Delanco Bancorp, Inc - FORM 10-Q

Attached files

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EX-31.1 - Delanco Bancorp, Inc	v210750_ex31-1.htm
EX-31.2 - Delanco Bancorp, Inc	v210750_ex31-2.htm
EX-32.0 - Delanco Bancorp, Inc	v210750_ex32-0.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 December 31, 2010

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

For the transition period from ______________ to _____________

Commission file number: 0-52517

DELANCO BANCORP, INC.

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

United States

(State or other jurisdiction of incorporation

or organization)

36-4519533

(I.R.S. Employer Identification No.)

615 Burlington Avenue, Delanco, New Jersey 08075

(Address of principal executive offices)

(856) 461-0611

(Issuer’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Yes o No o

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

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

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

Yes o No x

As of February 11, 2010 there were 1,634,725 shares of the registrant’s common stock outstanding.

DELANCO BANCORP, INC.

FORM 10-Q

Index

Page No.

PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Financial Condition at December 31, 2010 (Unaudited) and March 31, 2010	1

		Consolidated Statements of Operations for the three and nine months ended December 31, 2010 and 2009 (Unaudited)	2

		Consolidated Statements of Stockholders’ Equity for the nine months ended December 31, 2010 (Unaudited)	3

		Consolidated Statements of Cash Flows for the nine months ended December, 2010 and 2009 (Unaudited)	4

		Notes to Unaudited Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

	Item 4.	Controls and Procedures	16

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	17

	Item 1A.	Risk Factors	17

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

	Item 3.	Defaults upon Senior Securities	17

	Item 4.	[Removed and Reserved]	17

	Item 5.	Other Information	17

	Item 6.	Exhibits	17

Signatures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

	December 31, 2010			March 31, 2010
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	614,985		$	674,788
Interest-bearing deposits		3,748,554			4,208,881
Total cash and cash equivalents		4,363,539			4,883,669
Investment securities:
Securities held-to-maturity (fair value of $15,847,047 (unaudited) and $16,806,099 at December 31, 2010 and March 31, 2010, respectively)		15,835,546			16,359,598
Securities available-for-sale (amortized cost of $251,985 and $255,699 at December 31, 2010 and March 31, 2010, respectively)		251,985			258,163
Total investment securities		16,087,531			16,617,761
Loans, net of allowance for loan losses of $1,267,435 at December 31, 2010 (unaudited), $998,526 at March 31, 2010		104,290,409			107,204,042
Accrued interest receivable		456,349			492,682
Premises and equipment, net		7,482,834			7,723,970
Investment required by law-stock in Federal Home Loan Bank, at cost		225,200			206,700
Deferred income taxes		801,700			1,029,028
Bank owned life insurance		141,703			136,004
Prepaid and refundable income taxes		12,732			11,822
Real estate owned		955,221			412,969
Other assets		909,192			1,203,676
Total assets	$	135,726,410		$	139,922,323
LIABILITIES
Deposits
Non-interest bearing deposits	$	4,200,390		$	3,940,884
Interest bearing deposits		118,460,230			123,222,698
Total deposits		122,660,620			127,163,582
Accrued interest payable		11,673			45,580
Advance payments by borrowers for taxes and insurance		379,334			424,291
Other liabilities		568,675			553,994
Total liabilities		123,620,302			128,187,447

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		6,625,801			6,625,801
Retained earnings, substantially restricted		6,055,675			5,682,964
Unearned common stock held by employee stock ownership plan		(544,688	)		(544,688	)
Accumulated other comprehensive (Loss)		(47,027	)		(45,548	)
Total stockholder’s equity		12,106,108			11,734,876
Total liabilities and stockholders’ equity	$	135,726,410		$	139,922,323

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2010		2009		2010		2009
INTEREST INCOME
Loans	$	1,596,012	$	1,584,559	$	4,635,336	$	4,699,895
Investment securities		154,986		173,300		489,283		518,914
Total interest income		1,750,998		1,757,859		5,124,619		5,218,809

