Forward-Looking Statements

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

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

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

• Our business and operating results are affected by business and economic conditions generally or specifically in the principal markets in which we do business. We are affected by changes in our customers' and counterparties' financial performance, customer preferences and behavior, values of real estate and other collateral, and levels of economic and business activity, among other things.

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

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

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

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

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

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

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

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

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

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

Overview

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

Our results of operations depend primarily on our net interest income, which is the difference between the interest income on our earning assets, such as loans and securities, and the interest expense paid on our deposits and borrowings. Results of operations are also affected by non-interest income and expense, the provision for loan losses and income tax expense. 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.

For the nine months ended June 30, 2009 the major items in net income consisted of net interest income on a tax equivalent basis which increased $1.9 million, however net interest margin on a tax equivalent basis declined 5 basis points. Provision for loan losses increased $8.0 million due to continued effects of the slow down in the economy. Offsetting the provisions for loan losses were $16.4 million in gains on sales of securities as the Company monetized a significant portion of the appreciation in the portfolio since September 30, 2008. Expenses remained relatively unchanged with the exception of regulatory assessments, as the FDIC insurance premiums increased significantly by $2.9 million, including a special assessment of $1.4 million.

Management Strategy

We operate as an independent community bank that offers a broad range of customer-focused financial services as an alternative to large regional, multi-state and international banks in our market area. Management has invested in the infrastructure and staffing to support our strategy of serving the financial needs of businesses, individuals and municipalities in our market area. We focus our efforts on core deposit generation, especially transaction accounts and quality loan growth with emphasis on growing commercial loan balances. We seek to maintain a disciplined pricing strategy on deposit generation that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs.

Comparison of Financial Condition at June 30, 2009 and September 30, 2008

Total assets as of June 30, 2009 were $2.8 billion, a decrease of $160.0 million or 5.4% compared to September 30, 2008 levels. Decreases were experienced in most categories with the greatest decrease of $103.0 million in securities due to the sale program initiated by the Company in February of 2009 to realize a portion of the unrealized gains and reduce prepayment risk.

Net Loans as of June 30, 2009 were $1.7 billion, unchanged from September 30, 2008. Acquisition, Development and Construction ("ADC") increased by $18.9 million, or 11.1%, over balances at September 30, 2008, primarily due to activity on newly approved loans. Commercial real estate and commercial business loans remained flat decreasing $1.1 million, or 0.1%, over balances at September 30, 2008. Consumer loans increased by $4.6 million, or 1.9%, during the nine month period ended June 30, 2009, while residential mortgage loans decreased by $39.5 million or 7.7% primarily due to new conforming fixed rate loan originations being sold in the secondary market. Total loan originations were $344.9 million for the nine months ended June 30, 2009 and repayments were $354.6 million during the same time period. While loan demand is softer than a year ago due to the economic slowdown, commercial loan originations during the nine months ending June 30, 2009 were $175.1 million. Provident Bank does not originate or hold subprime mortgage loans, which we consider to be loans to borrowers with subprime credit scores combined with either high loan-to-value or high debt-to-income ratios. We also hold no subprime loans through our investment portfolio. See footnote four.

Total securities decreased by $102.6 million, or 12.3%, to $732.1 million at June 30, 2009, compared to September 30, 2008 due to sales of securities. The Company executed a planned sale program beginning in February of 2009 of approximately $350 million in mortgage backed securities to realize a portion of the recent appreciation in its securities portfolio and reduce prepayment risk. Mortgage-backed securities at amortized cost decreased by $236.3 million primarily due to sales of $376.5 million and pay downs of $90.8 million, partially offset by purchases totaling $231.3 million. US Treasury notes increased $26.0 million and U.S. Government federal agency securities increased $77.0 million. The Company owns $12.1 million at cost of private label CMO's with a carrying value of $10.2 million. See note six for further discussion on determination of fair value for these securities.

