Delanco Bancorp 10-Q 2017 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

OR

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

For the transition period from ______________ to _____________

Commission file number: 0-55087   

DELANCO BANCORP, INC.

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

New Jersey   (State or other jurisdiction of incorporationor organization) 80-0943940  (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☒     No☐

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☒                  No☐

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    ☐	Accelerated filer   ☐
Non-accelerated filer   ☐	Smaller reporting company  ☒

(Do not check if a smaller reporting company)

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

No☒

As of August 5, 2016 there were 945,425 shares of the registrant’s common stock outstanding.

DELANCO BANCORP, INC.

FORM 10-Q

Index

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Statements of Financial Condition at June 30, 2016 (Unaudited) and March 31, 2016	2
	Consolidated Statements of Operations for the Three Months Ended June 30, 2016 and 2015 (Unaudited)	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2016 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2016 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2016 and 2015 (Unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31

1

Part I. Financial Information

Item 1. Financial Statements

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

	June 30,			March 31,
	2016			2016
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	517,021		$	585,364
Interest-bearing deposits		14,519,899			11,542,024
Total cash and cash equivalents		15,036,920			12,127,388
Investment securities:
Securities available-for-sale (amortized cost of $2,615,954 and $2,121,777 at June 30, 2016 and March 31, 2016, respectively)		2,658,250			2,150,093
Securities held-to-maturity (fair value $15,340,975 and $21,706,150 at June 30, 2016 and March 31, 2016, respectively)		15,235,456			21,584,538
Total investment securities		17,893,706			23,734,631
Loans, net of allowance for loan losses of $1,115,180 at June 30, 2016 (unaudited), $1,099,232 at March 31, 2016		83,503,299			82,197,809
Accrued interest receivable		326,152			369,138
Real estate owned		1,579,137			1,763,628
Federal Home Loan Bank, at cost		169,300			253,800
Premises and equipment, net		6,229,440			6,290,047
Deferred income taxes		1,999,050			2,066,535
Bank-owned life insurance		173,914			174,252
Other assets		339,957			437,797
Total assets	$	127,250,875		$	129,415,025
LIABILITIES
Deposits
Non-interest bearing deposits	$	11,003,399		$	12,054,146
Interest bearing deposits		100,461,252			99,810,501
Total deposits		111,464,651			111,864,647
Advances from Federal Home Loan bank		1,000,000			3,000,000
Accrued interest payable		5,300			5,830
Advance payments by borrowers for taxes and insurance		453,237			433,034
Other liabilities		954,965			815,802
Total liabilities		113,878,153			116,119,313
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 5,000,000 authorized at June 30, 2016 and March 31, 2016, no shares issued
Common stock, $.01 par value, 20,000,000 shares authorized; 945,425 shares issued and outstanding at June 30, 2016 and March 31, 2016	$	9,454		$	9,454
Additional paid-in capital		9,997,314			9,988,509
Retained earnings, substantially restricted		3,978,293			3,918,476
Unearned common stock held by employee stock ownership plan		(501,065	)		( 501,065	)
Accumulated other comprehensive (loss)		(111,274	)		( 119,662	)
Total stockholder’s equity		13,372,722			13,295,712
Total liabilities and stockholders’ equity	$	127,250,875		$	129,415,025

See Notes to the Unaudited Consolidated Financial Statements.

2

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,
	2016			2015
INTEREST INCOME
Loans	$	892,478		$	896,377
Investment securities		174,933			165,875
Total interest income		1,067,411			1,062,252
INTEREST EXPENSE
Interest-bearing checking accounts		10,741			9,012
Passbook and money market accounts		29,667			26,376
Certificates of deposits		91,440			100,495
Federal Home Loan Bank Advances		2,748			6,900
Total interest expense		134,596			142,783
Net interest income		932,815			919,469
Provision (recapture) for loan losses		(48,000	)		10,000
Net interest income after provision (recapture) for loan losses		980,815			909,469
NON-INTEREST INCOME
(Loss) on sale of real estate owned		(5,532	)		(8,152	)
Service charges		32,835			33,008
Rental income		12,435			38,438
Other		3,480			3,632
Total non-interest income		43,218			66,926
NON-INTEREST EXPENSE
Salaries and employee benefits		397,028			408,760
Advertising		4,565			6,471
Office supplies, telephone and postage		25,232			25,373
Loan expenses		28,376			15,906
Net occupancy expense		143,376			147,274
Real estate loss reserve		13,100			38,993
Federal insurance premiums		42,798			42,906
Data processing expenses		64,614			58,760
ATM expenses		6,305			6,118
Bank charges and fees		21,493			19,985
Insurance and surety bond premiums		21,107			24,245
Dues and subscriptions		11,529			10,316
Professional fees		54,851			72,636
Real Estate Owned expense		32,585			55,034
Other		34,162			34,917
Total non-interest expense		901,121			967,694
INCOME BEFORE INCOME TAX EXPENSE		122,912			8,701
Income tax expense (benefit)		63,095			(18,232	)
NET INCOME	$	59,817		$	26,933
INCOME PER COMMON SHARE	$	0.07		$	0.03

See Notes to the Unaudited Consolidated Financial Statements.

3

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended
	June 30, 2016		June 30, 2015
Net income	$	59,817	$	26,933
Unrealized gain (loss) available for sale:
Unrealized holding gain (loss), net of deferred tax (benefit) of $16,918 and ($19,146) in 2016 and 2015		8,388		(12,576	)
Total other comprehensive income	$	68,205	$	14,357

See Notes to the Unaudited Consolidated Financial Statements

4

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Common Stock								Unearned Employee			Accumulated
	Shares		Amount		Additional Paid-in Capital		Retained Earnings		Stock Ownership Plan			Other- Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at March 31, 2016		945,425	$	9,454	$	9,988,509	$	3,918,476	$	(501,065	)	$	(119,662	)	$	13,295,712
Comprehensive income
Net income		−		−		−		59,817		−			−			59,817
Other comprehensive income, net of tax:		−		−		−		−		−			8,388			8,388
Employee stock option expense		−		−		8,805		−		−			−			8,805
Balance at June 30, 2016		945,425	$	9,454	$	9,997,314	$	3,978,293	$	(501,065	)	$	(111,274	)	$	13,372,722

See Notes to the Unaudited Consolidated Financial Statements.

