CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Report, and we may from time to time make other statements, regarding our outlook or expectations for earnings, revenues, expenses and/or other financial, business or strategic matters regarding or affecting Provident Bancorp that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are typically identified by words such as "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project" and other similar words and expressions or future or conditional verbs such as "will," "should," "would" and "could." These statements are not historical facts, but instead represent our current expectations, plans or forecasts and are based on the beliefs and assumptions of the management and the information available to management at the time that these disclosures were prepared.

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

The following factors, among others, could cause our future results to differ materially from the plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:
• legislative and regulatory changes such as the Dodd-Frank Act and its implementing regulations that adversely affect our business including changes in regulatory policies and principles or the interpretation of regulatory capital or other rules;

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

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

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

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

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

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

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

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

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

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

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

The following commentary presents management's discussion and analysis of financial condition and results of operations and is intended to assist the reader in understanding the financial conditions and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto

appearing in Part I, Item I of this document and with the Company's consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2012 Annual Report on Form 10-K. Operating results discussed herein are not necessarily indicative of the results of any future period. Tax-equivalent adjustments are the result of increasing income from tax-exempt securities by an amount equal to the Federal taxes that would be paid if the income were fully taxable based on a 35.0% marginal effective income tax rate.

Overview and Management Strategy

Provident New York Bancorp is headquartered in Montebello, New York. With $3.8 billion in assets, the Company is a growing financial services firm that specializes in the delivery of services and solutions to business owners, their families and consumers in communities within the greater New York City area through teams of dedicated and experienced relationship managers. The Company offers a complete line of commercial, business, and consumer banking products and services. The financial condition and results of operations of the Company are discussed herein on a consolidated basis with the Bank. Reference to Provident New York Bancorp or the Company may signify the Bank, depending on the context.

We focus our efforts on generating core deposits, especially transaction accounts, and originating high quality loans with an emphasis on growing our commercial loan balances. We seek to maintain a disciplined pricing strategy on deposits that will allow us to compete for high quality loans while maintaining an appropriate spread over funding costs. The Company's strategic objectives include growing revenues and earnings by expanding client acquisitions, improving asset quality and increasing efficiency. To achieve these goals we are focusing on high value client segments, expanding our delivery and distribution channels, creating a high productivity performance culture, reducing operating costs, and proactively managing enterprise risk.

Our current target markets encompass New York City including Manhattan and Long Island, our Central Market, which consists of Rockland and Westchester counties in New York and Bergen county in New Jersey, and our Northern Market, which consists of Orange, Sullivan, Ulster, and Putnam counties in New York. Our goal is to create a regional bank operating in the greater metropolitan New York area that achieves top-tier performance on key metrics including return on equity, return on assets, and earnings per share growth.

The key highlights as of and for the three months ended December 31, 2012 included the following:

• Net income of $7.0 million and earnings per share of $0.16.

• Loan originations of $291.1 million.

• Total loans reached $2.2 billion, representing growth of $73.7 million compared to September 30, 2012.

• The allowance for loan losses to non-performing loans increased to 83.8% at December 31, 2012 from 71.0% at September 30, 2012.

• Deposits declined $206.8 million at December 31, 2012 compared to September 30, 2012, due to elevated levels of municipal deposits at the Company's fiscal year end.

• Return on tangible equity, a non-GAAP measure, was 8.71% for the three months ended December 31, 2012 compared to 8.53% for the three months ended December 31, 2011 (see page 52 for non-GAAP reconciliation of return on tangible equity).

• Return on average assets was 0.73% for the three months ended December 31, 2012 compared to 0.74% for the three months ended December 31, 2011.

• The efficiency ratio, a non-GAAP measure, declined to 62.9% for the three months ended December 31, 2012 compared to 67.8% for the three months ended December 31, 2011.