Deposits as of June 30, 2009 were $1.9 billion, a decrease of $116.2 million, or 5.8%, from September 30, 2008. Retail and commercial transaction accounts were 28.8% of deposits at June 30, 2009 and 25.2% at September 30, 2008. An increase in retail and commercial transaction deposits of $37.2 million was offset by a decrease in municipal demand and NOW accounts of $243.7 million. Savings and Money market deposits increased by $33.4 million and $77.1 million, respectively. Certificates of Deposits decreased $20.2 million due to decreases in municipal certificates of deposits of $55.2 million. The increase experienced in retail deposits is due to seasonality. The decline in municipal deposits of $208.5 million results from seasonal tax collections at September 30, 2008.

Borrowings decreased by $77.8 million, or 13.7%, from September 30, 2008, to $488.2 million as the Company paid down $151.8 million in advances and its overnight line of credit with the FHLB. The Bank issued $51.5 million in senior unsecured debt under the FDIC Temporary Liquidity Guarantee Program during the second quarter of fiscal 2009.

Stockholders' equity increased $21.6 million from September 30, 2008 to $420.8 million at June 30, 2009, primarily due to a $13.8 million increase in the Company's retained earnings and a $7.8 million improvement in accumulated other comprehensive income, after realizing securities gains in the fiscal year of $16.4 million. Stock based compensation transactions of $2.6 million added to the overall increase in capital. The Company resumed open market stock repurchases during the third fiscal quarter and has purchased a total of 328,951 shares for the fiscal year 2009 totaling $2.7 million. As of June 30, 2009, 836,950 shares remain available for repurchase under the Company's current stock repurchase program.

Credit Quality (Also see Note 5)

Net charge-offs for the quarter were $1.9 million (0.44% of average loans, on an annualized basis), down $2.4 million compared to $4.3 million (0.99% of average loans, on an annualized basis) in the prior linked quarter ended March 31, 2009. Net charge-offs for the quarter were up $1.1 million when compared to net charge-offs of $812,000 in the same period ending June 30, 2008. Net charge-offs of $1.3 million were in the community business loan portfolio which continues to be impacted by the ongoing sluggishness of the economy, on average outstandings of $101.9 million. The community business portfolio is showing signs of stabilization but the Company is experiencing further weakness in the ADC portfolio. Net charge- offs during the third fiscal quarter in the ADC portfolio and commercial real estate totaled $400,000 on average outstandings of $190.8 million.

Net charge-offs on a year to date basis were $8.2 million for fiscal 2009 compared to $3.5 million for fiscal 2008. Of the $8.2 million in net charge-offs experienced on a year to date basis $5.9 million were attributable to the small business loan portfolio on average outstandings of $105.9 million.

The Company's loan-loss provision was $3.5 million in the third quarter, $1.6 million in excess of net charge-offs. On a year to date basis loan loss provisions were $13.1 million for fiscal 2009 compared to $5.1 million for fiscal year to date 2008. This resulted in an increase in the allowance for loan losses to $28.0 million, or 1.63% of loans outstanding, and 118% of non-performing loans. The primary reasons for increasing the allowance for loan losses continues to be related to the general economic slowdown and overall declining values of land in our market area. As a result of declining land values, the Company's net realizable value estimates on collateral dependent non performing loans have had to be decreased as new appraisals show lower property values.

Nonperforming loans decreased $2.6 million in the third quarter to $23.8 million compared to $26.4 million at March 31, 2009. On a year to date basis non-performing loans increased $6.9 million compared to year end 2008 levels. ADC loans accounted for $5.1 million of this increase. This rise is primarily due to ongoing stress in the Bank's construction portfolio resulting from the stagnant housing and real estate markets. The Bank's coverage ratio of nonperforming loans declined from 137% at September 31, 2008, to 118% at June 30, 2009. Non-performing loans as a percent of total loans increased from 0.97% at September 30, 2008 to 1.39% at June 30, 2009.