5

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
	2016			2015
Cash flow from operating activities
Net Income	$	59,817		$	26,933
Adjustments to reconcile net income to net cash provided by operatingactivities:
Deferred income taxes		61,894			(18,982	)
Depreciation		66,152			65,434
Discount accretion net of premium amortization		(26,763	)		3,305
(Recapture) Provision for loan losses		(48,000	)		10,000
(Gain)Loss on sale of real estate owned		5,532			8,152
Compensation expense for stock options		8,805			7,877
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		42,986			45,488
Pre-Paid income taxes		−			(2,250	)
Other assets		98,178			9,630
Increase (decrease) in:
Accrued interest payable		(530	)		(1,187	)
Other liabilities		139,163			(18,747	)
Net cash provided by operating activities	$	407,234		$	135,653
Cash flows from investing activities
Proceeds of securities available for sale		5,822			5,658
Purchases of securities available for sale		(500,000	)		−
Purchases of securities held-to-maturity		(7,500,000	)		(2,000,000	)
Proceeds from maturities and principal repayments of securities held-to-maturity		13,875,845			2,081,217
Redemption of investment required by law – stock in Federal Home Loan Bank		84,500			7,500
Proceeds from sale of real estate owned		284,233			45,023
Net (increase) in loans		(1,362,764	)		(1,226,009	)
Purchases of premises and equipment		(5,545	)		(47,318	)
Net cash provided by(used in) investing activities	$	4,882,091		$	(1,133,929	)
Cash flows from financing activities
(Decrease) in deposits		(399,996	)		(2,135,432	)
Increase in advance payments by borrowers for taxes and insurance		20,203			48,544
(Decrease) in Federal Home Loan Bank Advances		(2,000,000	)		−
Net cash used in financing activities	$	(2,379,793	)	$	(2,086,888	)

6

	Three Months Ended June 30,
	2016		2015
Net (decrease) increase in cash and cash equivalents	$	2,909,532	$	(3,085,164	)
Cash and cash equivalents, beginning of the period		12,127,388		10,450,448
Cash and cash equivalents, end of period	$	15,036,920	$	7,365,284
Supplemental Disclosures:
Cash paid during the period for interest	$	142,978	$	143,970
Cash paid during the period for income taxes	$	2,500	$	2,500
Loans transferred to foreclosed real estate during the period	$	110,624	$	96,621
Net change in unrealized gain (loss) on securities available-for-sale net of tax	$	8,388	$	(12,576	)

See Notes to the Unaudited Consolidated Financial Statements.

7

DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

June 30, 2016

(1) Basis of Presentation

On October 16, 2013, Delanco Bancorp, Inc., a New Jersey corporation (the “Company”), became the holding company for the Bank upon completion of the “second-step” conversion of the Bank from a mutual holding company structure to a stock holding company structure (the “Conversion”). The Conversion involved the sale by the Company of 525,423 shares of common stock in a subscription and community offering, including shares purchased by the Bank’s employee stock ownership plan, the exchange of 420,002 shares of common stock of the Company for shares of common stock of the former Delanco Bancorp, Inc. (“old Delanco Bancorp”) held by persons other than Delanco MHC (the “MHC”), and the elimination of old Delanco Bancorp and the MHC. Net proceeds received from the reorganization and stock offering totaled $3,280,000, net of costs of $923,000.

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 month period ended June 30, 2016 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 the Company included in the Company’s annual report on Form 10-K for the year ended March 31, 2016.

(2) Use of Estimates

The preparation of 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.

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 the Bank’s Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower than our GAAP capital ratio by 121 basis points.

8

(4) Income Taxes

 The Bank accounts for uncertainties in income taxes in accordance with Financial ASC Topic 740 “Accounting for Uncertainty in Income Taxes”. 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.   

Tax year 2015 remains subject to examination by Federal and 2013 through 2015 by New Jersey taxing authorities. 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 June 30,
	2016		2015
Numerator	$	59,817	$	26,933
Denominators:
Basic shares outstanding		906,720		903,021
Effect of dilutive securities		3,290		1,546
Dilutive shares outstanding		910,010		904,567
Earnings per share:
Basic	$	0.07	$	0.03
Dilutive	$	0.07	$	0.03

(6) Regulatory Agreement      

On December 17, 2012, the Bank received a formal written agreement (the “Agreement”) with the Office of the Comptroller of the Currency (the “OCC”) dated November 21, 2012.  The Agreement supersedes and terminates the Order to Cease and Desist entered into by and between the Bank and the Office of Thrift Supervision on March 17, 2010.

9

The Agreement requires the Bank to take the following actions:

● prepare a three-year strategic plan that establishes objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, liability structure, reduction in the volume of nonperforming assets, and product line development;

● prepare a capital plan that includes specific proposals related to the maintenance of adequate capital, identifies strategies to strengthen capital if necessary and includes detailed quarterly financial projections.  If the OCC determines that the Bank has failed to submit an acceptable capital plan or fails to implement or adhere to its capital plan, then the OCC may require the Bank to develop a contingency capital plan detailing the Bank’s proposal to sell, merge or liquidate the Bank;

● prepare a criticized asset plan that will include strategies, targets and timeframes to reduce the Bank’s level of criticized assets;

● implement a plan to improve the Bank’s credit risk management and credit administration practices;

● implement programs and policies related to the Bank’s allowance for loan and lease losses, liquidity risk management, independent loan review and other real estate owned;

● review the capabilities of the Bank’s management to perform present and anticipated duties and to recommend and implement any changes based on such assessment;

● not pay any dividends or make any other capital distributions without the prior written approval of the OCC;

● not make any severance or indemnification payments without complying with regulatory requirements regarding such payments; and

● comply with prior regulatory notification requirements for any changes in directors or senior executive officers.

