Provident New York Bancorp Announces Fourth Quarter 2010 Earnings of $0.14 per Diluted Share, $0.54 per Diluted Share for Fiscal 2010

Provident New York Bancorp (NASDAQ-Global Select Market: PBNY), the parent company of Provident Bank, today announced fourth-quarter results for the fiscal year ending Sept. 30, 2010. Net income for the quarter was $5.4 million, or $0.14 per diluted share, compared to net income of $4.8 million, or $0.12 per diluted share for the linked quarter ended June 30, 2010 and net income of $5.1 million or $0.13 per diluted share for the fourth quarter of fiscal 2009. Net income for fiscal year 2010 was $20.5 million, or $0.54 per diluted share compared to $25.9 million or $0.67 per diluted share for fiscal 2009. Fiscal 2009 results reflected significant securities gains not experienced to the same extent in fiscal 2010.

President’s Comments

George Strayton, President and CEO commented, "Provident performed comparatively well in a difficult economic environment this past fiscal year. The economy’s recovery has remained sluggish, resulting in slower loan growth and a slower recovery of credit quality industry-wide. Unemployment in our market, while showing some signs of improvement, has remained relatively flat. Yet, despite the economy’s challenges, I am very pleased that in fiscal 2010, we were able to grow commercial loan balances, increase transaction account balances, and hold expenses under control. As a result, we improved operating earnings during the fiscal year. After adjusting for gains on securities and the fair value of interest rate caps, net operating income improved over the prior year primarily due to improvement in our net interest income. Net interest income continues to be driven by our ability to attract and retain core deposits, as well as our deposit cost discipline. In addition, the fiscal year showed positive results from our continued market expansion into Westchester County. As we continue to strengthen our resources in the Westchester market during the year, we expect to be able to improve on these results in fiscal 2011.”

Key items for the quarter

• Excluding the after tax effect of securities gains and the fair value adjustment of interest rate caps, earnings were $0.10 per diluted share. This compares to $0.11 for the linked quarter and $0.11 for the fourth quarter of fiscal 2009. While we actively manage our securities portfolio as a component of our asset/liability management, we also present earnings excluding net securities gains and fair market value adjustments on interest rate caps. We believe this affords investors a better understanding of our core banking operations, and aligns more closely to the views of the investment community, which tends to adjust for more variable components of income.
• Net interest margin on a tax equivalent basis is down 16 basis points to 3.75 percent over the linked quarter ended June 30, 2010, reflecting reduced yields on commercial loans and slowing decreases in the cost of interest-bearing deposits.
• Net charge-offs of $2.4 million are up slightly from the linked quarter. Our provision for loan losses of $2.3 million is down from the previous quarter.
• Non-performing loans were down slightly at $28.7 million over the linked quarter while ORE increased $589,000.
• The Company repurchased 364,000 shares of common stock during the quarter at a cost of $3.1 million. For fiscal 2010 the Company purchased 1,515,923 million shares at a cost of $12.9 million. There are 1,234,167 shares remaining under the current repurchase authorization.

Net Interest Income and Margin

Fourth quarter fiscal 2010 compared with fourth quarter fiscal 2009

Net interest income was $23.3 million for the fourth quarter of fiscal 2010, an $853,000 increase from the same quarter of fiscal 2009 as funding costs declined at a greater pace than interest income. The net interest margin on a tax-equivalent basis was 3.75 percent for the fourth quarter of fiscal 2010, compared to 3.71 percent for the same period a year ago. The tax-equivalent yield on investments decreased 71 basis points and loan yields were down 11 basis points compared to the fourth fiscal quarter in 2009. As a result, the yield on interest-earning assets declined 30 basis points. For the same period, the cost of deposits decreased 32 basis points to 0.34 percent, and the cost of borrowings decreased by 39 basis points to 3.53 percent.

Fourth quarter fiscal 2010 compared with linked quarter ended June 30, 2010

Net interest income for the quarter ended September 30, 2010 decreased $882,000 from the linked quarter ended June 30, 2010. The tax-equivalent net interest margin decreased 16 basis points from 3.91 percent in the linked quarter. The overall yield on loans decreased 20 basis points due primarily to prepayment fees of $600,000 received in the third quarter. The yield on the investment portfolio declined 29 basis points to 3.16 percent. The overall yield on earning assets declined 20 basis points. Interest bearing deposit costs declined 3 basis points reflecting continued discipline in deposit pricing.

Full year Fiscal 2010 compared to 2009

Net interest income declined year- over- year by $536,000, primarily due to lower yields on earning assets of 48 basis points, with no change in the average cost of long-term borrowings, partially offset by declines of 52 basis points in deposit costs.

Noninterest Income

Fourth quarter fiscal 2010 compared with fourth quarter fiscal 2009

Noninterest income totaled $7.7 million for the fiscal fourth quarter, a decrease of $90,000 from the fourth quarter of fiscal 2009. The decrease was due to lower deposit service charges of $442,000 caused by lower overdraft fee income, a bank owned life insurance payment of $736,000 received in fiscal 2009, as well as the decline in the fair value of the interest rate caps. This was offset by increases in gains on sale of loans of $207,000 and securities gains of $1.3 million.

Fourth quarter fiscal 2010 compared with linked quarter ended June 30, 2010

Noninterest income increased on a linked-quarter basis, mainly due to higher securities gains in the fourth quarter of $2.0 million and lower costs related to interest rate cap of $320,000.