The Company's primary source of earnings is net interest income, and its principal market risk exposure is interest rate risk. The Company is not able to predict market interest rate fluctuations, and its asset-liability management strategy may not prevent interest rate changes from having a material adverse effect on the Company's results of operations and financial condition. Although management endeavors to minimize the credit risk inherent in the Company's loan portfolio, it must necessarily make various assumptions and judgments about the collectibility of the loan portfolio based on its experience and evaluation of economic conditions. If such assumptions or judgments prove to be incorrect, the current allowance for loan losses may not be sufficient to cover loan losses and additions to the allowance may be necessary, which would have a negative impact on net income. We continue to work through the criticized and classified loan portfolio, seeking positive resolution on existing problem credits.
There is significant competition in all areas in which the Company conducts its business. The Company competes with banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions. Many of these competitors have substantially greater resources and lending limits and provide a wider array of banking services. To a limited extent, the Company also competes with other providers of financial services, such as money market mutual funds, brokerage

firms, consumer finance companies and insurance companies. Competition is based on a number of factors, including prices, interest rates, service, availability of products and geographic location.
The Company regularly evaluates acquisition opportunities and conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions, and in some cases negotiations, regularly take place and future acquisitions could occur.

Comparison of Financial Condition at December 31, 2012 and September 30, 2012

Total assets as of December 31, 2012 decreased $233.5 million or 5.80% from September 30, 2012 mainly related to decreases in our cash balance of $277.7 million. Our cash balance at September 30, 2012 was elevated due to municipal tax collections that were subsequently drawn down during the quarter.

Total securities decreased by $22.1 million, to $1.1 billion at December 31, 2012 as compared to September 30, 2012. Securities represented 29.9% of total assets at December 31, 2012 compared to 28.7% of total assets at September 30, 2012. Over time we expect securities will decline as a percentage of total assets as our relationship teams add loans to our portfolio. For the three months ended December 31, 2012, securities purchases were $109.0 million, sales of securities were $42.0 million, and maturities, calls, and repayments were $85.5 million. Unrealized gains decreased the carrying values of securities by $4.2 million. Securities gains net of OTTI losses were $1.4 million and net amortization of securities was $765,000 for the period ended December 31, 2012.

Net loans as of December 31, 2012 increased $73.8 million or 3.53% to $2.2 billion from September 30, 2012. Commercial real estate and commercial & industrial loans were the main driver with an increase of $97.2 million. The Company has organized relationship teams to serve targeted commercial segments. These teams have expanded our market reach in the greater New York metropolitan area. The success of our team based approach is driving our loan growth. The Company originated, including loans originated for sale, $291.1 million loans for the three months ended December 31, 2012, while repayments were $215.8 million.

Acquisition, Development and Construction loans ("ADC") declined $21.5 million to $122.5 million compared to $144.1 million at September 30, 2012, a reflection of the Company's de-emphasis on originations of this type of loan. Consumer loans decreased by $4.0 million, and residential loans increased by $2.0 million as of December 31, 2012.

Deposits as of December 31, 2012 were $2.9 billion, a decrease of $206.8 million, or 6.65%, from September 30, 2012. As of December 31, 2012 transaction accounts were 39.4% of deposits, or $1.1 billion compared to $1.4 billion or 44.9% of deposits at September 30, 2012. Municipal transaction accounts totaled $563.5 million at September 30, 2012 compared to $184.6 million at December 31, 2012. As of December 31, 2012, savings deposits were $560.0 million, an increase of $53.5 million or 10.6% from September 30, 2012. Money market accounts increased $12.8 million or 1.56% to $834.5 million at December 31, 2012. Certificate of deposit accounts decreased by $22.8 million or 5.88%. As of December 31, 2012, the Company had $31.3 million in non-core wholesale deposits.

Borrowings increased by $235,000 or 0.07%, from September 30, 2012 to $345.4 million, due to accretion of discount on advances and repurchase agreements from the FHLB. At December 31, 2012 the balance of discount on FHLB borrowings that will accrete as additional interest expense over the remaining term of the instruments was $2.6 million.

Stockholders' equity increased $2.8 million from September 30, 2012 to $493.9 million at December 31, 2012. The change was mainly due to retained earnings of $4.4 million, capital contributed from stock-based compensation plans of $642,000 and a decrease in accumulated other comprehensive income of $2.2 million.

As of December 31, 2012, the Company had authorization to purchase up to an additional 776,713 shares of common stock. The Bank's Tier 1 leverage ratio was 8.23% at December 31, 2012. The Company's tangible equity as a percentage of tangible assets was 8.94% at December 31, 2012 (see non-GAAP reconciliation of tangible equity as a percentage of tangible assets on page 52).

