Weighted average rates are computed based on the rate of the loan at September 30, 2011.

	Residential Mortgage					Commercial Real Estate					Commercial Business					ADC					Consumer					Total
	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)
Due During the Years Ending September 30,
2012	$	7,097		4.44	%	$	30,413		5.20	%	$	56,728		4.09	%	$	119,055		4.48	%	$	1,800		5.92	%	$	215,093		4.49	%
2013 to 2016		24,016		5.06			255,305		5.66			85,200		4.59			50,289		4.23			10,838		8.45			425,648		5.31
2016 and beyond		358,652		5.40			417,638		5.61			67,995		4.49			6,587		3.20			212,186		4.67			1,063,058		5.26
Total	$	389,765		5.56	%	$	703,356		5.60	%	$	209,923		4.42	%	$	175,931		4.14	%	$	224,824		4.87	%	$	1,703,799		5.20	%

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The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2011 that are contractually due after September 30, 2012.

	Fixed		Adjustable		Total
	(Dollars in thousands)
Residential mortgage loans	$	323,446	$	59,222	$	382,668
Commercial real estate loans		293,956		378,987		672,943
Commercial business loans		47,962		105,233		153,195
ADC		1,838		55,038		56,876
Total commercial loans		343,756		539,258		883,014
Consumer loans		53,677		169,347		223,024
Total loans	$	720,879	$	767,827	$	1,488,706

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, commercial banking officers, 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, which typically result in decreased loan demand, while declining interest rates may stimulate increased loan demand. 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. We also hold no subprime loans through our investment portfolio.

During fiscal year 2011, $3.0 million in loans were sold as participation certificates whereby such loans were retained as mortgage backed securities guaranteed by Freddie Mac. In addition we sold $49.5 million as whole loans to Freddie Mac. 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. The Board of Directors has established the Credit Risk Committee (the “CRC”) to oversee the lending functions of the Bank. The CRC reviews loans approved by the Bank’s Management Credit Committee, oversees the performance of the Bank’s loan portfolio and its various components, assists in the development of strategic initiatives to enhance portfolio performance, and considers matters for approval and recommendation to the Board of Directors.

The Management Credit Committee (the “MCC”) consists of the President and Chief Executive Officer, Chief Risk Officer, Chief Credit Officer, and other senior lending personnel. The MCC is authorized to approve loans within the existing policy limits established by the Board. For loans that contain any policy exception but are nonetheless deemed desirable, the MCC may recommend approval to the CRC, which in turn may recommend approval to the Board.

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The MCC may also authorize lending authority to individual Bank officers for both single and dual initial approval authority. The maximum single initial authority for commercial loans is $50,000 ($100,000 for credit-scored small business loans); and for other consumer loans, primarily equity loans, $100,000. All residential lending authority requires dual signatures. Two loan officers with sufficient authority acting together may approve loans up to $1 million.

We have established a risk rating system for our commercial business loans, commercial and multi-family real estate loans, and ADC 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 four categories. The maximum for the best-rated borrowers is $20 million, $15 million for the next group of borrowers, $12 million for the third group and $6 million for the last group. Sub-limits 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 of the Credit Risk Committee or Management credit 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 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 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 $308,000 at September 30, 2011.

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 $1.5 million are included in other assets at September 30, 2011. See also Notes 2 and 5 of the “Notes to Consolidated Financial Statements”.

Loans to One Borrower. At September 30, 2011, 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 $22.5 million, $19.5 million, $17.6 million, $16.6 million and $16.0 million. See “Regulation — Regulation of Provident Bank — Loans to One Borrower” for a discussion of applicable regulatory limitations.

Delinquent Loans, Troubled Debt Restructure, Impaired 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 seek 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,

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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. Appraisals are performed at least annually on criticized/classifieds loans. At September 30, 2011, we had non-accrual loans of $36.5 million and $4.1 million of loans 90 days past due and still accruing interest, which were well secured and in the process of collection. At September 30, 2010 we had non-accrual loans of $21.4 million and $5.4 million of loans 90 days past due and still accruing interest.

Impaired Loans. A loan is impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans 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. Impaired loans substantially consist of non-performing loans and accruing and performing troubled debt restructured loans. At September 30, 2011, we had $55.0 million in impaired loans with $3.8 million in specific allowances.

Other Real Estate Owned. 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, 2011 we had 17 foreclosed properties with a recorded balance of $5.4 million. In addition, $9.8 million in loan balances was considered troubled debt restructures which are still accruing interest income.

Troubled Debt Restructure. The Company may modify loans to certain borrowers who are experiencing financial difficulty. If the terms of the modification include a concession, as defined by US GAAP guidance, the loan as modified is considered a trouble debt restructuring (“TDR”). Nearly all these loans are secured by real estate. Total TDR’s were $17.6 million at September 30, 2011, of which $7.8 million were classified as nonaccrual and $9.1 million were performing according to terms and still accruing interest income. TDR’s still accruing interest income were modified for a troubled borrower, who was still performing in accordance with the terms of their loan. The majority of TDR’s consisted of four relationships totaling $8.0 million, $3.6 million, $1.0 million and $853,000 respectively. Included in the total of $13.5 million of these four relationships are $6.6 million of non performing loans. The loan modifications included actions such as extension of maturity date or the lowering of interest rates and monthly payments. The amount of commitments to lend borrowers with loans that have been modified is $4.2 million at September 30, 2011. The commitments to lend on the restructured debt is contingent on clear title and a third party inspection to verify completion of work and is associated with loans that are considered to be performing.

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

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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 and are charged off. 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, designated as “special mention”. As of September 30, 2011, we had $23.0 million of assets designated as “special mention”.

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, 2011, classified assets consisted of substandard assets of $94.0 million and there were not any classified as doubtful.

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

	Loans Delinquent For
	30-89 Days				90 Days & over still accruing & non- accrual				Total
	Number		Amount		Number		Amount		Number		Amount
	(Dollars in thousands)
At September 30, 2011
Real estate — residential mortgage		8	$	1,212		40	$	7,976		48	$	9,188
Real estate — commercial mortgage		4		1,105		18		9,655		22		10,760
Real estate — commercial mortgage (CBL)		—		—		16		3,559		16		3,559
Commercial business loans		2		490		2		168		4		658
Commercial business loans (CBL)		—		—		1		75		1		75
Acquisition, development & construction loans		4		4,265		24		16,984		28		21,249
Consumer, including home equity loans		20		794		26		2,150		46		2,944
Total		38	$	7,866		127	$	40,567		165	$	48,433
At September 30, 2010
Real estate — residential mortgage		1	$	113		36	$	8,033		37	$	8,146
Real estate — commercial mortgage		4		1,469		26		9,857		30		11,326
Commercial business loans		2		3,403		6		1,376		8		4,779
Acquisition, development & construction loans		2		6,681		11		5,730		13		12,411
Consumer, including home equity loans		27		681		22		1,844		49		2,525
Total		36	$	12,347		101	$	26,840		137	$	39,187
At September 30, 2009
Real estate — residential mortgage		2	$	390		32	$	7,357		34	$	7,747
Real estate — commercial mortgage		2		398		24		6,803		26		7,201
Commercial business loans		18		999		8		457		26		1,456
Acquisition, development & construction loans		1		366		20		11,270		21		11,636
Consumer, including home equity loans		22		494		13		582		35		1,076
Total		45	$	2,647		97	$	26,469		142	$	29,116
At September 30, 2008
Real estate — residential mortgage		19	$	4,106		19	$	4,218		38	$	8,324
Real estate — commercial mortgage		8		1,666		12		3,832		20		5,498
Commercial business loans		29		1,318		35		2,811		64		4,129
Acquisition, development & construction loans		—		—		9		5,596		9		5,596
Consumer, including home equity loans		43		435		41		421		84		856
Total		99	$	7,525		116	$	16,878		215	$	24,403
At September 30, 2007
Real estate — residential mortgage		28	$	4,829		15	$	1,899		43	$	6,728
Real estate — commercial mortgage		31		3,387		8		2,586		39		5,973
Commercial business loans		9		357		19		1,683		28		2,040
Acquisition, development & construction loans		—		—		2		689		2		689
Consumer, including home equity loans		49		835		30		401		79		1,236
Total		117	$	9,408		74	$	7,258		191	$	16,666

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Risk elements. The table below sets forth the amounts and categories of our assets with various risk levels at the dates indicated.