We have submitted strategic and capital plans to the OCC and have developed the other plans and policies required by the written agreement. The written agreement will remain in effect until terminated, modified, or suspended in writing by the OCC. 

The Agreement does not require the Bank to maintain any specific minimum regulatory capital ratios. Separately, the OCC established higher individual minimum capital ratios for the Bank. Specifically, the Bank must maintain a Tier 1 capital to adjusted total assets ratio of at least 8%, a Tier 1 capital to risk-weighted assets ratio of at least 12% and a total capital to risk-weighted assets ratio of at least 13%. The Bank's ratios of Tier 1 capital to adjusted total assets, Tier 1 capital to risk-weighted assets and total capital to risk-weighted assets at June 30, 2016 were 8.90%, 16.19% and 17.45%, respectively.

(7) Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company’s consolidated financial statements.

10

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. This ASU is not expected to have a significant impact on the Company’s financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40).  The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met:  (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  This ASU is not expected to have a significant impact on the Company’s financial statements.

 In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  The amendments in this Update are first effective for the annual period ending after December 15, 2015, and for annual periods and interim periods within such annual periods thereafter. Early application is permitted.  This ASU is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity.  An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This ASU is not expected to have a significant impact on the Company’s financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from GAAP the concept of extraordinary items.  The amendments in this Update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.  This ASU is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.  The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, and for interim periods within fiscal years beginning after December 15, 2017.  This ASU is not expected to have a significant impact on the Company’s financial statements.

11

In April 2015, the FASB issued ASU 2015-04,Compensation-Retirement Benefits (Topic 715) as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-05,Intangible – Goodwill and Other Internal Use Software (Topic 350-40) as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. For public business entities, the FASB decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015 and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This ASU is not expected to have a significant impact on the Company’s financial statements.

(8) Fair Value of Financial Instruments

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.

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 input 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.

12

Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
June 30, 2016
Available-for-sale securities	$	−	$	2,658	$	−
March 31, 2016
Available-for-sale securities	$	−	$	2,150	$	−

Assets and Liabilities on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis at June 30, 2016 and March 31, 2016 are as follows (dollars in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
June 30, 2016
Impaired loans		−		−	$	5,309
Real estate owned		−		−		1,595
Total		−		−	$	6,904
March 31, 2016
Impaired loans		−		−	$	4,966
Real estate owned		−		−		1,763
Total		−		−	$	6,729

The fair value of impaired loans and real estate owned is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

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.

As required by ASC Topic 825-10-65, the estimated fair value of financial instruments at June 30, 2016 and March 31, 2016 was as follows:

	June 30, 2016
	Carrying Amount		Level 1		Level 2		Level 3
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents	$	15,037	$	15,037	$	−	$	−
Investment securities-available for sale		2,616		−		2,658		−
Investment securities-held to maturity		15,235		−		15,341		−
Loans receivable – net		83,503		−		−		84,035
FHLB stock		169		169		−		−
Accrued interest receivable		326		326		−		−
Bank–owned life insurance		174		174		−		−
Real estate owned		1,579		−		−		1,595
Total financial assets	$	118,639	$	15,706	$	17,999	$	85,630
Financial Liabilities:
Deposits- non-interest bearing	$	11,003	$	11,003	$	−	$	−
Deposits – interest bearing		100,462				100,811
Advances from Federal Home Loan Bank		1,000		1,000		−		−
Advance payments by borrowers for taxes and insurance		453		453		−		−
Accrued interest payable		5		5		−		−
Total financial liabilities	$	112,923	$	12,461	$	100,811	$	−

13

	March 31, 2016
	Carrying Amount		Level 1		Level 2		Level 3
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents	$	12,127	$	12,127	$	−	$	−
Investment securities-available for sale		2,122		−		2,150		−
Investment securities-held to maturity		21,585		−		21,640		−
Loans receivable,– net		82,198		−		−		84,744
FHLB stock		254		254		−		−
Accrued interest receivable		369		369		−		−
Bank-owned life insurance		174		174		−		−
Real estate owned		1,764		−		−		1,764
Total financial assets	$	120,593	$	12,924	$	23,790	$	86,508
Financial Liabilities:
Deposits-non-interest bearing	$	12,054	$	12,054	$	−	$	−
Deposits-interest bearing		99,811		−		99,900		−
Advances from Federal Home Loan Bank		3,000		3,000		−		−
Advance payments by borrowers for taxes and insurance		433		433		−		−
Accrued interest payable		6		6		−		−
Total financial liabilities	$	115,304	$	15,493	$	99,900	$	−

Off-balance sheet instruments

Off-balance sheet instruments are primarily comprised of loan commitments and unfunded lines of credit which are generally priced at market rate at the time of funding. Therefore, these instruments have nominal value prior to funding.

	June 30, 2016				March 31, 2016
	Contract Value		Estimated Fair Value		Contract Value		Estimated Fair Value
Off-balance sheet instruments
Commitments to extend credit	$	6,280	$	−	$	7,469	$	−

14

(9) Loans

The Bank monitors and assesses the credit risk of its loan portfolio using the classes set forth below. These classes also represent the segments by which the Bank monitors the performance of its loan portfolio and estimates its allowance for loan losses.

