**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

**(Mark One)**
| **x** | **QUARTERLY                        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                        1934** |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------|

**For the quarterly period ended****June            30, 2007**

**OR**
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------------------|

**For the transition period from __________ to            __________.**

Commission File No.**0-22288**

 

| **Fidelity Bancorp, Inc.**                                                        |
|-----------------------------------------------------------------------------------|
| (Exact name of registrant as specified in its                            charter) |

 

| **Pennsylvania**                                                |   | **25-1705405**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation

or organization) |   | (I.R.S. Employer Identification No.) |

 

| **1009 Perry Highway, Pittsburgh, Pennsylvania                            15237** |
|-----------------------------------------------------------------------------------|
| (Address of principal executive offices)                                          |

 

| **412-367-3300**                                                                      |
|---------------------------------------------------------------------------------------|
| (Registrant’s telephone number, including area                            code) |

 

| **Not Applicable**                                                                                            |
|---------------------------------------------------------------------------------------------------------------|
| (Former name, former address and former fiscal year, if                            changed since last report) |

 

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 12 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. YesXNo            _____

             

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

 

|   | Large accelerated filer                            o | Accelerated filer                            o | Non-accelerated filerx |
|--------|------------------------------------------------------|------------------------------------------------|------------------------|

 

Indicate by check mark whether the registrant is a shell company (as            defined in Rule 12b-2 of the Exchange Act).:       o YesxNo

 

APPLICABLE ONLY TO CORPORATE ISSUERS

             

Indicate the number of shares outstanding of each of the issuer’s            classes of common stock, as of the latest practicable date:2,987,221 shares, par value $0.01, at July 31, 2007

 

 

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

 

**Index**

 

| Part I – Financial Information | Page

                                                                                                                                                                       |
|--------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                              | Financial Statements (Unaudited)                                                                                                                                                  | 3 |
|                                 | Consolidated Statements of Financial Condition as of                            June 30, 2007 and

September 30, 2006

                                                      | 3 |
|                                 | Consolidated Statements of Income for the Three and Nine                            Months Ended

June 30, 2007 and 2006

                                                   | 4-5 |
|                                 | Consolidated Statements of Cash Flows for the Nine                            Months Ended

June 30, 2007 and 2006

                                                         | 6-7 |
|                                 | Consolidated Statements of Changes in                            Stockholders’ Equity for the

Nine Months Ended June 30, 2007 and 2006

                              | 8

                              |
|                                 | Notes to Consolidated Financial Statements                                                                                                                                        | 9

                              |
| Item 2.                              | Management’s Discussion and Analysis of Financial                            Condition and

Results of Operations

                                                    | 15 |
| Item 3.                              | Quantitative and Qualitative Disclosures About Market                            Risk                                                                                             | 25

                              |
| Item 4.                              | Controls and Procedures                                                                                                                                                           | 25

                              |
|                                 |                                                                                                                                                                              |   |
| Part II - Other Information          |  

                                                                                                                                                                     |
| Item 1.                              | Legal Proceedings                                                                                                                                                                 | 25

                              |
| Item lA                              | Risk Factors                                                                                                                                                                      | 25

                              |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of                            Proceeds                                                                                            | 26

                              |
| Item 3.                              | Defaults Upon Senior Securities                                                                                                                                                   | 26

                              |
| Item 4.                              | Submission of Matters to a Vote of Security                            Holders                                                                                                    | 26

                              |
| Item 5.                              | Other Information                                                                                                                                                                 | 26

                              |
| Item 6.                              | Exhibits                                                                                                                                                                          | 27-28 |
|                                 |                                                                                                                                                                              |
| Signatures                           | 29                                                                                                                                                                                |

 

 

2

 

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Part            I - Financial Information

Item 1.            Financial Statements

 

**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Financial Condition            (Unaudited)**

(in            thousands except share data)

 

|                                                                                  |   | **June 30,** |    | **September 30,** |   |
|---------------------------------------------------------------------------------------|--------|--------------|---------|-------------------|--------|
| **Assets**                                                                            |   | **2007**     |    | **2006**          |   |
| Cash and due from banks                                                               |   | $            | 10,834  |              | $      | 8,480 |   |
| Interest-bearing demand deposits with other                            institutions   |   |         | 386     |              |   | 187 |   |
| Cash and Cash Equivalents                                                             |   |         | 11,220  |              |   | 8,667 |   |
|                                                                                  |   |         |    |              |   |   |   |
| Securities available-for-sale                                                         |   |         | 151,694 |              |   | 165,449 |   |
| (amortized cost of $154,476 and $167,699)                                             |   |         |    |              |   |   |   |
| Securities held-to-maturity                                                           |   |         | 78,043  |              |   | 85,879 |   |
| (fair value of $76,791 and $84,851)                                                   |   |         |    |              |   |   |   |
| Loans held for sale                                                                   |   |         | 577     |              |   | 40 |   |
| Loans receivable, net of allowance of $2,913 and                            $2,917    |   |         | 455,343 |              |   | 439,027 |   |
| Foreclosed real estate, net                                                           |   |         | 95      |              |   | 215 |   |
| Restricted investments in bank stock, at cost                                         |   |         | 7,017   |              |   | 9,132 |   |
| Office premises and equipment, net                                                    |   |         | 6,003   |              |   | 6,073 |   |
| Accrued interest receivable                                                           |   |         | 3,611   |              |   | 3,359 |   |
| Other assets                                                                          |   |         | 13,385  |              |   | 12,891 |   |
| Total Assets                                                                          |   | $            | 726,988 |              | $      | 730,732 |   |
|                                                                                  |   |         |    |              |   |   |   |
| Liabilities and Stockholders’                            Equity                 |   |         |    |              |   |   |   |
| Liabilities:                                                                          |   |         |    |              |   |   |   |
| Deposits:                                                                             |   |         |    |              |   |   |   |
| Non-interest bearing                                                                  |   | $            | 37,371  |              | $      | 32,927 |   |
| Interest bearing                                                                      |   |         | 396,000 |              |   | 381,255 |   |
| Total Deposits                                                                        |   |         | 433,371 |              |   | 414,182 |   |
|                                                                                  |   |         |    |              |   |   |   |
| Short-term borrowings                                                                 |   |         | 18,404  |              |   | 78,625 |   |
| Subordinated debt                                                                     |   |         | 10,310  |              |   | 10,310 |   |
| Securities sold under agreement to repurchase                                         |   |         | 96,775  |              |   | 83,638 |   |
| Advance payments by borrowers for taxes and                            insurance      |   |         | 3,911   |              |   | 1,508 |   |
| Long-term debt                                                                        |   |         | 114,111 |              |   | 94,292 |   |
| Other liabilities                                                                     |   |         | 4,170   |              |   | 3,982 |   |
| Total Liabilities                                                                     |   |         | 681,052 |              |   | 686,537 |   |
|                                                                                  |   |         |    |              |   |   |   |
| Stockholders’ equity:                                                           |   |         |    |              |   |   |   |
| Common stock, $0.01 par value per share,                                              |   |         |    |              |   |   |   |
| 10,000,000 shares authorized; 3,604,250                                               |   |         |    |              |   |   |   |
| and 3,569,525 shares issued, respectively                                             |   |         | 36      |              |   | 35 |   |
| Paid-in capital                                                                       |   |         | 45,279  |              |   | 44,774 |   |
| Retained earnings                                                                     |   |         | 12,752  |              |   | 11,076 |   |
| Accumulated other comprehensive loss                                                  |   |         | (1,836  | )                 |   | (1,485 | ) |
| Treasury stock, at cost – 614,029 and 609,029                            shares |   |         | (10,295 | )                 |   | (10,205 | ) |
| Total Stockholders’ Equity                                                      |   |         | 45,936  |              |   | 44,195 |   |
| Total Liabilities and Stockholders’                            Equity           |   | $            | 726,988 |              | $      | 730,732 |   |

 

See            accompanying notes to unaudited consolidated financial statements.

 

3

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Income (Unaudited)**

(in            thousands, except per share data)

 

|                                                                           |   | **Three Months Ended** |    |   |   | **Nine Months Ended** |   |
|--------------------------------------------------------------------------------|--------|------------------------|---------|--------|--------|-----------------------|--------|
|                                                                           |   | **June 30,**           |    |   |   | **June 30,**          |   |
|                                                                           |   | **2007**               |    |   |   | **2006**              |   |   |   | **2007** |   |   |   | **2006** |   |
| Interest income:                                                               |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans                                                                          |   | $                      | 7,272   |   |   |                  | $      | 6,255 |   |   |   | $ | 21,472 |   |   |   | $ | 17,634 |   |
| Mortgage-backed securities                                                     |   |                   | 1,005   |   |   |                  |   | 1,258 |   |   |   |   | 3,142 |   |   |   |   | 3,882 |   |
| Investment securities**–**taxable                                        |   |                   | 1,440   |   |   |                  |   | 1,534 |   |   |   |   | 4,472 |   |   |   |   | 4,296 |   |
| Investment securities**–**tax-exempt                                     |   |                   | 407     |   |   |                  |   | 515 |   |   |   |   | 1,363 |   |   |   |   | 1,539 |   |
| Other                                                                          |   |                   | 9       |   |   |                  |   | 5 |   |   |   |   | 26 |   |   |   |   | 18 |   |
| Total interest income                                                          |   |                   | 10,133  |   |   |                  |   | 9,567 |   |   |   |   | 30,475 |   |   |   |   | 27,369 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                                                              |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                                                       |   |                   | 3,432   |   |   |                  |   | 2,958 |   |   |   |   | 9,881 |   |   |   |   | 7,727 |   |
| Short-term borrowings                                                          |   |                   | 352     |   |   |                  |   | 1,071 |   |   |   |   | 2,092 |   |   |   |   | 3,590 |   |
| Subordinated debt                                                              |   |                   | 233     |   |   |                  |   | 221 |   |   |   |   | 693 |   |   |   |   | 627 |   |
| Securities sold under agreement to repurchase                                  |   |                   | 1,112   |   |   |                  |   | 425 |   |   |   |   | 3,068 |   |   |   |   | 607 |   |
| Long-term debt                                                                 |   |                   | 1,402   |   |   |                  |   | 1,496 |   |   |   |   | 4,088 |   |   |   |   | 4,709 |   |
| Total interest expense                                                         |   |                   | 6,531   |   |   |                  |   | 6,171 |   |   |   |   | 19,822 |   |   |   |   | 17,260 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                                            |   |                   | 3,602   |   |   |                  |   | 3,396 |   |   |   |   | 10,653 |   |   |   |   | 10,109 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                                      |   |                   | 100     |   |   |                  |   | 125 |   |   |   |   | 425 |   |   |   |   | 250 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income after provision for loan                            losses |   |                   | 3,502   |   |   |                  |   | 3,271 |   |   |   |   | 10,228 |   |   |   |   | 9,859 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income:                                                                  |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loan service charges and fees                                                  |   |                   | 105     |   |   |                  |   | 77 |   |   |   |   | 258 |   |   |   |   | 216 |   |
| Realized gain on sales of securities, net                                      |   |                   | 32      |   |   |                  |   | 130 |   |   |   |   | 126 |   |   |   |   | 341 |   |
| Gain on sales of loans                                                         |   |                   | 38      |   |   |                  |   | 11 |   |   |   |   | 69 |   |   |   |   | 29 |   |
| Deposit service charges and fees                                               |   |                   | 328     |   |   |                  |   | 333 |   |   |   |   | 934 |   |   |   |   | 1,023 |   |
| Non-insured investment products                                                |   |                   | 114     |   |   |                  |   | 95 |   |   |   |   | 317 |   |   |   |   | 308 |   |
| Other                                                                          |   |                   | 280     |   |   |                  |   | 285 |   |   |   |   | 894 |   |   |   |   | 859 |   |
| Total other income                                                             |   |                   | 897     |   |   |                  |   | 931 |   |   |   |   | 2,598 |   |   |   |   | 2,776 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                            |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Compensation and benefits                                                      |   |                   | 1,971   |   |   |                  |   | 1,977 |   |   |   |   | 5,972 |   |   |   |   | 5,838 |   |
| Office occupancy and equipment expense                                         |   |                   | 230     |   |   |                  |   | 259 |   |   |   |   | 808 |   |   |   |   | 849 |   |
| Depreciation and amortization                                                  |   |                   | 163     |   |   |                  |   | 156 |   |   |   |   | 478 |   |   |   |   | 501 |   |
| Loss on sales of foreclosed real estate                                        |   |                   | 27      |   |   |                  |   | 22 |   |   |   |   | 81 |   |   |   |   | 37 |   |
| Foreclosed real estate expense                                                 |   |                   | 28      |   |   |                  |   | 42 |   |   |   |   | 41 |   |   |   |   | 131 |   |
| Amortization of intangible assets                                              |   |                   | 8       |   |   |                  |   | 11 |   |   |   |   | 26 |   |   |   |   | 31 |   |
| Service bureau expense                                                         |   |                   | 44      |   |   |                  |   | 7 |   |   |   |   | 100 |   |   |   |   | 26 |   |
| Other                                                                          |   |                   | 564     |   |   |                  |   | 525 |   |   |   |   | 1,721 |   |   |   |   | 1,632 |   |
| Total operating expenses                                                       |   |                   | 3,035   |   |   |                  |   | 2,999 |   |   |   |   | 9,227 |   |   |   |   | 9,045 |   |
|                                                                           |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before Provision for Income Taxes and                                   |   |                   |    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Extraordinary Gain                                                             |   |                   | 1,364   |   |   |                  |   | 1,203 |   |   |   |   | 3,599 |   |   |   |   | 3,590 |   |
| Provision for Income Taxes                                                     |   |                   | 314     |   |   |                  |   | 234 |   |   |   |   | 758 |   |   |   |   | 672 |   |
| Income before Extraordinary Gain                                               |   |                   | 1,050   |   |   |                  |   | 969 |   |   |   |   | 2,841 |   |   |   |   | 2,918 |   |
| Income from Extraordinary Gain, Net of Taxes                                   |   |                   | — |   |   |                  |   | — |   |   |   |   | 89 |   |   |   |   | — |   |
| Net Income                                                                     |   | $                      | 1,050   |   |   |                  | $      | 969 |   |   |   | $ | 2,930 |   |   |   | $ | 2,918 |   |