	September 30,
	2011			2010			2009			2008			2007
	Non- Accrual			Non- Accrual			Non- Accrual			Non- Accrual			Non- Accrual
Non-performing loans:
Real estate — residential mortgage	$	7,485		$	6,080		$	4,425		$	1,731		$	—
Real estate — commercial mortgage		8,016			6,886			5,826			3,100			1,099
Real estate — commercial mortgage (CBL)		3,209			—			—			—			—
Commercial business loans		168			1,376			457			2,811			1,637
Commercial business loans CBL)		75			—			—			—			—
Acquisition, land and development		16,538			5,730			10,830			5,596			644
Consumer, including home equity loans		986			1,341			371			351			129
Accruing loans past due 90 days or more		4,090			5,427			4,560			3,289			3,749
Total non-performing loans	$	40,567		$	26,840		$	26,469		$	16,878		$	7,258
Foreclosed properties		5,391			3,891			1,712			84			139
Total non-performing assets	$	45,958		$	30,731		$	28,181		$	16,962		$	7,397
Troubled Debt Restructures still accruing and not included above	$	8,470		$	16,047		$	674		$	—		$	—
Ratios:
Non-performing loans to total loans		2.38	%		1.58	%		1.55	%		0.97	%		0.44	%
Non-performing assets to total assets		1.46	%		1.02	%		0.93	%		0.57	%		0.26	%

For the year ended September 30, 2011, 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 $1.8 million. Interest income actually recognized on such loans totaled $1.1 million.

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;

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• 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.

Land acquisition, development and construction lending is considered higher risk and 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. We have deemphasized this type of loan.

Commercial real estate loans subject us to the risks that the property securing the loan may not generate sufficient cash flow to service the debt or the borrower may use the cash flow for other purposes. In addition, the foreclosure process, if necessary may be slow and properties may deteriorate in the process. The market values are also subject to a wide variety of factors, including general economic conditions, industry specific factors, environmental factors, interest rates and the availability and terms of credit.

Commercial business lending is also higher risk because repayment depends on the successful operation of the business which is subject to a wide range of risks and uncertainties. In addition, the ability to successfully liquidate collateral, if any, is subject to a variety of risks because we must gain control of assets used in the borrower’s business before foreclosing which we cannot be assured of doing, and the value in a foreclosure sale or other means of liquidation is subject to downward pressure.

When we evaluate residential mortgage loans and equity loans we weigh both the credit capacity of the borrower and the collateral value of the home. As unemployment and underemployment increases, and liquidity reserves if any, diminish, the credit capacity of the borrower decreases, which increases our risk. Also, after a period of years of stable or increasing home values in our market, home prices have declined from a high in 2005 and 2006. We are exposed to risk in both our first mortgage and equity lending programs due to declines in values in recent years. We are also exposed to risk because the time to foreclose is significant and has become longer under current conditions.

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.

	2011			2010			2009			2008			2007
Balance at beginning of year	$	30,843		$	30,050		$	23,101		$	20,389		$	20,373
Charge-offs:
Real estate — residential mortgage		(2,140	)		(749	)		(461	)		(97	)		—
Real estate — Commercial mortgage		(819	)		(416	)		(669	)		(627	)		—
Real estate — Commercial mortgage (CBL) ¹		(983	)		(571	)		(233	)		—			—
Commercial business loans		(366	)		(1,666	)		(601	)		(3,596	)		(2,164	)
Commercial business loans (CBL) ¹		(5,034	)		(4,912	)		(6,670	)		—			—
Acquisition Development & Construction loans		(8,939	)		(848	)		(1,515	)		—			—
Consumer, including home equity loans		(1,989	)		(1,168	)		(1,140	)		(609	)		(329	)
		(20,270	)		(10,330	)		(11,289	)		(4,929	)		(2,493	)
Recoveries:
Real estate — residential mortgage		15			3			2			—			—
Real estate — Commercial mortgage		2			8			—			—			—
Real estate — Commercial mortgage (CBL) ¹		—			15			—			—			—
Commercial business loans		232			306			80			291			581
Commercial business loans (CBL) ¹		373			364			169			—			—
Acquisition Development & Construction loans		10			261			200			—			—
Consumer, including home equity loans		128			166			187			150			128
		760			1,123			638			441			709
Net charge-offs		(19,510	)		(9,207	)		(10,651	)		(4,488	)		(1,784	)
Provision for loan losses		16,584			10,000			17,600			7,200			1,800
Balance at end of year	$	27,917		$	30,843		$	30,050		$	23,101		$	20,389
Ratios:
Net charge-offs to average loans outstanding		1.17	%		0.56	%		0.62	%		0.28	%		0.12	%
Allowance for loan losses to non-performing loans		69	%		115	%		114	%		137	%		281	%
Allowance for loan losses to total loans		1.64	%		1.81	%		1.76	%		1.33	%		1.24	%

¹ Community Business Loan (CBL) information is not available for 2008 and 2007

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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,
	2011							2010							2009
	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)
Real estate — residential mortgage	$	3,498	$	389,765		22.88	%	$	2,641	$	434,900		25.55	%	$	3,106	$	460,728		27.04	%
Real estate — commercial mortgage		4,533		610,379		35.82	%		5,060		481,632		28.31	%		4,824		460,649		27.05	%
Real estate — commercial mortgage (CBL)		1,035		92,977		5.46	%		855		97,599		5.74	%		2,871		86,118		5.06	%
Commercial business loans		1,331		134,399		7.89	%		3,262		125,766		7.39	%		3,917		142,908		8.39	%
Commercial business loans (CBL)		4,614		75,524		4.43	%		5,708		92,162		5.42	%		5,011		99,721		5.85	%
Acquisition, development & construction		9,895		175,931		10.33	%		9,752		231,258		13.59	%		7,680		201,611		11.84	%
Consumer, including home equity loans		3,011		224,824		13.19	%		3,565		238,224		14.00	%		2,641		251,522		14.77	%
Total	$	27,917	$	1,703,799		100.00	%	$	30,843	$	1,701,541		100.00	%	$	30,050	$	1,703,257		100.00	%

	September 30,
	2008							2007
	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)
Real estate — residential mortgage	$	1,494	$	513,381		29.60	%	$	668	$	500,825		30.60	%
Real estate — commercial mortgage		5,793		554,811		32.00	%		8,157		535,003		32.70	%
Commercial business loans		7,051		243,642		14.10	%		5,223		207,156		12.60	%
Acquisition, development & construction		6,841		170,979		9.90	%		4,743		153,074		9.30	%
Consumer, including home equity loans		1,922		248,740		14.40	%		1,598		242,000		14.80	%
Total	$	23,101	$	1,731,553		100.00	%	$	20,389	$	1,638,058		100.00	%

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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 notes, 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. 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.

FASB ASC Topic #320, Investments, Debt and Equity securities 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. Excluding mortgage backed securities and CMO’s management sold $325.7 million at amortized cost in investment securities and realized net gains of $5.4 million the market yields associated with the securities sold were below levels management believed justifying retaining such securities.

Government and Agency Securities. At September 30, 2011, we held government and agency securities available for sale with a fair value of $204.6 million, consisting primarily of agency obligations with maturities of more than one year through ten years. In addition, we held $30.0 million in government and agency securities as held to maturity at amortized cost. 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 and municipal deposits.

