United
States


Securities
and Exchange Commission


Washington,
D.C. 20549





FORM 10-K





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the fiscal year ended March 31,
2009





 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the transition period from _________ to
  __________





Commission
File Number: 0-52517





DELANCO BANCORP,
INC.


(Name of
small business issuer 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
                            (Address
      of principal executive offices)
                          08075(Zip
      Code)




Issuer’s
telephone number: (856) 461-0611


Securities
registered under Section 12(b) of the Exchange Act:  None


Securities
registered under Section 12(g) of the Exchange Act:





Common Stock, par value $0.01 per
share


(Title of
class)





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.  Yes  ̈   No
x





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Act.  Yes  ̈  No  x





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.  Yes  x  No  ̈





Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).  Yes  o  No  ̈





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. x





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





Large accelerated filer   ̈
            Accelerated filer   ̈Non-accelerated filer     ̈ (Do not check if a smaller reporting company)
            Smaller reporting company x




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


Yes   ̈  No   x


The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of September 30, 2008 was approximately $3.8
million.





The
number of shares outstanding of the registrant’s common stock as of June 30,
2009 was 1,634,725.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K.









INDEX




PagePart
      IItem
      1.
                            Business
                            1Item
      1A.
                            Risk
      Factors
                            12Item
      1B.
                            Unresolved
      Staff Comments
                            16Item
      2.
                            Properties
                            16Item
      3.
                            Legal
      Proceedings
                            17Item
      4.
                            Submission
      of Matters to a Vote of Security Holders
                            17Part
      IIItem
      5.
                            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                            17Item
      6.
                            Selected
      Financial Data
                            18Item
      7.
                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            19Item
      7A.
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            33Item
      8.
                            Financial
      Statements and Supplementary Data
                            33Item
      9.
                            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                            33Item
      9A(T).
                            Controls
      and Procedures
                            33Item
      9B.
                            Other
      Information
                            33Part
      IIIItem
      10.
                            Directors,
      Executive Officers and Corporate Governance
                            34Item
      11.
                            Executive
      Compensation
                            35Item
      12.
                            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                            35Item
      13.
                            Certain
      Relationships and Related Transactions, and Director
      Independence
                            35Item
      14.
                            Principal
      Accounting Fees and Services
                            36Part
      IVItem
      15.
                            Exhibits
      and Financial Statement Schedules
                            36SIGNATURES







This report contains certain
“forward-looking statements” within the meaning of the federal securities laws
that are based on assumptions and may describe future plans, strategies and
expectations of Delanco Bancorp, Inc. (the “Company”), Delanco MHC and Delanco
Federal Savings Bank. These forward-looking statements are generally identified
by terms such as “expects,” “believes,” “anticipates,” “intends,” “estimates,”
“projects” and similar expressions.





Management’s 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 the operations of Delanco
Bancorp and its subsidiaries include, but are not limited to, the following:
interest rate trends; the general economic climate in the market area in which
we operate, as well as nationwide; our ability to control costs and expenses;
competitive products and pricing; loan delinquency rates and changes in federal
and state legislation and regulation. Additional factors that may affect our
results are discussed in this Annual Report on Form 10-K under “Item 1A—Risk
Factors.” These risks and uncertainties should be considered in evaluating the
forward-looking statements and undue reliance should not be placed on such
statements. We assume no obligation to update any forward-looking
statements.





PART
I





ITEM
1. BUSINESS





General





Delanco Bancorp was organized in 2002
as a federal corporation at the direction of Delanco Federal Savings Bank, in
connection with the reorganization of the Bank from the mutual form of
organization to the mutual holding company form of organization. On March 30,
2007, Delanco Bancorp completed a minority stock offering.





Delanco Bancorp’s business activity is
the ownership of the outstanding capital stock of Delanco Federal Savings Bank.
Delanco Bancorp does not own or lease any property but instead uses the
premises, equipment and other property of Delanco Federal Savings Bank with the
payment of appropriate rental fees, as required by applicable law and
regulations, under the terms of an expense allocation agreement. In the future,
Delanco Bancorp may acquire or organize other operating subsidiaries; however,
there are no current plans, arrangements, agreements or understandings, written
or oral, to do so.





Delanco Federal Savings Bank operates
as a community-oriented financial institution offering traditional financial
services to consumers and businesses in our market area. We attract deposits
from the general public and use those funds to originate a variety of consumer
and business loans.





