**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** | **December 31, 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. YesX               No ___

 

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 filero | Accelerated filero | Non-accelerated filerx |
|--------|--------------------------|--------------------|------------------------|

 

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

 

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:3,019,649 shares, par value $0.01, at January 31, 2008

 

----

**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

 

**Index**

 

| Part I – Financial Information

                              | Page                                                                                                                                                                                   |
|--------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                                                                  | Financial Statements (Unaudited)                                                                                                                                                       | 3

                              |
|                                                                     | Consolidated Statements of Financial Condition as of                            December 31, 2007 and

September 30, 2007

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

December 31, 2007 and 2006

                                                             | 4 |
|                                                                     | Consolidated Statements of Changes in                            Stockholders’ Equity for the

Three Months Ended December 31, 2007 and 2006

                              | 5 |
|                                                                     | Consolidated Statements of Cash Flows for the Three                            Months Ended

December 31, 2007 and 2006

                                                         | 6-7

                              |
|                                                                     | Notes to Consolidated Financial Statements                                                                                                                                             | 8

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

Results of Operations

                                                         | 14 |
| Item 3.                                                                  | Quantitative and Qualitative Disclosures About Market                            Risk                                                                                                  | 22

                              |
| Item 4.                                                                  | Controls and Procedures                                                                                                                                                                | 22

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

                                                                                                                                                                          |
| Item 1.                                                                  | Legal Proceedings                                                                                                                                                                      | 22

                              |
| Item 1A.                                                                 | Risk Factors                                                                                                                                                                           | 22

                              |
| Item 2.                                                                  | Unregistered Sales of Equity Securities and Use of                            Proceeds                                                                                                 | 22

                              |
| Item 3.                                                                  | Defaults Upon Senior Securities                                                                                                                                                        | 22

                              |
| Item 4.                                                                  | Submission of Matters to a Vote of Security                            Holders                                                                                                         | 22

                              |
| Item 5.                                                                  | Other Information                                                                                                                                                                      | 23

                              |
| Item 6.                                                                  | Exhibits                                                                                                                                                                               | 23-24 |
|                                                                     |                                                                                                                                                                                   |
| Signatures                                                               | 25                                                                                                                                                                                     |

 

 

2

 

----

Part            I - Financial Information

Item 1.            Financial Statements

 

**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

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

(in            thousands, except share data)

 

|                                                                                |   | **December 31,** |    | **September 30,** |   |
|-------------------------------------------------------------------------------------|--------|------------------|---------|-------------------|--------|
| Assets                                                                              |   | **2007**         |    | **2007**          |   |
| Cash and due from banks                                                             |   | $                | 8,098   |              | $      | 10,848 |   |
| Interest-bearing demand deposits with other                            institutions |   |             | 332     |              |   | 228 |   |
| Cash and Cash Equivalents                                                           |   |             | 8,430   |              |   | 11,076 |   |
|                                                                                |   |             |    |              |   |   |   |
| Securities available-for-sale                                                       |   |             | 153,743 |              |   | 152,223 |   |
|   (amortized cost of $156,677 and                            $154,704)    |   |             |    |              |   |   |   |
| Securities held-to-maturity                                                         |   |             | 68,983  |              |   | 74,553 |   |
| (fair value of $69,078 and $74,010)                                                 |   |             |    |              |   |   |   |
| Loans held for sale                                                                 |   |             | 216     |              |   | 169 |   |
| Loans receivable, net of allowance of $3,142 and                            $3,027  |   |             | 463,839 |              |   | 458,929 |   |
| Foreclosed real estate, net                                                         |   |             | 25      |              |   | 52 |   |
| Federal Home Loan Bank stock, at cost                                               |   |             | 7,466   |              |   | 7,102 |   |
| Office premises and equipment, net                                                  |   |             | 5,743   |              |   | 5,825 |   |
| Accrued interest receivable                                                         |   |             | 3,694   |              |   | 3,639 |   |
| Cash surrender value of life insurance                                              |   |             | 5,964   |              |   | 5,907 |   |
| Other assets                                                                        |   |             | 6,740   |              |   | 7,102 |   |
|  Total Assets                                                                  |   | $                | 724,843 |              | $      | 726,577 |   |
|                                                                                |   |             |    |              |   |   |   |
| Liabilities and Stockholders’                            Equity               |   |             |    |              |   |   |   |
| Liabilities:                                                                        |   |             |    |              |   |   |   |
| Deposits:                                                                           |   |             |    |              |   |   |   |
| Non-interest bearing                                                                |   | $                | 34,144  |              | $      | 36,367 |   |
| Interest bearing                                                                    |   |             | 387,206 |              |   | 397,188 |   |
| Total Deposits                                                                      |   |             | 421,350 |              |   | 433,555 |   |
|                                                                                |   |             |    |              |   |   |   |
| Short-term borrowings                                                               |   |             | 34,041  |              |   | 23,618 |   |
| Subordinated debt                                                                   |   |             | 7,732   |              |   | 7,732 |   |
| Securities sold under agreement to repurchase                                       |   |             | 104,588 |              |   | 105,537 |   |
| Advance payments by borrowers for taxes and                            insurance    |   |             | 3,071   |              |   | 1,451 |   |
| Long-term debt                                                                      |   |             | 103,988 |              |   | 104,050 |   |
| Other liabilities                                                                   |   |             | 3,125   |              |   | 4,164 |   |
|  Total Liabilities                                                             |   |             | 677,895 |              |   | 680,107 |   |
|                                                                                |   |             |    |              |   |   |   |
| Stockholders’ equity:                                                         |   |             |    |              |   |   |   |
|  Preferred stock, $0.01 par value per                            share,        |   |             |    |              |   |   |   |
| 5,000,000 shares authorized; none issued                                            |   |             | -       |              |   | - |   |
|  Common stock, $0.01 par value per                            share,           |   |             |    |              |   |   |   |
| 10,000,000 shares authorized; 3,629,846                                             |   |             |    |              |   |   |   |
| and 3,606,722 shares issued, respectively                                           |   |             | 36      |              |   | 36 |   |
|   Paid-in capital                                                              |   |             | 45,673  |              |   | 45,338 |   |
|  Retained earnings                                                             |   |             | 13,557  |              |   | 13,115 |   |
|  Accumulated other comprehensive loss, net of                            tax   |   |             | (1,936  | )                 |   | (1,637 | ) |
|  Treasury stock, at cost – 619,129                            shares     |   |             | (10,382 | )                 |   | (10,382 | ) |
| Total Stockholders’ Equity                                                    |   |             | 46,948  |              |   | 46,470 |   |
| Total Liabilities and Stockholders’                            Equity         |   | $                | 724,843 |              | $      | 726,577 |   |

 

See            accompanying notes to unaudited consolidated financial statements.

