Delanco Bancorp, Inc - FORM 10-Q

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EX-32.0 - Delanco Bancorp, Inc	v166005_ex32-0.htm
EX-31.1 - Delanco Bancorp, Inc	v166005_ex31-1.htm
EX-31.2 - Delanco Bancorp, Inc	v166005_ex31-2.htm

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 September 30, 2009

¨	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 ¨

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	x

(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 x

As of November 13, 2009 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 September 30, 2009 (Unaudited) and March 31, 2009	1

		Consolidated Statements of Operations for the three and six months ended September 30, 2009 and 2008 (Unaudited)	2

		Consolidated Statements of Stockholders’ Equity for the six months ended September 30, 2009 (Unaudited)	3

		Consolidated Statements of Cash Flows for the six months ended September 30, 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	17

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

	September 30, 2009			March 31, 2009
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	821,774		$	476,087
Interest-bearing deposits		2,796,394			1,240,868
Total cash and cash equivalents		3,618,168			1,716,955
Investment securities:
Securities held-to-maturity (fair value of $15,187,625 (unaudited) and $14,730,626 at September 30,2009 and March 31, 2009, respectively)		14,664,949			14,282,255
Securities available-for-sale		254,141			222,719
Total investment securities		14,919,090			14,504,974
Loans, net of allowance for loan losses of $1,355,915 at September 30, 2009 (unaudited), $1,546,601 at March 31, 2009		108,794,933			103,624,343
Accrued interest receivable		510,028			499,981
Premises and equipment, net		7,884,978			8,024,232
Real Estate Owned		487,968		
Investment required by law-stock in Federal Home Loan Bank, at cost		251,700			345,900
Deferred income taxes		723,715			561,000
Bank owned life insurance		136,004			130,042
Prepaid and refundable income taxes		552,361			561,971
Other assets		309,505			498,966
Total assets	$	138,188,450		$	130,468,364
LIABILITIES
Deposits
Non-interest bearing deposits		2,209,738			2,518,934
Interest bearing deposits		122,696,840			111,464,281
Total deposits		124,906,578			113,983,215
Federal Home Loan Bank Advances		1,000,000			3,750,000
Accrued interest payable		66,213			211,962
Advance payments by borrowers for taxes and insurance		423,066			359,738
Other liabilities		536,753			642,032
Total liabilities		126,932,610			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		5,188,830			5,499,813
Unearned common stock held by employee stock ownership plan		(576,729	)		(576,729	)
Accumulated other comprehensive (Loss)		(24,843	)		(70,249	)
Total stockholder’s equity		11,255,840			11,521,417
Total liabilities and stockholders’ equity	$	138,188,450		$	130,468,364

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2009			2008			2009			2008
INTEREST INCOME
Loans	$	1,518,517		$	1,606,237		$	3,115,336		$	3,155,653
Investment securities		177,901			197,285			345,614			394,487
Total interest income		1,696,418			1,803,522			3,460,950			3,550,140

INTEREST EXPENSE
Interest-bearing checking accounts		27,345			14,519			53,365			27,519
Passbook and money market accounts		132,140			173,026			269,835			351,279
Certificates of deposits		512,812			706,279			1,039,200			1,458,725
Federal Home Loan Bank Advances		5,580		─				15,236		─
Total interest expense		677,877			893,824			1,377,636			1,837,523

Net interest income		1,018,541			909,698			2,083,314			1,712,617
Provision for loan losses		705,000			442,000			805,000			442,000
Net interest income after provision for loan losses		313,541			467,698			1,278,314			1,270,617

NON-INTEREST INCOME
Income from bank-owned life insurance				─				5,962			5,630
Service charges		33,886			48,449			69,731			73,786
Rental income				─							5,875
Other		14,157			15,306			19,183			32,169
Total non-interest income		48,043			63,755			94,876			117,460