Corporate and Municipal Bonds and Notes. At September 30, 2011, we held $17.1 million in corporate debt securities. Corporate bonds 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 at time of purchase, and to a total investment of no more than $2.0 million per issuer and a total corporate bond portfolio limit of 5% of assets. 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 at the time of purchase, and favors issues that are insured, however we also purchase securities that are issued by local government entities within our service area. Such local entity obligations generally are not rated, and are subject to internal credit reviews. In addition, the policy generally imposes an investment limitation of $5.0 million per municipal issuer

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and a total municipal bond portfolio limit of 10% of assets. At September 30, 2011, we held $207.3 million in bonds issued by states and political subdivisions, $18.6 million of which were classified as held to maturity at amortized cost and are mainly unrated and $188.7 million of which were classified as available for sale at fair value. At September 30, 2011 we did not hold any obligations that were rated less than “A” as available for sale.

Equity Securities. At September 30, 2011, our equity securities available for sale had a fair value of $1.2 million. We also held $17.6 million (at cost) of Federal Home Loan Bank of New York (“FHLBNY”) common stock, a portion of which must be held as a 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, 2011 amounted to $1.1 million. We held no preferred shares of Freddie Mac or Fannie Mae for the year ended September 30, 2011. We also held no “auction rate securities” or “pooled trust preferred securities” during the year ended September 30, 2011. We held approximately $837,000 in fair value of equity securities in a local bank. We recorded $278,000 in other than temporary impairment as the fair value of these securities has been less that original cost for a period of over two years

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 and income tax purposes. We invest primarily in mortgage-backed securities issued or sponsored by Freddie Mac, and Fannie 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, 2011, our mortgage-backed securities portfolio totaled $381.2 million, consisting of $328.3 million available for sale at fair value and $60.0 million held to maturity at amortized cost. The total mortgage-backed securities portfolio includes CMOs of $108.2 million, consisting of $82.4 million available for sale at fair value and $25.8 million held to maturity at amortized cost. Within this total, $5.4 million at amortized cost and $4.9 million fair value were issued by private issuers, including $1.9 million at amortized cost below investment grade, to which we have recorded $75,000 in other than temporary impairment.

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. As a result of our reviews, we anticipated an acceleration of prepayments. Management sold $204.8 million in mortgage backed securities, including CMO’s, at amortized cost and realized $4.6 million in net gains on the sales. Such proceeds were reinvested in securities with yields which were lower than the recorded yields of the securities sold and a more diversified risk profile.

A portion of our mortgage-backed securities portfolio is invested in CMOs, 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

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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.

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

	September 30,
	2011				2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Investment Securities:
U.S. Government securities	$	—	$	—	$	71,071	$	72,293	$	20,893	$	21,076
Federal agency obligations		199,741		204,648		344,154		346,019		186,301		186,700
Corporate Bonds		16,984		17,062		29,406		30,540		25,245		25,823
State and municipal securities		177,666		188,684		180,879		191,657		158,007		167,584
Equity securities		1,192		1,192		1,146		889		1,145		885
Total investment securities available for sale		395,583		411,586		626,656		641,398		391,591		402,068
Mortgage-Backed Securities:
Pass-through securities:
Fannie Mae		136,699		139,991		149,084		153,188		238,723		243,063
Freddie Mac		98,511		100,675		56,632		58,452		92,885		94,506
Ginnie Mae		4,973		5,180		9,047		9,315		26,586		26,929
CMOs and REMICs		81,170		82,412		38,338		38,659		66,784		66,017
Total mortgage-backed securities available for sale		321,353		328,258		253,101		259,614		424,978		430,515
Total securities available for sale	$	716,936	$	739,844	$	879,757	$	901,012	$	816,569	$	832,583

At September 30, 2011, our available for sale federal agency securities portfolio, at fair value, totaled $204.6 million, or 6.5% of total assets. Of the federal agency portfolio, based on amortized cost, none had maturities of one year or less, and $199.7 million had maturities of between one and ten years and a weighted average yield of 1.89%. The agency securities portfolio currently includes both callable debentures and non callable debentures.

At September 30, 2011, our available for sale state and municipal notes securities portfolio, at fair value totaled $188.7 million or 6.0% of total assets. Of the state and municipal note securities portfolio, based on amortized cost, had $4.4 million in securities with a final maturity of one year or less and a weighted average yield of 2.01%; $10.9 million maturing in one to five years with a weighted average yield of 3.3%; $116.5 million maturing in five to ten years with a weighted average yield of 3.54% and $45.9 million maturing in greater than ten years with a weighted average yield of 4.14%. Equity securities available for sale at September 30, 2011 had a fair value of $1.2 million.

At September 30, 2011, $328.3 million of our available for sale mortgage-backed securities, at fair value, consisted of pass-through securities, which totaled 10.5% of total assets and $82.4 million of CMO securities, at fair value. The total amortized cost of these pass- through securities was $240.2 million and consisted of $136.7 million, $98.5 million and $5.0 million of Fannie Mae, Freddie Mac and Ginnie Mae mortgage backed securities, respectively, with respective weighted averages yields of 2.76%, 2.82% and 2.89%. At the same date, the fair

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value of our available for sale CMO portfolio totaled $82.4 million, or 2.6% of total assets, and consisted of CMOs issued by government sponsored agencies such as Fannie Mae, Freddie Mac and $5.4 million sold by private party issuers. The amortized cost of these CMOs result in a weighted average yield of 2.38%. We own both fixed-rate and floating-rate CMOs. The underlying mortgage collateral for our portfolio of CMOs available for sale at September 30, 2011 had contractual maturities of over five 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.

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

	September 30,
	2011				2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Investment Securities:
Federal agencies	$	29,973	$	29,857	$	—	$	—	$	—	$	—
State and municipal securities		18,583		19,691		27,879		28,815		37,162		38,055
Other		1,500		1,539		1,000		1,038		1,000		1,034
Total investment securities held to maturity		50,056		51,087		28,879		29,853		38,162		39,089
Mortgage-Backed Securities:
Pass-through securities:
Fannie Mae		1,298		1,361		1,835		1,931		2,713		2,823
Freddie Mac		32,858		32,841		2,389		2,513		2,834		2,916
Ginnie Mae		—		—		16		17		45		45
CMOs and REMICs		25,828		25,983		729		748		860		866
Total mortgage-backed securities held to maturity		59,984		60,185		4,969		5,209		6,452		6,650
Total securities held to maturity	$	110,040	$	111,272	$	33,848	$	35,062	$	44,614	$	45,739

At September 30, 2011, our held to maturity federal agency securities portfolio, at amortized cost, totaled $30.0 million, or 1.0% of total assets. Of the federal agency portfolio, based on amortized cost, none had maturities of five years or less, and $30.0 million had maturities of between five and ten years and a weighted average yield of 2.019%. The agency securities portfolio currently includes only callable debentures.

State and municipal securities totaled $18.6 million at amortized cost (primarily unrated obligations) and consisted of $5.8 million, with a final maturity of one year or less and a weighted average yield of 2.51%; $6.2 million, maturing in one to five years, with a weighted average yield of 3.53%; $3.0 million maturing in five to ten years, with a weighted average yield of 4.39% and $3.6 million, maturing in greater than ten years, with a weighted average yield of 4.48%.

At September 30, 2011, our held to maturity mortgage-backed securities portfolio totaled $60.0 million at amortized cost, consisting of: none with contractual maturities of one year or less, $223,000 with a weighted average yield of 5.15% and contractual maturities within five years, and $306,000 with a weighted average yield of 5.96% and contractual maturities of five to ten years and $59.5 million with a weighted average yield of 2.39% with contractual maturities of greater than ten years; CMOs of $25.8 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.