3

 

----

**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

**Consolidated Statements of Income (Unaudited)**

(in            thousands, except per share data)

 

|                                                                           |   | **Three Months Ended** |   |
|--------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                           |   | **December 31,**       |   |
|                                                                           |   | **2007**               |   |   |   | **2006** |   |
| Interest income:                                                               |   |                   |   |   |   |   |   |   |   |
| Loans                                                                          |   | $                      | 7,329  |   |   |   | $ | 7,021 |   |
| Mortgage-backed securities                                                     |   |                   | 940    |   |   |   |   | 1,090 |   |
| Investment securities**–**taxable                                        |   |                   | 1,513  |   |   |   |   | 1,571 |   |
| Investment securities**–**tax-exempt                                     |   |                   | 410    |   |   |   |   | 483 |   |
| Other                                                                          |   |                   | 5      |   |   |   |   | 8 |   |
| Total interest income                                                          |   |                   | 10,197 |   |   |   |   | 10,173 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Interest expense:                                                              |   |                   |   |   |   |   |   |   |   |
| Deposits                                                                       |   |                   | 3,379  |   |   |   |   | 3,199 |   |
| Short-term borrowings                                                          |   |                   | 454    |   |   |   |   | 1,033 |   |
| Subordinated debt                                                              |   |                   | 137    |   |   |   |   | 234 |   |
| Securities sold under agreement to repurchase                                  |   |                   | 1,155  |   |   |   |   | 960 |   |
| Long-term debt                                                                 |   |                   | 1,271  |   |   |   |   | 1,297 |   |
| Total interest expense                                                         |   |                   | 6,396  |   |   |   |   | 6,723 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Net interest income                                                            |   |                   | 3,801  |   |   |   |   | 3,450 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Provision for loan losses                                                      |   |                   | 180    |   |   |   |   | 175 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Net interest income after provision for loan                            losses |   |                   | 3,621  |   |   |   |   | 3,275 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Other income:                                                                  |   |                   |   |   |   |   |   |   |   |
| Loan service charges and fees                                                  |   |                   | 114    |   |   |   |   | 82 |   |
| Realized gain on sales of securities, net                                      |   |                   | -      |   |   |   |   | 72 |   |
| Impairment charge on securities                                                |   |                   | (322   | ) |   |   |   | - |   |
| Gain on sales of loans                                                         |   |                   | 12     |   |   |   |   | 15 |   |
| Deposit service charges and fees                                               |   |                   | 398    |   |   |   |   | 322 |   |
| ATM fees                                                                       |   |                   | 179    |   |   |   |   | 143 |   |
| Non-insured investment products                                                |   |                   | 72     |   |   |   |   | 104 |   |
| Other                                                                          |   |                   | 126    |   |   |   |   | 128 |   |
| Total other income                                                             |   |                   | 579    |   |   |   |   | 866 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Operating expenses:                                                            |   |                   |   |   |   |   |   |   |   |
| Compensation and benefits                                                      |   |                   | 1,945  |   |   |   |   | 2,032 |   |
| Office occupancy and equipment expense                                         |   |                   | 233    |   |   |   |   | 279 |   |
| Depreciation and amortization                                                  |   |                   | 148    |   |   |   |   | 163 |   |
| Loss on sales of foreclosed real estate                                        |   |                   | 5      |   |   |   |   | 43 |   |
| Foreclosed real estate expense                                                 |   |                   | 21     |   |   |   |   | 3 |   |
| Amortization of intangible assets                                              |   |                   | 8      |   |   |   |   | 10 |   |
| Advertizing                                                                    |   |                   | 100    |   |   |   |   | 92 |   |
| Professional                            fees                                   |   |                   | 127    |   |   |   |   | 67 |   |
| Service bureau expense                                                         |   |                   | 68     |   |   |   |   | 8 |   |
| Other                                                                          |   |                   | 431    |   |   |   |   | 408 |   |
| Total operating expenses                                                       |   |                   | 3,086  |   |   |   |   | 3,105 |   |
|                                                                           |   |                   |   |   |   |   |   |   |   |
| Income before Provision for Income Taxes                                       |   |                   | 1,114  |   |   |   |   | 1,036 |   |
| Provision for Income Taxes                                                     |   |                   | 253    |   |   |   |   | 204 |   |
| Net Income                                                                     |   | $                      | 861    |   |   |   | $ | 832 |   |
| Basic earnings per common share                                                |   | $                      | 0.29   |   |   |   | $ | 0.28 |   |
| Diluted earnings per common share                                              |   | $                      | 0.28   |   |   |   | $ | 0.27 |   |
| Dividends per common share                                                     |   | $                      | 0.14   |   |   |   | $ | 0.14 |   |

 

 See accompanying            notes to unaudited consolidated financial statements.

 

4

 

----

**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, 2006          |   | $          | 35     |   |        | $      | 44,774       |   | $      | (10,205      | )      |              | $      | 11,076 |      | $ | (1,485 | ) | $ | 44,195 |   |
| Comprehensive income:                  |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Net income                             |   |       |   |   |        |   |         |   |   |         |   |              |   | 832    |      |   |   |   |   | 832 |   |
| Other comprehensive income,            |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| net of tax of $116                     |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   | 225 |   |   | 225 |   |
| Reclassification adjustment,           |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| net of tax of ($24)                    |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   | (48 | ) |   | (48 | ) |
| Total comprehensive income             |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   | 1,009 |   |
|                                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Stock-based compensation expense       |   |       |   |   |        |   | 16           |   |   |         |   |              |   |   |      |   |   |   |   | 16 |   |
| Stock options exercised, including tax |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| benefit of $14                         |   |       |   |   |        |   | 179          |   |   |         |   |              |   |   |      |   |   |   |   | 179 |   |
| Cash dividends declared                |   |       |   |   |        |   |         |   |   |         |   |              |   | (416)  |      |   |   |   |   | (416 | ) |
| Sale of stock through Dividend         |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Reinvestment Plan                      |   |       | 1      |   |        |   | 38           |   |   |         |   |              |   |   |      |   |   |   |   | 39 |   |
|                                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Balance at December 31, 2006           |   | $          | 36     |   |        | $      | 45,007       |   | $      | (10,205      | )      |              | $      | 11,492 |      | $ | (1,308 | ) | $ | 45,022 |   |
|                                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Balance at September 30, 2007          |   | $          | 36     |   |        | $      | 45,338       |   | $      | (10,382      | )      |              | $      | 13,115 |      | $ | (1,637 | ) | $ | 46,470 |   |
| Comprehensive income:                  |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Net income                             |   |       |   |   |        |   |         |   |   |         |   |              |   | 861    |      |   |   |   |   | 861 |   |
| Other comprehensive loss,              |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| net of tax of ($263)                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   | (511 | ) |   | (511 | ) |
| Reclassification adjustment,           |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| net of tax of $110                     |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   | 212 |   |   | 212 |   |
| Total comprehensive income             |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   | 562 |   |
|                                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Stock-based compensation expense       |   |       |   |   |        |   | 26           |   |   |         |   |              |   |   |      |   |   |   |   | 26 |   |
| Stock options exercised, including tax |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| benefit of $4                          |   |       |   |   |        |   | 271          |   |   |         |   |              |   |   |      |   |   |   |   | 271 |   |
| Cash dividends declared                |   |       |   |   |        |   |         |   |   |         |   |              |   | (419   | )         |   |   |   |   | (419 | ) |
| Sale of stock through Dividend         |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Reinvestment Plan                      |   |       |   |   |        |   | 38           |   |   |         |   |              |   |   |      |   |   |   |   | 38 |   |
|                                   |   |       |   |   |        |   |         |   |   |         |   |              |   |   |      |   |   |   |   |   |   |
| Balance at December 31, 2007           |   | $          | 36     |   |        | $      | 45,673       |   | $      | (10,382      | )      |              | $      | 13,557 |      | $ | (1,936 | ) | $ | 46,948 |   |
|                                        |        |            |        |        |             |        |              |        |        |              |        |                   |        |        |           |  |  |  |  |  |  |  |

