Delanco Bancorp 10-Q 2010 Q3 Quarterly report

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2009

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________

Commission file number:  0-52517

DELANCO BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

United States (State or other jurisdiction of incorporation or organization) 36-4519533 (I.R.S. Employer Identification No.)

615 Burlington Avenue, Delanco, New Jersey 08075

(Address of principal executive offices)

(856) 461-0611

(Issuer’s telephone number)

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 Exchange Act during the past 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.

Yes x                           No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o                   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

Yes o                   No x

As of February 12, 2010 there were 1,634,725 shares of the registrant’s common stock outstanding.

DELANCO BANCORP, INC.

FORM 10-Q

Index

			Page No.
PART I.  FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Financial Condition at December 31, 2009 (Unaudited) and March 31, 2009	1
		Consolidated Statements of Operations for the three and nine months ended December 31, 2009 and 2008 (Unaudited)	2
		Consolidated Statements of Stockholders’ Equity for the nine months ended December 31, 2009 (Unaudited)	3
		Consolidated Statements of Cash Flows for the nine months ended December, 2009 and 2008 (Unaudited)	4
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	Item 4.	Controls and Procedures	18
PART II.  OTHER INFORMATION
	Item 1.	Legal Proceedings	18
	Item 1A.	Risk Factors	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 3.	Defaults upon Senior Securities	18
	Item 4.	Submission of Matters to a Vote of Security Holders	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	18
Signatures

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

	December 31, 2009			March 31,  2009
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	660,857		$	476,087
Interest-bearing deposits		5,977,117			1,240,868
Total cash and cash equivalents		6,637,974			1,716,955
Investment securities:
Securities held-to-maturity (fair value of $13,304,247 (unaudited) and $14,730,626 at December 31, 2009 and March 31, 2009, respectively)		12,863,329			14,282,255
Securities available-for-sale		260,775			222,719
Total investment securities		13,124,104			14,504,974
Loans, net of allowance for loan losses of $1,374,587 at December 31, 2009 (unaudited), $1,546,601 at March 31, 2009		108,212,627			103,624,343
Accrued interest receivable		490,948			499,981
Premises and equipment, net		7,806,132			8,024,232
Real estate owned		437,968		–
Investment required by law-stock in Federal Home Loan Bank, at cost		206,700			345,900
Deferred income taxes		728,700			561,000
Bank owned life insurance		136,004			130,042
Prepaid and refundable income taxes		350			561,971
Other assets		1,204,830			498,966
Total assets	$	138,986,337		$	130,468,364
LIABILITIES
Deposits
Non-interest bearing deposits		2,851,743			2,518,934
Interest bearing deposits		123,803,521			111,464,281
Total deposits		126,655,264			113,983,215
Federal Home Loan Bank Advances	–				3,750,000
Accrued interest payable		40,678			211,962
Advance payments by borrowers for taxes and insurance		401,053			359,738
Other liabilities		509,664			642,032
Total liabilities		127,606,659			118,946,947
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 3,000,000 shares authorized; no shares issued	–			–
Common stock, $.01 par value, 7,000,000 shares authorized; 1,634,725 shares issued and outstanding	$	16,347		$	16,347
Additional paid-in capital		6,652,235			6,652,235
Retained earnings, substantially restricted		5,317,768			5,499,813
Unearned common stock held by employee stock ownership plan		(576,729	)		(576,729	)
Accumulated other comprehensive (Loss)		(29,943	)		(70,249	)
Total stockholder’s equity		11,379,678			11,521,417
Total liabilities and stockholders’ equity	$	138,986,337		$	130,468,364