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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, 2011. 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. ($ in thousands)

	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	$	—		—	%	$	6,889		2.47	%	$	53,626		2.49	%	$	76,184		2.97	%	$	136,699	$	139,991		2.76	%
Freddie Mac		—		—			1,566		3.89			—		—			96,945		2.80			98,511		100,675		2.82
Ginnie Mae		—		—			—		—			—		—			4,973		2.88			4,973		5,180		2.89
CMOs and REMICs		—		—			—		—			411		4.43			80,759		2.37			81,170		82,412		2.38
Total		—		—			8,455		2.73			54,037		2.51			258,861		2.72			321,353		328,258		2.68
Investment Securities
U.S. Government and agency securities		—		—			169,766		1.84			29,975		2.15			—		—			199,741		204,648		1.89
Corporate		—		—			16,856		2.43			128		6.88			—		—			16,984		17,062		2.46
State and municipal		4,410		2.01			10,854		3.33			116,531		3.54			45,871		4.14			177,666		188,684		3.65
Total		4,410		2.01			197,476		1.97			146,634		3.26			45,871		4.14			394,391		410,394		2.70
Total debt securities available for sale	$	4,410		2.01	%	$	205,931		2.00	%	$	200,671		3.06	%	$	304,732		2.93	%	$	715,744	$	738,652		2.69	%
Held to Maturity:
Mortgage-Backed Securities
Fannie Mae	$	—		—	%	$	223		5.15	%	$	—		—	%	$	1,075		2.31	%	$	1,298	$	1,361		2.80	%
Freddie Mac		—		—			—		—			306		5.96			32,552		2.54			32,858		32,841		2.57
Ginnie Mae		—		—			—		—			—		—			—		—			—		—		—
CMOs and REMICs		—		—			—		—			—		—			25,828		2.21			25,828		25,983		2.21
Total		—		—			223		5.15			306		5.96			59,455		2.39			59,984		60,185		2.42
Investment Securities
U.S. Government and agency securities												29,973		2.01			—		—			29,973		29,857		2.01
State and municipal		5,813		2.51			6,196		3.53			2,982		4.39			3,592		4.48			18,583		19,691		3.53
Other		—		—			1,500		2.36			—		—			—		—			1,500		1,539		2.36
Total		5,813		2.51			7,696		3.30			32,955		2.23			3,592		4.48			50,056		51,087		2.59
Total debt securities held to maturity	$	5,813		2.51	%	$	7,919		3.35	%	$	33,261		2.26	%	$	63,047		2.51	%	$	110,040	$	111,272		2.50	%

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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. 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, 2011, our deposits totaled $2.3 billion. Interest-bearing deposits totaled $1.6 billion, and non-interest-bearing demand deposits totaled $651.2 million. NOW, savings and money market deposits totaled $1.3 billion at September 30, 2011. Also at that date, we had a total of $303.7 million in certificates of deposit, of which $250.8 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.

Management utilizes brokered deposits on a limited basis as a diversification of wholesale funding on an unsecured basis. Management maintains limits for the use of wholesale deposit and other short term funding in general less than 10% of total assets. Most of the brokered deposit funding maintained by the bank has a maturity to coincide with the anticipated inflows of deposits through municipal tax collections.

Listed below are the Company’s brokered deposits (in thousands):

	September 30, 2011		September 30, 2010
Money market	$	5,725	$	—
Reciprocal CDAR’s 1		2,746		7,889
CDAR’s one way		3,366		10,665
Total brokered deposits	$	11,837	$	18,554

¹  Certificate of deposit account registry service

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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,
	2011					2010					2009
	Amount		Percent			Amount		Percent			Amount		Percent
	(Dollars in thousands)
Demand deposits:
Retail	$	194,299		8.5	%	$	174,731		8.2	%	$	169,122		8.1	%
Commercial & municipal		456,927		19.8			355,126		16.6			323,112		15.5
Total demand deposits		651,226		28.3			529,857		24.8			492,234		23.6
Business & municipal NOW deposits		237,865		10.4			276,100		12.9			225,046		10.8
Personal NOW deposits		164,637		7.2			139,517		6.5			127,595		6.1
Savings deposits		429,825		18.7			392,321		18.3			357,814		17.2
Money market deposits		509,483		22.2			427,334		19.9			384,632		18.5
Subtotal		1,993,036		86.8			1,765,129		82.4			1,587,321		76.2
Certificates of deposit		303,659		13.2			377,573		17.6			494,961		23.8
Total deposits	$	2,296,695		100.0	%	$	2,142,702		100.0	%	$	2,082,282		100.0	%

As of September 30, 2011 and September 30, 2010 the Company had $614.8 million and $513.8 million, respectively, in municipal deposits. Of these amounts, $284.0 million and $219.0 million were deposits related to school district tax deposits due on September 30, 2011 and 2010, respectively, which we generally retain only for a short period. 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,
	2011							2010							2009
	Average Balance		Interest		Average Rate Paid			Average Balance		Interest		Average Rate Paid			Average Balance		Interest		Average Rate Paid
	(Dollars in thousands)
Non interest bearing deposits	$	472,388	$	—		—		$	429,655	$	—		—		$	380,571	$	—		—
NOW deposits		315,623		595		0.19	%		280,304		579		0.21	%		232,164		670		0.29	%
Savings deposits (1)		432,227		444		0.10	%		397,760		403		0.10	%		366,355		758		0.21	%
Money market deposits		489,347		1,595		0.33	%		419,152		1,456		0.35	%		374,507		2,707		0.72	%
Certificates of deposit		373,142		3,470		0.93	%		451,509		6,079		1.35	%		577,723		14,240		2.46	%
Total interest bearing deposits		1,610,339	$	6,104		0.38	%		1,548,725	$	8,517		0.55	%		1,550,749	$	18,375		1.18	%
Total deposits	$	2,082,727						$	1,978,380						$	1,931,320

⁽¹⁾  Includes club accounts and mortgage escrow balances

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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, 2011
	Period to Maturity													Total at September 30,
	Less than One Year		One to Two Years		Two to Three Years		More than Three Years		Total		Percent of Total			2010		2009
	(Dollars in thousands)
Interest Rate Range:
1.00% and below	$	233,780	$	10,134	$	978	$	885	$	245,777		80.9	%	$	285,923	$	150,138
1.01% to 2.00%		6,446		3,383		2,143		3,052		15,024		4.9	%		35,527		172,536
2.01% to 3.00%		4,783		1,024		4,450		6,585		16,842		5.5	%		21,261		72,483
3.01% to 4.00%		2,099		2,469		5,958		—		10,526		3.5	%		17,092		77,720
4.01% to 5.00%		3,465		5,482		6,055		—		15,002		4.9	%		17,115		21,439
5.01% to 6.00%		196		292		—		—		488		0.2	%		655		645
Total	$	250,769	$	22,784	$	19,584	$	10,522	$	303,659		100	%	$	377,573	$	494,961

Certificates of Deposit by Time to Maturity. The following table sets forth certificates of deposit by time remaining until maturity as of September 30, 2011.

	Maturity
	3 months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(Dollars in thousands)
Certificates of deposit less than $100,000	$	75,255	$	61,014	$	49,199	$	35,847	$	221,315
Certificates of deposit of $100,000 or more (¹)		30,821		17,336		17,144		17,043		82,344
	$	106,076	$	78,350	$	66,343	$	52,890	$	303,659

⁽¹⁾  The weighted interest rates for these accounts, by maturity period, are 0.46% for 3 months or less; 0.61% for 3 to 6 months; 0.79% for 6 to 12 months; and 2.85% for over 12 months. The overall weighted average interest rate for accounts of $100,000 or more was 1.06%

Short-term Borrowings. Our short-term borrowings (less than one year) consist of advances and overnight borrowings, and in 2011 includes $51.5 million of debt guaranteed by the FDIC maturing in February 2012. At September 30, 2011, we had access to additional Federal Home Loan Bank advances of up to an additional $200 million or more in overnight advances 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,
	2011			2010			2009
	(Dollars in thousands)
Balance at end of year	$	61,500		$	44,873		$	62,677
Average balance during year		55,098			91,442			91,985
Maximum outstanding at any month end		128,200			184,040			293,608
Weighted average interest rate at end of year		2.96	%		3.82	%		4.09	%
Weighted average interest rate during year		1.67	%		2.33	%		3.38	%

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,

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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. Although we have not done so in the past, 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, 2011, we had 465 full-time employees and 85 part-time employees. The employees are not represented by a collective bargaining unit and we consider our relationship with our employees to be good.