 

 

4

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Income (Unaudited)            (Cont’d)**

(in            thousands, except per share data)

 

 

|                                         |   | **Three Months Ended** |    | **Nine Months Ended** |
|----------------------------------------------|--------|------------------------|---------|-----------------------|
|                                         |   | **June 30,**           |    | **June 30,**          |
|                                         |   | **2007**               |    | **2006**              |   | **2007** |   |   | **2006** |
| Earnings per Share                           |   |                   |    |                  |   |   |   |   |   |   |   |   |
| Basic                                        |   |                   |    |                  |   |   |   |   |   |   |   |   |
| Income before Extraordinary Gain             |   | $                      | .35     |                  | $ | .33 |   | $ | .95 |   | $ | .99 |
| Income from Extraordinary Gain, Net of Taxes |   |                   | — |                  |   | — |   |   | .03 |   |   | — |
| Net Income                                   |   | $                      | .35     |                  | $ | .33 |   | $ | .98 |   | $ | .99 |
| Diluted                                      |   |                   |    |                  |   |   |   |   |   |   |   |   |
| Income before Extraordinary Gain             |   | $                      | .34     |                  | $ | .32 |   | $ | .93 |   | $ | .96 |
| Income from Extraordinary Gain, Net of Taxes |   |                   | — |                  |   | — |   |   | .03 |   |   | — |
| Net Income                                   |   | $                      | .34     |                  | $ | .32 |   | $ | .96 |   | $ | .96 |
| Dividends per common share                   |   | $                      | .14     |                  | $ | .14 |   | $ | .42 |   | $ | .38 |

 

See            accompanying notes to unaudited consolidated financial statements.

 

 

5

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows            (Unaudited)**

(in            thousands)

 

|                                                                                   |   | **Nine Months Ended June 30,** |    |
|----------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                   |   | **2007**                       |    | **2006** |   |
| Operating                            Activities:                                       |   |                           |    |   |   |   |   |
| Net income                                                                             |   | $                              | 2,930   |   | $ | 2,918 |   |
| Adjustments to reconcile net income to net cash provided                            by |   |                           |    |   |   |   |   |
| operating activities:                                                                  |   |                           |    |   |   |   |   |
| Income from extraordinary gain, net of taxes                                           |   |                           | (89     | ) |   | — |   |
| Provision for loan losses                                                              |   |                           | 425     |   |   | 250 |   |
| Loss on sales of foreclosed real estate                                                |   |                           | 81      |   |   | 37 |   |
| Provision for depreciation and amortization                                            |   |                           | 478     |   |   | 501 |   |
| Deferred loan fee amortization                                                         |   |                           | (43     | ) |   | (73 | ) |
| Amortization of investment and mortgage-backed                            securities   |   |                           |    |   |   |   |   |
| discounts/premiums, net                                                                |   |                           | 153     |   |   | 418 |   |
| Amortization of intangibles                                                            |   |                           | 26      |   |   | 31 |   |
| Net gain on sale of securities                                                         |   |                           | (126    | ) |   | (341 | ) |
| Net gain on sale of loans                                                              |   |                           | (69     | ) |   | (29 | ) |
| Origination of loans held-for-sale                                                     |   |                           | (6,120  | ) |   | (2,347 | ) |
| Proceeds from sale of loans held-for-sale                                              |   |                           | 5,651   |   |   | 2,624 |   |
| Increase in accrued interest receivable                                                |   |                           | (252    | ) |   | (332 | ) |
| Increase in accrued income taxes                                                       |   |                           | 218     |   |   | 150 |   |
| Increase (decrease) in interest payable                                                |   |                           | 87      |   |   | (252 | ) |
| Increase in cash surrender value of life insurance                            policies |   |                           | (154    | ) |   | (145 | ) |
| Noncash compensation expense related to stock benefit                            plans |   |                           | 68      |   |   | 49 |   |
| Contribution to ESOP                                                                   |   |                           | (322    | ) |   | (240 | ) |
| Changes in other assets                                                                |   |                           | (468    | ) |   | 54 |   |
| Changes in other liabilities                                                           |   |                           | 206     |   |   | 1,047 |   |
|                                                                                   |   |                           |    |   |   |   |   |
| Net cash provided by operating activities                                              |   |                           | 2,680   |   |   | 4,320 |   |
|                                                                                   |   |                           |    |   |   |   |   |
| Investing                            Activities:                                       |   |                           |    |   |   |   |   |
| Proceeds from sales of securities                            available-for-sale        |   |                           | 9,890   |   |   | 10,925 |   |
| Proceeds from maturities and principal repayments                            of        |   |                           |    |   |   |   |   |
| securities available-for-sale                                                          |   |                           | 11,541  |   |   | 15,815 |   |
| Purchases of securities available-for-sale                                             |   |                           | (7,886  | ) |   | (19,173 | ) |
| Proceeds from maturities and principal repayments                            of        |   |                           |    |   |   |   |   |
| securities held-to-maturity                                                            |   |                           | 12,746  |   |   | 11,046 |   |
| Purchases of securities held-to-maturity                                               |   |                           | (5,022  | ) |   | — |   |
| Net increase in loans                                                                  |   |                           | (16,767 | ) |   | (73,173 | ) |
| Proceeds from sale of foreclosed real estate                                           |   |                           | 108     |   |   | 220 |   |
| Redemptions of FHLB stock                                                              |   |                           | 2,115   |   |   | 1,890 |   |
| Proceeds from insurance claim – Carnegie                            Branch       |   |                           | 135     |   |   | — |   |
| Additions to office premises and equipment                                             |   |                           | (408    | ) |   | (1,012 | ) |
| Proceeds from sales of office premises and                            equipment        |   |                           | — |   |   | 24 |   |
|                                                                                   |   |                           |    |   |   |   |   |
| Net cash provided by (used in) investing                            activities         |   |                           | 6,452   |   |   | (53,438 | ) |
|                                                                                   |   |                           |    |   |   |   |   |

 

Continued on page 7.

6

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Cash Flows            (Unaudited)****(Cont’d.)**

(in            thousands)

 

 

|                                                                                           |   | **Nine Months Ended June 30,** |    |
|------------------------------------------------------------------------------------------------|--------|--------------------------------|---------|
|                                                                                           |   | **2007**                       |    | **2006** |   |
| Financing                            Activities:                                               |   |                           |    |   |   |   |   |
| Net increase in deposits                                                                       |   | $                              | 19,189  |   | $ | 53,104 |   |
| Increase in repurchase agreements                                                              |   |                           | 13,137  |   |   | 2,608 |   |
| Net decrease in short-term borrowings                                                          |   |                           | (60,221 | ) |   | (41,228 | ) |
| Proceeds from long-term borrowings                                                             |   |                           | 20,000  |   |   | 60,000 |   |
| Repayments of long-term borrowings                                                             |   |                           | (181    | ) |   | (26,675 | ) |
| Increase in advance payments by borrowers for taxes and                            insurance   |   |                           | 2,403   |   |   | 2,334 |   |
| Cash dividends paid                                                                            |   |                           | (1,254  | ) |   | (1,181 | ) |
| Stock options exercised                                                                        |   |                           | 300     |   |   | 209 |   |
| Proceeds from sale of stock through Dividend                            Reinvestment Plan      |   |                           | 118     |   |   | 110 |   |
| Excess tax benefit realized on stock-based                            compensation             |   |                           | 20      |   |   | 37 |   |
| Acquisition of treasury stock                                                                  |   |                           | (90     | ) |   | (397 | ) |
|                                                                                           |   |                           |    |   |   |   |   |
| Net cash (used in) provided by financing                            activities                 |   |                           | (6,579  | ) |   | 48,921 |   |
|                                                                                           |   |                           |    |   |   |   |   |
| Increase (decrease) in cash and cash                            equivalents                    |   |                           | 2,553   |   |   | (197 | ) |
|                                                                                           |   |                           |    |   |   |   |   |
| Cash and cash equivalents at beginning of                            period                    |   |                           | 8,667   |   |   | 9,870 |   |
|                                                                                           |   |                           |    |   |   |   |   |
| Cash and cash equivalents at end of period                                                     |   | $                              | 11,220  |   | $ | 9,673 |   |
|                                                                                           |   |                           |    |   |   |   |   |
| Supplemental Disclosure of Cash Flow                            Information                    |   |                           |    |   |   |   |   |
| Cash paid during the period for:                                                               |   |                           |    |   |   |   |   |
| Interest on deposits and other borrowings                                                      |   | $                              | 19,735  |   | $ | 17,512 |   |
| Income taxes                                                                                   |   | $                              | 525     |   | $ | 633 |   |
|                                                                                           |   |                           |    |   |   |   |   |
| Supplemental Schedule of Noncash Investing and                            Financing Activities |   |                           |    |   |   |   |   |
|                                                                                           |   |                           |    |   |   |   |   |
| Transfer of loans to foreclosed real estate                                                    |   | $                              | 69      |   | $ | — |   |

 

 

See            accompanying notes to unaudited consolidated financial statements.