 

 

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)

 

|                                                                                   |   | **Three Months Ended December 31,** |    |
|----------------------------------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                                                   |   | **2007**                            |    | **2006** |   |
| Operating                            Activities:                                       |   |                                |    |   |   |   |   |
| Net income                                                                             |   | $                                   | 861     |   | $ | 832 |   |
| Adjustments to reconcile net income to net cash provided                            by |   |                                |    |   |   |   |   |
| operating activities:                                                                  |   |                                |    |   |   |   |   |
| Provision for loan losses                                                              |   |                                | 180     |   |   | 175 |   |
| Loss on foreclosed real estate                                                         |   |                                | 5       |   |   | 43 |   |
| Provision for depreciation and amortization                                            |   |                                | 148     |   |   | 163 |   |
| Deferred loan fee amortization                                                         |   |                                | (10     | ) |   | (27 | ) |
| Amortization of investment and mortgage-backed                            securities   |   |                                |    |   |   |   |   |
| discounts/premiums, net                                                                |   |                                | 47      |   |   | 67 |   |
| Amortization of intangibles                                                            |   |                                | 8       |   |   | 10 |   |
| Net realized gains on sales of investments                                             |   |                                | -       |   |   | (72 | ) |
| Impairment charge on securities                                                        |   |                                | 322     |   |   | - |   |
| Loans originated for sale                                                              |   |                                | (1,392  | ) |   | (1,927 | ) |
| Sales of loans held for sale                                                           |   |                                | 1,357   |   |   | 1,533 |   |
| Net gains on sales of loans                                                            |   |                                | (12     | ) |   | (15 | ) |
| Earnings on cash surrender value of life insurance                            policies |   |                                | (57     | ) |   | (51 | ) |
| Increase in interest receivable                                                        |   |                                | (55     | ) |   | (241 | ) |
| (Decrease) increase in interest payable                                                |   |                                | (76     | ) |   | 309 |   |
| Decrease in accrued taxes                                                              |   |                                | (121    | ) |   | (145 | ) |
| Noncash compensation expense related to stock benefit                            plans |   |                                | 26      |   |   | 16 |   |
| Contribution to ESOP                                                                   |   |                                | (177    | ) |   | (247 | ) |
| Changes in other assets                                                                |   |                                | 331     |   |   | 382 |   |
| Changes in other liabilities                                                           |   |                                | (664    | ) |   | (576 | ) |
|                                                                                   |   |                                |    |   |   |   |   |
| Net cash provided by operating activities                                              |   |                                | 721     |   |   | 229 |   |
|                                                                                   |   |                                |    |   |   |   |   |
| Investing                            Activities:                                       |   |                                |    |   |   |   |   |
| Proceeds from sales of securities                            available-for-sale        |   |                                | -       |   |   | 434 |   |
| Proceeds from maturities and principal repayments                            of        |   |                                |    |   |   |   |   |
| securities available-for-sale                                                          |   |                                | 12,066  |   |   | 4,196 |   |
| Purchases of securities available-for-sale                                             |   |                                | (14,251 | ) |   | (1,656 | ) |
| Proceeds from maturities and principal repayments                            of        |   |                                |    |   |   |   |   |
| securities held-to-maturity                                                            |   |                                | 5,589   |   |   | 3,296 |   |
| Net increase in loans                                                                  |   |                                | (5,105  | ) |   | (11,668 | ) |
| Proceeds from sales of foreclosed real estate                                          |   |                                | 47      |   |   | 71 |   |
| Additions to office premises and equipment                                             |   |                                | (66     | ) |   | (69 | ) |
| Net purchases of FHLB stock                                                            |   |                                | (364    | ) |   | (24 | ) |
|                                                                                   |   |                                |    |   |   |   |   |
| Net cash used in investing activities                                                  |   |                                | (2,084  | ) |   | (5,420 | ) |
|                                                                                   |   |                                |    |   |   |   |   |

Continued on page 7.

6

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

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

(in            thousands)

 

|                                                                                           |   | **Three Months Ended December 31,** |    |
|------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                                                           |   | **2007**                            |    | **2006** |   |
| Financing                            Activities:                                               |   |                                |    |   |   |   |   |
| Net decrease in deposits                                                                       |   | $                                   | (12,205 | ) | $ | (1,153 | ) |
| Net (decrease) increase in retail repurchase                            agreements             |   |                                | (949    | ) |   | 1,759 |   |
| Net increase (decrease) in short-term                            borrowings                    |   |                                | 10,423  |   |   | (14,282 | ) |
| Increase in advance payments by borrowers for taxes and                            insurance   |   |                                | 1,620   |   |   | 1,529 |   |
| Proceeds from long-term debt                                                                   |   |                                | 10,000  |   |   | 20,000 |   |
| Repayments of long-term debt                                                                   |   |                                | (10,062 | ) |   | (58 | ) |
| Cash dividends paid                                                                            |   |                                | (419    | ) |   | (416 | ) |
| Stock options exercised                                                                        |   |                                | 267     |   |   | 165 |   |
| Excess tax benefit realized on stock-based                            compensation             |   |                                | 4       |   |   | 14 |   |
| Proceeds from sale of stock through Dividend                            Reinvestment Plan      |   |                                | 38      |   |   | 39 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Net cash (used in) provided by financing                            activities                 |   |                                | (1,283  | ) |   | 7,597 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Net (decrease) increase in cash and cash                            equivalents                |   |                                | (2,646  | ) |   | 2,406 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Cash and cash equivalents at beginning of                            period                    |   |                                | 11,076  |   |   | 8,667 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Cash and cash equivalents at end of period                                                     |   | $                                   | 8,430   |   | $ | 11,073 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Supplemental Disclosure of Cash Flow                            Information                    |   |                                |    |   |   |   |   |
| Cash paid during the period for:                                                               |   |                                |    |   |   |   |   |
| Interest on deposits and other borrowings                                                      |   | $                                   | 6,472   |   | $ | 6,416 |   |
| Income taxes                                                                                   |   | $                                   | -       |   | $ | 330 |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Supplemental Schedule of Noncash Investing and                            Financing Activities |   |                                |    |   |   |   |   |
|                                                                                           |   |                                |    |   |   |   |   |
| Transfer of loans to foreclosed real estate                                                    |   | $                                   | 25      |   | $ | 5 |   |

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

 

 

7

 

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**FIDELITY BANCORP, INC. AND SUBSIDIARIES**

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

**December 31, 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,            2007. The results for the three month period ended December 31, 2007 are not            necessarily indicative of the results that may be expected for the fiscal year ending            September 30, 2008 or any future interim period.

 

Certain amounts in the 2007 financial statements have been reclassified            to conform with the 2008 presentation format. These reclassifications had no effect on            net income.

 

(3)New Accounting Standards

In            September 2006, the FASB issued Statement No. 157,*Fair            Value Measurements*(“SFAS 157”), which defines            fair value, establishes a framework for measuring fair value under GAAP, and expands            disclosures about fair value measurements. SFAS 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 SFAS 157 on our            consolidated financial statements.