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended December 31,					Nine Months Ended December 31,
	2009		2008			2009			2008
INTEREST INCOME
Loans	$	1,584,559	$	1,368,551		$	4,699,895		$	4,524,204
Investment securities		173,300		215,205			518,914			609,692
Total interest income		1,757,859		1,583,756			5,218,809			5,133,896
INTEREST EXPENSE
Interest-bearing checking accounts		25,909		25,780			79,274			53,299
Passbook and money market accounts		126,646		164,198			396,481			515,477
Certificates of deposits		507,465		715,054			1,546,665			2,173,779
Federal Home Loan Bank Advances		4,440		3,479			19,676			3,479
Total interest expense		664,460		908,511			2,042,096			2,746,034
Net interest income		1,093,399		675,245			3,176,713			2,387,862
Provision for loan losses		110,000		325,000			915,000			767,000
Net interest income after provision for loan losses		983,399		350,245			2,261,713			1,620,862
NON-INTEREST INCOME
Gain on sale of investment		15,053	–				15,053		–
Income from bank-owned life insurance	–		–				5,962			5,630
Service charges		31,025		45,274			100,756			119,060
Rental income		583	–				583			5,875
Other		628		16,637			19,811			48,806
Total non-interest income		47,289		61,911			142,165			179,371
NON-INTEREST EXPENSE
Salaries and employee benefits		396,689		424,292			1,341,465			1,386,859
Advertising		7,472		13,601			28,181			42,568
Office supplies, telephone and postage		21,773		41,835			90,556			117,709
Net occupancy expense		174,960		162,716			516,652			497,554
Real estate owned loss reserve		50,000	–				50,000		–
Federal insurance premiums		69,595		32,316			217,303			83,639
Data processing expenses		31,307		38,420			101,994			103,616
ATM expenses		6,669		17,039			17,778			50,994
Bank charges and fees		22,993		19,893			79,999			52,912
Insurance and surety bond premiums		17,112		12,802			50,418			40,179
Dues and subscriptions		6,715		14,360			25,839			38,457
Professional fees		31,786		60,446			137,996			261,900
On-line banking expense	–			31,099		–				84,647
Other		52,742		55,237			108,792			124,724
Total non-interest expense		889,813		924,056			2,766,973			2,885,758
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)		140,875		(511,900	)		(363,095	)		(1,085,525	)
Income taxes (benefits)		11,937		(177,798	)		(181,050	)		(378,827	)
NET INCOME (LOSS)	$	128,938	$	(334,102	)	$	(182,045	)	$	(706,698	)
INCOME (LOSS) PER COMMON SHARE	$	0.08	$	(0.21	)	$	(0.12	)	$	(0.45	)

See Notes to the Unaudited Consolidated Financial Statements.

See Notes to the Unaudited Consolidated Financial Statements.

2

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock				Additional Paid-in		Retained			Unearned Employee Stock Ownership			Accumulated Other-Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Earnings			Plan			Income (Loss)			Equity
Balance at March 31, 2009		1,634,725	$	16,347	$	6,652,235	$	5,499,813		$	(576,729	)	$	(70,249	)	$	11,521,417
Net income								(182,045	)								(182,045	)
Other comprehensive income, net of tax:
Change in unrealized gain on securities available-for-sale, net of deferred income taxes of $( 161         )														40,306			40,306
Total comprehensive income								(182,045	)					40,306			(141,739	)
Balance at December 31, 2009		1,634,725	$	16,347	$	6,652,235	$	5,317,768		$	(576,729	)	$	(29,943	)	$	11,379,678

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended December 31,
	2009			2008
Cash flow from operating activities
Net Income (Loss)	$	(182,045	)	$	(706,698	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes		(150,120	)		(11,808	)
Depreciation		256,003			236,840
Discount accretion net of premium amortization		(5,464	)		37,140
Provision for loan losses		915,000			767,000
Income from bank owned life insurance		(5,962	)		(5,630	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		9,033			34,834
Other assets		(705,863	)		(41,134	)
Prepaid and refundable income taxes		561,621			(331,581	)
Increase (decrease) in:
Accrued interest payable		(171,285	)		(149,301	)
Other liabilities		(132,368	)		52,407
Net cash provided by (used in) operating activities	$	388,550		$	(117,931	)
Cash flows from investing activities
Purchases of securities available-for-sale		(15,330	)		(1,372	)
Purchases of securities held-to-maturity		(4,000,000	)		(8,181,320	)
Proceeds from maturities and principal repayments of securities held-to-maturity		5,424,389			4,610,978
(Purchase), sale of investment required by law – stock in Federal Home Loan Bank		139,200			(139,300	)
Net increase in loans		(5,941,252	)		(7,152,393	)
Purchases of premises and equipment		(37,903	)		(149,477	)
Net cash (used in) investing activities	$	( 4,430,896	)	$	(11,012,884	)
Cash flows from financing activities
Net increase (decrease) in deposits		12,672,049			2,645,350
Net increase in advance payments by borrowers for taxes and insurance		41,316			37,225
Increase (decrease) in Federal Home Loan Bank Advances		(3,750,000	)		2,250,000
Distribution of ESOP shares		–			22,588
Net cash provided by (used in) financing activities	$	8,963,365		$	4,955,163