Our website address is
www.delancofsb.com. Information on our website should not be considered a part
of this report.





Market
Area





We are headquartered in Delanco
Township, New Jersey. In addition to our main office, we operate a full-service
branch office in Cinnaminson, New Jersey. Delanco and Cinnaminson are in western
Burlington County, New Jersey, across the Delaware River from northeastern
Philadelphia. Historically, substantially all of our loans were made to
borrowers who resided within approximately ten miles of our main office.
Beginning in 2005 we expanded our lending area to all of Pennsylvania and New
Jersey, with a focus on Philadelphia and southwestern New Jersey. During 2008,we
refocused our lending to southwestern New Jersey.





Competition





We face significant competition for the
attraction of deposits and origination of loans. Our most direct competition for
deposits has historically come from the many financial institutions operating in
our market area and, to a lesser extent, from other financial service companies
such as brokerage firms, credit unions and insurance companies. Several large
holding companies operate banks in our market area, including Bank of America,
Wachovia (now part of Wells Fargo & Company), TD Bank and PNC Bank. These
institutions are significantly larger than us and, therefore, have significantly
greater resources. We also face competition for investors’ funds from money
market funds, mutual funds and other corporate and government securities. At
June 30, 2008, which is the most recent date for which data is available from
the FDIC, we held less than 1% of the deposits in Burlington County, New
Jersey.







Our competition for loans comes
primarily from financial institutions in our market area and, to a lesser
extent, from other financial service providers, such as mortgage companies and
mortgage brokers. Competition for loans also comes from the increasing number of
non-depository financial service companies entering the mortgage market, such as
insurance companies, securities companies and specialty finance
companies.





We expect competition to remain intense
in the future as a result of legislative, regulatory and technological changes
and the continuing trend of consolidation in the financial services industry.
Technological advances, for example, have lowered barriers to entry, allowed
banks to expand their geographic reach by providing services over the Internet
and made it possible for non-depository institutions to offer products and
services that traditionally have been provided by banks. Changes in federal law
permit affiliation among banks, securities firms and insurance companies, which
promotes a competitive environment in the financial services industry.
Competition for deposits and the origination of loans could limit our growth in
the future.





Lending
Activities





One-
to Four-Family Residential Loans.
We offer three types of residential mortgage loans: fixed-rate loans, balloon
loans and adjustable-rate loans. We offer fixed-rate mortgage loans with terms
of 15, 20 or 30 years and balloon mortgage loans with terms of five, ten or 15
years. We offer adjustable-rate mortgage loans with interest rates and payments
that adjust annually after an initial fixed period of one or three years.
Interest rates and payments on our adjustable-rate loans generally are adjusted
to a rate equal to a percentage above the one year U.S. Treasury index. The
maximum amount by which the interest rate may be increased or decreased is
generally 2% per adjustment period and the lifetime interest rate cap is
generally 6.0% over the initial interest rate of the loan. We generally retain
all of the mortgage loans that we originate, although from time to time we have
sold some of the 30-year, fixed-rate mortgage loans that we
originated.





Borrower demand for adjustable-rate or
balloon loans compared to fixed-rate loans is a function of the level of
interest rates, the expectations of changes in the level of interest rates, and
the difference between the interest rates and loan fees offered for fixed-rate
mortgage loans as compared to the interest rates and loan fees for
adjustable-rate or balloon loans. The relative amount of fixed-rate, balloon and
adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. The loan fees,
interest rates and other provisions of mortgage loans are determined by us on
the basis of our own pricing criteria and competitive market
conditions.





While one- to four-family residential
real estate loans are normally originated with up to 30-year terms, such loans
typically remain outstanding for substantially shorter periods because borrowers
often prepay their loans in full either upon sale of the property pledged as
security or upon refinancing the original loan. Therefore, average loan maturity
is a function of, among other factors, the level of purchase and sale activity
in the real estate market, prevailing interest rates and the interest rates
payable on outstanding loans. We do not offer loans with negative amortization
and generally do not offer interest only loans.





We will make loans with loan-to-value
ratios up to 95%; however, we require private mortgage insurance for loans with
a loan-to-value ratio over 80%. We require all properties securing mortgage
loans to be appraised by a board-approved independent appraiser. We generally
require title insurance on all first mortgage loans. Borrowers must obtain
hazard insurance, and flood insurance is required for loans on properties
located in a flood zone.