NON-INTEREST EXPENSE
Salaries and employee benefits		464,073			480,908			944,776			962,567
Advertising		10,778			13,840			20,709			28,967
Office supplies, telephone and postage		41,530			39,060			68,783			75,874
Net occupancy expense		172,441			171,868			341,692			334,838
Federal insurance premiums		90,013			33,773			147,708			51,323
Data processing expenses		25,285			31,698			70,687			65,196
ATM expenses		7,327			16,796			11,109			33,955
Bank charges and fees		26,497			17,662			57,006			33,019
Insurance and surety bond premiums		17,101			13,152			33,306			27,377
Dues and subscriptions		5,066			11,493			19,124			24,097
Professional fees		58,386			90,057			106,210			201,454
On-line banking expense					26,289						53,548
Other		9,877			37,721			56,050			69,487
Total non-interest expense		928,374			984,317			1,877,160			1,961,702

INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)		(566,790	)		(452,864	)		(503,970	)		(573,625	)

Income taxes (benefits)		(210,152	)		(166,797	)		(192,987	)		(201,029	)

NET INCOME (LOSS)	$	(356,638	)	$	(286,067	)	$	(310,983	)	$	(372,596	)
INCOME (LOSS) PER COMMON SHARE	$	(0.23	)	$	(0.18	)	$	(0.20	)	$	(0.24	)

See Notes to the Unaudited Consolidated Financial Statements.

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								(310,983	)								(310,983	)
Other comprehensive income, net of tax:
Change in unrealized gain on securities available-for-sale, net of deferred income taxes of $12,490														45,406			45,406
Total comprehensive income								(310,983	)					45,406			(265,577	)
Balance at September 30, 2009		1,634,725	$	16,347	$	6,652,235	$	5,188,830		$	(576,729	)	$	(24,843	)	$	11,255,840

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30,
	2009			2008
Cash flow from operating activities
Net Income (Loss)	$	(310,983	)	$	(372,596	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes		(148,535	)		(18,449	)
Depreciation		170,037			157,884
Discount accretion net of premium amortization		(3,331	)		39,343
Provision for loan losses		805,000			442,000
Income from bank owned life insurance		(5,962	)		(5,630	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		(10,047	)		(85,531	)
Other assets		189,461			(29,324	)
Prepaid and refundable income taxes		9,610			(145,986	)
Increase (decrease) in:
Accrued interest payable		(145,749	)		(170,163	)
Other liabilities		(105,279	)		68,402
Net cash provided by (used in) operating activities	$	444,222		$	(120,050	)

Cash flows from investing activities
Purchases of securities available-for-sale		(195	)		(865	)
Purchases of securities held-to-maturity		(3,500,000	)		(6,681,320	)
Proceeds from maturities and principal repayments of securities held-to-maturity		3,120,636			3,786,724
(Purchase), sale of investment required by law – stock in Federal Home Loan Bank		94,200			(38,000	)
Net increase in loans		(6,463,558	)		(3,548,205	)
Purchases of premises and equipment		(30,783	)		(87,572	)
Net cash (used in) investing activities	$	( 6,779,700	)	$	(6,569,238	)

Cash flows from financing activities
Net increase (decrease) in deposits		10,923,362			(1,581,033	)
Net increase in advance payments by borrowers for taxes and insurance		63,329			44,182
Increase (decrease) in Federal Home Loan Bank Advances		(2,750,000	)	
Distribution of ESOP shares					22,588
Net cash provided by (used in) financing activities	$	8,236,691		$	(1,514,263	)

(continued)

	Six Months Ended September 30,
	2009		2008

Net decrease in cash and cash equivalents	$	1,901,213	$	(8,203,551	)

Cash and cash equivalents, beginning of the period		1,716,955		12,679,133

Cash and cash equivalents, end of period	$	3,618,168	$	4,475,582

Supplemental Disclosures:

Cash paid during the period for interest	$	1,523,385	$	2,007,686

Cash paid during the period for income taxes	$	520	$	1,150

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	$	31,019	$	15,727

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

September 30, 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. 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 six month periods ended September 30, 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 November 12, 2009, 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) 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 September 30,						Six Months Ended September 30,
	2009			2008			2009			2008
Numerator	$	(356,638	)	$	(286,067	)	$	(310,983	)	$	(372,596	)
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	$	(0.23	)	$	(0.18	)	$	(0.20	)	$	(0.24	)
Dilutive	$	(0.23	)	$	(0.18	)	$	(0.20	)	$	(0.24	)

(4) 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:

•

To refrain from making, investing in, purchasing or otherwise modifying any commercialloan 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.