(continued)

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	Nine Months Ended December 31,
	2009		2008
Net decrease in cash and cash equivalents	$	4,921,019	$	(6,175,652	)
Cash and cash equivalents, beginning of the period		1,716,955		12,679,133
Cash and cash equivalents, end of period	$	6,637,974	$	6,503,481
Supplemental Disclosures:
Cash paid during the period for interest	$	2,193,705	$	2,895,336
Cash paid during the period for income taxes	$	520	$	2,300
Loans transferred to foreclosed real estate during the period	$	487,968	$	–
Proceeds from sales of foreclosed real estate financed through loans	$	–	$	–
Net change in unrealized gain on securities available-for-sale net of tax	$	13,635	$	33,250

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

December 31, 2009

 (1)         Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP).  However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included.  Such adjustments were of a normal recurring nature.  The results of operations for the three and nine month periods ended December 31, 2009 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.  For additional information, refer to the consolidated financial statements and footnotes thereto of Delanco Bancorp, Inc. (the “Company”) included in the Company’s annual report on Form 10-K for the year ended March 31, 2009.  In connection with the preparation of the accompanying financial statements, the Company has evaluated events and transactions through February 12, 2010, which is the date the financial statements were available to be issued.

(2)         Use of Estimates

In preparing financial statements in conformity with U.S. generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans and the evaluation of deferred taxes.

(3)         Deferred Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. A reduction in estimated future taxable income required us to record a valuation allowance against our deferred tax assets. A valuation allowance totaling $500,000 as of December 31, 2009 exists against the deferred income taxes.

The calculation of deferred taxes for GAAP capital differs from the calculation of deferred taxes for regulatory capital. For regulatory capital, deferred tax assets that are dependent upon future taxable income for realization are limited to the lesser of either the amount of deferred tax assets that the institution expects to realize within one year of the calendar quarter-end date, or 10% of Delanco Federal Savings Bank’s (the “Bank”) Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower then our GAAP capital ratio by 32 basis points.

6

(4)          Income Taxes

The Bank adopted the provisions of Financial ASC Topic 740 “Accounting for Uncertainty in Income Taxes” on April 1, 2007. ASC Topic 740 prescribes a threshold and measurement process for recognizing in the financial statements a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  The Bank has determined that there are no significant uncertain tax positions requiring recognition in its financial statements.   

Federal tax years 2006 through 2008 remain subject to examination as of December 31, 2009, while tax years 2005 through 2008 remain subject to examination by state taxing jurisdictions. In the event the Bank is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense.

(5)         Earnings Per Share

Basic earnings per share (“EPS”) are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflect 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 entity.

The difference between the common shares issued and the common shares outstanding for the purposes of calculating basic EPS is a result of the unallocated ESOP shares.

The calculated basic and dilutive EPS are as follows:

	Three Months Ended December 31,					Nine Months Ended December 31,
	2009		2008			2009			2008
Numerator	$	128,938	$	(334,102	)	$	(182,045	)	$	(706,698	)
Denominators:
Basic shares outstanding		1,577,052		1,573,848			1,577,052			1,573,848
Effect of dilutive securities		–		–			–			–
Dilutive shares outstanding		1,577,052		1,573,848			1,577,052			1,573,848
Earnings per share:
Basic	$	0.08	$	(0.21	)	$	(0.12	)	$	(0.45	)
Dilutive	$	0.08	$	(0.21	)	$	(0.12	)	$	(0.45	)

(6)    Supervisory Agreement

On December 17, 2007, Delanco Federal Savings Bank entered into a Supervisory Agreement with the OTS.  The entry into the Supervisory Agreement was based on the Bank’s 2007 report of examination in which the OTS concluded that grounds existed for the initiation of administrative proceedings against the Bank.  Without admitting or denying that such grounds existed, the Bank determined to enter into the Supervisory Agreement to cooperate with the OTS and as evidence of the Bank’s intent to comply with all applicable laws and regulations and engage in safe and sound practices.

Pursuant to the terms of Supervisory Agreement, the Bank agreed as follows:

7

• To refrain from making, investing in, purchasing or otherwise modifying any commercial loan without the prior written non-objection of the OTS.