Construction
Loans. We
originate loans to individuals and, to a lesser extent, builders to finance the
construction of residential dwellings. We also make construction loans for small
commercial development projects. Our construction loans generally provide for
the payment of interest only during the construction phase, which is usually
nine months for residential properties and 12 months for commercial properties.
Loans generally can be made with a maximum loan to value ratio of 90% on
residential construction and 80% on commercial construction, based on appraised
value as if complete. Before making a commitment to fund a construction loan, we
require an appraisal of the property by an independent licensed appraiser. We
also will require an inspection of the property before disbursement of funds
during the term of the construction loan.


2


Commercial
and Multi-Family Real Estate Loans.We offer fixed-
and adjustable-rate mortgage loans secured by a variety of commercial and
multi-family real estate, such as small office buildings, warehouses, retail
properties and small apartment buildings. We originate a variety of fixed- and
adjustable-rate commercial real estate and multi-family real estate loans
generally for terms up to 10 years and payments based on an amortization
schedule of up to 25 years. Adjustable-rate loans are typically based on the
Prime Rate. Loans are secured by first mortgages, and amounts generally do not
exceed 80% of the property’s appraised value.





On December 17, 2007, Delanco
Federal Savings Bank entered into a Supervisory Agreement with the OTS. The
entry into the Supervisory Agreement was based on the Bank’s 2007 report of
examination in which the OTS concluded that grounds existed for the initiation
of administrative proceedings against the Bank. The Supervisory Agreement
imposes certain restrictions on the operations of the Bank, including limiting
the Bank’s ability to engage in commercial lending without prior written
non-objection from the OTS and the Bank’s ability to grow its assets. See “Regulation and
Supervision-Supervisory Agreement” for a detailed description of the
Supervisory Agreement.





Commercial
Loans. We offer commercial business loans to professionals, sole
proprietorships and small businesses in our market area. We offer installment
loans for capital improvements, equipment acquisition and long-term working
capital. These loans are secured by business assets other than real estate, such
as business equipment and inventory, or are backed by the personal guarantee of
the borrower. We originate lines of credit to finance the working capital needs
of businesses to be repaid by seasonal cash flows or to provide a period of time
during which the business can borrow funds for planned equipment purchases. We
also offer accounts receivable lines of credit.





When making commercial business loans,
we consider the financial statements of the borrower, the borrower’s payment
history of both corporate and personal debt, the debt service capabilities of
the borrower, the projected cash flows of the business, the viability of the
industry in which the customer operates and the value of the
collateral.





Consumer
Loans.
Our consumer loans consist primarily of home equity loans and lines of credit.
We occasionally make loans secured by passbook or certificate accounts and
automobile loans.





We offer home equity loans with a
maximum combined loan to value ratio of 80% or less. Home equity lines of credit
have adjustable rates of interest that are indexed to the Prime Rate as
published by The Wall Street
Journal. Home equity loans have fixed interest rates and terms that
typically range from five to 15 years. Some of our home equity loans are
originated as five-year balloon loans with monthly payments based on a 20- to
30-year amortization schedule.





The procedures for underwriting
consumer loans include an assessment of the applicant’s payment history on other
debts and ability to meet existing obligations and payments on the proposed
loan. Although the applicant’s creditworthiness is a primary consideration, the
underwriting process also includes a comparison of the value of the collateral,
if any, to the proposed loan amount.





Loan
Underwriting Risks.





Adjustable-Rate
Loans.While we anticipate that
adjustable-rate loans will better offset the adverse effects of an increase in
interest rates as compared to fixed-rate mortgages, an increased monthly
mortgage payment required of adjustable-rate loan borrowers in a rising interest
rate environment could cause an increase in delinquencies and defaults. The
marketability of the underlying property also may be adversely affected in a
high interest rate environment. In addition, although adjustable-rate mortgage
loans make our asset base more responsive to changes in interest rates, the
extent of this interest sensitivity is limited by the annual and lifetime
interest rate adjustment limits.