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.

(5) 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.

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 September 30, 2009, all references to authoritative literature are required to cite the Codification as opposed to legacy accounting pronouncements.

(6) 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.

As required by ASC Topic 825-10-65, the estimated fair value of financial instruments at September 30, 2009 and March 31, 2009 was as follows:

	September 30, 2009				March 31, 2009

	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

(Dollars in Thousands)

Financial Assets:
Cash and cash equivalents	$	3,618	$	3,618	$	1,717	$	1,717
Investment securities		14,919		15,442		14,527		14,953
Loans – net		108,795		112,059		103,624		107,728
FHLB stock		252		252		346		346
Accrued interest receivable		510		510		500		500

Total financial assets		128,094		131,881		120,714		125,244

Financial Liabilities:
Deposits		124,900		125,095		113,983		116,283
Advances from FHLB		1,000		1,000		3,750		3,750
Advance payments by borrowers for taxes and insurance		423		423		360		360
Accrued interest payable		66		66		212		212

Total financial liabilities		126,389		126,584		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 six months ended September 30, 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.

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 September 30, 2009 were $138.2 million, an increase of $7.7 million, or 5.9%, from total assets of $130.5 million at March 31, 2009. The change in the asset composition reflected an increase in net loans and cash and cash equivalents.

Loans. At September 30, 2009, total loans, net, were $108.8 million, or 78.7% of total assets. The increase was primarily attributed to single family residential loans.

Table 1: Loan Portfolio Analysis

	September 30,							March 31,
	2009							2009
(Dollars in thousands)	Amount				Percent			Amount			Percent
Real estate loans:
Residential		$	78,837			71.5	%	$	70,806			67.2	%
Commercial and multi-family			24,812			22.5			26,054			24.7
Construction			1,814			1.7			1,796			1.7
Total real estate loans			105,463			95.7			98,656			93.6
Commercial loans			3,031			2.7			4,618			4.4
Consumer loans			1,741			1.6			2,134			2.0
Total loans			110,235			100	%		105,408			100.0	%
Loans in process									(139	)
Net deferred loan fees			(84	)					(98	)
Allowance for losses			(1,356	)					(1,547	)
Loans, net		$	108,795					$	103,624

Nonperforming Loans. Total nonperforming loans at September 30, 2009 increased $940,000 primarily due to delinquencies in commercial and multi-family real estate loans and to a lesser degree, commercial loans. Management automatically places all loans greater than 90 days past due on non-accrual status. During the quarter, the Bank accepted deeds in lieu of foreclosure on two properties that were placed into real estate owned.

Table 2: Nonperforming Assets
	September 30,			March 31,
(Dollars in thousands)	2009			2009
Nonaccrual loans	$	9,363		$	8,298
Accruing loans past due 90 days or more					128
Total of nonaccrual and 90 days or more past due loans		9,363			8,426
Real estate owned		488		
Other nonperforming assets		117			295
Total nonperforming assets		9,968			8,721
Troubled debt restructurings		588			303
Troubled debt restructurings and total nonperforming assets	$	10,556		$	9,024

Total nonperforming loans to total loans		8.49	%		8.00	%
Total nonperforming loans to total assets		6.78			6.46
Total nonperforming assets and troubled debt restructurings to total assets		7.64			6.92

Securities. The investment securities portfolio was $14.9 million, or 10.8 % of total assets, at September 30, 2009. At that date, 69.6% 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. The portfolio increase was due to purchases of U.S Government agency bonds.

Table 3: Investment Securities
	September 30,				March 31,
	2009				2009
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Mutual funds	$	245	$	254	$	245	$	223
Total available for sale		245		254		245		223

Securities held to maturity:
U.S. Government and agency securities		4,292		4,319		2,500		2,508
Mortgage-backed securities		10,373		10,869		11,782		12,223
Total held to maturity		14,665		15,188		14,282		14,731
Total	$	14,910	$	15,442	$	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 September 30, 2009, core deposits were 44.3% of total deposits. Deposits increased $10.9 million, or 9.6%, for the six months ended September 30, 2009. Certificates of deposit increased $7.4 million and demand deposits increased $3.5 million.