 

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 159”). SFAS 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 on October 1, 2008. The Company is evaluating the            impact that the adoption of SFAS No. 159 will have on our consolidated financial            statements.

 

In            December 2007, the FASB issued proposed FSP 157-b,*Effective            Date of FASB Statement No.* *157,*that would permit a one-year deferral            in applying the measurement provisions of Statement No. 157 to non-financial assets and            non-financial liabilities (non-financial items) that are not recognized or disclosed at            fair value in an entity’s financial statements on a recurring basis (at least            annually). Therefore, if the change in fair value of a non-financial item is not            required to be recognized or disclosed in the financial statements on an annual basis            or more frequently, the effective date of application of Statement 157 to that item is            deferred until fiscal years beginning after November 15, 2008 and interim periods            within those fiscal years. This deferral does not apply, however, to an entity that            applies Statement 157 in interim or annual financial statements before proposed FSP            157-b is finalized. The Company is currently evaluating the impact, if any, that the            adoption of FSP 157-b will have on the Company’s consolidated financial position            or results of operations.

 

 

 

8

 

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FASB            statement No. 141(R),*Business            Combinations*, was issued in December of 2007. This Statement            establishes principles and requirements for how the acquirer of a business recognizes            and measures in its financial statements the identifiable assets acquired, the            liabilities assumed, and any noncontrolling interest in the acquiree. The Statement            also provides guidance for recognizing and measuring the goodwill acquired in the            business combination and determines what information to disclose to enable users of the            financial statements to evaluate the nature and financial effects of the business            combination. The guidance will become effective as of the beginning of a            company’s fiscal year beginning after December 15, 2008. The Company believes            that this new pronouncement will not have a material impact on the Company’s            financial statements in future periods.

 

FASB            statement No. 160,*Noncontrolling Interests in Consolidated            Financial Statements – an amendment of ARB No. 51*, was            issued in December of 2007. This Statement establishes accounting and reporting            standards for the noncontrolling interest in a subsidiary and for the deconsolidation            of a subsidiary. The guidance will become effective as of the beginning of a            company’s fiscal year beginning after December 15, 2008. The Company believes            that this new pronouncement will have an immaterial impact on the Company’s            consolidated financial statements in future periods.

 

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. 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. The Company adopted these standards during the            current quarter ending December 31, 2007 and it was determined that the unrecognized            tax benefit associated with its uncertain tax positions is not material to the            Company’s consolidated financial statements.

 

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 is            currently assessing the impact of EITF 06-4 on its consolidated financial position and            results of operations.

 

In            March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10,*Accounting for Collateral Assignment Split-Dollar Life Insurance            Agreements*, (“EITF 06-10”). EITF 06-10 provides            guidance for determining a liability for the postretirement benefit obligation as well            as recognition and measurement of the associated asset on the basis of the terms of the            collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning            after December 15, 2007. The Company is currently assessing the impact of EITF 06-10 on            its consolidated financial position and results of operations.

             

 

9

 

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In            June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue            No. 06-11,*Accounting for Income Tax Benefits of            Dividends on Share-Based Payment Awards*(“EITF            06-11”). EITF 06-11 states that an entity should recognize a realized tax            benefit associated with dividends on nonvested equity shares, nonvested equity share            units and outstanding equity share options charged to retained earnings as an increase            in additional paid in capital. The amount recognized in additional paid in capital            should be included in the pool of excess tax benefits available to absorb potential            future tax deficiencies on share-based payment awards. EITF 06-11 should be            applied prospectively to income tax benefits of dividends on equity-classified            share-based payment awards that are declared in fiscal years beginning after            December 15, 2007. The Company expects that EITF 06-11 will not have an            impact on its consolidated financial statements.

 

(4)Stock Based Compensation

As            of December 31, 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 stock options and restricted stock to its            employees and non-employee directors for up to 165,000 shares of common stock, of which            a maximum of 55,000 may be restricted stock. Option awards are granted with an exercise            price equal to the market value of the common stock on the date of the grant, the            options 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.            Additionally, at December 31, 2007, the Company awarded 5,100 shares of restricted            stock from the unallocated shares under the Plan having a market value of approximately            $66,600. Compensation expense on the restricted stock awards equals the market value of            the Company’s stock on the grant date and will be amortized ratably over the            three-year vesting period. As of December 31, 2007, 56,375 share awards remain            unawarded under the Plan, of which a maximum of 49,900 may be restricted stock            awards.

 

The            Company also maintains the 1997 Employee Stock Compensation Program, which was            shareholder approved. At December 31, 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 December 31,            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 three months ended December 31, 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 |   | 393,600     |   |   | $             | 15.51  |   |          |   |    |           |   |   |   |
| Granted                                  |   | 12,625      |   |   |          | 13.06  |   |          |   |    |           |   |   |   |
| Exercised                                |   | (20,574     | )      |   |          | 12.98  |   |          |   |    |           |   |   |   |
| Forfeited                                |   | (3,923      | )      |   |          | 14.54  |   |          |   |    |           |   |   |   |
| Outstanding as of December 31, 2007      |   | 381,728     |   |   | $             | 15.58  |   |          | $      | 397,677 |           |   | 4.6 |   |
| Exercisable as of December 31, 2007      |   | 302,969     |   |   | $             | 14.95  |   |          | $      | 397,677 |           |   | 4.3 |   |

 

 

 

10

 

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The            fair value of options granted for the three month periods ended December 31, 2007 and            2006 were estimated at the date of grant using a Black-Scholes option pricing model            with the following weighted-average assumptions:

 

|                                                                      |   |   |   | **Three Months Ended December 31,** |
|---------------------------------------------------------------------------|--------|--------|--------|-------------------------------------|
|                                                                      |   |   |   | **2007**                            |   |   | **2006** |
|                                                                      |   |   |   |                                |   |   |   |
| Dividend yield                                                            |   |   |   | 4.94%                               |   |   | 3.81% |
| Expected life                                                             |   |   |   | 5.5 years                           |   |   | 5.5 years |
| Expected volatility                                                       |   |   |   | 20.92%                              |   |   | 22.02% |
| Risk-free interest rate                                                   |   |   |   | 3.58%                               |   |   | 4.50% |
| Weighted average fair value of options                            granted |   |   |   | $1.64                               |   |   | $3.31 |

 

Compensation cost related to restricted stock is recognized based on the            market price of the stock at the grant date over the vesting period. Compensation            expense related to restricted stock was $0 for the three months ended December 31, 2007            and 2006. The following table summarizes restricted stock awards for the three months            ended December 31, 2007:

 

| Number of shares awarded               |   5,100 |
|----------------------------------------|--------------|
| Market price of stock on date of grant | $13.06       |

 