 

7

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Changes in Stockholders’ Equity            (Unaudited)**

(in            thousands, except share data)

 

|                                    |   |       |   |   |        |   |         |   |   |         | **Accumulated** |              |   |   |
|-----------------------------------------|--------|------------|--------|--------|-------------|--------|--------------|--------|--------|--------------|-----------------|-------------------|--------|--------|
|                                    |   |       |   |   |        |   |         |   |   |         | **Other**       |              |   |   |
|                                    |   | **Common** |   |   | **Paid-in** |   | **Treasury** |   |   | **Retained** |            | **Comprehensive** |   |   |   |
|                                    |   | **Stock**  |   |   | **Capital** |   | **Stock**    |   |   | **Earnings** |            | **Loss**          |   |   | **Total** |
| Balance at September 30, 2005           |   | $          | 35     |   |        | $      | 44,250       |   | $      | (9,808       | )               |              | $      | 8,486  |   | $ | (914 | ) | $ | 42,049 |   |
| Comprehensive income:                   |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Net income                              |   |       |   |   |        |   |         |   |   |         |            |              |   | 2,918  |   |   |   |   |   | 2,918 |   |
| Other comprehensive loss,               |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| net of tax of ($970)                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   | (1,884 | ) |   | (1,884 | ) |
| Reclassification adjustment,            |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| net of tax of ($116)                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   | (225 | ) |   | (225 | ) |
| Total comprehensive income              |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   | 809 |   |
| Stock-based compensation expense        |   |       |   |   |        |   | 49           |   |   |         |            |              |   |   |   |   |   |   |   | 49 |   |
| Stock options exercised, including tax  |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| benefit of $37                          |   |       |   |   |        |   | 246          |   |   |         |            |              |   |   |   |   |   |   |   | 246 |   |
| Cash dividends declared                 |   |       |   |   |        |   |         |   |   |         |            |              |   | (1,181 | ) |   |   |   |   | (1,181 | ) |
| Treasury stock purchased – 21,074 |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| shares                                  |   |       |   |   |        |   |         |   |   | (397         | )               |              |   |   |   |   |   |   |   | (397 | ) |
| Sale of stock through Dividend          |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Reinvestment Plan                       |   |       |   |   |        |   | 110          |   |   |         |            |              |   |   |   |   |   |   |   | 110 |   |
|                                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2006                |   | $          | 35     |   |        | $      | 44,655       |   | $      | (10,205      | )               |              | $      | 10,223 |   | $ | (3,023 | ) | $ | 41,685 |   |
|                                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Balance at September 30, 2006           |   | $          | 35     |   |        | $      | 44,774       |   | $      | (10,205      | )               |              | $      | 11,076 |   | $ | (1,485 | ) | $ | 44,195 |   |
| Comprehensive income:                   |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Net income                              |   |       |   |   |        |   |         |   |   |         |            |              |   | 2,930  |   |   |   |   |   | 2,930 |   |
| Other comprehensive loss,               |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| net of tax of ($138)                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   | (268 | ) |   | (268 | ) |
|   Reclassification adjustment,     |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| net of tax of ($43)                     |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   | (83 | ) |   | (83 | ) |
| Total comprehensive income              |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   | 2,579 |   |
|                                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Stock-based compensation expense        |   |       |   |   |        |   | 68           |   |   |         |            |              |   |   |   |   |   |   |   | 68 |   |
| Stock options exercised, including tax  |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| benefit of $20                          |   |       | 1      |   |        |   | 319          |   |   |         |            |              |   |   |   |   |   |   |   | 320 |   |
| Cash dividends declared                 |   |       |   |   |        |   |         |   |   |         |            |              |   | (1,254 | ) |   |   |   |   | (1,254 | ) |
| Treasury stock purchased – 5,000  |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| shares                                  |   |       |   |   |        |   |         |   |   | (90          | )               |              |   |   |   |   |   |   |   | (90 | ) |
| Sale of stock through Dividend          |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Reinvestment Plan                       |   |       |   |   |        |   | 118          |   |   |         |            |              |   |   |   |   |   |   |   | 118 |   |
|                                    |   |       |   |   |        |   |         |   |   |         |            |              |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2007                |   | $          | 36     |   |        | $      | 45,279       |   | $      | (10,295      | )               |              | $      | 12,752 |   | $ | (1,836 | ) | $ | 45,936 |   |
|                                         |        |            |        |        |             |        |              |        |        |              |                 |                   |        |        |  |  |  |  |  |  |  |  |  |  |  |

 

| See accompanying notes to unaudited consolidated                            financial statements. |
|---------------------------------------------------------------------------------------------------|

 

8

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Notes to Consolidated Financial Statements -            (Unaudited)**

**June 30, 2007**

 

(1)Consolidation

The            consolidated financial statements contained herein for Fidelity Bancorp, Inc. (the            “Company”) include the accounts of Fidelity Bancorp, Inc. and its            wholly-owned subsidiary, Fidelity Bank, PaSB (the            “Bank**”)**. All            inter-company balances and transactions have been eliminated.

 

| (2)Basis of                            Presentation |
|-----------------------------------------------------|

The            accompanying consolidated financial statements were prepared in accordance with            instructions to Form 10-Q, and therefore, do not include information or footnotes            necessary for a complete presentation of financial position, results of operations and            cash flows in conformity with generally accepted accounting principles in the United            States. However, all adjustments (consisting of normal recurring adjustments), which,            in the opinion of management, are necessary for a fair presentation of the financial            statements, have been included. These financial statements should be read in            conjunction with the audited financial statements and the accompanying notes thereto            included in the Company’s Annual Report for the fiscal year ended September 30,            2006. The results for the three and nine month periods ended June 30, 2007 are not            necessarily indicative of the results that may be expected for the fiscal year ending            September 30, 2007 or any future interim period.

 

Certain            amounts in the 2006 financial statements have been reclassified to conform with the            2007 presentation format. These reclassifications had no effect on net            income.

 

(3)New Accounting Standards

In July            2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.            48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB            Statement No. 109” (FIN 48), which clarifies the accounting for            uncertainty in tax positions. This Interpretation requires that companies recognize in            their financial statements the impact of a tax position, if that position is more            likely than not of being sustained on audit, based on the technical merits of the            position. The provisions of FIN 48 are effective for fiscal years beginning after            December 15, 2006, with the cumulative effect of the change in accounting principle            recorded as an adjustment to opening retained earnings. We are currently evaluating the            impact of adopting FIN 48 on our financial statements.

 

In May            2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1            “Definition of Settlement in FASB Interpretation No. 48” (FSP FIN 48-1).            FSP FIN 48-1 provides guidance on how to determine whether a tax position is            effectively settled for the purpose of recognizing previously unrecognized tax            benefits. FSP FIN 48-1 is effective for fiscal years beginning after December 15, 2006.            We are currently evaluating the impact of adopting FIN 48-1 on our financial            statements.

 

In            September 2006, the FASB issued FASB Statement No. 157,*Fair Value Measurements*, which defines fair            value, establishes a framework for measuring fair value under GAAP, and expands            disclosures about fair value measurements. FASB Statement No. 157 applies to other            accounting pronouncements that require or permit fair value measurements. The new            guidance is effective for financial statements issued for fiscal years beginning after            November 15, 2007, and for interim periods within those fiscal years. We are            currently evaluating the potential impact, if any, of the adoption of FASB Statement            No. 157 on our financial statements.

 

9

 

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In            September 2006, the Securities and Exchange Commission “SEC” issued Staff            Accounting Bulleting No. 108 (“SAB 108”). SAB 108 provides            interpretive guidance on how the effects of the carryover or reversal of prior year            misstatements should be considered in quantifying a potential current year            misstatement. Prior to SAB 108, companies might evaluate the materiality of            financial-statement misstatements using either the income statement or balance sheet            approach, with the income statement approach  focusing on new misstatements added            in the current year, and the balance sheet approach focusing on the cumulative amount            of misstatement present in a company’s balance sheet. Misstatements that would be            material under one approach could be viewed as immaterial under another approach, and            not be corrected. SAB 108 now requires that companies view financial statement            misstatements as material if they are material according to either the income statement            or balance sheet approach. SAB 108 is effective for publicly-held companies for fiscal            years ending after November 15, 2006. We are currently evaluating the potential            impact, if any, of the adoption of SAB 108 on our financial statements.

 

In            September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pension and Other            Postretirement Plans*(“SFAS 158”), which amends            SFAS 87 and SFAS 106 to require recognition of the overfunded or underfunded status of            pension and other postretirement benefit plans on the balance sheet. Under SFAS 158,            gains and losses, prior service costs and credits, and any remaining transition amounts            under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic            benefit cost will be recognized in accumulated other comprehensive income, net of tax            effects, until they are amortized as a component of net periodic cost. The measurement            date — the date at which the benefit obligation and plan assets are measured            — is required to be the company’s fiscal year end. SFAS 158 is effective            for publicly-held companies for fiscal years ending after December 15, 2006,            except for the measurement date provisions, which are effective for fiscal years ending            after December 15, 2008. The Company is currently analyzing the effects of SFAS            158 but does not expect its implementation will have a significant impact on the            Company’s financial condition or results of operations.

 

In            February 2007, the FASB issued FASB Staff Position (FSP) FAS 158-1,            “Conforming Amendments to the Illustrations in FASB Statements No. 87,            No. 88, and No 106 and to the Related Staff Implementation Guides.” This FSP            makes conforming amendments to other FASB statements and staff implementation guides            and provides technical corrections to SFAS No. 158, “Employers’            Accounting for Defined Benefit Pension and Other Postretirement Plans.” The            conforming amendments in this FSP shall be applied upon adoption of SFAS No. 158.            The Company is currently analyzing the effects of SFAS 158 but does not expect its            implementation will have a significant impact on the Company’s financial            condition or results of operations.