Of the non-performing loans of $23.8 million, $956,000 was not mortgage secured and $22.8 million were secured by mortgages. Of the loans that were mortgage secured the weighted average loan to value ratio was 81% and after specific reserves was 72%.

The table below outlines those non-performing loans, at June 30, 2009, by category and collateral with the related weighted average loan to value ratios and specific reserves against such loans:

                                                                          WLTV after
                                         Book                 Specific     Specific
                                        Value     WLTV*        Reserve     Reserve
    Loans with Specific Reserves
    ADC                                $  9,524      98  %    $   1,601           81  %
    Commercial mortgage                   1,303      70             122           64
    Residential mortgage                  1,653      87             276           72

    Loans with out Specific Reserves
    ADC                                   1,103      73              -            73
    Commercial mortgage                   5,392      65              -            65
    Residential Mortgage                  3,849      64              -            64

    Total Mortgage secured               22,824      81           1,999           72

    Loans not Mortgage Secured
    Loans with specific reserves            121                      24
    Loans without specific reserves         835                      -

    Total non-performing loans           23,780                   2,023
    General reserves                                             26,004

    Total allowance for loan losses                           $  28,027

    ORE balance                           1,587

    Total non-performing assets        $ 25,367

* Weighted average LTV is the gross loan value plus negative escrows (before specific reserves) divided by appraised value of the collateral securing the loan. Appraised values are adjusted based on market conditions.

Comparison of Operating Results for the Three Months Ended June 30, 2009 and June 30, 2008

Net income for the three months ended June 30, 2009 was $9.0 million, an increase of $2.6 million, compared to $6.3 million for the same period in fiscal 2008. Net interest income before provision for loan losses for the three months ended June 30, 2009, decreased by $1.5 million or 6.0%, to $22.7 million, compared to $24.2 million for the same period in the prior year. The provision for loan losses for the three months ended June 30, 2009 increased $2.1 million, or 150.0%, to $3.5 million, compared to $1.4 million for the same period in the prior year due to growth in the loan portfolio, weaker economic conditions and recent loss experience in the portfolios. Net interest margin on a tax equivalent basis for the three months ended June 30, 2009, decreased 30 basis points compared to the same period last year from 4.04% to 3.74%. The year-over-year comparison reflects the impact of the cuts in the federal funds target rate totaling 2.0%. The Company executed on its planned sale program, starting in February 2009, of approximately $350 million in mortgage backed securities with a book yield of 5.15% and an average life of 4.1 years, which were reinvested in securities having a yield of 3.34% and an average life of 3.2 years. As a result, the yield on total interest-earning assets declined 80 basis points. For the same period, the cost of interest-bearing deposits decreased 72 basis points to 1.04%, and the cost of borrowings increased 32 basis points to 3.96%, reflecting the carrying cost of term borrowings outstanding and repayment of short-term borrowings. The tax-equivalent yield on investments decreased 48 basis points compared to the same quarter in 2008. Non-interest income for the three months ended June 30, 2009, was $15.3 million, an increase of $10.2 million, compared to $5.0 million for the same period in fiscal 2008 due to increases in gains on sales of securities of $10.0 million. Non-interest expense increased $2.6 million, or 13.52%, to $21.5 million for the three months ended June 30, 2009, compared to $19.0 million for the same period in the prior year primarily due to increased FDIC assessments of $2.1 million ($1.4 million representing a special assessment) and higher salary and benefit costs of $813,000.