Regulation

General

As a savings and loan holding company, Provident Bancorp is supervised and regulated by the Board of Governors of the Federal Reserve System (“Federal Reserve”). Its federal savings bank subsidiary, Provident Bank, is supervised and regulated by the Office of the Comptroller of the Currency (“OCC”). As a state-chartered, FDIC-insured bank, Provident Municipal Bank is regulated by the New York State Department of Financial Services 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 is governed 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 Federal Reserve, OCC, FDIC, 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.

Certain federal banking laws have been amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). See “Regulation — Financial Reform Legislation” below. Among the more significant changes made by the Dodd-Frank Act, effective July 21, 2011, the Office of Thrift Supervision (“OTS”) ceased to exist as a separate entity and was merged into the OCC. The OCC has assumed the OTS’ role as primary federal regulator and supervisor of Provident Bank. The Federal Reserve has become the primary supervisor and regulator with respect to Provident Bancorp.

Some of the numerous governmental regulations to which Provident Bancorp and its subsidiaries are subject are summarized below. These summaries are not complete and you should refer to these laws and regulations for more information. 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,

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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 Federal Reserve has supervisory and enforcement authority over Provident Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve 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 section 4(k) of 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 incidentals 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 Federal Reserve Bank. 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 Federal Reserve Bank. In evaluating applications for acquisition, the Federal Reserve Bank 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.

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. OCC 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 Federal Reserve at least 30 days before Provident Bank’s Board of Directors declares a dividend. This notice may be disapproved if the Federal Reserve finds that:

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

• the proposed dividend raises safety and soundness concerns; or

• the dividend would violate a prohibition contained in any statute, regulation, enforcement action, or agreement with or condition imposed by an appropriate federal banking agency.

Provident Bank must file an application (rather than a notice) with the OCC 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, 2011, the maximum amount of dividends that could be declared by Provident Bank for fiscal year 2011, without regulatory approval, is net retained income for calendar year 2011, plus $8.5 million.

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Capital Requirements

As a federal savings association, Provident Bank is subject to OCC capital requirements. The OCC 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 OCC’s risk-based capital standards require a savings association to maintain a Tier 1 (core) capital to risk-weighted assets ratio of at least 4%, and a total (core plus supplementary) capital to risk-weighted assets ratio 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 intangible capital, 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 OCC capital regulation based on the risks inherent in the type of asset.

The OCC’s 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 OCC risk-based capital and leverage capital requirements described above.

The Dodd-Frank Act contains a number of provisions that affect the capital requirements applicable to Provident Bank and to Provident Bancorp, including the requirement that thrift holding companies be subject to consolidated capital requirements. See “Regulation — Financial Reform Legislation,” below. In addition, on September 12, 2010, the Basel Committee adopted the Basel III capital rules. These rules, which will be phased in over a period of years, set new standards for common equity, Tier 1 and total capital, determined on a risk-weighted basis. The impact on Provident Bank and Provident Bancorp of the Dodd-Frank requirements and the Basel III rules cannot be determined at this time.

The OCC, the FDIC and other federal banking agencies have 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 risk- based 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 “adequately capitalized” is, absent a waiver from the FDIC, prohibited from accepting or renewing brokered deposits. Any institution that is determined to be “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” is required to raise additional capital and may not accept or renew brokered deposits. In addition, numerous mandatory supervisory

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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, 2011, 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 $250,000 per ownership category of each separately-insured depositor. 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 $0.025 to $0.45 (not including the depository institution debt adjustment) per $100 of the institution’s assessment base, 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.

The Dodd-Frank Act also temporarily increases the maximum amount of federal deposit insurance coverage for non-interest bearing transaction accounts to an unlimited amount from December 31, 2010 through December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC deposit insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity of an insured depository institution. In addition, the Dodd-Frank Act raises the minimum designated reserve ratio, which the FDIC is required to set each year for the Deposit Insurance Fund, to 1.35% and requires that the Deposit Insurance Fund meets that minimum ratio by September 30, 2020. It eliminates the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. The FDIC is required to offset the effect of the increased reserve ratio for depository institutions with assets of less than $10 billion. The FDIC has issued regulations to implement these provisions of the Dodd-Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute. There is no implementation deadline for the 2% ratio.

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, 2011, the annualized FICO assessment was equal to $0.01 for each $100 of insured domestic deposits maintained at an institution.

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 (the “HOLA”) and the regulations of the OCC. 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 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. I, which holds an investment in a limited partnership that operates an assisted living facility; Provest Services Corp. II, a licensed insurance agency, which

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contracts with LPL Financial Corp. in order to offer annuities and insurance products to customers of Provident Bank. Provident Bank also controls Provident REIT, Inc. and WSB Funding Corp. to hold residential and commercial real estate loans and the Bank maintains several corporations which hold foreclosed properties acquired by Provident Bank. 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 Inc., a title insurance agency; Provident Risk Management Inc., a captive insurance company insuring Provident affiliated risk; and Hudson Valley Investment Advisors, LLC, an investment advisory firm are subsidiaries of Provident 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 up 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 immediately required to operate under specified restrictions.

At September 30, 2011, Provident Bank maintained approximately 72.3% 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. 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, 2011, 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 certain transactions must be collateralized with certain specified assets. The HOLA further prohibits 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 at least 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.

The Dodd-Frank Act imposes further restrictions on transactions with affiliates and extensions of credit to executive officers, director and principal shareholders, by, among other things, expanding the types of

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transactions covered by the law to include securities lending, repurchase agreement and derivatives activities with affiliates. These changes will become effective on July 21, 2012. See “Regulation — Financial Reform Legislation”.

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.

Enforcement. The OCC 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 OCC that enforcement action be taken with respect to a particular savings association. If action is not taken by the OCC, 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 OCC to help meet the credit needs of their communities, including low-and moderate-income neighborhoods, consistent with safe and sound operations. The OCC 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 OCC, as well as other federal regulatory agencies and the Department of Justice. Provident Bank received an “satisfactory” 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, 2011, 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;

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• Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinanced loans;

• 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.

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 committed to invest up to $250 billion in eligible institutions in the form of non-voting senior preferred stock. Treasury approved the purchase up to $58.4 million of Provident Bancorp non-voting preferred stock, but the Company decided not to participate in the program.

TLGP. Provident Bancorp and Provident Bank decided to opt-out of the TLGP effective July 1, 2010. As a result, Provident Bank’s non-interest-bearing transaction deposits accounts (such as business checking accounts), interest bearing transaction accounts, and IOLTA accounts were insured up to $250,000 from July 1, 2010 through December 30, 2010. From December 31, 2010 through December 31, 2012, non-interest bearing transaction accounts and IOLTA accounts are fully insured beyond the $250,000 limit under the Dodd-Frank Act. Beginning January 1, 2013, insurance coverage for non-interest bearing transaction accounts and IOLTA accounts will revert to the standard FDIC limit of $250,000.

In addition, the FDIC guaranteed all newly issued senior unsecured debt (e.g., promissory notes, unsubordinated unsecured notes and commercial paper) up to prescribed limits issued by participating entities between October 14, 2008 and October 31, 2009. For eligible debt issued by that date, the FDIC provides the guarantee coverage until the earlier of the maturity date of the debt or December 31, 2012. Provident Bank issued $51.5 million senior unsecured debt in a pooled security in February 2009. This debt matures in February 2012. Provident prepaid $1.00 of insurance premiums for each $100 (on a per annum basis) of debt that was guaranteed. Additionally, the FDIC previously established an emergency debt guarantee facility through April 30, 2010, through which institutions that are unable to issue non-guaranteed debt to replace maturing senior unsecured debt because of market disruptions or other circumstances beyond their control may apply on a case-by-case basis to issue FDIC-guaranteed senior unsecured debt. The FDIC guarantee of any debt issued under this emergency facility would expire the earlier of the maturity date or December 31, 2012, and the guarantee would be subject to an annualized assessment rate equal to a minimum of 300 basis points.