(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**

**December 31,** |   |     |   |
|----------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|----------|--------|
|                                                                                                           |   | **2007**                                 |   | **2006** |   |   |   |   |   |
| Numerator:                                                                                                     |   |                                     |   |     |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                                     |   | $                                        | 861    |     | $      | 832 |   |   |   |   |   |   |   |
| Denominator:                                                                                                   |   |                                     |   |     |   |   |   |   |   |   |   |   |   |
| Denominator for basic earnings pershare – weighted average shares                            outstanding |   |                                     | 2,998  |     |   | 2,970 |   |   |   |   |   |   |   |
| Effect of dilutive securities:                                                                                 |   |                                     |   |     |   |   |   |   |   |   |   |   |   |
| Employee stock options                                                                                         |   |                                     | 28     |     |   | 73 |   |   |   |   |   |   |   |
| Denominator for diluted earnings per share –                            weighted average                 |   |                                     |   |     |   |   |   |   |   |   |   |   |   |
| Shares and assumed conversions                                                                                 |   |                                     | 3,026  |     |   | 3,043 |   |   |   |   |   |   |   |
| Basic earnings per share                                                                                       |   | $                                        | 0.29   |     | $      | 0.28 |   |   |   |   |   |   |   |
| Diluted earnings per share                                                                                     |   | $                                        | 0.28   |     | $      | 0.27 |   |   |   |   |   |   |   |

 

11

 

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(6)Loans            Receivable      

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

 

|                                  |   | **December 31,** |    | **September 30,** |   |
|---------------------------------------|--------|------------------|---------|-------------------|--------|
|                                  |   | **2007**         |    | **2007**          |   |
| First mortgage loans:                 |   |             |    |              |   |   |   |
| Conventional:                         |   |             |    |              |   |   |   |
| 1-4 family dwellings                  |   | $                | 182,839 |              | $      | 184,168 |   |
| Multi-family dwellings                |   |             | 234     |              |   | 239 |   |
| Commercial                            |   |             | 80,651  |              |   | 79,206 |   |
| Construction:                         |   |             |    |              |   |   |   |
| Residential                           |   |             | 53,627  |              |   | 51,077 |   |
| Commercial                            |   |             | 31,333  |              |   | 24,363 |   |
|                                  |   |             | 348,684 |              |   | 339,053 |   |
|                                  |   |             |    |              |   |   |   |
| Less: Loans in process                |   |             | (18,453 | )                 |   | (13,752 | ) |
|                                  |   |             | 330,231 |              |   | 325,301 |   |
| Consumer loans:                       |   |             |    |              |   |   |   |
| Home equity                           |   |             | 92,414  |              |   | 92,557 |   |
| Consumer loans                        |   |             | 1,003   |              |   | 640 |   |
| Other                                 |   |             | 2,279   |              |   | 2,431 |   |
|                                  |   |             | 95,696  |              |   | 95,628 |   |
|                                  |   |             |    |              |   |   |   |
| Commercial business loans and leases: |   |             |    |              |   |   |   |
| Commercial business loans             |   |             | 40,899  |              |   | 40,855 |   |
| Commercial leases                     |   |             | 81      |              |   | 98 |   |
|                                  |   |             | 40,980  |              |   | 40,953 |   |
|                                  |   |             |    |              |   |   |   |
| Less: Allowance for loan losses       |   |             | (3,142  | )                 |   | (3,027 | ) |
|                                  |   |             |    |              |   |   |   |
| Unearned discounts and fees           |   |             | 74      |              |   | 74 |   |
| Loans receivable, net                 |   | $                | 463,839 |              | $      | 458,929 |   |

 

(7)Allowance for Loan Losses

Changes in the allowance for loan losses for the three months ended            December 31, 2007, fiscal year ended September 30, 2007, and for the three months ended            December 31, 2006 are as follows (dollar amounts in thousands):

 

|                           |   | **Three Months Ended****December 31,****2007** |   | **Year Ended****September 30,****2007** |   | **Three Months Ended****December 31,****2006** |   |
|--------------------------------|--------|------------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------------|--------|
| Balance at beginning of period |   | $                                              | 3,027  |                                    | $      | 2,917                                          |   | $ | 2,917 |   |
| Provision for loan losses      |   |                                           | 180    |                                    |   | 575                                            |   |   | 175 |   |
| Charge-offs                    |   |                                           | (70    | )                                       |   | (522                                           | )      |   | (406 | ) |
| Recoveries                     |   |                                           | 5      |                                    |   | 57                                             |   |   | 7 |   |
| Balance at end of period       |   | $                                              | 3,142  |                                    | $      | 3,027                                          |   | $ | 2,693 |   |

 

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.

 

 

12

 

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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            December 31, 2007, the recorded investment in loans that are considered to be impaired            under SFAS No. 114 was $7.8 million compared to $1.7 million at December 31, 2006.            Included in the current amount is $3.1 million of impaired loans for which the related            allowance for loan losses is $159,000. Impaired loans of $4.7 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 three            months ended December 31, 2007 was $7.8 million compared to $1.9 million for the same            period in the prior year. For the three months ended December 31,            2007**,**the Company recognized $28,000            of interest income on impaired loans using the cash basis of income recognition. The            Company recognized $1,000 of interest income on impaired loans during the three month            period ended December 31, 2006.

 

 

13

 

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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 PaSB, (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 60 through 67 of the Company’s 2007 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 12 and 13 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 page 46 of the Company’s            2007 Annual Report to Shareholders. 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 fair value and a corresponding charge to earnings is            recognized. The Company recognized other-than-temporary impairment losses on            available-for-sale securities of $322,000 for the three months ended December 31, 2007.            Similar losses were not recognized during the three months ended December 31, 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 10 and 11 above. In addition, further discussion of the            assumptions used in determining stock based compensation is contained in Note 13,            “Stock Option Plans”, on pages 83 through 85 of the Company’s 2007            Annual Report to Shareholders.

 

Comparison of Financial Condition

Total assets of the Company decreased $1.7 million, or 0.24%, to $724.8            million at December 31, 2007 from $726.6 million at September 30, 2007. Significant            changes in individual categories include a decrease in cash and cash equivalents of            $2.6 million, a decrease in securities held-to-maturity of $5.6 million, an increase in            securities available-for-sale of $1.5 million, and an increase in net loans of $4.9            million.

 

 

 

14

 

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Total liabilities of the Company decreased $2.2 million, or 0.33%, to            $677.9 million at December 31, 2007 from $680.1 million at September 30, 2007.            Significant changes include a decrease in deposits of $12.2 million, which was            partially offset by an increase in short-term borrowings of $10.4 million. The            short-term borrowing increase was primarily attributed to the decrease in deposits. The            Bank continues to face competition for deposits from alternative sources such as the            stock market and mutual funds, as well as competition from other banking            institutions.

 

Stockholders’ equity increased to $46.9 million at December 31,            2007, compared to $46.5 million at September 30, 2007. This result reflects net income            for the three month period ended December 31, 2007 of $861,000, stock options exercised            of $271,000 (including tax benefit of $4,000), stock issued under the Dividend            Reinvestment Plan of $38,000, and stock-based compensation of $26,000. Offsetting these            increases were common stock cash dividends paid of $419,000, and an increase in the            accumulated other comprehensive loss of $299,000. Accumulated other comprehensive loss            increased from September 30, 2007 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 December 31,            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 December 31, 2007 and September 30, 2007 represent base year bad            debt deductions for tax purposes only, as they are considered restricted accumulated            earnings.

 

| 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 dates presented (dollar            amounts in thousands).