Construction
Loans. Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan depends largely upon the accuracy of
the initial estimate of the property’s value at completion of construction and
the estimated cost (including interest) of construction. During the construction
phase, a number of factors could result in delays and cost overruns. If the
estimate of construction costs proves to be inaccurate, we may be required to
advance funds beyond the amount originally committed to permit completion of the
building. If the estimate of value proves to be inaccurate, we may be
confronted, at or before the maturity of the loan, with a building having a
value which is insufficient to assure full repayment. If we are forced to
foreclose on a building before or at completion due to a default, there can be
no assurance that we will be able to recover all of the unpaid balance of, and
accrued interest on, the loan as well as related foreclosure and holding
costs.




3


Commercial
and Multi-Family Real Estate Loans.Loans secured by commercial and
multi-family real estate generally have larger balances and involve a greater
degree of risk than one- to four-family residential mortgage loans. Of primary
concern in commercial and multi-family real estate lending is the borrower’s
creditworthiness and the feasibility and cash flow potential of the project.
Payments on loans secured by income properties often depend on successful
operation and management of the properties. As a result, repayment of such loans
may be subject to a greater extent than residential real estate loans, to
adverse conditions in the real estate market or the economy. To monitor cash
flows on income properties, we require borrowers and loan guarantors, if any, to
provide annual financial statements on commercial and multi-family real estate
loans. In reaching a decision on whether to make a commercial or multi-family
real estate loan, we consider and review a global cash flow analysis of the
borrower and consider the net operating income of the property, the borrower’s
expertise, credit history and profitability and the value of the underlying
property. We have generally required that the properties securing these real
estate loans have debt service coverage ratios (the ratio of earnings before
debt service to debt service) of at least 1.25. An environmental survey or
environmental risk insurance is obtained when the possibility exists that
hazardous materials may have existed on the site, or the site may have been
impacted by adjoining properties that handled hazardous materials.





Commercial
Loans. Unlike residential mortgage loans, which generally are made on the
basis of the borrower’s ability to make repayment from his or her employment or
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial loans are of higher risk and typically are
made on the basis of the borrower’s ability to make repayment from the cash flow
of the borrower’s business. As a result, the availability of funds for the
repayment of commercial loans may depend substantially on the success of the
business itself. Further, any collateral securing such loans may depreciate over
time, may be difficult to appraise and may fluctuate in value.





Consumer
Loans.Consumer loans may entail greater risk
than do residential mortgage loans, particularly in the case of consumer loans
that are unsecured or secured by assets that depreciate rapidly, such as motor
vehicles. In the latter case, repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment for the outstanding loan
and a small remaining deficiency often does not warrant further substantial
collection efforts against the borrower. Consumer loan collections depend on the
borrower’s continuing financial stability, and therefore are likely to be
adversely affected by various factors, including job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.





Loan
Originations, Purchases and Sales. Loan originations
come from a number of sources. The primary sources of loan originations are
existing customers, walk-in traffic, advertising and referrals from
customers.





From time to time, we will purchase
participations in loans from the Thrift Institutions Community Investment
Corporation of New Jersey to supplement our lending portfolio.Loan participations totaled
$1.3 million at March 31, 2009. Loan participations are also subject to the same
credit analysis and loan approvals as loans we originate. We are permitted to
review all of the documentation relating to any loan in which we participate.
However, in a purchased participation loan, we do not service the loan and thus
are subject to the policies and practices of the lead lender with regard to
monitoring delinquencies, pursuing collections and instituting foreclosure
proceedings.





In the past, we have sold some of the
30-year fixed rate loans that we originated to the Federal Home Loan Bank of New
York for interest risk management purposes. In recent periods we have retained
all of the loans that we have originated.





Loan
Approval Procedures and Authority.Our lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by our board of directors and management. The
board of directors has granted loan approval authority to certain officers or
groups of officers up to prescribed limits, based on the officer’s experience
and tenure. All loans over $350,000 must be approved by the loan committee of
the board of directors.




4


Loans
to One Borrower.The maximum
amount that we may lend to one borrower and the borrower’s related entities is
limited, by regulation, to generally 15% of our stated capital and reserves. At
March 31, 2009, our regulatory limit on loans to one borrower was $1.7 million.
At that date, our largest lending relationship was $1.1 million and was secured
by residential investment real estate. This loan was performing in accordance
with its original terms at March 31, 2009.





Loan
Commitments. We issue
commitments for fixed- and adjustable-rate mortgage loans conditioned upon the
occurrence of certain events. Commitments to originate mortgage loans are
legally binding agreements to lend to our customers. Generally, our loan
commitments expire after 60 days.