INTEREST EXPENSE
Interest-bearing checking accounts		21,115		25,909		67,013		79,274
Passbook and money market accounts		75,293		126,646		273,989		396,481
Certificates of deposits		351,054		507,465		1,151,517		1,546,665
Federal Home Loan Bank Advances		─		4,440		─		19,676
Total interest expense		447,462		664,460		1,492,519		2,042,096
Net interest income		1,303,536		1,093,399		3,632,100		3,176,713
Provision for loan losses		125,000		110,000		398,000		915,000
Net interest income after provision for loan losses		1,178,536		983,399		3,234,100		2,261,713

NON-INTEREST INCOME
Gain on sale of investment		─		15,053		─		15,053
Income from bank-owned life insurance		─		─		5,699		5,962
Service charges		37,846		31,025		102,340		100,756
Rental income		266		583		3,883		583
Other		3,473		628		9,520		19,811
Total non-interest income		41,585		47,289		121,442		142,165
NON-INTEREST EXPENSE
Salaries and employee benefits		385,364		396,689		1,176,415		1,341,465
Advertising		8,153		7,472		18,692		28,181
Office supplies, telephone and postage		21,355		21,773		71,348		90,556
Net occupancy expense		181,830		174,960		521,143		516,652
Real estate owned loss reserve		50,000		50,000		50,000		50,000
Federal insurance premiums		103,147		69,595		278,997		217,303
Data processing expenses		58,328		31,307		142,910		101,994
ATM expenses		6,401		6,669		15,903		17,778
Bank charges and fees		21,758		22,993		70,078		79,999
Insurance and surety bond premiums		16,595		17,112		49,968		50,418
Dues and subscriptions		8,274		6,715		20,457		25,839
Professional fees		53,167		31,786		178,554		137,996
Real estate owned expense		12,523		9,427		46,002		9,427
Other		42,681		43,315		111,841		99,365
Total non-interest expense		969,576		889,813		2,752,308		2,766,973

INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)		250,545		140,875		603,234		(363,095	)

Income taxes (benefits)		111,793		11,937		230,523		(181,050	)

NET INCOME (LOSS)		138,752	$	128,938		372,711	$	(182,045	)
INCOME (LOSS) PER COMMON SHARE	$	0.09	$	0.08	$	0.24	$	(0.12	)

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock				Additional				Unearned Employee Stock			Accumulated Other-			Total
	Shares		Amount		Paid-in Capital		Retained Earnings		Ownership Plan			Comprehensive Income (Loss)			Stockholders’ Equity

Balance at March 31, 2010		1,634,725	$	16,347	$	6,625,801	$	5,682,964	$	(544,688	)	$	(45,548	)	$	11,734,876
Net income								372,711								372,711
Other comprehensive income, net of tax:
Change in unrealized gain on securities available-for-sale, net of deferred income taxes of $985
													(1,479	)		(1,479	)
Total comprehensive income								372,711					(1,479	)		371,232
Balance at December 31, 2010		1,634,725	$	16,347	$	6,625,801	$	6,055,675	$	(544,688	)	$	(47,027	)	$	12,106,108

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended December 31,
	2010			2009
Cash flow from operating activities
Net Income (Loss)		372,711		$	(182,045	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes		228,313			(150,120	)
Depreciation		175,291			256,003
Discount accretion net of premium amortization		(43,110	)		(5,464	)
Provision for loan losses		398,000			915,000
Income from bank owned life insurance		(5,699	)		(5,962	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		36,333			9,033
Other assets		294,484			(705,863	)
Prepaid and refundable income taxes		(910	)		561,621
Increase (decrease) in:
Accrued interest payable		(33,907	)		(171,285	)
Other liabilities		14,680			(132,368	)
Net cash provided by (used in) operating activities		1,436,186		$	388,550