 

In            September 2006, the FASB’s Emerging Issues Task Force (EITF) issued EITF Issue            No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit            Aspects of Endorsement Split Dollar Life Insurance Arrangements” (“EITF            06-4”). EITF 06-4 requires the recognition of a liability related to the            postretirement benefits covered by an endorsement split-dollar life insurance            arrangement. The consensus highlights that the employer (who is also the policyholder)            has a liability for the benefit it is providing to its employee. As such, if the            policyholder has agreed to maintain the insurance policy in force for the            employee’s benefit during his or her retirement, then the liability recognized            during the employee’s active service period should be based on the future cost of            insurance to be incurred during the employee’s retirement. Alternatively, if the            policy holder has agreed to provide the employee with a death benefit, then the            liability for the future death benefit should be recognized by following the guidance            in SFAS No. 106 or Accounting Principles Board (APB) Opinion No. 12, as appropriate.            For transition, an entity can choose to apply the guidance using either of the            following approaches: (a) a change in accounting principle through retrospective            application to all periods presented or (b) a change in accounting principle through a            cumulative-effect adjustment to the balance in retained earnings at the beginning of            the year of adoption. The disclosures are required in fiscal years beginning after            December 15, 2007, with early adoption permitted. The Company does not believe that the            implementation of this guidance will have a material impact on the Company’s            consolidated financial statements.

 

10

 

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In            February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial            Assets and Financial Liabilities-Including an amendment of FASB Statement No.            115.” SFAS No. 159 permits entities to choose to measure many financial            instruments and certain other items at fair value. Unrealized gains and losses on items            for which the fair value option has been elected will be recognized in earnings at each            subsequent reporting date. SFAS No. 159 is effective for our Company October 1, 2008.            The Company is evaluating the impact that the adoption of SFAS No. 159 will have on our            consolidated financial statements.

 

(4)Stock Based Compensation

As of            June 30, 2007, the Company had six share-based compensation plans, which are described            below.

 

The            Company’s 2005 Stock-Based Incentive Plan (the Plan), which was            shareholder-approved, permits the grant of share options and shares to its employees            and non-employee directors for up to 165,000 shares of common stock. Option awards are            generally granted with an exercise price equal to the market value of the common stock            on the date of the grant, the options generally vest over a three-year period, and have            a contractual term of seven years, although the Plan permits contractual terms of up to            ten years. Option awards provide for accelerated vesting if there is a change in            control, as defined in the Plan. As of June 30, 2007, 74,100 options remain unawarded.            No share awards have been made under the plan.

 

The            Company also maintains the 1997 Employee Stock Compensation Program, which was            shareholder approved. At June 30, 2007, no remaining options were available for grant            under this program. Option awards under this program were granted with an exercise            price equal to the market value of the common stock on the date of grant, had vesting            periods from zero to two years, and had contractual terms from seven to ten years.            Option awards under this program provide for accelerated vesting if there is a change            in control, as defined in the program.

 

The            Company also maintains the 1998 Stock Compensation Program, the 2000 Stock Compensation            Plan, the 2001 Stock Compensation Plan, and the 2002 Stock Compensation Plan, which            provided for the grant of stock options to non-employee directors. At June 30, 2007, no            remaining options were available for grant under these programs. Option awards under            these programs were granted with an exercise price equal to the market value of the            common stock on the date of grant, were exercisable immediately, and had contractual            terms of ten years.

 

Stock            option transactions for the nine months ended June 30, 2007 were as follows:

 

|                                     |   |        |   |   |          |   |   |          |   |      | **Weighted-**  |   |
|------------------------------------------|--------|-------------|--------|--------|---------------|--------|--------|---------------|--------|-----------|----------------|--------|
|                                     |   |        |   |   | **Weighted-** |   |   |          |   |      | **Average**    |   |
|                                     |   |        |   |   | **Average**   |   |   | **Aggregate** |   |      | **Remaining**  |   |
|                                     |   |        |   |   | **Exercise**  |   |   | **Intrinsic** |   |      | **Term**       |   |
|                                     |   | **Options** |   |   | **Price**     |   |   | **Value**     |   |      | **(in years)** |   |
| Outstanding at the beginning of the year |   | 389,342     |   |   | $             | 14.89  |   |          |   |      |           |   |   |   |
| Granted                                  |   | 34,000      |   |   |          | 18.64  |   |          |   |      |           |   |   |   |
| Exercised                                |   | (28,390     | )      |   |          | 10.56  |   |          |   |      |           |   |   |   |
| Forfeited                                |   | (778        | )      |   |          | 20.76  |   |          |   |      |           |   |   |   |
| Outstanding as of June 30, 2007          |   | 394,174     |   |   | $             | 15.51  |   |          | $      | 1,221,471 |           |   | 4.7 |   |
| Exercisable as of June 30, 2007          |   | 327,373     |   |   | $             | 14.82  |   |          | $      | 1,221,471 |           |   | 4.5 |   |

 

 

11

 

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The            fair value of options granted for the nine month periods ended June 30, 2007 and 2006            were estimated at the date of grant using a Black-Scholes option pricing model with the            following weighted-average assumptions:

 

 

|                                                                      |   |   |   | **Nine Months Ended June 30,** |
|---------------------------------------------------------------------------|--------|--------|--------|--------------------------------|
|                                                                      |   |   |   | **2007**                       |   |   | **2006** |
|                                                                      |   |   |   |                           |   |   |   |
| Dividend yield                                                            |   |   |   | 3.81%                          |   |   | 3.61% — 3.81% |
| Expected life                                                             |   |   |   | 5.5 years                      |   |   | 5.5 years |
| Expected volatility                                                       |   |   |   | 22.02%                         |   |   | 22.20% — 22.75% |
| Risk-free interest rate                                                   |   |   |   | 4.50%                          |   |   | 4.23% — 4.47% |
| Weighted average fair value of options                            granted |   |   |   | $3.31                          |   |   | $3.25 — $3.36 |

 

(5)Earnings Per Share

Basic            earnings per share(EPS) excludes dilution and is computed by dividing net income by the            weighted average number of common shares outstanding for the period. Diluted EPS            reflects the potential dilution that could occur if securities or other contracts to            issue common stock were exercised or converted into common stock or resulted in the            issuance of common stock that then shared in the earnings of the Company. The following            table sets forth the computation of basic and diluted earnings per share (amounts in            thousands, except per share data):

 

 

|                                                                                           |   | **Three Months Ended June 30,** |   | **Nine Months Ended June 30,** |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------------------------------|--------|
|                                                                                           |   | **2007**                        |   | **2006**                       |   | **2007** |   | **2006** |   |
| Numerator:                                                                                     |   |                            |   |                           |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                     |   | $                               | 1,050  |                           | $      | 969 |   | $ | 2,930 |   | $ | 2,918 |   |
| Denominator:                                                                                   |   |                            |   |                           |   |   |   |   |   |   |   |   |   |
| Denominator for basic earnings pershare – weighted average shares                        |   |                            | 2,987  |                           |   | 2,960 |   |   | 2,981 |   |   | 2,958 |   |
| Effect of dilutive securities:                                                                 |   |                            |   |                           |   |   |   |   |   |   |   |   |   |
| Employee stock options                                                                         |   |                            | 63     |                           |   | 83 |   |   | 68 |   |   | 87 |   |
| Denominator for diluted earnings per share –                            weighted average |   |                            |   |                           |   |   |   |   |   |   |   |   |   |
| Shares and assumed conversions                                                                 |   |                            | 3,050  |                           |   | 3,043 |   |   | 3,049 |   |   | 3,045 |   |
| Basic earnings per share                                                                       |   | $                               | .35    |                           | $      | .33 |   | $ | .98 |   | $ | .99 |   |
| Diluted earnings per share                                                                     |   | $                               | .34    |                           | $      | .32 |   | $ | .96 |   | $ | .96 |   |

 

12

 

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| (6)Loans                            Receivable |
|------------------------------------------------|

Loans receivable are comprised of the following (dollar amounts in            thousands):

 

|                                  |   | **June 30,** |    | **September 30,** |   |
|---------------------------------------|--------|--------------|---------|-------------------|--------|
|                                  |   | **2007**     |    | **2006**          |   |
| First mortgage loans:                 |   |         |    |              |   |   |   |
| Conventional:                         |   |         |    |              |   |   |   |
| 1-4 family dwellings                  |   | $            | 185,182 |              | $      | 190,040 |   |
| Multi-family dwellings                |   |         | 244     |              |   | 259 |   |
| Commercial                            |   |         | 80,519  |              |   | 72,171 |   |
| Construction:                         |   |         |    |              |   |   |   |
| Residential                           |   |         | 48,227  |              |   | 42,252 |   |
| Commercial                            |   |         | 20,480  |              |   | 19,147 |   |
|                                  |   |         | 334,652 |              |   | 323,869 |   |
|                                  |   |         |    |              |   |   |   |
| Less: Loans in process                |   |         | (14,960 | )                 |   | (13,369 | ) |
|                                  |   |         | 319,692 |              |   | 310,500 |   |
| Installment loans:                    |   |         |    |              |   |   |   |
| Home equity                           |   |         | 92,452  |              |   | 90,263 |   |
| Consumer loans                        |   |         | 827     |              |   | 440 |   |
| Other                                 |   |         | 2,506   |              |   | 2,603 |   |
|                                  |   |         | 95,785  |              |   | 93,306 |   |
|                                  |   |         |    |              |   |   |   |
| Commercial business loans and leases: |   |         |    |              |   |   |   |
| Commercial business loans             |   |         | 42,623  |              |   | 37,930 |   |
| Commercial leases                     |   |         | 118     |              |   | 236 |   |
|                                  |   |         | 42,741  |              |   | 38,166 |   |
|                                  |   |         |    |              |   |   |   |
| Less: Allowance for loan losses       |   |         | (2,913  | )                 |   | (2,917 | ) |
|                                  |   |         |    |              |   |   |   |
| Unearned discounts and fees           |   |         | 38      |              |   | (28 | ) |
| Loans receivable, net                 |   | $            | 455,343 |              | $      | 439,027 |   |

 

(7)Allowance for Loan Losses

Changes            in the allowance for loan losses for the nine months ended June 30, 2007, fiscal year            ended September 30, 2006, and for the nine months ended June 30, 2006 are as follows            (dollar amounts in thousands):

 

|                           |   | **Nine Months Ended****June 30,****2007** |   | **Year Ended****September 30,****2006** |   | **Nine Months Ended****June 30,****2006** |   |
|--------------------------------|--------|-------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------|--------|
| Balance at beginning of period |   | $                                         | 2,917  |                                    | $      | 2,596                                     |   | $ | 2,596 |   |
| Provision for loan losses      |   |                                      | 425    |                                    |   | 600                                       |   |   | 250 |   |
| Charge-offs                    |   |                                      | (478   | )                                       |   | (326                                      | )      |   | (251 | ) |
| Recoveries                     |   |                                      | 49     |                                    |   | 47                                        |   |   | 37 |   |
| Balance at end of period       |   | $                                         | 2,913  |                                    | $      | 2,917                                     |   | $ | 2,632 |   |

             

 

13

 

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The            provision for loan losses charged to expense is based upon past loan loss experience            and an evaluation of probable losses in the current loan portfolio, including the            evaluation of impaired loans under SFAS Nos. 114 and 118. A loan is considered to be            impaired when, based upon current information and events, it is probable that the Bank            will be unable to collect all amounts due according to the contractual terms of the            loan. An insignificant shortfall in payments does not necessarily result in a loan            being identified as impaired. For this purpose, delays less than 90 days are considered            to be insignificant.