Residential real estate loans consist of loans secured by one to four family residences located in the Bank’s market area. The Bank has originated one to four family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property without requiring mortgage insurance. A mortgage loan originated by the Bank, for owner occupied property, whether fixed rate or adjustable rate, can have a term of up to 30 years. Non-owner occupied property, whether fixed rate or adjustable rate, can have a term of up to 30 years. Adjustable rate loan terms limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged over the term of the loan based on the type of loan.

Commercial real estate loans are generally originated in amounts up to the lower of 80% of the appraised value or cost of the property and are secured by improved property such as multi-family dwelling units, office buildings, retail stores, warehouses, church buildings and other non-residential buildings, most of which are located in the Bank’s market area. Commercial real estate loans are generally made with fixed interest rates which mature or re-price in 5 to 7 years with principal amortization of up to 25 years.

Commercial loans include short and long-term business loans and commercial lines of credit for the purposes of providing working capital, supporting accounts receivable, purchasing inventory and acquiring fixed assets. The loans generally are secured by these types of assets as collateral and/or by personal guarantees provided by principals of the borrowers.

Construction loans will be made only if there is a permanent mortgage commitment in place. Interest rates on commercial construction loans are typically in line with normal commercial mortgage loan rates, while interest rates on residential construction loans are slightly higher than normal residential mortgage loan rates. These loans usually are adjustable rate loans and generally have terms of up to one year.

Consumer loans include installment loans and home equity loans, secured by first or second mortgages on homes owned or being purchased by the loan applicant. Home equity term loans and credit lines are credit accommodations secured by either a first or second mortgage on the borrower’s residential property. Interest rates charged on home equity term loans are generally fixed; interest on credit lines is usually a floating rate related to the prime rate. The Bank generally requires a loan to value ratio of less than or equal to 80% of the appraised value, including any outstanding prior mortgage balance.

Loans at June 30, 2016 and March 31, 2016 are summarized as follows (dollars in thousands):

	June 30,			March 31,
	2016			2016
Residential (one-to four-family) real estate	$	62,573		$	62,251
Multi-family and commercial real estate		9,959			9,569
Commercial		2,261			2,290
Home equity		8,816			8,528
Consumer		650			682
Construction		430			54
Total loans		84,689			83,374
Net deferred loan origination fees		(71	)		(77	)
Allowance for loan losses		(1,115	)		(1,099	)
Loans, net	$	83,503		$	82,198

15

The Bank is subject to a loans-to-one-borrower limitation of 15% of capital funds. At June 30, 2016, the loans-to-one-borrower limitation was $1.8 million; this excluded an additional 10% of adjusted capital funds or approximately $1.2 million, which may be loaned if collateralized by readily marketable securities. At June 30, 2016, there were no loans outstanding or committed to any one borrower, which individually or in the aggregate exceeded the Bank’s loans to-one-borrower limitations of 15% of capital funds.

A summary of the Bank’s credit quality indicators is as follows:

Pass – A credit which is assigned a rating of Pass shall exhibit some or all of the following characteristics:

a. Loans that present an acceptable degree of risk associated with the financing being considered as measured against earnings and balance sheet trends, industry averages, etc. Actual and projected indicators and market conditions provide satisfactory evidence that the credit will perform as agreed.

b. Loans to borrowers that display acceptable financial conditions and operating results. Debt service capacity is demonstrated and future prospects are considered good.

c. Loans to borrowers where a comfort level is achieved by the strength of the cash flows from the business or project and the strength and quantity of the collateral or security position (i.e.; receivables, inventory and other readily marketable securities) as supported by a current valuation and/or the strong capabilities of a guarantor.

Special Mention – Loans on which the credit risk requires more than ordinary attention by the Loan Officer. This may be the result of some erosion in the borrower’s financial condition, the economics of the industry, the capability of management, or changes in the original transaction. Loans which are currently sound yet exhibit potentially unacceptable credit risk or deteriorating long term prospects, will receive this classification. Loans which deviate from loan policy or regulations will not generally be classified in this category, but will be separately reported as an area of concern.

Classified – Classified loans include those considered by the Bank to be substandard, doubtful or loss.

An asset is considered “substandard” if it involves more than an acceptable level of risk due to a deteriorating financial condition, unfavorable history of the borrower, inadequate payment capacity, insufficient security or other negative factors within the industry, market or management. Substandard loans have clearly defined weaknesses which can jeopardize the timely payment of the loan.

Assets classified as “doubtful” exhibit all of the weaknesses defined under the substandard category but with enough risk to present a high probability of some principal loss on the loan, although not yet fully ascertainable in amount.

Assets classified as “loss” are those considered uncollectible or of little value, even though a collection effort may continue after the classification and potential charge-off.

16

Non-Performing Loans

Non-performing loans consist of non-accrual loans (loans on which the accrual of interest has ceased), loans over ninety days delinquent and still accruing interest, renegotiated loans and impaired loans. Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more, unless the collateral is considered sufficient to cover principal and interest and the loan is in the process of collection.