 

|                                                                                                         |   | **December 31,** |   |   | **September 30,** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|-------------------|--------|
|                                                                                                         |   | **2007**         |   |   | **2007**          |   |
| Non-accrual residential real estate loans(one-to-four family)                                                |   | $                | 744    |   |              | $      | 831 |   |
| Non-accrual construction, multi-familyresidential and commercial real estate loans                           |   |             | 5,626  |   |              |   | 5,628 |   |
| Non-accrual installment loans                                                                                |   |             | 324    |   |              |   | 340 |   |
| Non-accrual commercial business loans                                                                        |   |             | 2,209  |   |              |   | 1,947 |   |
| Total non-performing loans                                                                                   |   | $                | 8,903  |   |              | $      | 8,746 |   |
| Total non-performing loans as a percent ofnet loans receivable                                               |   |             | 1.92   | %      |              |   | 1.91 | % |
| Total foreclosed real estate                                                                                 |   | $                | 25     |   |              | $      | 52 |   |
| Total non-performing loans and foreclosed                            realestate as a percent of total assets |   |             | 1.23   | %      |              |   | 1.21 | % |

 

Included in non-performing loans at December 31, 2007 are fourteen            single-family residential real estate loans totaling $744,000, three commercial real            estate loans totaling $5.6 million, twenty one home equity and installment loans            totaling $324,000, and twelve commercial business loans totaling $2.2            million.

 

At            December 31, 2007, the Company had an allowance for loan losses of $3.14 million or            0.67% of gross loans receivable, as compared to an allowance of $3.03 million or 0.66%            of gross loans receivable at September 30, 2007. The allowance for loan losses equals            35.3% of non-performing loans at December 31, 2007 compared to 34.6% at September 30,            2007. Management believes the balance is adequate based on its analysis of quantitative            and qualitative factors as of December 31, 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 December 31,            2007 is reasonable. See also “Provision for Loan Losses” on page 18.            However, there can be no assurance that the allowance for loan losses is sufficient to            cover possible future loan losses.

 

15

 

----

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.

 

16

 

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Comparison of Results of Operations

for the Three Months Ended December 31, 2007 and 2006

 

Net Income

Net            income for the three months ended December 31, 2007 was $861,000 ($0.28 per diluted            share) compared to $832,000 ($0.27 per diluted share) for the same period in 2006, an            increase of $29,000 or 3.5%. The increase reflects an increase in net interest income            of $351,000, or 10.2%, and a decrease in operating expenses of $19,000, or 0.61%.            Partially offsetting these factors were an increase in the provision for loan losses of            $5,000, a decrease in other income of $287,000, or 33.1%, and an increase in the            provision for income taxes of $49,000.

 

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 2.16% (annualized) in the three months ended December 31, 2007 from 1.98%            (annualized) in the same period in 2006 as a result of an increase in the average yield            on total interest earning assets and a decrease in 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****December 31,** |   |     |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------|--------|
|                                                                                                                          |   | **2007**                               |   | **2006** |   |   |   |   |   |
| Average yield on:                                                                                                             |   |                                   |   |     |   |   |   |   |   |
| Mortgage loans                                                                                                                |   | 6.09                                   | %      | 6.07     | %      |   |   |   |   |
| Mortgage-backed securities                                                                                                    |   | 4.47                                   |   | 4.41     |   |   |   |   |   |
| Installment loans                                                                                                             |   | 6.56                                   |   | 6.47     |   |   |   |   |   |
| Commercial business loans and leases                                                                                          |   | 7.31                                   |   | 7.46     |   |   |   |   |   |
| Interest –earning deposits with other                            institutions,investment securities, and FHLB stock (1) |   | 5.57                                   |   | 5.66     |   |   |   |   |   |
| Total interest-earning assets                                                                                                 |   | 5.92                                   |   | 5.87     |   |   |   |   |   |
| Average rates paid on:                                                                                                        |   |                                   |   |     |   |   |   |   |   |
| Deposits                                                                                                                      |   | 3.17                                   |   | 3.10     |   |   |   |   |   |
| Borrowed funds                                                                                                                |   | 4.74                                   |   | 5.07     |   |   |   |   |   |
| Total interest-bearing liabilities                                                                                            |   | 3.76                                   |   | 3.89     |   |   |   |   |   |
| Average interest rate spread                                                                                                  |   | 2.16                                   | %      | 1.98     | %      |   |   |   |   |
| Net yield on interest-earning assets                                                                                          |   | 2.27                                   | %      | 2.07     | %      |   |   |   |   |

             

| (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 $308,000 or 4.4% to $7.3 million for the            three months ended December 31, 2007, compared to $7.0 million in the same period in            2006. The increase 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 $150,000 or 13.8% to            $940,000 for the three month period ended December 31, 2007, compared to $1.1 million            in the same period in 2006. The decrease 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.

 

Interest on interest-bearing demand deposits with other institutions and            investment securities (non-tax equivalent) decreased $134,000 or 6.5% to $1.9 million            for the three months ended December 31, 2007, as compared to $2.1 million in the same            period in 2006. The decrease reflects a decrease in the average balance of investment            securities in the portfolio as well as a decrease in the yield earned on these            investments.

 

 

17

 

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Interest Expense

Interest on deposits increased $180,000 or 5.6% to $3.4 million for the            three month period ended December 31, 2007, as compared to $3.2 million during the same            period in 2006. The increase reflects an increase in the average balance of deposits as            well as in 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 $579,000 or 56.1%            to $454,000 for the three month period ended December 31, 2007, as compared to $1.0            million in the same period in 2006. The decrease reflects a decrease in the average            balance of these borrowings as well as a decrease in the average cost of these            borrowings.

 

Interest on subordinated debt decreased $97,000 or 41.5% to $137,000 for            the three months ended December 31, 2007, as compared to $234,000 in the same period in            2006. The decrease reflects a decrease in the average balance as well as a decrease in            the average cost of these floating-rate debentures. On September 20, 2007, the Company            issued $7,500,000 Floating Rate Preferred Securities at a rate equal to three-month            LIBOR plus 1.36% and on September 26, 2007 the Company called its $10,000,000 Floating            Rate Preferred Securities which bore an interest rate of three-month LIBOR plus            3.40%.

 

Interest on securities sold under agreement to repurchase, including            retail, term, and wholesale structured borrowings, increased $195,000 or 20.3% to $1.2            million for the three month period ended December 31, 2007, as compared to $960,000 in            the same period in 2006. The increase reflects a higher level of average securities            sold under agreement to repurchase offset by a decrease 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 $95 million and $75 million of wholesale            structured borrowings outstanding at December 31, 2007 and 2006,            respectively.

 

Interest on long-term debt, including FHLB fixed rate advances and            “Convertible Select” advances, decreased $26,000 or 2.0% to $1.27 million            for the three months ended December 31, 2007 as compared to $1.30 million in the same            period in 2006. The decrease reflects a decrease in the average balance of the debt,            partially offset by an increase in the average cost of the debt.

 

Net Interest Income

The            Company’s net interest income increased $351,000 or 10.2% to $3.8 million, for            the three month period ended December 31, 2007, as compared to $3.5 million in the same            period in 2006. The increase in the current fiscal period is attributable to an            increase in both the interest rate spread and net interest-earning assets.