 

Impairment losses are included in the provision for loan losses. SFAS            Nos. 114 and 118 do not apply to large groups of smaller balance, homogeneous loans            that are collectively evaluated for impairment, except for those loans restructured            under a troubled debt restructuring. Loans collectively evaluated for impairment            include consumer loans and residential real estate loans, and are not included in the            following data.

 

At June            30, 2007, the recorded investment in loans that are considered to be impaired under            SFAS No. 114 was $2.0 million compared to $2.3 million at June 30, 2006. Included in            the current amount is $51,000 of impaired loans for which the related allowance for            loan losses is $8,000. Impaired loans of $2.0 million do not have a related allowance            for loan losses as a result of applying impairment tests prescribed under SFAS No. 114.            The average recorded investment in impaired loans during the nine months ended June 30,            2007 was $1.9 million compared to $1.7 million for the same period in the prior year.            For the nine months ended June 30, 2007**,**the Company recognized $14,000 of interest income on impaired loans            using the cash basis of income recognition. The Company recognized $36,000 of interest            income on impaired loans during the nine month period ended June 30, 2006.

 

(8)Extraordinary Gain

During            the fourth quarter of fiscal 2006, the Bank recorded an extraordinary gain of $481,000,            before taxes of $163,000, representing insurance proceeds received from the destructive            fire that devastated the Bank’s Carnegie Branch location in October 2005. (Refer            to Note 19 on page 43 of the Company’s 2006 Annual Report to Shareholders.)            During the second quarter of fiscal 2007, the Bank received additional insurance            proceeds of $135,000, and recorded an extraordinary gain of $89,000, net of taxes. The            insurance claim has been settled and no additional proceeds are expected to be            recovered.

 

14

 

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Item 2.            Management’s Discussion and Analysis of Financial Condition and Results of            Operations

 

**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF            FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS**

 

The            Private Securities Litigation Reform Act of 1995 contains safe harbor provisions            regarding forward-looking statements. When used in this discussion, the words            “believes,” “anticipates,” “contemplates,”            “expects,” and similar expressions are intended to identify forward-looking            statements. Such statements are subject to certain risks and uncertainties which could            cause actual results to differ materially from those projected. Those risks and            uncertainties include changes in interest rates, risks associated with the effect of            integrating newly acquired businesses, the ability to control costs and expenses, and            general economic conditions. The Company does not undertake to, and specifically            disclaims any obligation to, update any such forward-looking statements.

 

Fidelity Bancorp, Inc.’s (“Fidelity” or the            “Company”) business is conducted principally through its wholly-owned            subsidiary, Fidelity Bank (the “Bank”). All references to the Company refer            collectively to the Company and the Bank, unless the context indicates            otherwise.

 

Critical Accounting Policies

Note 1            on pages 10 through 18 of the Company’s 2006 Annual Report to Shareholders lists            significant accounting policies used in the development and presentation of its            financial statements. This discussion and analysis, the significant accounting            policies, and other financial statement disclosures identify and address key variables            and other qualitative and quantitative factors that are necessary for an understanding            and evaluation of the Company and its results of operations.

 

The            most significant estimates in the preparation of the Company’s financial            statements are for the allowance for loan losses, evaluation of investments for other            than temporary impairment, and accounting for stock options. Please refer to the            discussion of the allowance for loan losses in note 7 “Allowance for Loan            Losses” on pages 13 and 14 above. In addition, further discussion of the            estimates used in determining the allowance for loan losses is contained in the            discussion on “Provision for Loan Losses” on pages 55 and 56 of the            Company’s September 30, 2006 Consolidated Financial Statements. At least            quarterly, management reviews the available for sale portfolio and identifies all            securities where the market value is less than the amortized cost. Each individual            security is then reviewed taking into consideration criteria such as the magnitude and            duration of the decline and the reasons underlying the decline to determine if such            decline in market value is other than temporary. If the security is deemed other than            temporarily impaired it is written down to the current market value and a corresponding            charge to earnings is recognized. The Company did not recognize any other than            temporary impairment losses on available for sale securities during the three and nine            month periods ended June 30, 2007 and 2006. Stock based compensation expense is            reported in net income utilizing the fair-value-based method set forth in SFAS No.            123R. The fair value of each option award is estimated at the date of grant using the            Black-Scholes option-pricing model. Please refer to the discussion of stock based            compensation in note 4 “Stock Based Compensation” on pages 11 through 12            above. In addition, further discussion of the assumptions used in determining stock            based compensation is contained in note 13 “Stock Option Plans” on pages 35            and 36 of the Company’s September 30, 2006 Consolidated Financial            Statements.

 

15

 

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Comparison of Financial Condition

Total            assets of the Company decreased $3.7 million, or .51%, to $727.0 million at June 30,            2007 from $730.7 million at September 30, 2006. Significant changes in individual            categories include a decrease in securities held-to-maturity of $7.8 million, a            decrease in securities available for sale of $13.8 million, a decrease in restricted            investments in bank stock of $2.1 million, and an increase in net loans of $16.3            million including an $8.3 million increase in commercial real estate loans and a $6.0            million increase in residential construction loans.

 

Total            liabilities of the Company decreased $5.5 million, or .80%, to $681.1 million at June            30, 2007 from $686.5 million at September 30, 2006. Significant changes include a            decrease in short-term borrowings of $60.2 million, an increase in long-term debt of            $19.8 million, an increase in securities sold under agreement to repurchase of $13.1            million (including $10.0 million in wholesale repurchase agreements), and an increase            in deposits of $19.2 million. The Company decided to take advantage of the lower            interest rates offered on long-term debt and securities sold under agreement to            repurchase to replace short-term borrowings consistent with asset/liability management            strategies.

 

Stockholders’ equity increased to $45.9 million at June 30, 2007,            compared to $44.2 million at September 30, 2006. This result reflects net income for            the nine month period ended June 30, 2007 of $2.93 million, stock options exercised of            $320,000 (including tax benefit of $20,000), stock issued under the Dividend            Reinvestment Plan of $118,000, and stock-based compensation of $68,000. Offsetting            these increases were common stock cash dividends paid of $1.3 million, treasury stock            purchased of $90,000, and an increase in the accumulated other comprehensive loss of            $351,000. Accumulated other comprehensive loss increased from September 30, 2006 as a            result of changes in the net unrealized losses on the available-for-sale securities due            to the fluctuations in interest rates during the current period. Management does not            consider the unrealized losses at June 30, 2007, to be other than temporary. Because of            interest rate volatility, the Company’s accumulated other comprehensive loss            could materially fluctuate for each interim and year-end period. Approximately $3.4            million of the balances in retained earningsas of June 30, 2007 and September 30, 2006            represent base year bad debt deductions for tax purposes only, as they are considered            restricted accumulated earnings.

 

16

 

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| Non-Performing Assets |
|-----------------------|

The            following table sets forth information regarding non-accrual loans and foreclosedreal            estate held by the Company at the dates indicated. The Company did not have any loans            which were classified as troubled debt restructurings at the datespresented (dollar            amounts in thousands).

 

|                                                                                                                                                           |   | **June 30,** |   |   | **September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------|-------------------|--------|
|                                                                                                                                                           |   | **2007**     |   |   | **2006**          |   |
| Non-accrual residential real estate                            loans

       (on-to-four                            family) |        | $            | 592    |        |                   | $      | 403 |  |
| Non-accrual construction, multi-familyresidential and commercial real estate loans                                                                             |   |         | 342    |   |              |   | 344 |   |
| Non-accrual installment loans                                                                                                                                  |   |         | 241    |   |              |   | 238 |   |
| Non-accrual commercial business loans                                                                                                                          |   |         | 1,672  |   |              |   | 1,700 |   |
| Total non-performing loans                                                                                                                                     |   | $            | 2,847  |   |              | $      | 2,685 |   |
| Total non-performing loans as a percent ofnet loans receivable                                                                                                 |   |         | 0.63   | %      |              |   | 0.61 | % |
| Total foreclosed real estate                                                                                                                                   |   | $            | 95     |   |              | $      | 215 |   |
| Total non-performing loans and foreclosed                            realestate as a percent of total assets                                                   |   |         | 0.40   | %      |              |   | 0.40 | % |

 

Included in non-performing loans at June 30, 2007 are nine single-family            residential real estate loans totaling $592,000, one commercial real estate loan            totaling $342,000, eighteen home equity and installment loans totaling $241,000, and            seven commercial business loans totaling $1.7 million.

 

At June            30, 2007, the Company had an allowance for loan losses of $2.91 million or .64% of net            loans receivable, as compared to an allowance of $2.92 million or .66% of net loans            receivable at September 30, 2006. The allowance for loan losses equals 102.3% of            non-performing loans at June 30, 2007 compared to 108.6% at September 30, 2006.            Management believes the balance is adequate based on its analysis of quantitative and            qualitative factors as of June 30, 2007. Management has evaluated its entire loan            portfolio, including these non-performing loans, and the overall allowance for loan            losses and is satisfied that the allowance for losses on loans at June 30, 2007 is            reasonable. See also “Provision for Loan Losses” on page 21. However, there            can be no assurance that the allowance for loan losses is sufficient to cover possible            future loan losses.

 

The            Company recognizes that it must maintain an Allowance for Loan and Lease Losses            (“ALLL”) at a level that is adequate to absorb estimated credit losses            associated with the loan and lease portfolio. The Company’s Board of Directors            has adopted an ALLL policy designed to provide management with a systematic methodology            for determining and documenting the ALLL each reporting period. This methodology was            developed to provide a consistent process and review procedure to ensure that the ALLL            is in conformity with the Company’s policies and procedures and other supervisory            and regulatory guidelines.

 

The            Company’s ALLL methodology incorporates management’s current judgments            about the credit quality of the loan portfolio. The following factors are considered            when analyzing the appropriateness of the allowance: historical loss experience;            volume; type of lending conducted by the Bank; industry standards; the level and status            of past due and non-performing loans; the general economic conditions in the            Bank’s lending area; and other factors affecting the collectibility of the loans            in its portfolio. The primary elements of the Bank’s methodology include            portfolio segmentation and impairment measurement. Management acknowledges that this is            a dynamic process and consists of factors, many of which are external and out of            management’s control, that can change often, rapidly and substantially. The            adequacy of the ALLL is based upon estimates considering all the aforementioned factors            as well as current and known circumstances and events. There is no assurance that            actual portfolio losses will not be substantially different than those that were            estimated.

 

17

 

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Comparison of Results of Operations

for the Three and Nine Months Ended June 30, 2007 and            2006

 

Net            Income

Net            income for the three months ended June 30, 2007 was $1.05 million ($.34 per diluted            share) compared to $969,000 ($.32 per diluted share) for the same period in 2006, an            increase of $81,000 or 8.4 %. The increase reflects an increase in net interest income            of $206,000, or 6.1% and a decrease in the provision for loan losses of $25,000.            Partially offsetting these factors were a decrease in other income of $34,000, or 3.7%,            an increase in operating expenses of $36,000, or 1.2%, and an increase in the provision            for income taxes of $80,000, or 34.2%.