Investment
Activities





We have legal authority to invest in
various types of liquid assets, including U.S. Treasury obligations, securities
of various federal agencies and of state and municipal governments,
mortgage-backed securities and certificates of deposit of federally insured
institutions. Within certain regulatory limits, we also may invest a portion of
our assets in corporate securities and mutual funds. We also are required to
maintain an investment in Federal Home Loan Bank of New York stock.





At March 31, 2009, our investment
portfolio totaled $14.5 million, or 11.1% of total assets, and consisted
primarily of mortgage-backed securities and debt securities of government
sponsored enterprises.





Our investment objectives are to
provide and maintain liquidity, to establish an acceptable level of interest
rate and credit risk, to provide an alternate source of low-risk investments
when demand for loans is weak and to generate a favorable return. Our board of
directors has the overall responsibility for the investment portfolio, including
approval of our investment policy. The Asset/Liability Committee is responsible
for implementation of the investment policy and monitoring our investment
performance.Ourboard of directors reviews
the status of our investment portfolio on a quarterly basis, or more frequently
if warranted.





Deposit
Activities and Other Sources of Funds





General.
Deposits, borrowings and loan repayments are the major sources of our funds for
lending and other investment purposes. Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and money
market conditions.





Deposit
Accounts.
Substantially all of our depositors are residents of New Jersey. Deposits are
attracted from within our market area through the offering of a broad selection
of deposit instruments, including non-interest-bearing demand deposits (such as
checking accounts), interest-bearing demand accounts (such as NOW and money
market accounts), savings accounts and certificates of deposit. In addition to
accounts for individuals, we also offer commercial checking accounts designed
for the businesses operating in our market area. We do not have any brokered
deposits. From time to time we promote various accounts in an effort to increase
deposits.





Deposit account terms vary according to
the minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors. In determining the terms of our
deposit accounts, we consider the rates offered by our competition, our
liquidity needs, profitability to us, and customer preferences and concerns. We
generally review our deposit mix and pricing bi-weekly. Our deposit pricing
strategy has generally been to offer competitive rates and to be towards the top
of the local market for rates on all types of deposit products.





Borrowings.
We have the ability to utilize advances from the Federal Home Loan Bank of New
York to supplement our investable funds, although we have not done so until
recently. The Federal Home Loan Bank functions as a central reserve bank
providing credit for member financial institutions. As a member, we are required
to own capital stock in the Federal Home Loan Bank and are authorized to apply
for advances on the security of such stock and certain of our mortgage loans and
other assets (principally securities which are obligations of, or guaranteed by,
the United States), provided certain standards related to creditworthiness have
been met. Advances are made under several different programs, each having its
own interest rate and range of maturities. Depending on the program, limitations
on the amount of advances are based either on a fixed percentage of an
institution’s net worth or on the Federal Home Loan Bank’s assessment of the
institution’s creditworthiness.




5


Personnel





As of March 31, 2009, we had 32
full-time equivalent employees, none of whom is represented by a collective
bargaining unit. We believe our relationship with our employees is
good.





Subsidiaries





The only subsidiary of Delanco Bancorp
is Delanco Federal Savings Bank. Delanco Federal Savings Bank does not have any
active subsidiaries.





Regulation
and Supervision





General





Delanco Federal Savings Bank is subject
to extensive regulation, examination and supervision by the OTS, as its primary
federal regulator, and the Federal Deposit Insurance Corporation, as its
deposits insurer. Delanco Federal Savings Bank is a member of the Federal Home
Loan Bank System and its deposit accounts are insured up to applicable limits by
the Deposit Insurance Fund managed by the Federal Deposit Insurance Corporation.
Delanco Federal Savings Bank must file reports with the OTS and the Federal
Deposit Insurance Corporation concerning its activities and financial condition
in addition to obtaining regulatory approvals before entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and, under certain
circumstances, the Federal Deposit Insurance Corporation to evaluate Delanco
Federal Savings Bank’s safety and soundness and compliance with various
regulatory requirements. This regulatory structure is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the Federal Deposit Insurance Corporation or
Congress, could have a material adverse impact on Delanco Bancorp, Delanco MHC
and Delanco Federal Savings Bank and their operations. Delanco Bancorp and
Delanco MHC, as savings and loan holding companies, are required to file certain
reports with, are subject to examination by, and otherwise must comply with the
rules and regulations of the OTS.