The Bank continues to work with its borrowers where possible and is pursuing legal action where the ability to work with the borrower does not exist.  As of June 30, 2016, the Bank has entered into formal forbearance agreements with four relationships totaling $688 thousandthat require current payments while the borrowers restructure their finances

The following table represents loans by credit quality indicator at June 30, 2016 (dollars in thousands):

	Pass		Special Mention Loans		Classified Loans		Non- Performing Loans		Total
Residential real estate	$	59,521	$	−	$	−	$	3,052	$	62,573
Multi-family and commercial real estate		8,337		287		−		1,335		9,959
Commercial		2,050		74		39		98		2,261
Home equity		8,676		−		−		140		8,816
Consumer		650		−		−		−		650
Construction		376		−		−		54		430
	$	79,610	$	361	$	39	$	4,679	$	84,689

The following table represents past-due loans as of June 30, 2016 (dollars in thousands):

	30-59 Days Past Due			60- 89 Days Past Due			Greater than 90 Days Past Due			Total Past Due			Current			Total Loan Balances
Residential real estate	$	716		$	482		$	2,089		$	3,287		$	59,286		$	62,573
Multi-family and commercial real estate		277			287			661			1,225			8,734			9,959
Commercial		205			−			98			303			1,958			2,261
Home Equity		25			−			44			69			8,747			8,816
Consumer		3			−			−			3			647			650
Construction		−			−			−			−			430			430
Total Loans	$	1,226		$	769		$	2,892		$	4,887		$	79,802		$	84,689
Percentage of Total Loans		1.45	%		0.91	%		3.41	%		5.77	%		94.23	%		100.0	%

Impaired loans are measured based on the present value of expected future discounted cash flows, the fair value of the loan or the fair value of the underlying collateral if the loan is collateral dependent. The recognition of interest income on impaired loans is the same for non-accrual loans discussed above. At June 30, 2016, the Bank had 17 loan relationships totaling $2.9 million in non-accrual loans as compared to 18 relationships totaling $2.8 million at March 31, 2016. The average balance of impaired loans totaled $5.2 million for the three months ended June 30, 2016 as compared to $5.0 million for the year ended March 31, 2016, and interest income recorded on impaired loans for the three months ended June 30, 2016 totaled $42 thousand as compared to $201 thousand for the year ended March 31, 2016.

17

The following table represents data on impaired loans at June 30, 2016 and March 31, 2016 (dollars in thousands):

	June 30, 2016		March 31, 2016
Impaired loans for which a valuation allowance has been provided	$	−	$	—
Impaired loans for which no valuation allowance has been provided	$	5,309	$	4,966
Total loans determined to be impaired	$	5,309	$	4,966
Allowance for loans losses related to impaired loans	$	−	$	—
Average recorded investment in impaired loans	$	5,213	$	5,054
Cash basis interest income recognized on impaired Loans	$	42	$	201

The following table presents impaired loans by portfolio class at June 30, 2016 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Recorded Investment		Interest Income Recognized While On Impaired Statues
Impaired loans with no valuation allowance:
Residential real estate	$	3,113	$	3,053	$	−	$	2,980	$	16
Multi-family and commercial real estate		1,937		1,931		−		1,939		21
Commercial		133		132		−		100		2
Home equity		142		139		−		135		2
Consumer		−		−		−		−		−
Construction		59		54		−		59		1
Total	$	5,384	$	5,309	$	−	$	5,213	$	42

The following table presents impaired loans by portfolio class with no valuation allowance at March 31, 2016 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Recorded Investment		Interest Income Recognized While On Impaired Statues
Impaired loans with no valuation allowance:
Residential real estate	$	2,964	$	2,920	$	−	$	2,913	$	71
Multi-family and commercial real estate		1,938		1,935		−		1,992		117
Commercial		56		56		−		34		9
Home equity		−		−		−		39		1
Consumer		−		−		−		16		−
Construction		59		54		−		60		3
Subtotal	$	5,017	$	4,965	$	−	$	5,054	$	201

18

The following table represents nonaccrual loans as of June 30, 2016 and March 31, 2016 (dollars in thousands):

	June 30, 2016			March 31, 2016
Non-accrual loans:
Residential real estate	$	1,436		$	1,333
Multi-family and commercial real estate		661			553
Commercial		98			−
Consumer		−			21
Home equity		44			111
Construction		−			−
Total non-accrual loans		2,239			2,018
Accruing loans past due 90 days or more:
Residential real estate	$	−		$	−
Multi-family and commercial real estate		−			−
Commercial		−			−
Consumer		−			−
Home Equity		−			−
Construction		−			−
Total accruing loans past due 90 days or more		−			−
Troubled debt restructurings:
In non-accrual status:
Residential real estate	$	634		$	744
Multi-family and commercial real estate		−			−
Commercial		−			−
Consumer		−			−
Home Equity		−			−
Construction		−			−
Total troubled debt restructurings in non-accrual status		634			744
Performing under modified terms:
Residential real estate		982			787
Multi-family and commercial real estate		674			766
Commercial		−			−
Consumer		−			−
Home Equity		96			−
Construction		54			54
Total troubled debt restructurings performing under modified terms:		1,806			1,607
Total troubled debt restructurings		2,440			2,351
Total non-performing loans		4,679			4,369
Real estate owned		1,579			1,764
Total non-performing assets		6,258			6,133
Non-performing loans as a percentage of loans		5.52	%		5.24	%
Non-performing assets as a percentage of loans and real estate owned		7.25	%		7.20	%
Non-performing assets as percentage of total assets		4.92	%		4.74	%

19

During the three months ended June 30, 2016, the Bank experienced a $111 thousand net increase in non-accrual loans. This change reflects the downgrading of three loan relationships to non-accrual status totaling $411 thousand during the three months ended June 30, 2016. The downgraded loans consisted of two residential mortgages totaling $313 thousand and one commercial loan totaling $98 thousand. These additions to the non-accruals were offset by one commercial loan for $21 thousand and two residential mortgages for $209 thousand that returned to accruing status as well as one home equity loan for $77 thousand that returned to accruing status through a troubled debt restructuring.

The following table presents troubled debt restructurings that occurred during the periods ended June 30, 2016 and March 31, 2016 and loans modified as troubled debt restructurings within the previous 3 and 12 month periods and for which there was a payment default during the period.