Credit Quality (also see Note 3 to the consolidated financial statements)

Loans acquired in connection with the acquisition of Gotham Bank in August 2012 were recorded at fair value at the date of acquisition. These loans totaled $188.1 million at December 31, 2012 compared to $205.8 million at September 30, 2012. Factors that went into the determination of fair value included discounts related to interest rates and inherent losses on the acquired loans. There had been no amounts charged-off against this discount for the three months ended December 31, 2012. None of the Gotham Bank acquired loans were considered purchased credit impaired loans.

Our non-performing loans decreased $6.3 million in the three months ended December 31, 2012 to $33.6 million. The decrease was mainly driven by declines in ADC non-performing loans of $11.1 million, principally the result of the resolution of one significant relationship. Partially offsetting this decline was an increase in non-performing commercial real estate loans of $3.4 million.

Classified loans are loans rated substandard or lower in the Company's risk rating system. Classified loans declined $5.6 million to $83.1 million at December 31, 2012 compared to $88.7 million at September 30, 2012. This represents 3.79% of the loan portfolio at December 31, 2012 compared to 4.18% of the loan portfolio at September 30, 2012.

Allowance for loan losses. The determination of the allowance for loan losses is a critical accounting estimate that is subject to significant change from period to period based on the judgment of management. Under accounting guidance established for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. A loan loss allowance is recorded by the Company for the emergence of new probable and estimable loan losses on acquired loans that were not impaired as of the acquisition date. Because of this accounting requirement certain measures of loan loss allowance and related metrics are not comparable to periods prior to the acquisition date.

The allowance for loan losses was $28.1 million at December 31, 2012 compared to $28.3 million at September 30, 2012. The allowance equaled 1.28% of total loans at December 31, 2012 compared to 1.33% of total loans at September 30, 2012. The allowance as a percentage of the loan portfolio for the last two reporting periods is lower than it was previously due to the acquisition of loans from Gotham that were recorded at fair value and for which there continues to be no allowance for loan losses.

The allowance for loan losses to non-performing loans equaled 83.8% at December 31, 2012, compared to 71.0% at September 30, 2012. Net charge-offs for the quarter ended December 31, 2012 were $3.1 million. The majority of charge-offs were due to write-downs on ADC loans, which totaled $1.6 million for the period, and one-to-four-family residential mortgage charge-offs which totaled $899,000. The ADC charge-offs were mainly related to the resolution of one significant relationship and the one-to-four-family residential mortgage charge-offs were the result of updated appraisal information on certain loans.

In addition, $1.4 million of previously non-performing loans were transferred to foreclosed properties. This was partially offset by sales and write-downs of $731,000 and resulted in a foreclosed properties balance of $7.1 million at December 30, 2012, compared to $6.4 million at September 30, 2012.

Comparison of Operating Results for the Three Months Ended December 31, 2012 and December 31, 2011

Net income for the three months ended December 31, 2012 was $7.0 million or $0.16 per diluted share, an increase of $1.3 million compared to $5.7 million or $0.15 per diluted share, for the three months ended December 31, 2011. The primary factors contributing to the increase in earnings for the current period were higher net interest income of $4.7 million or 20.2% and an increase in non-interest income of $483,000 or 6.73% resulting mainly from net gain on sales of loans and other loan fee income. These increases were partially offset by a $1.0 million increase in the provision for loan losses and an increase in non-interest expense of $1.8 million or 8.81% driven by increases in compensation and employee benefits associated with the hiring of our new banking teams. Per share data were affected by the increase in weighted average shares outstanding due to shares issued in the Company's August 2012 common equity offering.

Select operating performance measures are as follows:

                                                              For the three months ended December 31,
                                                                   2012                     2011
Per common share:
Basic earnings                                             $           0.16         $           0.15
Diluted earnings                                                       0.16                     0.15
Dividends declared                                                     0.06                     0.06
Return on average (annualized):
Assets                                                                 0.73 %                   0.74 %
Tangible equity (see non-GAAP reconciliation below)                    8.71 %                   8.53 %

The Company believes that return on average tangible stockholders' equity is useful as a tool to measure and assess a company's use of equity. A reconciliation of the non-GAAP financial measure is as follows:

                                                             For the three months ended December
                                                                             31,
                                                                   2012                2011
Average stockholders' equity                                 $    492,506         $    431,129
Average goodwill and other amortizable intangible assets         (172,723 )           (165,360 )
Average tangible stockholders' equity                        $    319,783         $    265,769
Net income                                                   $      7,020         $      5,717
Net income, if annualized                                          27,851               22,682
Return on average tangible equity                                    8.71 %               8.53 %

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).

