Forward-Looking Statements

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 61 through 70 of the Company's 2011 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, income taxes, and accounting for stock options. Please refer to the discussion of the allowance for loan losses in Note 7, "Loans Receivable and Related Allowance for Loan Losses", on pages 23 through 30 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 48 of the Company's 2011 Annual Report to Shareholders. Please refer to the discussion of other-than-temporary impairment in Note 6, "Securities", on pages 14 through 23 above and in Note 2, "Securities", on pages 71 through 78 of the Company's 2011 Annual Report to Shareholders. Please refer to the discussion of income taxes on page 47 below and in Note 10, "Income Taxes", on pages 94 through 96 of the Company's 2011 Annual Report to Shareholders. Stock based compensation expense is reported in net income utilizing the fair value-based method in accordance with U.S. generally accepted accounting principles. 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 page 12 above. In addition, further discussion of the assumptions used in determining stock based compensation is contained in Note 13, "Stock Option Plans", on pages 99 through 100 of the Company's 2011 Annual Report to Shareholders.

Comparison of Financial Condition

Total assets of the Company decreased $1.1 million, or 0.16%, to $665.8 million at March 31, 2012 from $666.9 million at September 30, 2011. Significant changes in individual categories include decreases in securities available-for-sale of $9.3 million and net loans outstanding of $7.1 million, offset by increases in cash and cash equivalents of $14.5 million and foreclosed real estate of $4.0 million. The decrease in securities available-for-sale is a result of sales, maturities and repayments. The decrease in net loans reflects $54.6 million of repayments, partially offset by $43.6 million in loan originations. The increase in cash and cash equivalents is a result of an increase in maturities and repayments of loans and securities. The increase in foreclosed real estate is a result of one large commercial real estate property that was acquired.

Total liabilities of the Company decreased $2.7 million, or 0.5%, to $613.7 million at March 31, 2012 from $616.4 million at September 30, 2011. The decrease is primarily due to a decrease in long-term debt of $15.0 million, and a decrease in securities sold under agreement to repurchase of $13.1 million, partially offset by an increase in deposits of $25.4 million. The decrease in long-term debt and securities sold under agreement to repurchase are a result of maturities. The increase in deposits reflects management's ongoing efforts to attract and retain deposits.

Stockholders' equity increased slightly to $52.1 million at March 31, 2012, compared to $50.5 million at September 30, 2011. This result reflects total comprehensive income for the six-month period ended March 31, 2012 of $1.9 million; stock issued under the Dividend Reinvestment Plan of $11,000; stock-based compensation expense of $10,000; and stock options exercised of $7,000. Offsetting these increases were common and preferred stock cash dividends paid of $298,000. Approximately $3.4 million of the balances in retained earnings as of March 31, 2012 and September 30, 2011 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 foreclosed real estate held by the Company at the dates indicated. The table does not include $6.5 million and $5.5 million of accruing loans at March 31, 2012 and September 30, 2011, respectively, that were more than 90 days past due but were otherwise performing in accordance with their terms. Included in the $6.5 million of accruing loans at March 31, 2012 are $4.0 million of commercial construction loans, $1.6 million of commercial business loans, and $737,000 of home equity loans that have reached their maturity dates and are in the process of renewing or payoff.

                                                       March 31,             September 30,
                                                         2012                    2011
                                                             (Dollars in Thousands)
Non-accrual residential real estate loans
(one-to-four family)                                  $     1,015           $         1,764
Non-accrual construction, multi-family
residential and commercial real estate loans                4,026                     4,398
Non-accrual installment loans                                 282                       726
Non-accrual commercial business loans                         410                         9

Total non-performing loans                            $     5,733           $         6,897

Total non-performing loans as a percent of net
loans receivable                                             1.69 %                    1.99 %

Total foreclosed real estate                          $     7,164           $         3,125

Total non-performing loans and foreclosed real
estate as a percent of total assets                          1.94 %                    1.50 %

Included in non-performing loans at March 31, 2012 are thirteen single-family residential real estate loans totaling $1.0 million, three commercial real estate loans totaling $4.0 million, nine installment loans totaling $282,000, and five commercial business loans totaling $410,000. Non-performing loans decreased $1.2 million to $5.7 million at March 31, 2012 from $6.9 million at September 30, 2011. The decrease was primarily attributed to non-accrual residential real estate loans and non-accrual installment loans, which was offset by increases in non-accrual commercial business loans added during the current fiscal year.