Cash flows from investing activities
Purchases of securities available-for-sale		3,714			(15,330	)
Purchases of securities held-to-maturity		(12,390,487	)		(4,000,000	)
Proceeds from maturities and principal repayments of securities held-to-maturity		12,957,650			5,424,389
(Purchase), sale of investment required by law – stock in Federal Home Loan Bank		(18,500	)		139,200
Net increase in loans		1,973,381			(5,941,252	)
Purchases of premises and equipment		65,845			(37,903	)
Net cash (used in) investing activities		2,591,603		$	( 4,430,896	)

Cash flows from financing activities
Net increase (decrease) in deposits		(4,502,962	)		12,672,049
Net increase in advance payments by borrowers for taxes and insurance		(44,957	)		41,316
Increase (decrease) in Federal Home Loan Bank Advances	─				(3,750,000	)
Net cash provided by (used in) financing activities	$	(4,547,919	)	$	8,963,365

(continued)

	Nine Months Ended December 31,
	2010			2009

Net decrease in cash and cash equivalents	$	(520,130	)	$	4,921,019

Cash and cash equivalents, beginning of the period		4,883,669			1,716,955

Cash and cash equivalents, end of period	$	4,363,539		$	6,637,974

Supplemental Disclosures:

Cash paid during the period for interest	$	1,504,192		$	2,193,705

Cash paid during the period for income taxes	$	1,560		$	520

Loans transferred to foreclosed real estate during the period	$	405,000		$	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	$	(1,478	)	$	13,635

See Notes to the Unaudited Consolidated Financial Statements.

DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

December 31, 2010

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and nine month periods ended December 31, 2010 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, 2010.

(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 Delanco Federal Savings Bank’s (the “Bank”) Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower than our GAAP capital ratio by 28 basis points.

(4) Income Taxes

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

Federal tax years 2007 through 2009 remain subject to examination as of December 31, 2010, while tax years 2007 through 2009 remain subject to examination by state taxing jurisdictions. In the event the Bank is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense.

(5) Earnings Per Share

Basic earnings per share (“EPS”) are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

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

The calculated basic and dilutive EPS are as follows:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2010		2009		2010		2009
Numerator	$	138,752	$	128,938	$	372,711	$	(182,045	)
Denominators:
Basic shares outstanding		1,580,256		1,577,052		1,580,256		1,577,052
Effect of dilutive securities	─		─		─		─
Dilutive shares outstanding		1,580,256		1,577,052		1,580,256		1,577,052
Earnings per share:
Basic	$	0.09	$	0.08	$	0.24	$	(0.12	)
Dilutive	$	0.09	$	0.08	$	0.24	$	(0.12	)

(6) Cease and Desist Order

On March 17, 2010, the Bank entered into a Stipulation and Consent to the Issuance of Order to Cease and Desist with the OTS, whereby the Bank consented to the issuance of an Order to Cease and Desist promulgated by the OTS, without admitting or denying that grounds exist for the OTS to initiate an administrative proceeding against the Bank.

The Order requires the Bank to take the following actions:

maintain (i) a tier 1 (core) capital to adjusted total assets ratio of at least 6.0% and (ii) a total risk-based capital to risk-weighted assets ratio of at least 10.0% after the funding of an adequate allowance for loan and lease losses;

If the Bank fails to meet these capital ratio requirements at any time, within 15 days thereafter prepare a written contingency plan detailing actions to be taken, with specific time frames, providing for (i) a merger with another federally insured depository institution or holding company thereof, or (ii) voluntary liquidation;

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

within 30 days after the end of each quarter, beginning with the quarter ending June 30, 2010, prepare a quarterly written asset status report that will include the requirements contained in the Order;

prepare an updated business plan that will include the requirements contained in the Order and that also will include strategies to restructure the Bank’s operations, strengthen and improve the Bank’s earnings, reduce expenses and achieve positive core income and consistent profitability;

restrict quarterly asset growth to an amount not to exceed net interest credited on deposit liabilities for the prior quarter without the prior non-objection of the OTS;

refrain from making, investing in or purchasing any new commercial loans without the prior non-objection of the OTS (the Bank may refinance, extend or otherwise modify any existing commercial loans, so long as no new loan proceeds are advanced as part of the transaction);

cease to accept, renew or roll over any brokered deposit or act as a deposit broker, without the prior written waiver of the Federal Deposit Insurance Corporation;

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.