                                            For the three months ended December 31,
                                        2012                                       2011
                         Average                     Average        Average                     Average
                       outstanding                    yield/      outstanding                    yield/
                         balance       Interest        rate         balance       Interest        rate
Interest earning
assets:
Commercial and
commercial mortgage
loans                 $ 1,565,259     $  20,348         5.16 %   $ 1,097,476     $  14,245         5.15 %
Consumer loans            212,863         2,325         4.33         227,274         2,635         4.60
One-to four-family
residential loans         351,778         4,398         4.96         387,446         5,269         5.40
Total net loans(1)      2,129,900        27,071         5.04       1,712,196        22,149         5.13
Securities-taxable        954,372         4,284         1.78         696,293         3,990         2.27
Securities-tax
exempt(2)                 174,201         2,242         5.11         205,366         2,729         5.27
Federal Reserve
balances                  103,125           103         0.40          82,437            63         0.30
Other earning assets       19,277           230         4.73          18,735           192         4.07
Total securities and
other earning assets    1,250,975         6,859         2.18       1,002,831         6,974         2.76
Total interest
earning assets          3,380,875        33,930         3.98       2,715,027        29,123         4.26
Non-interest earning
assets                    411,326                                    347,493
Total assets          $ 3,792,201                                $ 3,062,520
Interest bearing
liabilities:
NOW deposits          $   469,180           126         0.11 %   $   398,885           164         0.16 %
Savings, club and
escrow deposits           531,107           197         0.15         445,236            81         0.07
Money market deposits     908,262           931         0.41         577,387           397         0.27
Certificates of
deposit                   380,244           843         0.88         302,713           671         0.88
Total interest
bearing deposits        2,288,793         2,097         0.36       1,724,221         1,313         0.30
Borrowings                345,951         3,125         3.58         392,785         3,617         3.65
Total interest
bearing liabilities     2,634,744         5,222         0.79       2,117,006         4,930         0.92
Non-interest bearing
deposits                  649,077                                    500,621
Other non-interest
bearing liabilities        15,874                                     13,764
Total liabilities       3,299,695                                  2,631,391
Stockholders' equity      492,506                                    431,129
Total liabilities and
equity                $ 3,792,201                                $ 3,062,520
Net interest rate
spread                                                  3.19 %                                     3.34 %
Net earning assets    $   746,131                                $   598,021
Net interest margin                      28,708         3.37 %                      24,193         3.54 %
Less tax equivalent
adjustment (2)                             (785 )                                     (955 )
Net interest income                   $  27,923                                  $  23,238
Ratio of average
interest-earning
assets to average
interest bearing
liabilities                 128.3 %                                    128.2 %

(1) Includes non-accrual loans. Reflects tax equivalent adjustment for tax exempt income based on a 35%
(2) 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):

                                                    For the three months ended December 31, 2012 vs. 2011
                                                                Increase / (Decrease) due to
                                                  Volume(1)                  Rate(1)                  Total
Interest earning assets
Commercial and commercial mortgage loans     $          6,076         $               27         $       6,103
Consumer loans                                           (161 )                     (149 )                (310 )
One-to four-family residential                           (462 )                     (409 )                (871 )
Securities-taxable                                      1,264                       (970 )                 294
Securities-tax exempt(2)                                 (406 )                      (81 )                (487 )
Federal Reserve excess reserves                            17                         23                    40
Other earning assets                                        4                         34                    38
Total interest income                                   6,332                     (1,525 )               4,807
Interest-bearing liabilities
NOW deposits                                               22                        (60 )                 (38 )
Savings, club and escrow deposits                          17                         99                   116
Money market deposits                                     280                        254                   534
Certificates of deposit                                   172                          -                   172
Borrowings                                               (208 )                     (284 )                (492 )
. . .