• By December 31, 2007, to review each commercial loan file with an outstanding principal balance that equals or exceeds $250,000 and by February 29, 2008 for all other commercial loans, to determine whether all required documentation has been obtained.  All missing or incomplete documentation must be obtained by January 31, 2008 for all commercial loans with an outstanding principal balance that equals or exceeds $250,000 and by February 29, 2008 for all other commercial loans.

• By January 31, 2008, to implement a credit administration process utilizing an electronic system and checklists to facilitate ongoing reviews of the financial condition of borrowers and guarantors.

• To evaluate, on a semiannually basis, the effectiveness of the Bank’s credit administration function.

• To engage an independent, third-party service provider to conduct an internal loan review of the Bank’s lending operations on a quarterly basis.  As part of the internal loan review program, the Bank must develop and implement a risk rating system for all loans.  On a quarterly basis, the Board’s Audit Committee must provide the Board with, and the Board must review and evaluate, a written report documenting the findings and recommendations relating to the internal loan reviews.

• By December 31, 2007, to adopt and implement a written program which satisfies certain OTS regulations and interagency guidelines regarding the identification and classification of problem assets.  The program must (i) provide for and require the maintenance of an adequate allowance for loan and lease losses; (ii) ensure the prompt charge-off of loans when proper; and (iii) require the timely and accurate reporting of criticized assets, the allowance for loan and lease losses and charge-offs in the Bank’s Thrift Financial Reports (TFRs).

• To prepare TFRs accurately and in accordance with applicable instructions.

• To ensure that at the end of each quarter, the Bank’s assets have not increased by an amount greater than 2.5% of the Bank’s total assets at the end of the prior quarter.

• To notify and receive the non-objection of the OTS before adding or replacing any Board member, employing any person as a senior executive officer or entering into or revising any contractual arrangement with any director or senior executive officer.

The Bank has received relief from two portions of the Supervisory Agreement from the OTS:

• The Bank may refinance, extend or otherwise modify an existing commercial loan so long as no new or additional funds are advanced, without the need for the Regional director’s prior written non objection.

• The OTS also modified the sections regarding the internal loan review, eliminating the requirement that the Audit Committee engage an independent third party. It also reduced the scope of the reviews required on a quarterly basis.

8

The remainder of the Supervisory Agreement will remain in effect until terminated, modified or suspended in writing by the OTS.  The failure to comply with the Supervisory Agreement could result in the initiation of formal enforcement action by the OTS, including the imposition of civil monetary penalties.

(6)         Recent Accounting Pronouncements

Below is a discussion of recent accounting pronouncements.  Recent pronouncements not discussed below were deemed to not be applicable to the Company.

ASC Topic 820-10-65, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued  guidance on identifying circumstances that indicate a transaction is not orderly and guidance on estimating fair value  when the volume and level of activity for the asset or liability have significantly decreased.  This guidance emphasizes that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.  This guidance was adopted by the Company, for the interim period beginning April 1, 2009, and did not have a material effect on the Company’s financial position or results of operations.

ASC Topic 320-10-65, Recognition and Presentation of Other Than Temporary Impairments

In April 2009, the FASB issued  guidance  regarding the recognition and presentation of other than temporary impairments on debt and equity securities in the financial statements.  This guidance modifies the presentation of OTTI losses and expands existing disclosure requirements about OTTI.  This guidance was adopted by the Company for the interim period beginning April 1, 2009 and did not have a material effect on the Company’s financial position or results of operations.

ASC Topic 825-10-50, Interim Disclosures about Fair Value of Instruments

In April 2009 the FASB issued guidance which requires publicly traded companies to disclose the fair value of financial instruments within the scope of FAS 107 in interim financial statements.  This guidance was adopted by the Company for the interim period beginning April 1, 2009.

ASC Topic 855, Subsequent Events

In May 2009 the FASB issued additional guidance on the evaluation of subsequent events and requires the disclosure of the date through which subsequent events have been evaluated.  This guidance was adopted by the Company for the interim period June 30, 2009.