The relevant operating results performance measures follow:

                                                  Three Months Ended
                                                       June 30,
                                                  2009            2008
              Per common share:
              Basic earnings                    $    0.23        $ 0.16
              Diluted earnings                       0.23          0.16
              Dividends declared                     0.06          0.06
              Return on average (annualized):
              Assets                                 1.25 %        0.90 %
              Equity                                 8.52 %        6.25 %

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

                                                                          Three Months Ended June 30,
                                                             2009                                            2008
                                             Average                         Average         Average                         Average
                                           Outstanding                        Yield        Outstanding                        Yield
                                             Balance          Interest        Rate           Balance          Interest        Rate
Interest earning assets:
Commercial and commercial mortgage loans   $    960,553       $  13,876         5.79  %    $    891,870       $  14,893         6.72  %
Consumer loans                                  254,221           2,907         4.59            239,484           3,239         5.44
Residential mortgage loans                      480,121           7,065         5.90            505,926           7,498         5.96

Total loans 1                                 1,694,895          23,848         5.64          1,637,280          25,630         6.30

Securities-taxable                              520,948           5,459         4.20            653,292           8,048         4.95
Securities-tax exempt 2                         196,385           2,947         6.02            177,933           2,655         6.00
Federal Reserve excess reserves                 112,540              73         0.26                 -               -            -
Other earning assets                             24,469             355         5.82             34,499             662         7.72

Total securities and other earning
assets                                          854,342           8,834         4.15            865,724          11,365         5.28

Total interest-earning assets                 2,549,237          32,682         5.14          2,503,004          36,995         5.94

Non-interest-earning assets                     326,762                                         319,881

Total assets                               $  2,875,999                                    $  2,822,885

Interest bearing liabilities:
NOW Checking                               $    227,039             128         0.23  %    $    189,629             259         0.55  %
Savings, clubs and escrow                       378,263             163         0.17            364,763             252         0.28
Money market accounts                           394,628             487         0.49            311,120           1,161         1.50
Certificate accounts                            575,713           3,326         2.32            545,413           4,515         3.33

Total interest-bearing deposits               1,575,643           4,104         1.04          1,410,925           6,187         1.76
Borrowings                                      488,846           4,821         3.96            629,325           5,691         3.64

Total interest-bearing liabilities            2,064,489           8,925         1.73          2,040,250          11,878         2.34

Non- interest bearing deposits                  373,252                                         357,515
Other non-interest-bearing liabilities           16,729                                          19,428

Total liabilities                             2,454,470                                       2,417,193
Stockholders' equity                            421,529                                         405,692

Total liabilities and equity               $  2,875,999                                    $  2,822,885

Net interest rate spread                                                        3.41  %                                         3.60  %

Net earning assets                         $    484,748                                    $    462,754

Net interest margin                                              23,757         3.74  %                          25,117         4.04  %

Less tax equivalent adjustment 2                                 (1,031 )                                          (929 )

Net interest income                                           $  22,726                                       $  24,188

Ratio of average interest-earning assets
to average interest bearing liabilities          123.48  %                                       122.68  %

1 Includes non-accrual loans

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

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

                                                 Three Months Ended June 30, 2009
                                                             vs. 2008
                                                   Increase / (Decrease) Due to
                                               Volume1           Rate1         Total
  Interest earning assets
  Commercial and commercial mortgage loans   $     1,119        $ (2,136 )    $ (1,017 )
  Consumer loans                                     194            (526 )        (332 )
  Residential mortgage loans                        (361 )           (72 )        (433 )
  Securities-taxable                              (1,481 )        (1,108 )      (2,589 )
  Securities-tax exempt2                             283               9           292
  Federal Reserve excess reserves                     73              -             73
  Other earning assets                              (156 )          (151 )        (307 )

  Total interest income                             (329 )        (3,984 )      (4,313 )

  Interest-bearing liabilities
  NOW checking                                        43            (174 )        (131 )
  Savings                                              9             (98 )         (89 )
  Money market                                       256            (930 )        (674 )
  Certificates of deposit                            242          (1,431 )      (1,189 )
  Borrowings                                      (1,848 )           978          (870 )

  Total interest expense                          (1,298 )        (1,655 )      (2,953 )

  Net interest margin                                969          (2,329 )      (1,360 )
  Less tax equivalent adjustment2                    (98 )            (4 )        (102 )

  Net interest income                        $       871        $ (2,333 )    $ (1,462 )

. . .