 

Net            income for the nine months ended June 30, 2007 was $2.93 million ($.96 per diluted            share) compared to $2.92 million ($.96 per diluted share) for the comparable prior-year            period. Net income for the nine months ended June 30, 2007 included an extraordinary            gain, net of taxes, of $89,000, or $.03 per diluted share, attributable to the receipt            of additional insurance proceeds from the destructive fire that devastated the            Bank’s Carnegie branch in October 2005. The Company previously recorded an            extraordinary gain, net of taxes, of $318,000 ($.11 per diluted share) during the            fourth quarter of fiscal 2006 on a prior receipt of insurance proceeds related to the            same claim. The insurance claim has been settled and the Company does not expect to            receive any additional proceeds. For additional information, see Note 19 of Notes to            Consolidated Financial Statements in the 2006 Annual Report to Stockholders.

 

Income            before extraordinary gain for the nine months ended June 30, 2007 was $2.84 million            ($.93 per diluted share) compared to $2.92 million ($.96 per diluted share) in the            prior year period, a decline of $77,000, or 2.6%. The decline in income before            extraordinary gain is attributable to an increase in the provision for loan losses of            $175,000, an increase in other expenses of $182,000, or 2.0%, a decrease in other            income of $178,000, or 6.4%, and an increase in the provision for income taxes of            $86,000, or 12.8%, which offset an increase in net interest income of $544,000, or            5.4%.

 

18

 

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Interest Rate Spread

The            Company’s interest rate spread, the difference between average yields calculated            on a tax-equivalent basis on interest-earning assets and the average cost of funds,            increased to 2.03% (annualized) in the three months ended June 30, 2007 from 2.00%            (annualized) in the same period in 2006 as a result of the average yield on total            interest earning assets increasing more than the average rate paid on interest-bearing            liabilities. The Company’s tax-equivalent interest rate spread decreased to 1.99%            (annualized) in the nine months ended June 30, 2007 from 2.03% (annualized) in the same            period in fiscal 2006 as a result of the average yield on total interest earning assets            increasing less than the average rate paid on interest-bearing liabilities. The            following table shows the average yields earned on the Company’s interest-earning            assets and the average rates paid on its interest-bearing liabilities for the periods            indicated, the resulting interest rate spreads, and the net yields on interest-earning            assets.

 

|                                                                                                                          |   | **Three Months Ended****June 30,** |   | **Nine Months Ended****June 30,** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                          |   | **2007**                           |   | **2006**                          |   | **2007** |   | **2006** |   |
| Average yield on:                                                                                                             |   |                               |   |                              |   |   |   |   |   |
| Mortgage loans                                                                                                                |   | 6.14                               | %      | 5.86                              | %      | 6.11 | % | 5.82 | % |
| Mortgage-backed securities                                                                                                    |   | 4.39                               |   | 4.41                              |   | 4.40 |   | 4.30 |   |
| Installment loans                                                                                                             |   | 6.43                               |   | 6.28                              |   | 6.41 |   | 6.18 |   |
| Commercial business loans and leases                                                                                          |   | 7.65                               |   | 8.59                              |   | 7.61 |   | 8.56 |   |
| Interest –earning deposits with other                            institutions,investment securities, and FHLB stock (1) |   | 5.49                               |   | 5.42                              |   | 5.55 |   | 5.14 |   |
| Total interest-earning assets                                                                                                 |   | 5.90                               |   | 5.67                              |   | 5.88 |   | 5.54 |   |
| Average rates paid on:                                                                                                        |   |                               |   |                              |   |   |   |   |   |
| Deposits                                                                                                                      |   | 3.24                               |   | 2.91                              |   | 3.17 |   | 2.66 |   |
| Borrowed funds                                                                                                                |   | 4.96                               |   | 4.85                              |   | 5.02 |   | 4.74 |   |
| Total interest-bearing liabilities                                                                                            |   | 3.87                               |   | 3.67                              |   | 3.89 |   | 3.51 |   |
| Average interest rate spread                                                                                                  |   | 2.03                               | %      | 2.00                              | %      | 1.99 | % | 2.03 | % |
| Net yield on interest-earning assets                                                                                          |   | 2.16                               | %      | 2.09                              | %      | 2.13 | % | 2.13 | % |

             

|   | (1) | Interest income on tax-exempt investments has been                            adjusted for federal income tax purposes using a rate of                            34%. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Interest Income

Interest on loans increased $1.0 million or 16.3% to $7.3 million for            the three months ended June 30, 2007, compared to $6.3 million in the same period in            2006. Interest on loans increased $3.8 million or 21.8% to $21.5 million for the nine            months ended June 30, 2007. The increase for both periods reflects an increase in the            average loan balance outstanding during 2007 as well as an increase in the average            yield earned on the loan portfolio.

             

Interest on mortgage-backed securities decreased $253,000 or 20.1% to            $1.0 million for the three month period ended June 30, 2007, compared to $1.3 million            in the same period in 2006. Interest on mortgage-backed securities decreased $740,000            or 19.1% to $3.1 million for the nine months ended June 30, 2007, compared to the same            period in 2006. The decrease for the three month period ended June 30, 2007 reflects a            decrease in the average balance of mortgage-backed securities owned as well as a slight            decrease in the average yield earned on the portfolio. The decrease for the nine month            period ended June 30, 2007 reflects a decrease in the average balance of            mortgage-backed securities owned partially offset by an increase in the average yield            earned on the portfolio.

 

19

 

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Interest on interest-bearing demand deposits with other institutions and            investment securities (non-tax equivalent) decreased $198,000 or 9.6% to $1.9 million            for the three months ended June 30, 2007, as compared to the same period in 2006.            Interest on interest-bearing demand deposits with other institutions and investment            securities (non-tax equivalent) increased $8,000 or .1% to $5.9 million for the nine            months ended June 30, 2007, as compared to the same period in 2006. The decrease for            the three month period ended June 30, 2007 reflects a decrease in the average balance            of investment securities in the portfolio partially offset by a slight increase in the            yield earned on these investments. The increase for the nine month period ended June            30, 2007 reflects an increase in the yield earned on these investments partially offset            by a decrease in the average balance of investment securities in the            portfolio.

 

Interest Expense

Interest on deposits increased $474,000 or 16.0% to $3.4 million for the            three month period ended June 30, 2007, as compared to $3.0 million during the same            period in 2006. Interest on deposits increased $2.2 millionor 27.9% to $9.9 million for            the nine month period ended June 30, 2007, as compared to $7.7 million during the same            period in 2006. The increase for both periods reflects an increase in the average            balance of deposits as well as an increase in the average cost of the deposits            reflecting higher short-term rates and a competitive deposit market.

 

Interest on short-term borrowings, including Federal Home Loan Bank            (“FHLB”) “RepoPlus” advances, FHLB revolving line of credit,            federal funds purchased, and treasury, tax and loan notes, decreased $719,000 to            $352,000 for the three month period ended June 30, 2007, as compared to $1.1 million in            the same period in fiscal 2006. Interest on short-term borrowings decreased $1.5            million to $2.1 million for the nine month period ended June 30, 2007, as compared to            $3.6 million in the same period in 2006. The decrease for the three month period ended            June 30, 2007 reflects a decrease in the average balance of these borrowings as well as            a decrease in the average cost of these borrowings. The decrease for the nine month            period ended June 30, 2007 reflects a decrease in the average balance of these            borrowings, partially offset by an increase in the average cost of these            borrowings.

 

Interest on subordinated debt increased $12,000 for the three months            ended June 30, 2007, as compared to the same period in 2006. Interest on subordinated            debt increased $66,000 for the nine months ended June 30, 2007, as compared to the same            period in 2006. The increase for both periods reflects an increase in the average cost            of these floating-rate debentures while the average balance remained            unchanged.

 

Interest on securities sold under agreement to repurchase, including            retail, term, and wholesale structured borrowings, increased $687,000 to $1.1 million            for the three month period ended June 30, 2007, as compared to the same period in 2006.            Interest on securities sold under agreement to repurchase increased $2.5 million to            $3.1 million for the nine month period ended June 30, 2007, as compared to the same            period in 2006. The increase for both periods reflects both a higher level of average            securities sold under agreement to repurchase and an increase in the cost of these            funds. In fiscal 2006, the Bank began using structured reverse repurchase agreements to            replace various FHLB borrowings. The Bank had $70 million and $45 million of wholesale            structured borrowings outstanding at June 30, 2007 and 2006, respectively. During the            three month period ended June 30, 2007 the Bank began using term repurchase agreements            to replace a $15 million structured reverse repurchase agreement that was called. The            Bank had $15 million of wholesale term borrowings outstanding at June 30,            2007.

 

Interest on long-term debt, including FHLB fixed rate advances and            “Convertible Select” advances, decreased $94,000 to $1.4 million for the            three months ended June 30, 2007 as compared to the same period in fiscal 2006.            Interest on long-term debt decreased $621,000, to $4.1 million for the nine months            ended June 30, 2007 as compared to the same period in fiscal 2006. The decrease for            both periods reflects a decrease in the average balance of the debt, partially offset            by an increase in the average cost of the debt.

 

20

 

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Net            Interest Income

The            Company’s net interest income increased $206,000 or 6.1% to $3.6 million, for the            three month period ended June 30, 2007, as compared to $3.4 million in the same period            in 2006. The Company’s net interest income increased $544,000 or 5.4% to $10.7            million, for the nine months ended June 30, 2007, as compared to the same period in            2006. The increase for the three month period ended June 30, 2007 is attributable to an            increase in net interest-earning assets as well as a slightly increased interest rate            spread. The increase for the nine month period ended June 30, 2007 is attributable to            an increase in net interest-earning assets, partially offset by a decreased interest            rate spread.

 

Provision for Loan Losses

The            provision for loan losses decreased to $100,000 for the three month period ended June            30, 2007, as compared to $125,000 for the same period in 2006. The provision for loan            losses was $425,000 for the nine months ended June 30, 2007 compared to $250,000 for            the nine months ended June 30, 2007. At June 30, 2007, the allowance for loan losses            decreased slightly to $2.91 million from $2.92 million at September 30, 2006. Net loan            charge-offs were $33,000 and $92,000 for the three months ended June 30, 2007 and 2006,            respectively. Net loan charge-offs were $429,000 and $214,000 for the nine months ended            June 30, 2007 and 2006, respectively.

 

The            provision for loan losses is charged to operations to bring the total allowance for            loan losses to a level that represents management’s best estimates of the losses            inherent in the portfolio based on a monthly review by management of factors such as            historical experience, volume, type of lending conducted by the Bank, industry            standards, the level and status of past due and non-performing loans, the general            economic conditions in the Bank’s lending area, and other factors affecting the            collectibility of the loans in its portfolio.

 

The            allowance for loan losses is maintained at a level that represents management’s            best estimates of losses in the loan portfolio at the balance sheet date. However,            there can be no assurance that the allowance for loan losses will be adequate to cover            losses which may be realized in the future and that additional provisions for losses            will not be required.

 

Other Income 

Total            non-interest or other income decreased $34,000 or 3.7% to $897,000 and decreased            $178,000 or 6.4% to $2.6 million for the three and nine month periods ended June 30,            2007, respectively, as compared to the same periods in 2006. The decrease, for the            three month period ended June 30, 2007, primarily relates to a decrease in the realized            gains on sales of securities, partially offset by an increase in loan service charges            and fees, an increase in the gain on the sales of loans, and an increase in non-insured            investment product income. The decrease, for the nine month period ended June 30, 2007,            primarily relates to a decrease in the realized gains on sales of securities and a            decrease in deposit service charges and fees, partially offset by an increase in loan            service charges and fees, an increase in the gain on the sales of loans, and an            increase in other income.