At March 31, 2012, the Company had an allowance for loan losses of $3.9 million or 1.1% of gross loans receivable, as compared to an allowance of $5.8 million or 1.6% of gross loans receivable at September 30, 2011. The allowance for loan losses equals 67.3% of non-performing loans at March 31, 2012 compared to 83.6% at September 30, 2011. The level of the allowance for loan losses as a percentage of non-performing loans reflects the concentration of non-performing loans in the commercial real estate category, most of which are collateral-dependent loans that do not have a related allowance for loan losses as a result of applying impairment tests prescribed under U.S. generally accepted accounting principles (see Footnote 7). Management believes the balance in the allowance for loan losses is adequate based on its analysis of quantitative and qualitative factors as of March 31, 2012. Management has evaluated its entire loan portfolio, including these non-performing loans, and the overall allowance for loan losses and believes that the allowance for losses on loans at March 31, 2012 is reasonable. See also "Provision for Loan Losses" on page 44. However, there can be no assurance that the allowance for loan losses is sufficient to cover possible future loan losses.

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

The Company's ALLL methodology incorporates management's current judgments about the credit quality of the loan portfolio. The following factors are considered when analyzing the adequacy 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.

Net Income

The Company recorded net income for the three months ended March 31, 2012 of $110,000 and net income available to common stockholders of $7,000 compared to a net income of $659,000 and net income available to common stockholders of $556,000 or $0.18 per diluted common share for the same period in 2011. The $549,000 decrease in net income primarily reflects a decrease in net interest income of $185,000, an increase in provision for loan losses of $25,000, an increase in other-than-temporary impairment ("OTTI") charges recognized in earnings of $619,000, and an increase in noninterest expense of $227,000, partially offset by an increase in non-interest income (excluding OTTI charges) of $61,000, and a decrease in income tax provision of $447,000. Included in other income for the three months ended March 31, 2012 were OTTI charges of $898,000 compared to $279,000 recognized in the prior year period.

The Company recorded net income for the six months ended March 31, 2012 of $675,000 and net income available to common stockholders of $470,000 or $0.15 per diluted common share compared to net income of $525,000 and net income available to common stockholders of $320,000 or $0.11 per diluted common share for the same period in fiscal 2011. The $150,000 increase in net income primarily reflects a decrease in OTTI charges recognized in earnings of $405,000 an increase in non-interest income of $124,000, and an increase in the tax benefit of $80,000, partially offset by a decrease in net interest income of $270,000, an increase in provision for loan losses of $75,000, and an increase in operating expenses of $113,000. OTTI charges were $951,000 for the six months ended March 31, 2012 compared to $1.4 million for the prior year period.

The Company's net income available to common stockholders and diluted earnings per common share for the three and six months ended March 31, 2012 and 2011 reflects the impact of $103,000 and $205,000, respectively, of preferred stock dividends and discount accretion in each period.

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, was 2.10% (annualized) for the three months ended March 31, 2012 and 2011. Between the periods, average yields and cost of funds both declined by 32 basis points. The Company's tax-equivalent interest rate spread increased to 2.16% (annualized) in the six months ended March 31, 2012 from 2.12% (annualized) in the same period in 2011. The increase in interest rate spread for the six-month period ended March 31, 2012 is the result of the average rate paid on interest-bearing liabilities decreasing more than the average yield on interest-earning assets. The decrease in average rate paid on interest-bearing liabilities reflects the repayment of higher rate long-term debt and structured wholesale borrowings between the periods. 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              Six Months Ended
                                                      March 31,                       March 31,
                                                 2012             2011           2012            2011
Average yield on:
Mortgage loans                                      5.21 %         5.65 %          5.34 %         5.66 %
Mortgage-backed securities                          2.36           2.82            2.33           2.80
Installment loans                                   4.99           5.35            5.06           5.36
Commercial business loans and leases                4.45           4.99            4.46           4.90
Interest-earning deposits with other
institutions, investment securities, and
FHLB stock (1)                                      2.57           2.64            2.77           2.71

Total interest-earning assets                       3.90           4.22            4.01           4.27

Average rates paid on:
Deposits                                            1.00           1.13            1.03           1.16
Securities sold under agreement to
repurchase                                          4.68           4.82            4.69           4.76
Short-term borrowings                               0.18           0.18            0.18           0.20
Long-term debt                                      3.19           3.38            3.18           3.38
Subordinated debt                                   5.30           5.28            5.28           5.28

Total interest-bearing liabilities                  1.80           2.12            1.85           2.15

Average interest rate spread                        2.10 %         2.10 %          2.16 %         2.12 %

Net yield on interest-earning assets                2.32 %         2.36 %          2.37 %         2.36 %

(1) Interest income on tax-exempt investments has been adjusted for federal income tax purposes using a rate of 34%. Interest income on tax-exempt investment securities was $293,000 and $382,000 and the yield was 3.78% and 4.13%, prior to adjusting for federal income tax for the three months ended March 31, 2012 and 2011, respectively. Interest income on tax-exempt investment securities was $619,000 and $778,000 and the yield was 3.86% and 4.10%, prior to adjusting for federal income tax for the six months ended March 31, 2012 and 2011, respectively.