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Financial Reform Legislation

On July 21, 2010, the President signed the Dodd-Frank Act into law. This law is significantly changing the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies, including Provident Bancorp and Provident Bank. It requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Act may not be known for many months or years.

One change that has been particularly significant to Provident Bancorp and Provident Bank is the abolition of the OTS, their historical federal financial institution regulator, on July 21, 2011. Supervision and regulation of Provident Bancorp has moved to the Federal Reserve and supervision and regulation of Provident Bank has moved to the OCC. The HOLA remains the main statute applicable to Provident Bancorp and Provident Bank, but it has been amended by the Dodd-Frank Act, as described below and by the implementing regulations that are being amended and interpreted by the Federal Reserve and the OCC, respectively.

The Dodd-Frank Act contains a number of provisions intended to strengthen capital. For example, the federal banking agencies are directed to establish minimum leverage and risk-based capital requirements that are at least as stringent as those currently in effect. Provident Bancorp for the first time will be subject to consolidated capital requirements and will be required to serve as a source of strength to Provident Bank.

The Dodd-Frank Act also expands the affiliate transaction rules in Sections 23A and 23B of the Federal Reserve Act to broaden the definition of affiliate and to apply to securities lending, repurchase agreement and derivatives activities that Provident Bank may have with an affiliate, as well as to strengthen collateral requirements and limit Federal Reserve exemptive authority. Also, the definition of “extension of credit” for transactions with executive officers, directors and principal shareholders is being expanded to include credit exposure arising from a derivative transaction, a repurchase or reverse repurchase agreement and a securities lending or borrowing transaction. These expansions will be effective on July 21, 2012. At this time, we do not anticipate that being subject to any of these provisions will have a material effect on Provident Bancorp or Provident Bank.

The Dodd-Frank Act also contains provisions that expand the insurance assessment base and increase the scope of deposit insurance coverage. See “Regulation—Deposit Insurance”.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates for election as directors using a company’s proxy materials. The legislation also directs the federal financial institution regulatory agencies to promulgate rules prohibiting excessive compensation being paid to financial institution executives.

The Dodd-Frank Act also created a new Consumer Financial Protection Bureau, which took over responsibility over the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others, on July 21, 2011. Institutions that have assets of $10 billion or less, such as the Bank, will continue to be supervised in this area by their primary federal regulators (in the case of Provident Bank, the OCC). The Act also gives the CFPB expanded data collecting powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair, deceptive and abusive practices. The Dodd-Frank Act also provides that the same standards for federal preemption of state laws apply to both national banks and federal savings banks. As a result it is likely the Bank would be subject to a wider array of State laws going forward. In addition, as required by the Dodd-Frank Act, the Federal Reserve has adopted a rule that places restrictions on interchange fees applicable to debit card transactions. Effective October 1, 2011, interchange fees on debit card transactions

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are limited to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the Federal Reserve. Issuers that, together with their affiliates, have less than $10 billion in assets, such as Provident Bank, are exempt from the debt card interchange fee standards.

The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Act on Provident Bancorp or Provident Bank at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. Nor can we predict the impact or substance of other future legislation or regulation. However, it is expected that they at a minimum will increase our operating and compliance costs.

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ITEM 1A. Risk Factors

Recent legislative and regulatory initiatives to support the financial services industry have been coupled with numerous restrictions and requirements that could detrimentally affect our business.

The Dodd-Frank Act is significantly changing the current bank regulatory structure and affecting the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.

One change that has been particularly significant to us is the abolition of the OTS, our historical federal financial institution regulator, which was effective on July 21, 2011. Supervision and regulation of Provident Bancorp has moved to the Federal Reserve and supervision and regulation of Provident Bank has moved to the OCC. Except as described below, however, the laws and regulations applicable to us have not generally changed — the Home Owners Loan Act and the regulations issued under the Dodd-Frank Act generally still apply (although these laws and regulations are interpreted by the Federal Reserve and the OCC, respectively). However, the application of the laws and regulations may vary as administered by the Federal Reserve and the OCC. It is possible that the OCC may rate the activities of Provident Bank in ways that are more restrictive than the OTS has. This might cause us to incur increased costs or become more restrictive in certain activities than we have in the past.

In addition, Provident Bancorp for the first time will be subject to consolidated capital requirements and will be required to serve as a source of strength to Provident Bank. It is possible such requirements may limit our capacity to pay dividends or repurchase shares. Provident Bank also will be subject to the same lending limits as national banks. In addition, the affiliate transaction rules in Section 23A of the Federal Reserve Act will apply to securities lending, repurchase agreement and derivatives activities that Provident Bank may have with an affiliate.

The Dodd-Frank Act also broadens the base for FDIC insurance assessments. The FDIC insures deposits at FDIC-insured financial institutions, including Provident Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a specific level. The Bank’s FDIC insurance premiums increased substantially beginning in 2009, and we expect to pay significantly higher premiums in the future. Current economic conditions have increased bank failures and additional failures are expected, all of which decrease the DIF. In order to restore the DIF to its statutorily mandated minimum of 1.15% over a period of several years, the FDIC increased deposit insurance premium rates at the beginning of 2009 and imposed a special assessment on June 30, 2009. The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed to fund the increase. The FDIC has issued regulations to implement these provisions of the Dodd Frank Act. It has, in addition, established a higher reserve ratio of 2% as a long-term goal beyond what is required by statute. There is no implementation deadline for the 2% ratio. The FDIC may increase the assessment rates or impose additional special assessments in the future to keep the DIF at the statutory target level. Any increase in our FDIC premiums could have an adverse effect on Provident Bank’s profits and financial condition.

The Dodd-Frank Act created a new Consumer Financial Protection Bureau which took over responsibility for the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Savings Act, among others, July 21, 2011. Institutions such as Provident Bank, which have assets of $10 billion or less, will continue to be supervised in this area by their primary federal regulators (in the case of Provident Bank, the OCC). In addition, as required by the Dodd-Frank Act, the Federal Reserve has adopted a rule that places restrictions on interchange fees applicable to debit card transactions and is thus expected to lower fee income generated from this source. Effective October 1, 2011, interchange fees on debit card transactions are limited to a maximum of 21 cents per transaction plus 5 basis points of the transaction amount. A debit card issuer may recover an additional one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements prescribed by the Federal Reserve. Although technically this rule only applies to institutions with assets in excess of $10 billion, it is expected that smaller institutions, such as Provident Bank, may also be impacted.

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In addition, the Dodd-Frank Act significantly rolls back the federal preemption of state consumer protection laws that is currently enjoyed by federal savings associations and national banks by (1) requiring that a state consumer financial law prevent or significantly interfere with the exercise of a federal savings association’s or national bank’s powers before it can be preempted, (2) mandating that any preemption decision be made on a case by case basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates of national banks and federal savings associations. As a result, we may now be subject to state consumer protection laws in each state where we do business, and those laws may be interpreted and enforced differently in different states.

The scope and impact of many of the Dodd-Frank Act’s provisions will be determined over time as regulations are issued and become effective. As a result, we cannot predict the ultimate impact of the Dodd-Frank Act on us at this time, including the extent to which it could increase costs or limit our ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our business, financial condition and results of operations. However, it is expected that at a minimum they will increase our operating and compliance costs.

Difficult market conditions have adversely affected our industry.

We are operating in a challenging economic environment, including generally uncertain national and local conditions. Additional concerns from some of the countries in the European Union and elsewhere have to strained the financial markets both abroad and domestically. Financial institutions continue to be affected by declines in the real estate market and the constrained financial markets. Declines in the housing market over the past two years, 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 tightening of credit has led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. A worsening of these conditions would likely exacerbate the adverse effects of these market conditions on us and others in the financial services industry. In particular, we may face the following risks in connection with these events:

• Loan delinquencies could increase further;

• Problem assets and foreclosures could increase further;

• Demand for our products and services could decline;

• Collateral for loans made by us, especially real estate, could decline further in value, in turn reducing a customer’s borrowing power, and reducing the value of assets and collateral associated with our loans; and

• Investments in mortgage-backed securities could decline in value as a result of performance of the underlying loans or the diminution of the value of the underlying real estate collateral pressing the government sponsored agencies to honor its guarantees to principal and interest.