The Order, which replaces the Supervisory Agreement previously entered into between the Bank and the OTS, will remain in effect until terminated, modified, or suspended in writing by the OTS.

The Bank entered into a Supervisory Agreement with the OTS on December 17, 2007. The Supervisory Agreement identified certain actions to be taken by the Bank to address, among other things, the deterioration in the commercial real estate loan portfolio, a substantial portion of which was generated in 2006 and 2007. Although the Bank believes it took the steps necessary to comply with the Supervisory Agreement, the commercial real estate loans that were originated prior to the Supervisory Agreement have resulted in a high level of non-performing assets and charge-offs that have affected the Bank’s profitability.

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 December 31, 2010, the Bank has entered into formal forbearance agreements with nine relationships totaling $4.5 million that require current payments while the borrowers restructure their finances.

At December 31, 2010, the Bank’s tier 1 (core) capital to adjusted total assets ratio was 8.42% and its total risk-based capital to risk-weighted assets ratio was 13.90%. At December 31, 2010, the Bank exceeded all of its regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

On July 23, 2010 the Bank received a non-objection from the OTS regarding the updated business plan that it submitted under the requirements of the Order.

(7) 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.

In July 2010, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Codification Update for disclosures about the credit quality of financing receivables and the allowance for credit losses. This update is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposure and evaluating the adequacy of its allowance for credit losses. This update requires an entity to disclose the nature of credit risk inherent in the entity’s portfolio of financing receivables and how that risk is analyzed and assessed in arriving at the allowance for credit losses. The changes and reason for the changes in the allowance for credit losses should also be disclosed. This update also requires an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. In addition, the amendments in this update require an entity to disclose credit quality indicators, past due information, and modifications of its financial receivables. These improvements will help financial statement users assess an entity’s credit risk exposures and its allowance for credit losses. This update is effective for interim and annual reporting periods ending December 15, 2010. The required disclosures have been adopted by the Company for the interim period beginning December 15, 2010

In January 2010, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Codification Update for improving disclosures about fair value measurements. This update requires an entity to disclose, and provide the reasons for, all transfers of assets and liabilities between the Level 1 and 2 fair value categories. It also clarifies that entities should provide fair value measurement disclosures for classes of assets and liabilities which are subsets of line items within the balance sheet, if necessary. In addition, the update clarifies an entity provide disclosures about the fair value techniques and inputs for assets and liabilities classified within Level 2 or 3 categories. This update also requires entities to reconcile changes in Level 3 assets and liabilities by separately providing information about Level 3 purchases, sales, issuances and settlements on a gross basis. The majority of the new requirements are effective for interim and annual reporting periods for years beginning on or after December 15, 2009. The disclosures regarding reconciling changes in Level 3 assets and liabilities are effective for fiscal years beginning on or after December 15, 2010. The adoption of this update of this update did not materially impact the company’s current fair market value measurement disclosure.

(7) Fair Value of Financial Instruments

On April 1, 2010 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, 2009. 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, 2009, or April 1, 2010 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 December 31, 2010 and March 31, 2010 was as follows:

	December 31, 2010				March 31, 2010

	Carrying Amount		Fair Value		Carrying Amount		Fair Value

(Dollars in Thousands)

Financial Assets:
Cash and cash equivalents	$	4,364	$	4,364	$	4,884	$	4,884
Investment securities		16,088		16,099		16,616		17,064
Loans – net		104,290		108,177		107,204		111,865
FHLB stock		225		225		207		207
Accrued interest receivable		456		456		493		493

Total financial assets	$	125,423	$	129,321	$	129,404	$	134,513

Financial Liabilities:
Deposits	$	122,661	$	126,279	$	127,164	$	128,742
Advance payments by borrowers for taxes and insurance		379		379		424		424
Accrued interest payable		12		12		46		46
Total financial liabilities	$	123,052	$	126,670	$	127,634	$	129,212

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

Management’s discussion and analysis of the financial condition and results of operations at and for the nine months ended December 31, 2010 and 2009 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 December 31, 2010 were $135.7 million, a decrease of $4.2 million, or 3.0%, from total assets of $139.9 million at March 31, 2010. The change in the asset composition reflected a decrease in loans of $2.9 million, and a decrease in each of investment securities and cash and cash equivalents of $500,000.