	June 30, 2016						March 31, 2016
			Outstanding Recorded Investment						Outstanding Recorded Investment
	Number of Contracts		Pre-Modification		Post- Modification		Number of Contracts		Pre-Modification		Post- Modification
Troubled debt restructurings:
Residential real estate		1	$	77	$	96		1	$	164	$	173

	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Troubled debt restructurings that subsequently defaulted:
Residential real estate		−	$	−		−	$	−

20

The following table presents the changes in real estate owned (REO), net of valuation allowance, for the periods ended June 30, 2016 and March 31, 2016:

	June 30,			March 31,
	2016			2016
Balance, beginning of period	$	1,764		$	2,433
Additions from loan foreclosures		110			332
Additions from capitalized costs		8			−
Dispositions of REO		(284	)		(752	)
Gain (loss) on sale of REO		(6	)		(3	)
Valuation adjustments in the period		(13	)		(246	)
Balance, end of period	$	1,579		$	1,764

The following table presents the changes in fair value adjustments to REO for the periods ended June 30, 2016 and March 31, 2016:

	June 30,			March 31,
	2016			2016
Balance, beginning of period	$	227		$	851
Valuation adjustments added in the period		13			247
Valuation adjustments on disposed properties during the period		(168	)		(871	)
Balance, end of period	$	72		$	227

The following table sets forth with respect to the Bank’s allowance for losses on loans (dollars in thousands):

	June 30, 2016			March 31, 2016
Balance at beginning of period	$	1,099		$	1,185
Provision:
Commercial		(25	)		(12	)
Commercial real estate		(1	)		9
Residential real estate		5			(132	)
Home Equity		(12	)		11
Consumer		(17	)		53
Construction		2			−
Total Provision		(48	)		(71	)
Charge-Offs:
Commercial		−			−
Commercial Real Estate		−			17
Residential real estate		−			40
Home Equity		−			11
Consumer		−			71
Recoveries		(64	)		(124	)
Total Net Charge-Offs		(64	)		15
Balance at end of period	$	1,115		$	1,099
Period-end loans outstanding	$	84,689		$	83,374
Average loans outstanding	$	83,636		$	83,666
Allowance as a percentage of period-end loans		1.32	%		1.32	%
Net charge-offs as a percentage of average loans		(0.07	)%		0.02	%

21

Additional details for changes in the allowance for loan by loan portfolio as of June 30, 2016 are as follows (dollars in thousands):

Allowance for Loan Losses

	Commercial			Commercial Real Estate			Residential Real Estate		Home Equity			Consumer			Construction		Total
Balance, beginning of year	$	80		$	339		$	568	$	87		$	25		$	−	$	1,099
Loan charge-offs		−			−			−		−			−			−		−
Recoveries		26			16			3		−			19			−		64
Provision for loan losses		(25	)		(1	)		5		(12	)		(17	)		2		(48	)
Balance, end of period	$	81		$	354		$	576	$	75		$	27		$	2	$	1,115
Ending balance for loans individually evaluated for impairment		−			−			−		−			−			−		−
Ending balance for loans collectively evaluated for impairment	$	81		$	354		$	576	$	75		$	27		$	2	$	1,115
Loans receivable:
Ending balance	$	2,261		$	9,959		$	62,573	$	8,816		$	650		$	430	$	84,689
Ending balance: loans individually evaluated for impairment	$	133		$	1,711		$	2,667	$	545		$	−		$	54	$	5,110
Ending balance: loans collectively evaluated for impairment	$	2,128		$	8,248		$	59,906	$	8,271		$	650		$	376	$	79,579

The Bank prepares an allowance for loan loss model on a quarterly basis to determine the adequacy of the allowance. Management considers a variety of factors when establishing the allowance, such as the impact of current economic conditions, diversification of the loan portfolio, delinquency statistics, results of independent loan review and related classifications. The Bank’s historic loss rates and the loss rates of peer financial institutions are also considered.

On a monthly basis, the loan committee meets to review each problem loan and determine if there has been any change in collateral value due to changes in market conditions. Each quarter, when calculating the allowance for loan loss, the loan committee reviews an updated loan impairment analysis on each problem loan to determine if a specific provision for loan loss is warranted. Management reviews the most recent appraisal on each loan adjusted for holding and selling costs. In the event there is not a recent appraisal on file, the Bank will use the aged appraisal and apply a discount factor to the appraisal and then adjust the holding and selling costs from the discounted appraisal value.

22

In evaluating the Bank’s allowance for loan loss, the Bank maintains a loan committee consisting of senior management and the Board of Directors that monitors problem loans and formulates collection efforts and resolution plans for each borrower.

For the three months ending June 30, 2016, the Bank experienced no charge-offs as compared to one charge-off relating to one loan relationship totaling $71 thousand and partial charge-offs relating to three loan relationships totaling $68 thousand for the year ended March 31, 2016.

At June 30, 2016, the Bank maintained an allowance for loan loss ratio of 1.32% to loans outstanding. Non-performing assets have increased by $125 thousand over their stated levels at March 31, 2016, representing a non-performing asset to total asset ratio of 4.92% at June 30, 2016 as compared to a non-performing asset to total asset ratio of 4.74% at March 31, 2016.

The Bank’s charge-off policy states that any asset classified loss shall be charged-off within thirty days of such classification unless the asset has already been eliminated from the books by collection or other appropriate entry. On a quarterly basis, the loan committee will review past due, classified, non-performing and other loans, as it deems appropriate, to determine the collectability of such loans. If the loan committee determines a loan to be uncollectable, the loan shall be charged to the allowance for loan loss. In addition, upon reviewing the collectability, the loan committee may determine a portion of the loan to be uncollectable; in which case that portion of the loan deemed uncollectable will be partially charged-off against the allowance for loan loss.