 

Loan            service charges and fees, which includes late charges on loans and other miscellaneous            loan fees, increased $28,000 or 36.4% to $105,000, and increased $42,000 or 19.4% to            $258,000 for the three and nine month periods ended June 30, 2007, respectively, as            compared to the same periods in 2006. The increase for the three month period ended            June 30, 2007 is primarily attributed to an increase in miscellaneous fees collected on            home equity and commercial loans. The increase for the nine month period ended June 30,            2007 is primarily attributed to an increase in miscellaneous fees collected on home            equity and commercial loans and an increase in title insurance fees.

 

Net            realized gains on the sales of securities were $32,000 and $126,000 for the three and            nine month periods ended June 30, 2007, respectively, as compared to realized gains of            $130,000 and $341,000 in the same periods in fiscal 2006. Such sales were made from the            available-for-sale portfolio as part of management’s asset/liability management            strategies. The Company has sold approximately the same level of securities during            fiscal 2007 as compared to fiscal 2006, but gains are lower in 2007 due to the changing            interest rate environment.

 

21

 

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Gains            on the sale of loans were $38,000 and $69,000 for the three and nine-month periods            ended June 30, 2007, respectively, as compared to gains of $11,000 and $29,000 for the            same periods in fiscal 2006. The nine month period ended June 30, 2007 results reflect            the sale of approximately $5.6 million of fixed-rate, single-family mortgage loans,            compared to $2.6 million of similar loan sales during the prior fiscal            period.

 

Deposit            service charges and fees decreased $5,000 or 1.5% for the three month period ended June            30, 2007 and decreased $89,000 or 8.7% for the nine month period ended June 30, 2007 as            compared to the same periods in fiscal 2006. The decreases for the three and nine month            periods ended June 30, 2007 are primarily attributed to a decrease in the volume of            fees collected for returned checks on deposit accounts and a decrease in the service            charges assessed on checking accounts in response to competition.

 

Non-insured investment product income was $114,000 and $317,000 for the            three and nine month periods ended June 30, 2007, respectively, as compared to $95,000            and $308,000 for the same periods in fiscal 2006. The increase for the three and nine            month periods ended June 30, 2007 is primarily attributed to an increase in the            commissions earned on the sales of these products.

 

Other            income decreased $5,000 to $280,000 for the three month period ended June 30, 2007            compared to $285,000 for the same period in 2006. Other income increased $35,000 to            $894,000 for the nine month period ended June 30, 2007 compared to $859,000 for the            nine month period ended June 30, 2006. The decrease for the three month period ended            June 30, 2007, primarily relates to a decrease in profits recognized on the sales of            fixed assets. The increase for the nine month period ended June 30, 2007 is primarily            attributed to the collection of $45,000 in the quarter ending March 31, 2007,            representing a recovery of a loss related to a check kiting fraud discovered in March            2005 attributable to one business customer.

 

Operating Expenses

Total            operating expenses for the three month periods ended June 30, 2007 and 2006 were            approximately the same at $3.0 million. Total operating expenses for the nine month            period ended June 30, 2007 totaled $9.2 million compared to $9.0 million for the same            period in fiscal 2006. The increase for the nine month period ended June 30, 2007 is            primarily attributed to an increase in compensation and benefits expense, an increase            in other operating expense, an increase in loss on the sales of foreclosed real estate,            and an increase in service bureau expense, partially offset by a decrease in foreclosed            real estate expense and a decrease in office occupancy and equipment            expense.

 

Compensation and benefits expense for the three month periods ended June            30, 2007 and 2006 was $2.0 million. Compensation and benefits expense was $6.0 million            for the nine month period ended June 30, 2007 compared to $5.8 million for the same            period in 2006. The increase for the nine month period is due primarily to normal            salary increases for employees, partially offset by lower health insurance            expense.

 

Office            occupancy and equipment expense was $230,000 for the three month period ended June 30,            2007, as compared to $259,000 for the same period in 2006. Office occupancy and            equipment expense was $808,000 and $849,000, for the nine month periods ended June 30,            2007 and 2006, respectively. The decrease for both periods is primarily attributed to a            decrease in furniture, fixtures and equipment expense. Prior periods furniture,            fixtures and equipment expense included expenses related to the opening of the new            Carnegie Branch.

 

22

 

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Losses            on the sales of foreclosed real estate were $27,000 and $81,000 for the three and nine            month periods ended June 30, 2007, respectively, as compared to losses of $22,000 and            $37,000 for the same periods in 2006, respectively. Foreclosed real estate expense was            $28,000 for the three month period ended June 30, 2007, as compared to $42,000 for the            same period in 2006, and $41,000 for the nine month period ended June 30, 2007, as            compared to $131,000 for the same period in 2006. The results reflect the costs            associated with the holding and disposition of properties including writedowns during            the periods. At June 30, 2007, foreclosed real estate consisted of 2 single-family            residential properties, which were owned by the same borrower as investment properties,            and one commercial real estate property.

 

Service            bureau expense was $44,000 for the three month period ended March 31, 2007, as compared            to $7,000 for the same period in 2006. Service bureau expense was $100,000 and $26,000,            for the nine month periods ended June 30, 2007 and 2006, respectively. In February            2007, the Bank converted its data processing operations from an in-house environment to            an outsourced service bureau environment, which primarily attributed to the increase.            The service bureau environment has reduced compensation expense and office occupancy            and equipment expense.

 

Other            operating expenses were $564,000 for the three month period ended June 30, 2007            compared to $525,000 for the same period in 2006. Other operating expenses were $1.7            million for the nine month period ended June 30, 2007 compared to $1.6 million for the            nine month period ended June 30, 2006. The increase for the three month period is due            primarily to an increase in internet banking fees and an increase in ATM expenses. The            increase for the nine month period is due primarily to an increase in internet banking            fees, an increase in consulting fees, and an increase in ATM expenses, partially offset            by a decrease in teller cash over and short expense primarily attributed to losses            associated with two robberies in the fiscal 2006 period.

 

Income Taxes

Total            income tax expense for the three month period ended June 30, 2007 was $314,000 compared            to $234,000 for the same 2006 period. The increased tax expense for the quarter            reflects higher pretax income and a higher effective tax rate. The effective tax rates            for the three month periods ended June 30, 2007 and 2006 were approximately 23.0% and            19.5%, respectively. The increase in the effective tax rate is primarily due to sales            of tax-exempt securities. Total income tax expense for the nine month period ended June            30, 2007 was $758,000 compared to $672,000 for the same fiscal 2006 period. The            effective tax rates for the nine month periods ended June 30, 2007 and 2006 were            approximately 21.1% and 18.7%, respectively. Tax-exempt income includes income earned            on certain municipal investments that qualify for state and/or federal income tax            exemption; income earned by the Bank’s Delaware subsidiary, which is not subject            to state income tax, and earnings on Bank-owned life insurance policies, which are            exempt from federal taxation. State and federal tax-exempt income for the three month            period ended June 30, 2007 was $2.1 million and $377,000, respectively, compared to            $2.0 million and $461,000, respectively, for the three-month period ended June 30,            2006. State and federal tax-exempt income for the nine month period ended June 30, 2007            was $6.3 million and $1.2 million, respectively, compared to $5.9 million and $1.4            million, respectively, for the nine month period ended June 30, 2006.

 

Capital Requirements

The            Federal Reserve Board measures capital adequacy for bank holding companies on the basis            of a risk-based capital framework and a leverage ratio. The guidelines include the            concept of Tier 1 capital and total capital. Tier 1 capital is essentially common            equity, excluding net unrealized gain (loss) on securities available-for-sale and            goodwill, plus certain types of preferred stock, including the Preferred Securities            issued by FB Statutory Trust II in 2003. The Preferred Securities may comprise up to            25% of the Company’s Tier 1 capital. Total capital includes Tier 1 capital and            other forms of capital such as the allowance for loan losses, subject to limitations,            and subordinated debt. The guidelines establish a minimum standard risk-based target            ratio of 8%, of which at least 4% must be in the form of Tier 1 capital. At June 30,            2007, the Company had Tier 1 capital as a percentage of risk-weighted assets of 12.44%            and total risk-based capital as a percentage of risk-weighted assets of            13.10%.

 

23

 

----

In            addition, the Federal Reserve Board has established minimum leverage ratio guidelines            for bank holding companies. These guidelines currently provide for a minimum ratio of            Tier 1 capital as a percentage of average total assets (the “Leverage            Ratio”) of 3% for bank holding companies that meet certain criteria, including            that they maintain the highest regulatory rating. All other bank holding companies are            required to maintain a Leverage Ratio of at least 4% or be subject to prompt corrective            action by the Federal Reserve. At June 30, 2007, the Company had a Leverage Ratio of            7.49%.

 

The            FDIC has issued regulations that require insured institutions, such as the Bank, to            maintain minimum levels of capital. In general, current regulations require a leverage            ratio of Tier 1 capital to average total assets of not less than 3% for the most highly            rated institutions and an additional 1% to 2% for all other institutions. At June 30,            2007, the Bank complied with the minimum leverage ratio having Tier 1 capital of 6.72%            of average total assets, as defined.

             

The            Bank is also required to maintain a ratio of qualifying total capital to risk-weighted            assets and off-balance sheet items of a minimum of 8%. At June 30, 2007, the            Bank’s total capital to risk-weighted assets ratio calculated under the FDIC            capital requirement was 10.84%.

 

Liquidity

The            Company’s primary sources of funds have historically consisted of deposits,            amortization and prepayments of outstanding loans, borrowings from the FHLB of            Pittsburgh and other sources, including sales of securities and, to a limited extent,            loans. At June 30, 2007, the total of approved loan commitments amounted to $3.5            million. In addition, the Company had $15.0 million of undisbursed loan funds at that            date.The amount of savings certificates which mature during the next twelve months            totals approximately $101.2 million, a substantial portion of which management            believes, on the basis of prior experience as well as its competitive pricing strategy,            will remain in the Company.

 

Off            Balance Sheet Commitments

The            Bank is party to financial instruments with off-balance sheet risk in the normal course            of business to meet the financing needs of its customers. These financial instruments            include commitments to extend credit and letters of credit. Those instruments involve,            to varying degrees, elements of credit and interest rate risk in excess of the amount            recognized in the balance sheet.

 

The            Bank’s exposure to credit loss in the event of nonperformance by the other party            to the financial instrument for commitments to extend credit and letters of credit is            represented by the contractual amount of those instruments. The Bank uses the same            credit policies in making commitments and conditional obligations as it does for            on-balance sheet instruments.