Loans. At December 31, 2010, total loans, net, were $104.3 million, or 76.8% of total assets. Overall loans decreased by $2.9 million due primarily to pay-offs in commercial and multi-family real estate loans. Commercial and multi-family real estate loans decreased by $2.0 million, commercial loans decreased by $300,000 and residential loans increased by $800,000.

Table 1: Loan Portfolio Analysis
	December 31,						March 31,
	2010						2010
(Dollars in thousands)	Amount			Percent			Amount			Percent
Real estate loans:
Residential	$	80,394			76.1	%	$	79,637			73.5	%
Commercial and multi-family		21,998			20.8			23,998			22.2
Construction		376			0.4			395			0.4
Total real estate loans		102,768			97.3			104,030			96.1
Commercial loans		1,771			1.7			2,821			2.6
Consumer loans		1,093			1.0			1,419			1.3
Total loans		105,632			100.0	%		108,270			100.0	%
Loans in process	─						─
Net deferred loan fees		(75	)					(67	)
Allowance for losses		(1,267	)					(999	)
Loans, net	$	104,290					$	107,204

Nonperforming Loans. Total nonperforming loans at December 31, 2010 decreased $1.5 million primarily due to a decrease in nonperforming commercial loans of $2.6 million, partially offset by an increase in nonperforming residential loans of $1.1 million. The troubled debt restructurings as of March 31, 2010 of $3.8 million include $1.9 million of loans also reported in the non-accrual loan total. The total for troubled debt restructurings as of December 31, 2010 does not include loans that are reported as non-accrual loans, which total $3.0 million.

Table 2: Nonperforming Assets
	December 31,			March 31,
(Dollars in thousands)	2010			2010
Nonaccrual loans	$	4,573		$	6,067
Accruing loans past due 90 days or more	─				—
Total of nonaccrual and 90 days or more past due loans		4,573			6,067
Real estate owned		955			413
Other non performing asset		3		─
Total nonperforming assets		5,531			6,480
Troubled debt restructurings		2,968			3,792
Troubled debt restructurings and total nonperforming assets	$	8,499		$	10,272

Total nonperforming loans to total loans		4.33	%		5.60	%
Total nonperforming loans to total assets		3.37			4.34
Total nonperforming assets and troubled debt restructurings to total assets		6.26			7.34

Securities. The investment securities portfolio was $16.1 million, or 11.9% of total assets, at December 31, 2010. At that date 49.4% 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 decrease was due to the pay down of principal on mortgage backed securities.

Table 3: Investment Securities
	December 31,				March 31,
	2010				2010
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Mutual funds	$	252		252	$	256	$	258
Total available for sale		252		252		256		258

Securities held to maturity:
U.S. Government and agency securities		7,890		7,657		6,997		7,013
Mortgage-backed securities		7,946		8,190		9,363		9,793
Total held to maturity		15,836		15,847		16,360		16,806
Total	$	16,088	$	16,099	$	16,616	$	17,064

Deposits. Our deposit base is comprised of demand deposits, money market and passbook accounts and time deposits. We consider demand deposits and money market and passbook accounts to be core deposits. We do not have any brokered deposits. At December 31, 2010, core deposits were 47% of total deposits. Overall deposits decreased by $4.5 million as the Bank attracted core deposits and reduced higher costing deposits. Core deposits increased for the quarter by $297,000 while time deposits decreased by $1.9 million.