 

Provision for Loan Losses

The            provision for loan losses increased to $180,000 for the three month period ended            December 31, 2007, as compared to $175,000 for the same period in 2006. At December 31,            2007, the allowance for loan losses increased slightly to $3.14 million from $3.03            million at September 30, 2007. Net loan charge-offs were $65,000 and $399,000 for the            three months ended December 31, 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 loanlosses will be adequate to cover            losses which may be realized in the future and that additional provisions for losses            will not be required.

 

18

 

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Other Income 

Total non-interest or other income decreased $287,000 or 33.1% to            $579,000, for the three month period ended December 31, 2007, as compared to the same            period in 2006. Decreases in other income primarily relate to a $322,000            other-than-temporary impairment loss taken on the Company’s Asset Management Fund            (“AMF”) Ultra Short Mortgage fund investment, a decrease in the realized            gains on sales of securities and a decrease in non-insured investment product income.            Partially offsetting these decreases were an increase in loan service charges and fees,            an increase in deposit service charges and fees, and an increase in ATM            fees.

 

Loan            service charges and fees, which includes late charges on loans and other miscellaneous            loan fees, increased $32,000 or 39.0% to $114,000, for the three month period ended            December 31, 2007, as compared to the same period in 2006. The increase is primarily            attributed to an increase in miscellaneous fees collected on residential mortgage            loans.

 

The            Company did not sell any securities during the three month period ended December 31,            2007, whereas sales of securities in the same period in 2006 resulted in a realized            gain of $72,000. The sales in the 2006 period were made from the available-for-sale            portfolio as part of management’s asset/liability management            strategies.

 

The            Company recorded an other-than-temporary loss of $322,000 on its $10.9 million            investment in the AMF mutual fund during the three month period ended December 31,            2007. The net asset value of the AMF Ultra Short Mortgage Fund, which invests in            mortgage-related securities, had declined as the result of continuing uncertainty in            spreads in the bond market for mortgage-related securities. The Company did not            recognize any other-than-temporary impairment losses on investments during the three            month period ended December 31, 2006.

 

Deposit service charges and fees increased $76,000 or 23.6% for the            three month period ended December 31, 2007, as compared to the same period in 2006. The            increase is primarily attributed to an increase in the volume of fees collected for            returned checks on deposit accounts.

 

Automated teller machine (ATM) fees were $179,000 for the three month            period ended December 31, 2007, as compared to $143,000 for the same period in 2006.            The increase is primarily attributed to an increase in the interchange fees earned on            debit card transactions.

 

Non-insured investment product income was $72,000 for the three month            period ended December 31, 2007, as compared to $104,000 for the same period in 2006.            The decrease is primarily attributed to a decrease in the commissions earned on the            sales of these products.

 

Operating Expenses

Total operating expenses for the three month period ended December 31,            2007 decreased slightly to $3.09 million, as compared to $3.11 million for the same            period in 2006. The decrease is primarily attributed to a decrease in compensation and            benefits expense, a decrease in office occupancy and equipment expense, a decrease in            depreciation and amortization expense, and a decrease in the loss on the sales of            foreclosed real estate, partially offset by an increase in foreclosed real estate            expense, an increase in professional fees expense, an increase in service bureau            expense, and an increase in other operating expense.

 

Compensation and benefits expense was $1.9 million for the three month            period ended December 31, 2007, as compared to $2.0 million for the same period in            2006. The decrease is primarily attributed to a decrease in salary expense for            employees due to lower levels of bonuses paid in 2007, a decrease in retirement            expense, and lower health insurance expense, partially offset by an increase in            directors fees.

 

Office occupancy and equipment expense was $233,000 for the three month            period ended December 31, 2007, as compared to $279,000 for the same period in 2006.            The decrease is primarily attributed to a decrease in equipment expense associated with            converting its data processing operations to an outsourced service bureau environment            in February 2007.

 

19

 

----

Deprecation and amortization expense was $148,000 for the three month            period ended December 31, 2007, as compared to $163,000 for the same period in 2006.            The decrease is primarily attributed to equipment becoming fully depreciated, partially            offset by depreciation on additions in the current period.

 

Losses on the sales of foreclosed real estate were $5,000 for the three            month period ended December 31, 2007, as compared to losses of $43,000 for the same            period in 2006. Foreclosed real estate expense was $21,000 for the three month period            ended December 31, 2007, as compared to $3,000 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 December 31, 2007, foreclosed real estate consisted            of one single-family residential property.

 

Professional fees were $127,000 for the three month period ended            December 31, 2007, as compared to $67,000 for the same period in 2006. The increase is            primarily attributed to an increase in legal and audit fees.

 

Service bureau expense was $68,000 for the three month period ended            December 31, 2007, as compared to $8,000 for the same period in 2006. 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 $431,000 for the three month period ended            December 31, 2007, as compared to $408,000 for the same period in 2006. The increase is            due primarily to an increase in internet banking fees and an increase in ATM expenses,            partially offset by a decrease in charitable contribution expense.

 

Income Taxes

Total income tax expense for the three month period ended December 31,            2007 was $253,000, as compared to $204,000 for the same 2006 period. The effective tax            rates for the three month periods ended December 31, 2007 and 2006 wereapproximately            22.7% and 19.7%, respectively. The increase in the effective tax rate is primarily due            to higher earnings combined with lower levels of tax-exempt income in the current year            period. 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 December 31, 2007            was $1.9 million and $384,000, respectively, compared to $2.1 million and $448,000,            respectively, for the three month period ended December 31, 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 gains (losses) on securities available-for-sale and            goodwill, plus certain types of preferred stock, including the Preferred Securities            issued by FB Statutory Trust III in 2007. 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 December            31, 2007, the Company had Tier 1 capital as a percentage of risk-weighted assets of            10.93% and total risk-based capital as a percentage of risk-weighted assets of            11.57%.

 

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 December 31, 2007, the Company had a Leverage Ratio            of 7.31%.

 

 

20

 

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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 December            31, 2007, the Bank complied with the minimum leverage ratio having Tier 1 capital of            6.65% 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 December 31, 2007, the            Bank’s total capital to risk-weighted assets ratio calculated under the FDIC            capital requirement was 10.61%.

 

Liquidity

The            Company’s primary sources of funds have historically consisted of deposits,            repurchase agreements, 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 December 31, 2007, the total of approved loan commitments            amounted to $3.0 million. In addition, the Company had $18.5 million of undisbursed            loan funds at that date. The amount of savings certificates which mature during the            next twelve months totals approximately $125.0 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:

 

|                                                                           |   |   | **December 31,**   |   |   | **September 30,** |   |
|--------------------------------------------------------------------------------|--------|--------|--------------------|--------|--------|-------------------|--------|
|                                                                           |   |   | **2007**           |   |   | **2007**          |   |
|                                                                           |   |   | **(in thousands)** |   |
| Commitments to grant loans                                                     |   | $      | 2,990              |   | $      | 11,962            |   |
| Unfunded commitments under lines of credit                                     |   |   | 53,608             |   |   | 51,947            |   |
| Financial and performance standby letters of                            credit |   |   | 1,298              |   |   | 651               |   |

 

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 December 31, 2007 for            guarantees under standby letters of credit issued is not material.

             

             

             

 

21

 

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| 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 December 31, 2007 from            the information presented in Item 7A of the Company’s Form 10-K for September 30,            2007, filed with the SEC on December 28, 2007.

