Attached files
file | filename |
---|---|
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
OR
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from ______________ to _____________
Commission
file number: 0-52517
DELANCO BANCORP,
INC.
(Exact
name of small business issuer as specified in its charter)
United
States
(State or other
jurisdiction of incorporation
or
organization)
|
36-4519533
(I.R.S.
Employer Identification No.)
|
615 Burlington Avenue,
Delanco, New Jersey 08075
(Address
of principal executive offices)
(856)
461-0611
(Issuer’s
telephone number)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“accelerated filer,” “large accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | o | Smaller reporting company | x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
As of
February 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.
1
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.
2
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.
3
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)
4
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.
5
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.
6
(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;
|
7
·
|
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.
8
(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:
9
● | 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.
10
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 |
11
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.
12
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.
13
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.
14
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.
15
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.
16
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
|
17
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 | |||