Table 4: Deposits
	December 31,					March 31,
	2010					2010
(Dollars in thousands)	Amount		Percent			Amount		Percent
Noninterest-bearing demand deposits	$	4,200		3.4	%	$	3,941		3.1	%
Interest-bearing demand deposits		13,113		10.7			9,922		7.8
Savings and money market accounts		40,386		32.9			42,510		33.4
Certificates of deposit		64,961		53.0			70,791		55.7
Total	$	122,660		100.0	%	$	127,164		100.0	%

Borrowings. In recent periods, we have occasionally used short-term FHLB advances as an additional source of liquidity. At December 31, 2010, we had no short-term advances outstanding.

Results of Operations for the Nine Months Ended December 31, 2010 and 2009

Financial Highlights. . Net income for the nine months ended December 31, 2010, was $372,711 compared to a net loss of $182,045 for the nine months ended December 31, 2009. The increase in net income was the result of an increase in net interest income and a decrease in non-interest expense partially offset by an increase in income taxes.

Table 5: Summary Income Statements
Nine months ended December 31, (Dollars in thousands)	2010			2009			2010 v. 2009		% Change
Net interest income	$	3,632		$	3,177		455			14.3	%
Provision for loan losses		398			915		(517	)		(56.5	)
Noninterest income		121			142		(21	)		(14.8	)
Noninterest expenses		2,752			2,767		(15	)		(0.5	)
Net income		373			(182	)	555			304.9
Return on average equity (annualized)		4.15	%		(2.11	)%
Return on average assets (annualized)		0.36	%		(0.18	)%

Net Interest Income. Net interest income increased $455,000 to $3.6 million for the nine months ended December 31, 2010 from $3.2 million for the nine months ended December 31, 2009 driven by a decline of interest paid on deposits. Both the 51 basis point increase in our interest rate spread and the 51 basis point increase in our net interest margin reflect the improvement the Bank has made in reducing our cost of funds. The rates earned on our assets declined, resulting in a 1.8% decrease in total interest income as compared to a 26.9% decrease in total interest expense.

Average loans in the nine months ended December 31, 2010 decreased $2.7 million or 2.5%, compared with the same period in 2009, driven by pay-offs in commercial loans and offset by growth in the residential real estate loan portfolio.

Average investment securities in the nine months ended December 31, 2010 increased $1.2 million, or 8.6%, compared to the same period in 2009. The growth in the investment portfolio was due to the increase in U.S. Government and agency securities. Declining interest rates decreased the average yield on earning assets to 5.4% for the nine months ended December 31, 2010, compared with 5.45% for the same period in 2009.

Average interest-bearing deposits in the nine months ended December 31, 2010 remained relatively stable, increasing $89,000, compared with the same period in 2009.

Table 6: Analysis of Net Interest Income
Nine months ended December 31, (Dollars in thousands)	2010			2009				2010 v. 2009		% Change
Components of net interest income
Loans	$	4,635		$	4,700		$	(65	)		(1.4	)%
Investment securities		489			519			(30	)		(5.8	)
Total interest income		5,124			5,219			(95	)		(1.8	)
Deposits		1,492			2,022			(530	)		(26.2	)
Borrowings	─				20			(20	)		(100.0	)
Total interest expense		1,492			2,042			(550	)		(26.9	)
Net interest income		3,632			3,177			455			14.3

Average yields and rates paid
Interest-earning assets		5.40	%		5.45	%		(5	)bp
Interest-bearing liabilities		1.65			2.21			(56	)
Interest rate spread		3.75			3.24			51
Net interest margin		3.83			3.32			51
Average balances
Loans	$	105,993		$	108,731		$	(2,738	)		(2.5	)%
Investment securities		15,484			14,263			1,221			8.6
Other earning assets		5,090			4,649			441			9.5
Interest-bearing deposits		120,923			120,834			89			0.1
Borrowings	─				1,458			(1,458	)		(100.0	)

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 $398,000 in the nine months ended December 31, 2010 compared to $915,000 in the nine months ended December 31, 2009. We had $130,000 in net charge-offs in the nine months ended December 31, 2010, compared to $1.1 million in net charge-offs in the same prior year period.