             

| 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, 2007 in Item 1A            of the Company’s Form 10-K, filed with the SEC on December 28, 2007. Management            believes that there have been no material changes from the Company’s risk factors            as previously disclosed.

             

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

             

There were no unregistered sales of equity securities during the quarter            ended December 31, 2007.

             

On October 19, 2005, the Company announced a stock repurchase plan for            up to 5% of shares outstanding, or 147,000 shares. On October 18, 2006, and October 17,            2007, twelve-month extensions of the plan were announced. There were no repurchases of            common stock during the three month period ended December 31, 2007. As of December 31,            2007, there were 116,110 shares remaining under the repurchase program.

             

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

             

Not Applicable

 

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

             

Not applicable

 

             

 

22

 

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

             

(a) Not applicable

 

(b) Not applicable

             

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

             

The following exhibits are filed as part of this Report.

 

| 3.1     |   | Articles of Incorporation (1)                                                                                                                                                                                                                                                                                                                                                |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2     |   | Amended Bylaws (14)                                                                                                                                                                                                                                                                                                                                                          |
| 4.1     |   | Common Stock Certificate (1)                                                                                                                                                                                                                                                                                                                                                 |
| 4.2     |   | Rights Agreement dated as of March 31, 2003 by and                            between Fidelity Bancorp, Inc. and Registrar and Transfer Company                            (3)                                                                                                                                                                                               |
| 4.3     |   | Amendment No. 1 to Rights Agreement (4)                                                                                                                                                                                                                                                                                                                                      |
| 4.4*    |   | Indenture, dated as of September 20, 2007, between                            Fidelity Bancorp, Inc. and Wilmington Trust Company                                                                                                                                                                                                                                            |
| 4.5*    |   | Amended and Restated Declaration of Trust, dated as of                            September 20, 2007, by and among Wilmington Trust Company as                            Institutional Trustee, Fidelity Bancorp, Inc., as Sponsor and Richard                            G. Spencer, Lisa L. Griffith, and Michael A. Mooney as                            Administrators. |
| 4.6*    |   | Guarantee Agreement, as dated as of September 20, 2007,                            by and between Fidelity Bancorp, Inc. and Wilmington Trust                            Company                                                                                                                                                                                             |
| 10.1**  |   | Employee Stock Ownership Plan, as amended (1)                                                                                                                                                                                                                                                                                                                                |
| 10.4**  |   | 1997 Employee Stock Compensation Program (6)                                                                                                                                                                                                                                                                                                                                 |
| 10.6**  |   | 1998 Group Term Replacement Plan (7)                                                                                                                                                                                                                                                                                                                                         |
| 10.7**  |   | 1998 Salary Continuation Plan Agreement by and between                            W.L. Windisch, the Company and the Bank (7)                                                                                                                                                                                                                                                |
| 10.8**  |   | 1998 Salary Continuation Plan Agreement by and between                            R.G. Spencer, the Company and the Bank (7)                                                                                                                                                                                                                                                 |
| 10.9**  |   | 1998 Salary Continuation Plan Agreement by and between                            M.A. Mooney, the Company and the Bank (7)                                                                                                                                                                                                                                                  |
| 10.10** |   | Salary Continuation Plan Agreement with Lisa L. Griffith                            (2)                                                                                                                                                                                                                                                                                      |
| 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)                                                                                                                                                                                                                                                                                                  |
| 10.17** |   | Employment Agreement, dated January 1, 2002, between                            Fidelity Bancorp, Inc. and Fidelity Bank, PaSB and Richard G. Spencer                            (14)                                                                                                                                                                                        |
| 10.18** |   | Employment Agreement, dated January 1, 2000, between                            Fidelity Bancorp, Inc. and Fidelity Bank, PaSB and Michael A. Mooney                            (14)                                                                                                                                                                                         |
| 10.19** |   | Severance Agreement, dated February 10, 2004, between                            Fidelity Bank, PaSB and Lisa L. Griffith (14)                                                                                                                                                                                                                                               |
| 10.20** |   | Severance Agreement, dated December 19, 1997, between                            Fidelity Bank, PaSB and Anthony F. Rocco (14)                                                                                                                                                                                                                                               |
| 10.21** |   | Severance Agreement, dated December 19, 1997, between                            Fidelity Bank, PaSB and Sandra L. Lee (14)                                                                                                                                                                                                                                                  |
| 31.1    |   | Rule 13a-14(a)/15d-14(a) Certification of Chief                            Executive Officer                                                                                                                                                                                                                                                                                 |
| 31.2    |   | Rule 13a-14(a)/15d-14(a) Certification of Chief                            Financial Officer                                                                                                                                                                                                                                                                                 |
| 32      |   | Section 1350 Certification                                                                                                                                                                                                                                                                                                                                                   |

             

 

23

 

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| * | 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. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** | Management contract or compensatory plan or                            arrangement. |
|----|-------------------------------------------------------------------------------------|

             

| (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 (SEC File No. 33-55384) filed with                            the SEC on December 3, 1992 (the "Registration Statement"). |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Incorporated by reference from the identically numbered                            exhibit to the Company’s Annual Report on Form 10-K for the                            fiscal year ended September 30, 2003. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Incorporated by reference from Exhibit 1 to the                            Company’s Registration Statement on Form 8-A filed March 31,                            2003. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | 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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Incorporated by reference from an exhibit to the                            Registration Statement on Form S-8 (SEC File No. 333-26383) filed with                            the SEC on May 2, 1997. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Incorporated by reference from an exhibit to the                            Registration Statement on Form S-8 for the year ended September 30,                            1998 (SEC File No. 333-47841) filed with the SEC on March 12,                            1998. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Incorporated by reference to an identically numbered                            exhibit to the Company’s Annual Report on Form 10-K for the                            fiscal year ended September 30, 1998 filed with the SEC on December 29,                            1998. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Incorporated by reference from Exhibit 4.1 to the                            Registration Statement on Form S-8 (SEC File No. 333-71145) filed with                            the SEC on January 25, 1999. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Incorporated by reference to Exhibit 4.1 to the                            Registration Statement on Form S-8 (SEC File No. 333-53934) filed with                            the SEC on January 19, 2001. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | Incorporated by reference from Exhibit 4.1 to the                            Registration Statement on Form S-8 (SEC File No. 333-81572) filed with                            the SEC on January 29, 2002. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11) | Incorporated by reference from Exhibit 4.1 to                            Registration Statement on Form S-8 (SEC File No. 333-103448) filed with                            the SEC on February 26, 2003. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

(12)       Incorporated by reference from            Exhibit 4.1 to Registration Statement on Form S-8 (SEC File No. 333-123168) 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 to the Company’s Annual Report on Form 10-K for the year                            ended September 30, 2007 filed with the SEC on December 28,                            2007. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

 

24

 

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**SIGNATURES**

 

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:    February 13,                            2008 |   | By:                   | /s/ Richard G. Spencer |
|                                                                                                                  |   |                       | Richard G. Spencer

President and Chief Executive Officer |

 

 

 

|  

                             

Date:    February 13,                            2008 |   | By:  | /s/ Lisa L. Griffith                                                                        |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------|---------------------------------------------------------------------------------------------|
|                                                                                                                  |   |      | Lisa L. Griffith

Sr. Vice President and Chief Financial                            Officer |

 

 

 

 

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