(10)     Investment Securities

Investment securities have been classified according to management’s intent. The amortized cost of securities and their approximate fair values as of June 30, 2016 and March 31, 2016 are as follows:

	Held-to-Maturity June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in Thousands)
Federal Farm Credit Bank Bond	$	4,500	$	9	$	−		$	4,509
Federal Home Loan Bank Bonds		5,682		23		−			5,705
Federal Home Loan Mortgage Corporation Bonds		500		1		−			501
Federal National Mortgage Association		3,000		14		(2	)		3,012
Municipal Bond		736		−		−			736
		14,418		47		(2	)		14,463
Mortgage-Backed Securities:
Federal Home Loan Mortgage Corporation		378		38		−			416
Federal National Mortgage Association		290		18		−			308
Government National Mortgage Corporation		149		5		−			154
		817		61		−			878
Total	$	15,235	$	108	$	(2	)	$	15,341

23

	Held-to-Maturity March 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in Thousands)
Federal Home Loan Bank Bonds	$	5,802	$	28	$	(4	)	$	5,826
Federal Farm Credit Bonds		9,438		21		(1	)		9,458
Federal Home Loan Mortgage Corporation Bonds		732		−		−			732
Federal National Mortgage Association Bond		4,000		17					4,017
Municipal Bond		736				(1	)		735
		20,708		66		(6	)		20,768
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		322		26		(8	)		340
Federal National Mortgage Association		398		40		(3	)		435
Government National Mortgage Corporation		157		7		(1	)		163
		877		73		(12	)		938
Total	$	21,585	$	139	$	(18	)	$	21,706

	Available for Sale
	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Federal National Mortgage Association Bond		500		−		(1	)		499
Certificate of deposit		2,000		43		−			2,043
Mutual Fund Shares		116		−		−			116
	$	2,616	$	43	$	(1	)	$	2,658

	Available-for-Sale
	March 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Federal National Mortgage Association	$	500	$	−	$	(3	)	$	497
Certificates of Deposit		1,500		31		−			1,531
Mutual Fund Shares		122		2		(2	)		122
Total	$	2,122	$	33	$	(5	)	$	2,150

24

The following is a summary of maturities of securities held-to-maturity and available-for-sale as of June 30, 2016 and March 31, 2016:

	June 30, 2016
	Held to Maturity				Available for Sale
(Dollars in Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	736	$	736	$	−		−
After one year through five years		−		−		1,500		1,533
After five years through ten years		5,425		5,439		500		510
After ten years		9,074		9,166		500		499
Equity securities		−		−		116		116
	$	15,235	$	15,341	$	2,616	$	2,658

	March 31, 2016
	Held to Maturity				Available for Sale
(Dollars in Thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	736	$	735	$	−	$	−
After one year through five years		945		945		1,000		1,025
After five years through ten years		8,380		8,384		1,000		1,004
After ten years		11,524		11,642		−		−
Mutual fund shares		−		−		122		122
	$	21,585	$	21,706	$	2,122	$	2,150

The amortized cost and fair value of mortgage-backed securities are presented in the held-to-maturity category by contractual maturity in the preceding table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties.

25

Information pertaining to securities with gross unrealized losses at June 30, 2016 and March 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Continuous Unrealized					Continuous Unrealized
	Losses Existing For					Losses Existing For
	Less Than 12 Months					12 Months or Greater				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
June 30, 2016	Value		Losses			Value		Losses		Value		Losses
Federal National Mortgage Association	$	498	$	(2	)	$	−	$	−	$	498	$	(2	)
Municipal Bonds		735		(1	)		−		−		735		(1	)
Total	$	1,233	$	(3	)	$	−	$	−	$	1233	$	(3	)

	Continuous Unrealized					Continuous Unrealized
	Losses Existing For					Losses Existing For
	Less Than 12 Months					12 Months or Greater					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2016	Value		Losses			Value		Losses			Value		Losses
Federal Home Loan Bank Bonds	$	−	$	−		$	496	$	( 4	)	$	496	$	( 4	)
Federal Farm Credit Bonds		−		−			499		( 1	)		499		( 1	)
Federal National Mortgage Association		−		−			497		( 3	)		497		( 3	)
Municipal Bonds		735		( 1	)							735		( 1	)
Mutual fund shares							64		( 2	)		64		( 2	)
		735		( 1	)		1,556		( 10	)		2,291		( 11	)
Mortgage –Backed Securities:
Federal Home Loan Mortgage Corporation		−		−			103		(8	)		103		(8	)
Federal national Mortgage Association		−		−			154		(3	)		154		(3	)
Government national Mortgage Association		−		−			22		(1	)		22		(1	)
							279		(12	)		279		(12	)
Total	$	735	$	(1	)	$	1,835	$	(22	)	$	2,570	$	(23	)

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At June 30, 2016, the 3 debt securities with unrealized losses have depreciated .01% from the Bank’s amortized cost basis. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.

26

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 three months ended June 30, 2016 and 2015 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.

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 June 30, 2016 were $127.3 million, a decrease of $2.1 million from total assets of $129.4 million at March 31, 2016. Total liabilities decreased $2.2 million from $116.1 million at March 31, 2016 to $113.9 million at June 30, 2016. Total stockholders’ equity increased $77 thousand to $13.3 million at June 30, 2016, primarily due to the increase in retained earnings as a result of the quarterly net income.

Loans. At June 30, 2016, total loans, net, were $83.5 million, or 65.6% of total assets. Overall loans increased by $1.3 million primarily due to increased loans originations.Commercial and multi-family real estate loans increased by $390 thousand, residential real estate loans by $322 thousand, home equity loans by $288 thousand and construction loans by $376 thousand while consumer loans decreased by $32 thousand and commercial loans by $29 thousand .

Total nonperforming loans at June 30, 2016 increased$310 thousand from March 31, 2016.