Table 7: Analysis of Loan Loss Experience
Nine months ended December 31, (Dollars in thousands)	2010			2009
Allowance at beginning of period	$	999		$	1,547
Provision for loan losses		398			915
Total charge-offs		(156	)		(1,115	)
Recoveries		26			28
Net charge-offs		(130	)		(1,087	)
Allowance at end of period	$	1,267		$	1,375

Allowance to nonperforming loans		27.71	%		15.84	%
Allowance to total loans outstanding at the end of the period		1.20			1.25
Net charge-offs (recoveries) to average loans outstanding during the period		0.12			1.00

Non-Interest Income. Noninterest income decreased in the nine months ended December 31, 2010 compared to the same period in the prior year as we did not recognize a gain on the sale of investment securities. Rental income was received on our Cinnaminson rental space.

Table 8: Noninterest Income Summary
Nine months ended December 31, (Dollars in thousands)	2010		2009		$ Change			% Change

Gain on sale of investment securities	$	─	$	15	(15		)	(100.0		%)
Income from bank-owned life insurance		6		6	─			─
Service charges		102		101		1			0.1
Rental income		4	─			4		─
Other		9		20		(11	)		(55.0	)
Total	$	121	$	142		(21	)		(14.8	)

Non-Interest Expenses. Noninterest expenses declined in the nine months ended December 31, 2010 by $15,000 over the same period in the prior year through decreases in most expense categories, but primarily in salaries and benefits, partially offset by increases in FDIC insurance premiums, real estate owned expense and professional fees incurred in our loan workout/recoveries.

Table 9: Noninterest Expense Summary
Nine months ended December 31, (Dollars in thousands)	2010		2009		$ Change			% Change
Salaries and employee benefits	$	1,176	$	1,341	$	(165	)		(12.3	)%
Advertising		19		28		(9	)		(32.1	)
Office supplies, telephone and postage		71		91		(20	)		(22.0	)
Net occupancy expense		521		517		4			0.8
Real estate owned reserve		50		50	─			─
Federal insurance premiums		279		217		62			28.6
Data processing expenses		143		102		41			40.2
ATM expenses		16		18		(2	)		(11.1	)
Bank charges and fees		70		80		(10	)		(12.5	)
Insurance and surety bond premiums		50		50	─			─
Dues and subscriptions		20		26		(6	)		(23.1	)
Professional fees		179		138		41			29.7
Real estate owned expense		46		9		37			411.1
Other		112		100		12			12.0
Total	$	2,752	$	2,767		(15	)		(0.5	)

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 and Atlantic Central Banker’s Bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

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

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2010, cash and cash equivalents totaled $4.4 million. In addition, at December 31, 2010, we had arrangements to borrow up to $7.4 million from the Federal Home Loan Bank of New York and $1.0 million from Atlantic Central Banker’s Bank. On December 31, 2010, we had no outstanding borrowings.

At December 31, 2010, 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 may be classified as available for sale in order to give us greater flexibility in the management of our investment portfolio.

A significant use of our liquidity is the funding of loan originations. At December 31, 2010 we had outstanding loan commitments of $1.0 million. In addition, we had $5.5 million in unused lines of credit. Historically, many of the lines of credit expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of December 31, 2010 totaled $44.3 million, or 66.3% of certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the recent low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2010. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2010, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements

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

For the nine months ended December 31, 2010, 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, 2010 and as set forth under Part II, Item 1A. “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, 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 and Quarterly Reports on Form 10-Q 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. [Removed and Reserved].

Item 5. Other Information

None.

Item 6. Exhibits

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

SIGNATURES

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

	DELANCO BANCORP, INC.

Dated: February 11, 2011	By:	/s/ James E. Igo
		James E. Igo
		Chairman, President and Chief Executive Officer

Dated: February 11, 2011	By:	/s/ Eva Modi
		Eva Modi
		Chief Financial Officer

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