9

FASB Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009 the FASB issued FASB Statement No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162”.  (SFAS No. 168).  SFAS No. 168 established the FASB Accounting Standards Codification.  The Codification will become the exclusive authoritative reference for nongovernmental U.S.  GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants.  The contents of the Codification will carry the same level of authority, eliminating the four-level GAAP hierarchy previously set forth in Statement 162, which has been superseded by Statement 168.  All authoritative GAAP issued by the FASB after this Statement will be referred to as Accounting Standards Updates.  Accounting Standards Updates will not be considered authoritative in their own right, rather they will only serve to update the Codification, provide background information about the guidance and provide basis for conclusions on changes in the Codification.  The Codification retains existing GAAP without changing it except in one instance related to software revenue recognition, which does not impact the Company.  SFAS No. 168 is effective for the Company for the interim period ending September 30, 2009 and effective for the Form 10-Q for the period ending December 31, 2009, all references to authoritative literature are required to cite the Codification as opposed to legacy accounting pronouncements.

(7)         Fair Value of Financial Instruments

On April 1, 2009 the Bank adopted ASC Topic 820-10, “Fair Value Measurements and Disclosures”.  ASC Topic 820-10 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosure requirements for fair value measurements.  ASC Topic 820 does not require any new fair value measurements.  The adoption of ASC Topic 820-10 did not have a material impact on the consolidated financial statements.

In conjunction with the adoption of ASC Topic 820, the Bank also adopted the guidance of ASC Paragraphs 820-10-50-8A, 55-23A and 55-23B on April 1, 2008.  This guidance defers its effective date of AS Topic 820 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008, or April 1, 2009 for the Company.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:

·      Level 1 Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

·      Level 2 Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.

·      Level 3 Level 3 inputs are unobservable inputs.

A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input significant to the fair value measurement.

10

As required by ASC Topic 825-10-65, the estimated fair value of financial instruments at December 31, 2009 and March 31, 2009 was as follows:

	December 31, 2009				March 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents	$	6,638	$	6,638	$	1,717	$	1,717
Investment securities		13,124		13,565		14,505		14,953
Loans – net		108,213		111,042		103,624		107,728
FHLB stock		207		207		346		346
Accrued interest receivable		491		491		500		500
Total financial assets		128,673		131,943		120,714		125,244
Financial Liabilities:
Deposits		126,655		128,022		113,983		116,283
Advances from FHLB		–		–		3,750		3,750
Advance payments by borrowers for taxes and insurance		401		401		360		360
Accrued interest payable		41		41		212		212
Total financial liabilities		127,097		128,464		118,305		120,605

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

Management’s discussion and analysis of the financial condition and results of operations at and for the nine months ended December 31, 2009 and 2008 is intended to assist in understanding our financial condition and results of operations.  The information contained in this section should be read in conjunction with the Unaudited Financial Statements and the notes thereto, appearing in Part I, Item 1 of this report.

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe our future plans, strategies and expectations.  These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, changes in real estate market values in our area, and changes in relevant accounting principles and guidelines.

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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

Delanco Bancorp, Inc. is the holding company for Delanco Federal Savings Bank.  Delanco Federal Savings Bank operates from two offices in Burlington County, New Jersey.  Delanco Federal Savings Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate a variety of consumer and business loans.

Balance Sheet Analysis

Overview.  Total assets at December 31, 2009 were $139.0 million, an increase of $8.5 million, or 6.5%, from total assets of $130.5 million at March 31, 2009.  The change in the asset composition reflected an increase in cash and cash equivalents and loans.

Loans.  At December 31, 2009, total loans, net, were $108.2 million, or 77.9% of total assets.  The increase was primarily attributed to single-family residential loans.

Table 1:  Loan Portfolio Analysis

	December 31,						March 31,
	2009						2009
(Dollars in thousands)	Amount			Percent			Amount			Percent
Real estate loans:
Residential	$	78,810			71.9	%	$	70,806			67.2	%
Commercial and multi-family		24,769			22.6			26,054			24.7
Construction		1,541			1.4			1,796			1.7
Total real estate loans		105,120			95.9			98,656			93.6
Commercial loans		3,006			2.7			4,618			4.4
Consumer loans		1,543			1.4			2,134			2.0
Total loans		109,669			100.0	%		105,408			100.0	%
Loans in process		–						(139	)
Net deferred loan fees		(81	)					(98	)
Allowance for losses		(1,375	)					(1,547	)
Loans, net	$	108,213					$	103,624

Nonperforming Assets. Total nonperforming assets and troubled debt restructurings at December 31, 2009 increased $1.96 million primarily due to delinquencies in commercial real estate loans.The Bank continues to work with our borrowers where possible and are pursuing legal action where the ability to work with the customers does not exist.  As of December 31, 2009 the Bank has entered into formal forbearance agreements with three relationships totaling $2.5 million that require current payments while they restructure their finances.  An additional $2.4 million of the non-accrual loans are making payments but have been unable to bring the total due under 90 days past due as of December 31, 2009. $1.5 million in non-accrual loans are secured by properties that are under agreements for sale and are expected to settle during the first calendar quarter of 2010.