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

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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. 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.

Acquisition, development, and construction (ADC) loans, commercial real estate and commercial and industrial loans expose us to increased risk.

We consider our commercial real estate loans, commercial and industrial loans and ADC loans to be the higher risk categories in our loan portfolio. These loans are particularly sensitive to economic conditions. At September 30, 2011, our portfolio of commercial real estate loans totaled $703.4 million, or 41.4% of total loans, our commercial and industrial business loan portfolio totaled $209.9 million, or 12.3% of total loans, and our portfolio of ADC loans totaled $175.9 million, or 10.3% of total loans. We plan to emphasize the origination of these types of loans other than ADC loans, which we now make only on an exception basis. In addition, many of our borrowers also have more than one commercial real estate, commercial business or ADC 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. In particular, many of our ADC loans continue to pose higher risk levels than the levels expected at origination. Many projects are stalled or are selling at prices lower than expected. While we continue to seek pay downs on loans with or without sales activity, this portfolio may cause us to incur additional bad debt expense even if losses are not realized. Additionally, the balance on over half of our ADC loans is maturing within one year, which may expose us to greater risk of loss.

Changes in the value of goodwill and intangible assets could reduce our earnings.

The Company accounts for goodwill and other intangible assets in accordance with GAAP, which, in general, requires that goodwill not be amortized, but rather that it be tested for impairment at least annually at the reporting unit level using the two step approach. Testing for impairment of goodwill and intangible assets is performed annually and 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, 2011 the net present value of Provident Bancorp shares exceed recorded book value by 2%. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates and other external factors (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date.

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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, Westchester 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.

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. In recent years, the structure of the balance sheet has become more asset sensitive in which assets either mature or re-price at a faster pace than liabilities and in particular borrowings. If general levels of interest rates were to continue at existing levels or decline further, net interest income would be adversely affected as asset yields would be expected to decline at faster rates than deposit or borrowing costs. A decline in net interest income may also occur offsetting a portion or all gains in net interest income from assets re-pricing and increases in volume, if competitive market pressures limit our ability to maintain or lag deposit costs. Wholesale funding costs may also increase at a faster pace than asset re-pricing and in this regard we have $220.0 million in structured/convertible advances with the FHLB at an average cost of 4.17%. If interest rates were to approach or exceed this level, it would be expected that the FHLB would call for conversion of those funds at then current market rates which potentially would be higher.

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, 2011, our investment and mortgage-backed securities available for sale totaled $739.8 million. Unrealized gains on securities available for sale, net of tax, amounted to $13.6 million and are reported as part of other comprehensive income, included 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.

Our ability to pay dividends is subject to regulatory limitations and other limitations which may affect our ability to pay dividends to our stockholders or to repurchase our common stock.

Provident Bancorp is a separate legal entity from its subsidiary, Provident Bank, and does not have significant operations of its own. The availability of dividends from Provident Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of Provident Bank and other factors that Provident Bank’s regulator could assert that payment of dividends or other payments may result in an unsafe or unsound practice. In addition, under the Dodd-Frank Act, Provident Bancorp will be subjected to consolidated capital requirements and will be required to serve as a source of strength to Provident Bank. If Provident Bank is

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unable to pay dividends to Provident Bancorp or Provident Bancorp is required to retain capital or contribute capital to Provident Bank, we may not be able to pay dividends on our common stock or to repurchase shares of common stock.

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 and our third party vendors 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.

Failure to comply with applicable laws and regulations also could result in a range of sanctions and enforcement actions, including the imposition of civil money penalties, formal agreements and cease and desist orders. In addition, the OCC and the FDIC have specific authority to take “prompt corrective action,” depending on our capital level. Currently, we are considered “well-capitalized” for prompt corrective action purposes. If we were designated by the OCC as “adequately capitalized,” our ability to take brokered deposits would become limited. If we were to be designated by the OCC in one of the lower capital levels — “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized” — we would be required to raise additional capital and also would be subject to progressively more severe restrictions on our operations, management and capital distributions; replacement of senior executive officers and directors; and, if we became “critically undercapitalized,” to the appointment of a conservator or receiver.

In addition, recently enacted, proposed and future legislation and regulations (including the Dodd-Frank Act, which is discussed above), 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, could cause us to change or limit some of our products and services or the way we operate our business, and could limit our ability to pursue business opportunities.

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

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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 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:

(a) 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, the election of directors to staggered terms of three years and plurality voting. Our bylaws also contain provisions regarding the timing and content of stockholder proposals and nominations and qualification for service on the Board of Directors.

(b) 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, which 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. 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.

Our ability to make opportunistic acquisitions and participation in FDIC-assisted acquisitions or assumption of deposits from a troubled institution is subject to significant risks, including the risk that regulators will not provide the requisite approvals.

We may make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related businesses from time to time that we expect may further business strategy, including through participation in FDIC-assisted acquisitions or assumption of deposits from troubled institutions. Any possible acquisition will be subject to regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or at all. Even if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than expected performance or higher than expected costs, difficulties related to integration, diversion of management’s attention from other business activities, changes in relationships with customers, and the potential loss of key employees. In addition, we may not be successful in identifying acquisition candidates, integrating acquired institutions, or preventing deposit erosion or loan quality deterioration at acquired institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on attractive terms. There can be no assurance that we will be successful in completing or will even

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pursue future acquisitions, or if such transactions are completed, that we will be successful in integrating acquired businesses into operations. Ability to grow may be limited if we choose not to pursue or are unable to successfully make acquisitions in the future.

Our results of operations, financial condition or liquidity may be adversely impacted by issues arising from certain industry deficiencies in foreclosure practices, including delays and challenges in the foreclosure process.

Announcements of deficiencies in foreclosure documentation by several large seller/servicer financial institutions have raised various concerns relating to mortgage foreclosure practices in the U.S. A group of state attorneys general and state bank and mortgage regulators in all 50 states and the District of Columbia is currently reviewing foreclosure practices and a number of mortgage sellers/servicers have temporarily suspended foreclosure proceedings in some or all states in which they do business in order to evaluate their foreclosure practices and underlying documentation. These foreclosure process issues and the potential legal and regulatory responses could impact the foreclosure process and timing to completion of foreclosures for residential mortgage lenders, including the Company. Over the past few years, foreclosure timelines have increased due to, among other reasons, delays associated with the significant increase in the number of foreclosure cases as a result of the economic downturn, additional consumer protection initiatives related to the foreclosure process and voluntary and, in some cases, mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure. Further increases in the foreclosure timeline may have an adverse effect on collateral values and our ability to minimize our losses.

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 48,973 square feet. At September 30, 2011, we conducted our business through 37 full-service banking offices consisting of 30 retail branches and 7 commercial banking centers. Of our 37 branches, 14 are located in Orange County, NY, 13 in Rockland County, NY, 2 in Ulster County, NY, 2 in Sullivan County, NY, 1 in Putnam County, NY, 3 in Westchester County and 2 in Bergen County, NJ. Additionally, 18 of our branches are owned and 18 are leased. We have announced plans to consolidate two offices and have recorded a charge of $2.1 million reflecting the costs to exit the existing leases and write off the unamortized leasehold improvements.