Full year fiscal 2010 compared to 2009

Noninterest income was $27.2 million for fiscal 2010 compared to $40.0 million for fiscal 2009. Gains on sales of securities were down $9.9 million and derivative costs were up $1.1 million in fiscal 2010.

Noninterest Expense

Fourth quarter fiscal 2010 compared with fourth quarter fiscal 2009

Noninterest expense increased 10.3 percent when compared to the fourth quarter fiscal 2009. The increase is primarily due to medical and pension expense, higher incentive costs, staffing for new offices in Westchester and Nyack, and professional fees.

Fourth quarter fiscal 2010 compared with the linked quarter ended June 30, 2010

On a quarter-to-quarter basis, noninterest expense increased 3.0 percent due to increases related to medical and pension expense and incentive costs, and occupancy expense, offset in part by declines in advertising and promotion expense.

Full year fiscal 2010 compared to 2009

Noninterest expense increased 3.7% for the year. Declines in FDIC assessments, stock-based compensation, and ATM service charges were offset by increases in employee benefits and incentives, staffing for new offices, occupancy expense primarily associated with the new offices and equipment expenses, and professional fees.

Income Taxes

The effective tax rate for the fiscal 2010 was 25 percent compared to 28 percent for fiscal 2009. The decline is mainly due to the high proportion of tax-free income from municipal securities, BOLI and insurance relative to the total levels of pre-tax income and the set up of a captive insurance company.

Credit Quality

Net charge-offs for the fourth fiscal quarter were $2.4 million compared to $2.2 million in the linked quarter and $2.5 million for the fourth fiscal quarter of 2009. Our provision was $2.25 million, decreasing our allowance for loan losses by $178,000 to $30.8 million, or 108% of non-performing loans at September 30, 2010. This compares to 111 percent at September 30, 2009. Our full year provision is $10.0 million versus $9.2 million in net charge-offs, adding $793,000 to the allowance for loan losses. Provisions for fiscal 2009 were $17.6 million versus net charge-offs of $10.7 million adding $6.9 million to the allowance for loan losses.

Substandard loans at September 30, 2010 were $130.7 million compared to $124.8 million at June 30, 2010, and $89.9 million at September 30, 2009. Special mention loans were $37.9 million compared to $36.9 million at June 30, 2010, and $47.8 million at September 30, 2009. The increase in substandard loans over the linked quarter includes one C&I loan which totaled $3.0 million. Non performing loans were $28.7 million at September 30, 2010 compared to $29.5 million at June 30, 2010 and $27.1 at September 30, 2009.

Key Balance Sheet Changes

• Period-end total deposits increased $60.4 million compared to the previous year. We continue to see an overall increase in transaction accounts, up $65.6 million from the previous year. Business transaction accounts have increased 13.8 percent in this time frame. Decreases were seen in higher rate certificates of deposit and to a lesser extent higher rate municipal deposits. Municipal tax collection deposits (transaction accounts) were $219 million and $201 million in 2010 and 2009, respectively.
• While overall loan demand continues to be sporadic, total loan originations during fiscal 2010 were $524.9 million, an increase of 4.7 percent over $501.2 million for fiscal 2009. Commercial loan originations increased $69.6 million over fiscal 2009 levels or 29 percent. Commercial loan balances increased by $61.1 million or 6.2 percent, while 1-4 family residential mortgages declined by $49.5 million or 10.7 percent as the Bank sold $48.2 million in the secondary market. Securities increased $57.7 million to $934.9 million over September 30, 2009 levels, as the Company continued investing cash generated by deposit inflows into medium term securities, with durations between two and five years.
• Borrowings decreased over September 30, 2009 levels by $62.5 million as FHLBNY advances matured.

Capital and Liquidity

Provident Bank remained well-capitalized at September 30, 2010. Growth in core deposits has provided ample liquidity to reduce overall borrowings and increase available for sale securities. The Bank’s Tier 1 leverage ratio is at 8.43 percent. The Company’s tangible capital as a percent of tangible assets increased 19 basis points to 9.33 percent as of September 30, 2010, while its tangible book value per share increased to $6.96 from $6.60 at September 30, 2009. Total capital increased $3.5 million from September 30, 2009, to $431.0 million at September 30, 2010, due to a net increase of $9.2 million in the Company’s retained earnings, an increase of $1.7 million due to stock based compensation items, a $2.6 million increase in accumulated other comprehensive income, offset by a net change in treasury stock of $10.0 million.

About Provident New York Bancorp

Headquartered in Montebello, New York, Provident New York Bancorp is the parent company of Provident Bank, an independent full-service community bank. Provident Bank operates 35 branches that serve the Hudson Valley region. The Bank offers a complete line of commercial, retail and investment management services. For more information, visit the Company’s web site at www.providentbanking.com.

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS

In addition to historical information, this earnings release may contain forward-looking statements for purposes of applicable securities laws. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties. There are a number of important factors described in documents previously filed by the Company with the Securities and Exchange Commission, and other factors that could cause the Company’s actual results to differ materially from those contemplated by such forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

Financial information contained in this release should be considered to be an estimate pending completion of the annual audit of the Company’s financial statements and the filing of the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 with the Securities and Exchange Commission. While the Company is not aware of any need to revise the results disclosed in this release, accounting literature may require adverse information received by management between the date of this release and the filing of the 10-K to be reflected in the results of the fiscal year, even though the new information was received by management subsequent to the date of this release.