 

A            summary of the contractual amount of the Company’s financial instrument            commitments is as follows:

 

|                                                                           |   | **June 30,**       |   | **September** **30,** |   |
|--------------------------------------------------------------------------------|--------|--------------------|--------|----------------------------|--------|
|                                                                           |   | **2007**           |   | **2006**                   |   |
|                                                                           |   | **(in thousands)** |   |
| Commitments to grant loans                                                     |   | $                  | 3,452  |                       | $      | 7,443 |   |
| Unfunded commitments under lines of credit                                     |   |               | 47,232 |                       |   | 43,416 |   |
| Financial and performance standby letters of                            credit |   |               | 340    |                       |   | 218 |   |

 

 

24

 

----

The            Company does not issue any guarantees that would require liability recognition or            disclosure, other than its standby letters of credit. Standby letters of credit written            are conditional commitments issued by the Company to guarantee the performance of a            customer to a third party. Generally, all letters of credit, when issued have            expiration dates within one year. The credit risk involved in issuing letters of credit            is essentially the same as that involved in extending other loan commitments. The Bank            requires collateral supporting these letters of credit as deemed necessary. Management            believes that the proceeds obtained through a liquidation of such collateral would be            sufficient to cover the maximum potential amount of future payments required under the            corresponding guarantees. The current amount of liability as of June 30, 2007 for            guarantees under standby letters of credit issued is not material.

 

| Item 3. | Quantitative and Qualitative Disclosures About Market                            Risk |
|---------|---------------------------------------------------------------------------------------|

There have been no material changes in information regarding            quantitative and qualitative disclosures about market risk at June 30, 2007 from the            information presented under the caption, Management’s Discussion and Analysis of            Financial Condition and Results of Operations – Asset and Liability Management,            filed as Exhibit 13 to the Form 10-K for September 30, 2006.

 

| Item 4. | Controls and Procedures |
|---------|-------------------------|

The Company’s management evaluated, with the participation of the            Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness            of the Company’s disclosure controls and procedures, as of the end of the period            covered by this report. Based on that evaluation, the Chief Executive Officer and Chief            Financial Officer concluded that the Company’s disclosure controls and procedures            are effective to ensure that information required to be disclosed by the Company in the            reports that it files or submits under the Securities Exchange Act of 1934 is recorded,            processed, summarized and reported within the time periods specified in the Securities            and Exchange Commission’s rules and forms.

 

There were no changes in the Company’s internal control over            financial reporting that occurred during the Company’s last fiscal quarter that            have materially affected, or are reasonably likely to materially affect, the            Company’s internal control over financial reporting.

 

Part            II - Other Information

 

| Item 1. | Legal Proceedings |
|---------|-------------------|

The Company is not involved in any pending legal proceedings other than            non-material legal proceedings undertaken in the ordinary course of            business.

 

| Item 1A. | Risk Factors |
|----------|--------------|

Risk Factor disclosures are presented at September 30, 2006 in Item 1A            of Fidelity Bancorp Inc’s Form 10-K, filed with the SEC on December 22, 2006.            Management believes that there have been no material changes from the Company’s            risk factors as previously disclosed.

             

25

 

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| Item 2. | Unregistered Sales of Equity Securities and Use of                            Proceeds |
|---------|----------------------------------------------------------------------------------------|

             

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

|                           |   |                                                  |   |
|--------------------------------|--------|-------------------------------------------------------|--------|
|                           |   | **Total Number****of Shares (or Units)****Purchased** |   | **Average Price****Paid per****Share (or Unit)** |   | **Total Number of****Shares (or Units) Purchased****as Part of Publicly****Announced Plans****or Programs *** |   | **Maximum Number (or Approximate Dollar Value) of                            Shares (or Units) that May Yet****Be Purchased****Under the Plans****or Programs** |   |
|                           |   |                                                  |   |   |   |   |   |   |   |
| April 1 – April 30, 2007 |   | —                                               |   | $ | — |   | — |   | 126,210 |   |
| May 1 – May 31, 2007     |   | 4,642                                                 |   |   | 18.18 |   | 4,642 |   | 121,568 |   |
| June 1 – June 30, 2007   |   | 358                                                   |   |   | 17.76 |   | 358 |   | 121,210 |   |
|                           |   |                                                  |   |   |   |   |   |   |   |   |
| Total                          |   | 5,000                                                 |   | $ | 18.15 |   | 5,000 |   | 121,210 |   |
|                           |   |                                                  |   |   |   |   |   |   |   |   |
|                           |   |                                                  |   |   |   |   |   |   |   |   |

 

* On            October 19, 2005, the Registrant announced a stock repurchase plan for up to 5% of            shares

outstanding, or 147,000 shares. On October 18, 2006, the Registrant            announced a twelve month extension of the plan.

 

| Item 3. | Defaults Upon Senior Securities |
|---------|---------------------------------|

Not Applicable

 

| Item 4. | Submission of Matters to a Vote of Security                            Holders |
|---------|--------------------------------------------------------------------------------|

Not applicable

 

| Item 5. | Other Information |
|---------|-------------------|

(a) Not applicable.

 

(b) Not applicable.

 

26

 

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| Item 6. | Exhibits |
|---------|----------|

The following exhibits are filed as part of this Report.

 

| 3.1   |   | Articles of Incorporation (1)                                                                                                                                                                                                                                                                                                                                                                                    |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2   |   | Amended Bylaws                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.1   |   | Common Stock Certificate (1)                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.2   |   | Rights Agreement dated June 30, 2003 between Fidelity                            Bancorp, Inc. and Registrar and Transfer Company (2)                                                                                                                                                                                                                                                                            |
| 4.3   |   | Amendment No. 1 to Rights Agreement (3)                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4*  |   | Indenture, dated as of September 26, 2002, between                            Fidelity Bancorp, Inc. and State Street Bank and Trust Company of                            Connecticut, National Association                                                                                                                                                                                                     |
| 4.5*  |   | Amended and Restated Declaration of Trust, dated as of                            September 26, 2002, by and among State Street Bank and Trust Company,                            National Association, as Institutional Trustee, Fidelity Bancorp, Inc.,                            as Sponsor and William L. Windisch, Richard G. Spencer and Lisa L.                            Griffith, as Administrators. |
| 4.6*  |   | Guarantee Agreement, as dated as of September 26, 2002,                            by and between Fidelity Bancorp, Inc. and State Street Bank and Trust                            Company of Connecticut, National Association                                                                                                                                                                                 |
| 10.1  |   | Employee Stock Ownership Plan, as amended (1)                                                                                                                                                                                                                                                                                                                                                                    |
| 10.2  |   | 1988 Employee Stock Compensation Program (1)                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3  |   | 1993 Employee Stock Compensation Program (4)                                                                                                                                                                                                                                                                                                                                                                     |
| 10.4  |   | 1997 Employee Stock Compensation Program (5)                                                                                                                                                                                                                                                                                                                                                                     |
| 10.5  |   | 1993 Directors’ Stock Option Plan (4)                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6  |   | 1998 Group Term Replacement Plan (6)                                                                                                                                                                                                                                                                                                                                                                             |
| 10.7  |   | 1998 Salary Continuation Plan Agreement by and between                            W.L. Windisch, the Company and the Bank (6)                                                                                                                                                                                                                                                                                    |
| 10.8  |   | 1998 Salary Continuation Plan Agreement by and between                            R.G. Spencer, the Company and the Bank (6)                                                                                                                                                                                                                                                                                     |
| 10.9  |   | 1998 Salary Continuation Plan Agreement by and between                            M.A. Mooney, the Company and the Bank (6)                                                                                                                                                                                                                                                                                      |
| 10.10 |   | Salary Continuation Plan Agreement with Lisa L. Griffith                            (7)                                                                                                                                                                                                                                                                                                                          |
| 10.11 |   | 1998 Stock Compensation Plan (8)                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12 |   | 2000 Stock Compensation Plan (9)                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13 |   | 2001 Stock Compensation Plan (10)                                                                                                                                                                                                                                                                                                                                                                                |
| 10.14 |   | 2002 Stock Compensation Plan (11)                                                                                                                                                                                                                                                                                                                                                                                |
| 10.15 |   | 2005 Stock-Based Incentive Plan (12)                                                                                                                                                                                                                                                                                                                                                                             |
| 10.16 |   | Form of Directors Indemnification Agreement                            (13)                                                                                                                                                                                                                                                                                                                                      |
| 20.1  |   | Dividend Reinvestment Plan (14)                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1  |   | Section 302 Certification of Chief Executive                            Officer                                                                                                                                                                                                                                                                                                                                  |
| 31.2  |   | Section 302 Certification of Chief Financial                            Office                                                                                                                                                                                                                                                                                                                                   |
| 32    |   | Certification Pursuant to 18 U.S.C. Section 1350, as                            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of                            2002                                                                                                                                                                                                                                     |

             

| * | Not filed in accordance with the provisions of Item                            601(b)(4)(iii) of Regulation S-K. The Company agrees to provide a copy                            of these documents to the Commission upon request. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

27

 

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| (1) | Incorporated by reference from the exhibits attached to                            the Prospectus and Proxy Statement of the Company included in its                            Registration Statement on Form S-4 (registration No. 33-55384) filed                            with the SEC on December 3, 1992 (the “Registration                            Statement”). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Incorporated by reference from Form 8-A filed March 31,                            2003.                                                                                                                                                                                                                                                                                                |

| (3) | Incorporated by reference to exhibit 4.2 to Amendment                            No. 1 to the Company’s Registration Statement on Form 8-A filed                            March 17, 2005. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on May 2, 1997. |
|-----|---------------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on March 12, 1998. |
|-----|------------------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated by reference to an identically numbered                            exhibit in Form 10-K filed with the SEC on December 29,                            1998. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Incorporated by reference to an identically numbered                            exhibit in Form 10-K filed with the SEC on December 29,                            2003. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on January 25, 1999. |
|-----|--------------------------------------------------------------------------------------------------------------------------|

| (9) | Incorporated by reference to Exhibit 4.1 to the Form S-8                            filed with the SEC on January 19, 2001. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

| (10) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on January 29, 2002. |
|------|--------------------------------------------------------------------------------------------------------------------------|

| (11) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on February 26, 2003. |
|------|---------------------------------------------------------------------------------------------------------------------------|

| (12) | Incorporated by reference from an exhibit in Form S-8                            filed with the SEC on March 7, 2005. |
|------|-----------------------------------------------------------------------------------------------------------------------|

| (13) | Incorporated by reference to an identically numbered                            exhibit in Form 10-Q filed with the SEC on February 13,                            2007. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (14) | Incorporated by reference to an identically numbered                            exhibit in Form 10-Q filed with the SEC on February 14,                            2000. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

 

28

 

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Pursuant to the requirements of the Securities Exchange Act of 1934, the            Registrant has duly caused this report to be signed on its behalf by the undersigned,            thereunto duly authorized.

 

|                                                                                     |   | **FIDELITY BANCORP, INC.** |
|------------------------------------------------------------------------------------------|--------|----------------------------|
|  

                             

Date:    August 14, 2007 |   | By:                   | /s/Richard G. Spencer |
|                                                                                     |   |                       | Richard G. Spencer

President and Chief Executive Officer |

 

 

 

|  

                             

Date:    August 14, 2007 |   | By:  | /s/Lisa L. Griffith                                                                         |
|------------------------------------------------------------------------------------------|--------|-----------|---------------------------------------------------------------------------------------------|
|                                                                                     |   |      | Lisa L. Griffith

Sr. Vice President and Chief Financial                            Officer |

 

 

29