Interest Income

Interest on loans decreased $491,000 or 10.1% to $4.4 million for the three months ended March 31, 2012, compared to $4.9 million in the same period in 2011. Interest on loans decreased $1.0 million or 10.1% to $9.0 million for the six months ended March 31, 2012, compared to $10.0 million in the same period in 2011. The decrease for both periods reflects a decrease in the average size of the loan portfolio and a decrease in the average yield earned on the loan portfolio. For the three-month period ended March 31, 2012, the average outstanding loan balances decreased $6.3 million or 1.8% and the average yield decreased by 46 basis points from 5.50% in the prior period to 5.04% in the current period. For the six-month period ended March 31, 2012, the average outstanding loan balances decreased $14.0 million or 3.8% and the average yield decreased by 36 basis points from 5.49% in the prior period to 5.13% in the current period. The average loan balances continued to decrease primarily due to increases in principal repayments mainly caused by customers refinancing their mortgage loans. Also, due to the current low interest rate environment, for asset/liability purposes, the Bank continues to sell a portion of the fixed rate, single-family mortgage loans that it originates.

Interest on mortgage-backed securities decreased $68,000 or 8.3% to $748,000 for the three-month period ended March 31, 2012, compared to $816,000 in the same period in 2011. Interest on mortgage-backed securities was relatively unchanged at approximately $1.5 million for the six-month periods ended March 31, 2012 and 2011. The decrease for the three month period reflects an increase in the average balance of mortgage-backed securities owned, offset by a decrease in the average yield earned on the portfolio. For the three-month period ended March 31, 2012, the average balance of mortgage-backed securities increased $11.2 million or 9.7% and the average yield decreased by 46 basis points from 2.82% in the prior period to 2.36% in the current period. For the six-month period ended March 31, 2012, the average balance of mortgage-backed securities increased $18.9 million or 17.2% and the average yield decreased by 47 basis points from 2.80% in the prior period to 2.33% in the current period. The yield earned on mortgage-backed securities is affected, to some degree, by the repayment rate of loans underlying the securities. Premiums or discounts on the securities, if any, are amortized to interest income over the life of the securities using the level yield method. During periods of falling interest rates, repayments of the loans underlying the securities generally increase, which shortens the average life of the securities and accelerates the amortization of the premium or discount. Falling rates, however, also tend to increase the market value of the securities.

Interest on interest-bearing demand deposits with other institutions and investment securities (non-tax equivalent) decreased $208,000 or 20.1% to $828,000 for the three months ended March 31, 2012, as compared to $1.0 million in the same period in 2011. Interest on interest-bearing demand deposits with other institutions and investment securities (non-tax equivalent) decreased $393,000 or 18.4% to $1.7 million for the six months ended March 31, 2012, as compared to $2.1 million in the same period in 2011. The decrease for the three months ended March 31, 2012 reflects both a decrease in the average balance of investment securities in the portfolio and a decrease in the yield earned on these investments. The decrease for the six months ended March 31, 2012 reflects a decrease in the average balance of investment securities in the portfolio and an increase in the yield earned on these investments. For the three-month period ended March 31, 2012, the average balance of interest-bearing demand deposits with other institutions and investment securities decreased $33.5 million or 18.2% and the average tax-equivalent yield decreased by 7 basis points from 2.64% in the prior period to 2.57% in the current period. For the six-month period ended March 31, 2012, the average balance of interest-bearing demand deposits with other institutions and investment securities decreased $37.5 million or 20.4% and the average tax-equivalent yield increased by 6 basis points from 2.71% in the prior period to 2.77% in the current period. The lower average balances were primarily related to repayments, calls and maturities of investment securities. The increase in the yields is a result of income from discounts on investments for called securities.