Table 4: Deposits
	September 30,					March 31,
	2009					2009
(Dollars in thousands)	Amount		Percent			Amount		Percent
Noninterest-bearing demand deposits	$	2,210		1.8	%	$	2,519		2.2	%
Interest-bearing demand deposits		13,553		10.9			10,036		8.8
Savings and money market accounts		39,517		31.6			39,241		34.4
Certificates of deposit		69,627		55.7			62,187		54.6
Total	$	124,907		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 September 30, 2009, we had $1.0 million of short-term advances outstanding. During the six month period, the Bank repaid $2.8 million in maturing borrowings.

Results of Operations for the Six Months Ended September 30, 2009 and 2008

Financial Highlights. Net loss for the six months ended September 30, 2009 was $311,000 compared to a net loss of $373,000 from the prior year ended. Net loss decreased for the six months ended September 30, 2009 from the prior year period due to improvements in the net interest margin as reflected by the increase in net interest income and a reduction in noninterest expenses, partially offset by an increase in the amount of provision for loan losses.

Table 5: Summary Income Statements

Six months ended September 30, (Dollars in thousands)	2009			2008			2009 v. 2008		% Change
Net interest income	$	2,083		$	1,713		370			21.6	%
Provision for loan losses		805			442		363			82.1
Noninterest income		95			117		(22	)		(18.8	)
Noninterest expenses		1,877			1,962		(85	)		(4.3	)
Net income		(311	)		(373	)	62			16.6
Return on average equity (annualized)		(5.36	)%		(5.89	)%
Return on average assets (annualized)		(0.46	)%		(0.58	)%

Net Interest Income. Net interest income increased $370,000 to $2,083,000 for the six months ended September 30, 2009 from $1,713,000 for the six months ended September 30, 2008 driven by lower interest expense due to the decreased interest rates. The 46 basis point increase in the net interest margin to 3.34% reflected the Bank’s ability to maintain the amount of interest income recognized while significantly decreasing its cost of funds. Interest income remained steady due to an increase in outstanding loans that offset the effect of an increased amount of non-performing loans. The decrease in the 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 six months ended September 30, 2009 increased $7.2 million, or 7.3%, compared with the same period in 2008, driven by growth in residential mortgages. Average investment securities in the six months ended September 30, 2009 decreased $10,000, or 0.10%, 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 5.55% for the six months ended September 30, 2009, compared with 5.97% for the same period in 2008.

Average interest-bearing deposits in the six months ended September 30, 2009 increased $ 8.1 million, or 7.4%, compared with the same period in 2008 due to increases in interest bearing 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 2.28%, compared with 3.34% for the same period in 2008.

Table 6: Analysis of Net Interest Income

Six months ended September 30, (Dollars in thousands)	2009			2008					2009 v. 2008		% Change
Components of net interest income
Loans	$	3,115			$	3,156		$	(41	)		(1.3	)%
Investment securities		346				394			(48	)		(12.2	)
Total interest income		3,461				3,550			(89	)		(2.5	)
Deposits		1,363				1,837			(474	)		(25.8	)
Borrowings		15		─					15		
Total interest expense		1,378				1,837			(459	)		(25.0	)
Net interest income		2,083				1,713			370			21.6
Average yields and rates paid
Interest-earning assets		5.55	%			5.97	%		(42	) bp
Interest-bearing liabilities		2.28				3.34			(106	)
Interest rate spread		3.27				2.63			64
Net interest margin		3.34				2.88			46
Average balances
Loans	$	106,310			$	99,089		$	7,221			7.3	%
Investment securities		14,285				14,295			(10	)		(0.1	)
Other earning assets		4,207				5,645			(1,438	)		(25.5	)
Interest-bearing deposits		118,285				110,155			8,130			7.4
Borrowings		1,776		─					1,776		

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 $805,000 in the six months ended September 30, 2009 compared to $442,000 in the six months ended September 30, 2008. We had $997,000 in charge-offs in the six months ended September 30, 2009, compared to $392,500 in charge-offs in the same prior year period.