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Table 2:  Nonperforming Assets

	December 31,			March 31,
(Dollars in thousands)	2009			2009
Nonaccrual loans	$	8,679		$	8,298
Accruing loans past due 90 days or more		–			128
Total of nonaccrual and 90 days or more past due loans		8,679			8,426
Real estate owned		438			–
Other nonperforming assets		8			295
Total nonperforming assets		9,125			8,721
Troubled debt restructurings		1,854			303
Troubled debt restructurings and total nonperforming assets	$	10,979		$	9,024
Total nonperforming loans to total loans		7.91	%		8.00	%
Total nonperforming assets to total assets		6.57			6.68
Total nonperforming assets and troubled debt restructurings to total assets		7.90			6.92

Securities.  The investment securities portfolio was $13.1 million, or 9.4% of total assets, at December 31, 2009.  At that date, 75.2% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily inU.S. Government agency and other debt securities. The portfolio decrease was due to payments on mortgage backed securities.

Table 3:  Investment Securities

	December 31,				March 31,
	2009				2009
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Mutual funds	$	261	$	261	$	245	$	223
Total available for sale		260		261		245		223
Securities held to maturity:
U.S. Government and agency securities		2,998		3,006		2,500		2,508
Mortgage-backed securities		9,865		10,298		11,782		12,223
Total held to maturity		12,863		13,304		14,282		14,731
Total	$	13,124	$	13,565	$	14,527	$	14,954

Deposits.  Our deposit base is comprised of demand deposits, money market and passbook accounts and time deposits.  We consider demand deposits and money market and passbook accounts to be core deposits.  We do not have any brokered deposits. At December 31, 2009, core deposits were 44.0% of total deposits.  Deposits increased $12.7 million, or 11.1%, for the nine months ended December 31, 2009. The Bank attributes the increase to customers seeking to establish a banking relationship with a community banking organization.

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Table 4:  Deposits

	December 31,					March 31,
	2009					2009
(Dollars in thousands)	Amount		Percent			Amount		Percent
Noninterest-bearing demand deposits	$	2,852		2.25	%	$	2,519		2.2	%
Interest-bearing demand deposits		13,680		10.80			10,036		8.8
Savings and money market accounts		39,250		30.99			39,241		34.4
Certificates of deposit		70,873		55.96			62,187		54.6
Total	$	126,655		100.0	%	$	113,983		100.0	%

Borrowings.  In recent periods, we have occasionally used short-term FHLB advances as an additional source of liquidity.  At December 31, 2009, we had no short-term advances outstanding.  During the quarter, the bank repaid $1.0 million in maturing borrowings.

Results of Operations for the Nine Months Ended December 31, 2009 and 2008

Financial Highlights. Net loss for the nine months ended December 31, 2009 was $182,045 compared to a net loss of $706,698 for the prior year period.The net loss decreased primarily due to decreases in interest expense and non-interest expense and an increase in interest income, partially offset by an increase in the amount of provision for loan losses.

Table 5:  Summary Income Statements

Nine months ended December 31, (Dollars in thousands)	2009			2008				2009 v. 2008		% Change
Net interest income	$	3,177		$	2,388		$	789			33.0	%
Provision for loan losses		915			767			148			19.3
Noninterest income		142			179			(37	)		(20.7	)
Noninterest expenses		2,767			2,886			(119	)		(4.1	)
Net income		(182	)		(707	)		525			74.3
Return on average equity (annualized)		(2.11	)%		(7.52	)%
Return on average assets (annualized)		(0.18	)%		(0.73	)%

Net Interest Income.  Net interest income increased $789,000 to $3.2 million for the nine months ended December 31, 2009 from $2.4 million for the nine months ended December 31, 2008 driven by a decrease in interest expense due to decreased cost of funds. The 68 basis point increase in the net interest margin to 3.32% reflected the Bank’s ability to maintain the amount of interest income recognized while significantly decreasing its cost of funds. Interest income increased due to an increase in outstanding loans that offset the effect of an increased amount of non-performing loans. The decrease in cost of funds was driven by lower market interest rates as well as the Bank’s determination to not pay above market rates on deposits.