Interest Expense

Interest on deposits decreased $89,000 or 8.1% to $1.0 million for the three-month period ended March 31, 2012, as compared to $1.1 million during the same period in 2011. Interest on deposits decreased $224,000 or 9.9% to $2.0 million for the six-month period ended March 31, 2012, as compared to $2.3 million during the same period in 2011. The decrease for both periods reflects both an increase in the average balance of deposits and a decrease in the average cost of the deposits. For the three-month period ended March 31, 2012, the average balance of deposits increased $10.5 million or 2.7% and the average yield decreased by 13 basis points from 1.13% in the prior period to 1.00% in the current period. For the six-month period ended March 31, 2012, the average balance of deposits increased $4.6 million or 1.2% and the average yield decreased by 13 basis points from 1.16% in the prior period to 1.03% in the current period. The Company manages its cost of interest-bearing deposit accounts by diligently monitoring the interest rates on its products as well as the rates being offered by its competition through bi-weekly interest rate committee meetings and utilizing rate surveys and subsequently adjusting rates accordingly.

Interest on securities sold under agreement to repurchase, including retail, term, and wholesale structured borrowings, decreased $342,000 or 28.9% to $842,000 for the three-month period ended March 31, 2012, as compared to $1.2 million during the same period in 2011. Interest on securities sold under agreement to repurchase, including retail, term, and wholesale structured borrowings, decreased $718,000 or 29.3% to $1.7 million for the six-month period ended March 31, 2012, as compared to $2.5 million during the same period in 2011. The decrease for both periods reflects both a decrease in the cost of these funds and a lower level of average securities sold under agreement to repurchase. For the three-month period ended March 31, 2012, the average balance of securities sold under agreement to repurchase decreased $27.2 million or 27.3% and the average yield decreased by 14 basis points from 4.82% in the prior period to 4.68% in the current period. For the six-month period ended March 31, 2012, the average balance of securities sold under agreement to repurchase decreased $29.3

million or 28.3% and the average yield decreased by 7 basis points from 4.76% in the prior period to 4.69% in the current period. The Bank had $55.0 million and $85.0 million of wholesale structured borrowings outstanding at March 31, 2012 and 2011, respectively.

Interest on long-term debt, including FHLB fixed-rate advances and "Convertible Select" advances, decreased $152,000 or 22.8% to $516,000 for the three-month period ended March 31, 2012, as compared to $668,000 in the same period in 2011. Interest on long-term debt, including FHLB fixed rate advances and "Convertible Select" advances, decreased $227,000 or 16.8% to $1.1 million for the six-month period ended March 31, 2012, as compared to $1.4 million in the same period in 2011. The decrease for both periods reflects both a decrease in the average balance of the debt and a decrease in the average cost of the debt. For the three-month period ended March 31, 2012, the average balance of long-term debt decreased $15.0 million or 18.8% and the average yield decreased by 19 basis points from 3.38% in the prior period to 3.19% in the current period. For the six-month period ended March 31, 2012, the average balance of long-term debt decreased $9.4 million or 11.7% and the average yield decreased by 20 basis points from 3.38% in the prior period to 3.18% in the current period. The decrease in the average balance and average cost reflects the Company's decision to de-leverage the balance sheet and was accomplished by using its excess cash to pay off higher rate long-term debt that has matured between the periods.

Net Interest Income

The Company's net interest income decreased $185,000 or 5.0% to $3.5 million, for the three-month period ended March 31, 2012, as compared to $3.7 million in the same period in 2011. The Company's net interest income decreased $270,000 or 3.6% to $7.1 million, for the six-month period ended March 31, 2012, as compared to $7.4 million in the same period in 2011. The decrease in net interest income for the three-month period ended March 31, 2012 reflects interest income decreasing more than interest expense. Interest income decreased $767,000 or 11.4% to $6.0 million as compared to $6.7 million in the same period in 2011. The decrease reflects both a decrease in the average balance of interest earning assets and a decrease in the yields earned on these assets. Interest expense decreased $582,000 or 19.1% to $2.5 million as compared to $3.1 million in the same period in 2011. The decrease reflects both a decrease in the average balance of interest-bearing liabilities and a decrease in the interest rates paid on interest-bearing liabilities. The decrease in net interest income for the six-month period ended March 31, 2012 reflects interest income decreasing more than interest expense. Interest income decreased $1.4 million or 10.5% to $12.3 million as compared to $13.7 million in the same period in 2011. The decrease reflects both a decrease in the average balance of interest-earning assets and a decrease in the yields earned on these assets. Interest expense decreased $1.2 million or 18.6% to $5.1 million as compared to $6.3 million in the same period in 2011. The decrease reflects both a decrease in the average balance of interest-bearing liabilities and a decrease in the interest rates paid on interest-bearing liabilities. For the three months ended March 31, 2012 and 2011 the ratio of average interest-earning assets to average interest-bearing liabilities was 113.6% and 112.3%, respectively. For the six . . .