Table 7: Analysis of Loan Loss Experience

Six months ended September 30, (Dollars in thousands)	2009			2008
Allowance at beginning of period	$	1,547		$	1,353
Provision for loan losses		805			442
Total charge-offs		(997	)		(393	)
Recoveries		1			2
Net charge-offs		(996	)		(391	)
Allowance at end of period	$	1,356		$	1,404

Allowance to nonperforming loans		14.5	%		40.0	%
Allowance to total loans outstanding at the end of the period		1.2			1.4
Net charge-offs (recoveries) to average loans outstanding during the period		0.94			0.40

Non-Interest Income. Noninterest income decreased in the six months ended September 30, 2009 compared to the same period in the prior year primarily as a result of no rental income from the Cinnaminson office building and a reduction in miscellaneous other income.

Table 8: Noninterest Income Summary

Six months ended September 30, (Dollars in thousands)	2009		2008		$ Change			% Change

Income from bank-owned life insurance	$	6	$	5	$	1			20.0	%
Service charges		70		74		(4	)		(5.4	)
Rental income				6		(6	)	
Other		19		32		(13	)		(40.6	)
Total	$	95	$	117	$	(22	)		(18.8	)

Non-Interest Expenses. Noninterest expenses declined in the six months ended September 30, 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 $48,000 from the prior period, and overall data processing costs decreased $71,000. The reductions were offset by the $97,000 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 $62,117.50.

Table 9: Noninterest Expense Summary

Six months ended September 30, (Dollars in thousands)	2009		2008		$ Change			% Change
Salaries and employee benefits	$	944	$	963	$	(19	)		(2.0	)%
Advertising		21		29		(8	)		(27.6	)
Office supplies, telephone and postage		69		76		(7	)		(9.2	)
Net occupancy expense		342		335		7			2.1
Federal insurance premiums		148		51		97			190.2
Data processing expenses		71		65		6			9.2
ATM expenses		11		34		(23	)		(67.6	)
Bank charges and fees		57		33		24			72.7
Insurance and surety bond premiums		33		27		6			22.2
Dues and subscriptions		19		24		(5	)		(20.8	)
Professional fees		106		201		(95	)		(47.3	)
On-line banking expenses				54		(54	)		(100.0	)
Other		56		70		(14	)		(20.0	)
Total	$	1,877	$	1,962		(95	)		(4.8	)

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 September 30, 2009, cash and cash equivalents totaled $3.6 million. In addition, at September 30, 2009, we had arrangements to borrow up to $8.5 million from the Federal Home Loan Bank of New York. On September 30, 2009, we had $1 million in advances outstanding. During the quarter the Bank did not have any maturing borrowings.

At September 30, 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 September 30, 2009, we had $0.8 million in loan commitments outstanding. In addition, we had $6.4 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 September 30, 2009 totaled $45.8 million, or 65.7% 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 September 30, 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 September 30, 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 six months ended September 30, 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.

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

The Annual Meeting of Stockholders of the Company was held on August 17, 2009. The results of the vote on the matters presented at the meeting are as follows:

1. The following individuals were elected as directors, each for a three-year term:

	Votes for	Votes Withheld

Thomas J. Coleman, III	1,302,704	158,483
Donald R. Neff	1,312,346	148,841

The appointment of Connolly, Grady & Cha, P.C. as auditors for the Company for the fiscal year ending March 31, 2010 was ratified by stockholders by the following vote:

For:	1,419,742
Against:	40,385
Abstain:	1,060

Item 5. Other Information

None.

Item 6. Exhibits

3.1

Charter of Delanco Bancorp, Inc. (1)

3.2

Bylaws of Delanco Bancorp, Inc. (1)

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 andExchange Commission on December 20, 2007.

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: November 13, 2009	By:	/s/ James E. Igo
		James E. Igo
		President and Chief Executive Officer


Dated: November 13, 2009	By:	/s/ Eva Modi
		Eva Modi
		Chief Financial Officer

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