Average loans in the nine months ended December 31, 2009 increased $8.6 million, or 8.6%, compared with the same period in 2008, driven by growth in residential real estate loans.  Average investment securities in the nine months ended December, 2009 decreased $845,000, or 5.6%, compared to the same period in 2008.  The reduction in the investment portfolio reflected payments on mortgage backed securities. Reduction of interest rates on loans and investments decreased the average yield on earning assets to 5.45% for the nine months ended December 31, 2009, compared with 5.67% for the same period in 2008.

Average interest-bearing deposits in the nine months ended December 31, 2009 increased $9.5 million, or 8.5%, compared with the same period in 2008 due to increases in demand deposits and time deposits. Average time deposits increased as we promoted select deposit maturities.  Decreases in market interest rates caused the average cost of deposits to drop to 2.21%, compared with 3.27% for the same period in 2008.

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Table 6:  Analysis of Net Interest Income

Nine months ended December 31, (Dollars in thousands)	2009			2008				2009 v. 2008		% Change
Components of net interest income
Loans	$	4,700		$	4,524		$	176			3.9	%
Investment securities		519			610			(91	)		(14.9	)
Total interest income		5,219			5,134			85			1.7
Deposits		2,022			2,743			(721	)		(26.3	)
Borrowings		20			3			17			566.7
Total interest expense		2,042			2,746			(704	)		(25.6	)
Net interest income		3,177			2,388			789			33.0
Average yields and rates paid
Interest-earning assets		5.45	%		5.67	%		(22	) bp
Interest-bearing liabilities		2.21			3.27			(106	)
Interest rate spread		3.24			2.40			84
Net interest margin		3.32			2.64			68
Average balances
Loans	$	108,731		$	100,092		$	8,639			8.6	%
Investment securities		14,263			15,108			(845	)		(5.6	)
Other earning assets		4,649			5,482			(833	)		(15.2	)
Interest-bearing deposits		120,834			111,331			9,503			8.5
Borrowings		1,458			472			986			208.9

 Provision for Loan Losses.  The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio.  We evaluate the need to establish allowances against losses on loans on a quarterly basis.  When additional allowances are necessary, a provision for loan losses is charged to earnings.  Provisions for loan losses were $915,000 in the nine months ended December 31, 2009 compared to $767,000 in the nine months ended December 31, 2008.  We had $1.1 million in charge-offs in the nine months ended December 31, 2009, compared to $724,000 in charge-offs in the same prior year period.

Table 7:  Analysis of Loan Loss Experience

Nine months ended December 31, (Dollars in thousands)	2009			2008
Allowance at beginning of period	$	1,547		$	1,353
Provision for loan losses		915			767
Total charge-offs		(1,115	)		(724	)
Recoveries		28			15
Net charge-offs		(1,087	)		(709	)
Allowance at end of period	$	1,375		$	1,411
Allowance to nonperforming loans		15.84	%		38.30	%
Allowance to total loans outstanding at the end of the period		1.25			1.35
Net charge-offs (recoveries) to average loans outstanding during the period		1.00			0.71

Non-Interest Income.  Noninterest income decreased in the nine months ended December 31, 2009 compared to the same period in the prior year primarily as a result of a decrease in service charge income of $18,000 due to an accounting change in recognizing late charge income. Previously late charge income was recognized when earned and currently late charge income is recognized as received. Other income decreased $29,000 as a result of the conversion of the ATM processor. Our new processor offsets fees earned against the expenses incurred thus reducing our ATM income and ATM expense. The gain on sale of investment securities increased $15,000 due to the sale of an equity mutual fund which otherwise would have negatively impacted our regulatory capital calculation.