In addition to our branch network and corporate headquarters we lease 2 and own 1 additional properties which are held for general corporate purposes and 15 foreclosed properties located in Putnam, Orange, Rockland, Sullivan and Ulster counties. See Note 7 of the “Notes to Consolidated Financial Statements” 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. [Removed and Reserved]

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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 Bancorp are quoted on the NASDAQ Global Select (“NASDAQ”) under the symbol “PBNY.” As of September 30, 2011, Provident Bancorp had 41 registered market makers, 5,445 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 37,864,008 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, 2011	$	8.49	$	5.82	$	0.06
June 30, 2011		10.15		8.26		0.06
March 31, 2011		10.93		9.11		0.06
December 31, 2010		10.64		8.48		0.06
September 30, 2010	$	10.03	$	7.92	$	0.06
June 30, 2010		10.40		8.42		0.06
March 31, 2010		9.57		8.01		0.06
December 31, 2009		9.41		8.00		0.06

Payment of dividends on Provident 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, legal, and 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. Repurchases of the Company’s shares of common stock during the fourth quarter of the fiscal year ended September 30, 2011 are detailed in (C) below. There were no sales of unregistered securities during the quarter ended September 30, 2011.

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, 2006, 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.

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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.

PROVIDENT NEW YORK BANCORP

	Period Ending
Index	09/30/06		09/30/07		09/30/08		09/30/09		09/30/10		09/30/11
Provident New York Bancorp		100.00		97.21		99.86		73.98		66.73		47.57
NASDAQ Composite		100.00		120.52		94.10		96.49		108.79		112.05
SNL Mid-Atlantic Thrift Index		100.00		99.90		85.82		63.59		71.87		56.41

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

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(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 (2)
Period (2011)
July 1 — July 31		—	$	—		—		959,713
August 1 — August 31		183,000		6.68		183,000		776,713
September 1 — September 30		3,728		5.82		—		776,713
Total		186,728	$	6.66		183,000

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 ($22,697, or 3,728 shares), 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 fifth repurchase program on December 17, 2009 authorizing the repurchase of 2,000,000 shares of which 776,713 remain available for repurchase.

ITEM 6. Selected Financial Data

The following financial condition data and operating data are derived from the audited consolidated financial statements of Provident 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.

		$3,137,402		$3,137,402		$3,137,402		$3,137,402		$3,137,402
	At September 30,
	2011		2010		2009		2008		2007
	(Dollars in thousands)
Selected Financial Condition Data:
Total assets	$	3,137,402	$	3,021,025	$	3,021,893	$	2,984,371	$	2,802,099
Loans, net (1)		1,675,882		1,670,698		1,673,207		1,708,452		1,617,669
Securities available for sale		739,844		901,012		832,583		791,688		794,997
Securities held to maturity		110,040		33,848		44,614		43,013		37,446
Deposits		2,296,695		2,142,702		2,082,282		1,989,197		1,713,684
Borrowings		323,522		363,751		430,628		566,008		661,242
Equity		431,134		430,955		427,456		399,158		405,089

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		$3,137,402		$3,137,402		$3,137,402		$3,137,402		$3,137,402
	Years Ended September 30,
	2011		2010		2009		2008		2007
	(Dollars in thousands)
Selected Operating Data:
Interest and dividend income	$	112,614	$	119,774	$	131,590	$	148,982	$	151,626
Interest expense		21,324		26,440		37,720		53,642		66,888
Net interest income		91,290		93,334		93,870		95,340		84,738
Provision for loan losses		16,584		10,000		17,600		7,200		1,800
Net interest income after provision for loan losses		74,706		83,334		76,270		88,140		82,938
Non-interest income		29,951		27,201		39,953		21,042		19,845
Non-interest expense		90,111		83,170		80,187		75,500		74,590
Income before income tax expense		14,546		27,365		36,036		33,682		28,193
Income tax expense		2,807		6,873		10,175		9,904		8,566
Net income	$	11,739	$	20,492	$	25,861	$	23,778	$	19,627

	At or For the Years Ended September 30,
	2011			2010			2009			2008			2007
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)		0.40	%		0.70	%		0.89	%		0.84	%		0.70	%
Return on equity (ratio of net income to average equity)		2.75			4.82			6.22			5.88			4.82
Average interest rate spread (2)		3.42			3.51			3.46			3.49			2.97
Net interest margin (3)		3.65			3.78			3.81			3.96			3.57
Efficiency ratio (4)		71.00			68.96			65.11			61.20			66.40
Non-interest expense to average total assets		3.06			2.85			2.77			2.68			2.68
Ratio of average interest-earning assets to average interest-bearing liabilities		128.36			126.66			123.54			122.26			122.34
Per Share Related Data:
Basic earnings per share	$	0.31			0.54			0.67		$	0.61		$	0.48
Diluted earnings per share		0.31			0.54			0.67			0.61			0.48
Dividends per share		0.24			0.24			0.24			0.24			0.20
Book value per share (6)		11.39			11.26			10.81			10.03			9.82
Dividend payout ratio (5)		77.42	%		44.44	%		35.82	%		39.34	%		41.67	%
Asset Quality Ratios:
Non-performing assets to total assets (1)		1.46	%		1.02	%		0.93	%		0.57	%		0.26	%
Non-performing loans to total loans (1)		2.38			1.58			1.55			0.97			0.44
Allowance for loan losses to non-performing loans		69			115			114			137			281
Allowance for loan losses to total loans		1.64			1.81			1.76			1.33			1.24
Capital Ratios:
Equity to total assets at end of year		13.74	%		14.27	%		14.15	%		13.37	%		14.46	%
Average equity to average assets		14.49			14.60			14.36			14.34			14.61
Tier 1 leverage ratio (bank only)		8.1			8.4			8.6			8.0			8.1
Other Data:
Number of full service offices		37			35			33			33			33

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⁽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 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.

⁽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 37,864,008, 38,262,288, 39,547,207, 39,815,213 and 41,230,618 outstanding common shares at September 30, 2011, 2010, 2009, 2008 and 2007, respectively. For this purpose, common shares include unallocated employee stock ownership plan shares but exclude treasury shares.

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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 into commercial real estate loans, commercial business loans, ADC loans, residential mortgages, consumer loans, and investment securities. Additionally, the Company offers investment management services. The financial condition and results of operations of Provident Bancorp are discussed herein on a consolidated basis with the Bank. Reference to Provident 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 to an unprecedented 0-25 basis points has acted to increase liquidity in the credit markets. This target rate has been in effect since December 2008. These rate reductions significantly lowered yields on the short end of the treasury yield curve more so than the long end of the curve, resulting in a steeper yield curve than existed at the prior fiscal year-end.

As described in greater detail below, the key factors that have affected our results over the last three years include:

• the effects of the economic downturn on our asset quality, which has led to higher levels of provisions for loan losses than historically had been the case;

• the current low interest rate environment, which has contributed to margin pressure on net interest income;

• management’s decision to take advantage of the interest rate environment and realize securities gains to reduce future interest rate exposure; and

• limited opportunities to make loans that meet our credit standards and pricing criteria

The last recession and slow recovery over the past two years have resulted in borrowers experiencing higher levels of stress, which resulted in our increased levels of charge-offs and provisions for loan losses. In particular, small businesses and borrowers involved in Acquisition, Development and Construction projects have been affected. During the year our net charge-offs exceeded our provisions by $2.9 million. Management of our loan portfolio continues to be a top priority. We were able to grow commercial real estate loans, which was substantially offset by declines in one-to-four family residential mortgages as we sold a substantial portion of our new production.

In addition, we continue to experience pressure on net interest income. Low rates continue to have the effect of causing many assets to prepay or to be called. In anticipation of this, we have also been selling certain investment securities based on market conditions. Reinvestment of cash is necessarily made at lower interest rates or in extended maturity. Many of our liabilities are at rates that are either fixed or already very low, so maintaining net interest margin is a function of loan growth, growth in non-interest bearing deposits, and continuation of our deposit pricing discipline. Transaction accounts grew 11.4% during the year, non-time deposits grew as well, while CDs declined. This helped support our net interest margin which was 3.65% this year compared to 3.78% last year.

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On August 9, 2011, Provident Bank (the “Bank”) announced a workforce reduction to improve efficiency and reduce operating expenses to better position the Bank for enhanced revenue growth. The Bank expects the workforce reduction together with other expense reductions to yield annual savings by the end of 2012 of approximately $10.0 million, including approximately $4.2 million in personnel salary and benefits from eliminated positions. Of the $10.5 million expense reduction