27

Securities. The investment securities portfolio was $17.9 million, or 14.1% of total assets, at June 30, 2016. At that date, 4.6% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily in U.S. Government agency and other debt securities. Investment securities decreased $5.8 thousand compared to March 31, 2016. The decrease was primarily due to calls of debt securities.

Deposits. Total deposits were $111.5 million at June 30, 2016, a decrease of $400 thousand compared to March 31, 2016. Deposits decreased as we made a conscious effort to reduce our reliance on high costing time deposits. Core deposits increased for the three months by $46 thousand while time deposits decreased by $456 thousand.

Results of Operations for the Three Months Ended June 30, 2016 and 2015

Financial Highlights.  Net income for the three months ended June 30, 2016 was $60 thousand as compared to a net income of $27 thousand for the same prior year period. The increase in net income for the three month period was primarily the result of decreased provisions for loan losses.

Net Interest Income.   Net interest income increased $13 thousand to $933 thousand for the three months ended June 30, 2016 as compared to the prior year period. The Bank saw an increase in the interest rate spread (7 basis points) and a increase in net interest margin (7 basis points) for the three month period.  Total interest income increased 0.50% for the three months ending June 30, 2016 compared to the three months ended June 30, 2015. Total interest expense decreased by 5.7% between the same periods.

Average loans in the three months ended June 30, 2016 increased $1.3 million, or 1.6%, compared with the same period in 2015, as production of new loans exceeded the amounts from normal amortization and payoffs of exiting loans. Average investment securities in the three months ended June 30, 2016 decreased $3.9 million, or15.4%, compared to the same period in 2015. The decrease in the investment portfolio was due to calls of debt securities. Declining interest rates decreased the average yield on earning assets to 3.67% for the three months ended June 30, 2016, compared with 3.70% for the same period in 2015.

Average interest-bearing deposits in the three months ended June 30, 2016 decreased $2.0 million or 2.1%, compared with the same period in 2015. Declining interest rates decreased the average cost of deposits to 0.55%, compared with 0.56% for the same period in 2015.

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 recaptured $48 thousand in the three months ended June 30, 2016 compared to provisions expensed of $10 thousand in the three months ended June 30, 2015.  We had no charge-offs and recoveries totaled $64 thousand in the three months ended June 30, 2016 compared to $38 thousand in net charge-offs in the same prior year period.

Non-Interest Income.  Non-interest income decreased $24 thousand in the three month period ending June 30, 2016 compared to the three month period ended June 30, 2015 primarily due to the loss of rental income from REO properties and our Cinnaminson branch.

Non-Interest Expenses.  Non-interest expenses decreased $66 thousand in the three months ending June 30, 2016 compared to the three months ended June 30, 2014 primarily due to decreased in legal fees and real estate expenses and loss reserve.

28

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, Atlantic Central Bankers Bank and the Federal Reserve Bank of Philadelphia. 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 June 30, 2016, cash and cash equivalents totaled $15.0 million. At June 30, 2016, we had $1 million in outstanding borrowings and had arrangements to borrow up to an additional $7 million from the Federal Home Loan Bank of New York and $1 million from Atlantic Central Bankers Bank.

At June 30, 2016, 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 June 30, 2016 we had $1.9 million in loan commitments outstanding. We also had $6 million in unused lines of credit and $268 thousand in unfunded constructions draws. 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 June 30, 2016 totaled $23.3 million, or 60.0% 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 June 30, 2017. 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.

Our primary investing activities are the origination and purchase of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

The Company is a separate entity and apart from the Bank and must provide for its own liquidity. As of June 30, 2016, the Company had $480 thousand in cash and cash equivalents compared to $480 thousand as of March 31, 2016.  Substantially all of the Company’s cash and cash equivalents were obtained from proceeds it retained from the Bank’s mutual-to-stock conversion completed in October 2013. In addition to its operating expenses, Company may utilize its cash position for the payment of dividends or to repurchase common stock, subject to applicable restrictions.  

29

The Company can receive dividends from the Bank. Payment of such dividends to the Company by the Bank is limited under federal law. The amount that can be paid in any calendar year, without prior regulatory approval, cannot exceed the retained net earnings (as defined) for the year plus the preceding two calendar years. Under the terms of its written agreement with the OCC, the Bank is not permitted to pay dividends without prior regulatory approval. In addition, at the request of the Federal Reserve, the Company has adopted resolutions that prohibit it from declaring or paying any dividends or taking any dividends or other distributions that would reduce the capital of the Bank without the prior written consent of the Federal Reserve.

Capital Management. We are subject to various regulatory capital requirements administered by the OCC, 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. See note 6 of the notes.

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.

For the quarter ended June 30, 2016, 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.

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 fiscal year ended March 31, 2016, which could materially and adversely affect the Company’s business, financial condition or future results. The risks described in the Company’s Form 10-K are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Not applicable.
Item 3.	Defaults upon Senior Securities
	Not Applicable.
Item 4.	Mine Safety Disclosures.
	Not Applicable.
Item 5.	Other Information
	None.
Item 6.	Exhibits
3.1	Certificate of Incorporation(1)
3.2	Bylaws(2)
4.0	Form of Specimen Stock Certificate(3)

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

32.0 Section 1350 Certification

101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

__________________________________

(1)	Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 (File No. 333-189244) filed with the Commission on June 12, 2013.
(2)	Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 (File No. 333-189244) filed with the Commission on June 12, 2013.
(3)	Incorporated by reference to Exhibit 4.0 to the Company’s Form S-1 (File No. 333-189244) filed with the Commission on June 12, 2013.

31

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: August 15, 2016	By:	/s/ James E. Igo
		James E. Igo
		Chairman, President and
		Chief Executive Officer

Dated: August 15, 2016	By:	/s/ Eva Modi
		Eva Modi
		Chief Financial Officer

32