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Table 8:  Noninterest Income Summary

Nine months ended December 31, (Dollars in thousands)	2009		2008		$ Change			% Change
Gain on sale of investment	$	15	$	–	$	15			–	%
Income from bank-owned life insurance		6		5		1			20.0
Service charges		101		119		(18	)		(15.1	)
Rental income		–		6		(6	)		–
Other		20		49		(29	)		(59.2	)
Total	$	142	$	179	$	(37	)		(20.7	)%

Non-Interest Expenses.  Noninterest expenses declined in the nine months ended December 31, 2009 over the same period in the prior year due to reduced professional fees and lower overall data processing costs. The on-line banking expense is now included in the data processing expense. The combined expense decreased $87,000 from the prior period, and overall data processing costs including the ATM expense decreased $120,000. The reductions were offset by the $133,000 increase in the Federal Deposit Insurance premiums. The increased premiums include a special assessment charged to all FDIC insured financial institutions.  Our charge amount was $62,000. Real estate owned valuation provision increased $50,000 as the Bank established a reserve against the real estate owned.

Table 9:  Noninterest Expense Summary

Nine months ended December 31, (Dollars in thousands)	2009		2008		$ Change			% Change
Salaries and employee benefits	$	1,341	$	1,387	$	(46	)		(3.3	)%
Advertising		28		42		(14	)		(33.3	)
Office supplies, telephone and postage		91		118		(27	)		(22.9	)
Net occupancy expense		517		497		20			4.0
Real estate owned reserve		50		–		50			–
Federal insurance premiums		217		84		133			158.3
Data processing expenses		102		104		(2	)		(1.9	)
ATM expenses		18		51		(33	)		64.7
Bank charges and fees		80		53		27			50.9
Insurance and surety bond premiums		50		40		10			25.0
Dues and subscriptions		26		38		(12	)		(31.6	)
Professional fees		138		262		(124	)		(47.3	)
On-line banking expenses		–		85		(85	)		–
Other		109		125		(16	)		(12.8	)
Total	$	2,767	$	2,886	$	(119	)		(4.1	)%

Liquidity and Capital Management

Liquidity Management.  Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities of and payments on investment securities and borrowings from the Federal Home Loan Bank of New York.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents.  The levels of these assets depend on our operating, financing, lending and investing activities during any given period.  At December 31, 2009, cash and cash equivalents totaled $6.6 million.  In addition, at December 31, 2009, we had arrangements to borrow up to $9.0 million from the Federal Home Loan Bank of New York.  On December 31, 2009, we had no advances outstanding. During the quarter the bank repaid $1.0 million in maturing borrowings.

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At December 31, 2009, substantially all of our investment securities were classified as held to maturity.  We have classified our investments in this manner, rather than as available for sale, because they were purchased primarily to provide a source of income and not to provide liquidity.  We anticipate that a portion of future investments will be classified as available for sale in order to give us greater flexibility in the management of our investment portfolio.

A significant use of our liquidity is the funding of loan originations.  At December 31, 2009, we had $820,000 in loan commitments outstanding.  In addition, we had $1.7 million in unused lines of credit.  Historically, many of the lines of credit expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements.  Another significant use of our liquidity is the funding of deposit withdrawals.  Certificates of deposit due within one year of December 31, 2009 totaled $47.4 million, or 66.9% of certificates of deposit.  The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the recent low interest rate environment.  If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings.  Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2010.  We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us.  We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Management.  We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure.  The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.  At December 31, 2009, we exceeded all of our regulatory capital requirements.  We are considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.  Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We currently have no plans to engage in hedging activities in the future.

For the nine months ended December 31, 2009, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item  3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as the Company is a smaller reporting company.

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Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Delanco Bancorp is not involved in any pending legal proceedings.  Delanco Federal Savings Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business.  Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to its financial condition and results of operations.

Item 1A.  Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, which could materially and adversely affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

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

Not Applicable.

Item 3. Defaults upon Senior Securities

Not Applicable.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits

3.1 Charter of Delanco Bancorp, Inc. (1)

3.2 Bylaws of Delanco Bancorp, Inc. (1)

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4.0 Stock Certificate of Delanco Bancorp, Inc. (1)

10.1 Supervisory Agreement, dated December 17, 2007, by and between Delanco Federal Savings Bank and the Office of Thrift Supervision (2)

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.0 Section 1350 Certification

(1) Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form SB-2, and any amendments thereto, Registration No. 333-139339.

(2)  Incorporated by reference from Exhibit 99.1 of the Form 8-K filed with the Securities and Exchange Commission on December 20, 2007.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DELANCO BANCORP, INC.
Dated: February 16, 2010	By:	/s/ James E. Igo
		James E. Igo
		President and Chief Executive Officer
Dated: February 16, 2010	By:	/s/ Eva Modi
		Eva Modi
		Chief Financial Officer