Certain of the regulatory requirements
that are or will be applicable to Delanco Federal Savings Bank, Delanco Bancorp
and Delanco MHC are described below. This description of statutes and
regulations is not intended to be a complete explanation of such statutes and
regulations and their effects on Delanco Federal Savings Bank, Delanco Bancorp
and Delanco MHC and is qualified in its entirety by reference to the actual
statutes and regulations.





Supervisory
Agreement





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




6


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





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





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





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





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





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





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





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





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





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





The Company believes that the Bank is
in substantial compliance with, or has received a waiver of, the requirements of
the Supervisory Agreement and has received confirmation that the OTS views the
Bank to be in substantial compliance with the Supervisory
Agreement.





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





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





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




7


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





Regulation
of Federal Savings Associations





Capital
Requirements.The OTS’ capital regulations
require federal savings institutions to meet three minimum capital standards: a
1.5% tangible capital to total assets ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS examination rating
system) and an 8% risk-based capital ratio. In addition, the prompt corrective
action standards discussed below also establish, in effect, a minimum 2%
tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMELS system) and, together with the risk-based
capital standard itself, a 4% Tier 1 risk-based capital standard. The OTS
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.





The risk-based capital standard
requires federal savings institutions to maintain Tier 1 (core) and total
capital (which is defined as core capital and supplementary capital) to
risk-weighted assets of at least 4% and 8%, respectively. In determining the
amount of risk-weighted assets, all assets, including certain off-balance sheet
assets, recourse obligations, residual interests and direct credit substitutes,
are multiplied by a risk-weight factor of 0% to 100%, assigned by the OTS
capital regulation based on the risks believed inherent in the type of asset.
Core (Tier 1) capital is defined as common stockholders’ equity (including
retained earnings), certain noncumulative perpetual preferred stock and related
surplus and minority interests in equity accounts of consolidated subsidiaries,
less intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.





The OTS also has authority to establish
individual minimum capital requirements in appropriate cases upon a
determination that an institution’s capital level is or may become inadequate in
light of the particular circumstances. At March 31, 2009, Delanco Federal
Savings Bank met each of these capital requirements.





Prompt
Corrective Regulatory Action.The OTS is required to take
certain supervisory actions against undercapitalized institutions, the severity
of which depends upon the institution’s degree of undercapitalization.
Generally, a savings institution that has a ratio of total capital to risk
weighted assets of less than 8%, a ratio of Tier 1 (core) capital to
risk-weighted assets of less than 4% or a ratio of core capital to total assets
of less than 4% (3% or less for institutions with the highest examination
rating) is considered to be “undercapitalized.” A savings institution that has a
total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than
3% or a leverage ratio that is less than 3% is considered to be “significantly
undercapitalized” and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be “critically
undercapitalized.” Subject to a narrow exception, the OTS is required to appoint
a receiver or conservator within specified time frames for an institution that
is “critically undercapitalized.” An institution must file a capital restoration
plan with the OTS within 45 days of the date it receives notice that it is
“undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” Compliance with the plan must be guaranteed by any parent
holding company in an amount of up to the lesser of 5% of the institutions total
assets when it became undercapitalized or the amount necessary to achieve
compliance with all applicable capital requirements. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. “Significantly undercapitalized” and “critically undercapitalized”
institutions are subject to more extensive mandatory regulatory actions. The OTS
could also take any one of a number of discretionary supervisory actions,
including the issuance of a capital directive and the replacement of senior
executive officers and directors.




8


Standards
for Safety and Soundness. As required by statute, the federal banking
agencies have adopted Interagency Guidelines prescribing Standards for Safety
and Soundness. The guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the OTS determines
that a savings institution fails to meet any standard prescribed by the
guidelines, the OTS may require the institution to submit an acceptable plan to
achieve compliance with the standard. Delanco Federal Savings Bank has not
received any notice from the OTS that it has failed to meet any standard
prescribed by the guidelines.





Limitation
on Capital Distributions. OTS regulations impose limitations upon all
capital distributions by a savings institution, including cash dividends,
payments to repurchase its shares and payments to stockholders of another
institution in a cash-out merger. Under the regulations, an application to and
the prior approval of the OTS is required before any capital distribution if the
institution does not meet the criteria for “expedited treatment” of applications
under OTS regulations (i.e., generally, examination
and Community Reinvestment Act ratings in the two top categories), the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years, the institution
would be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with the OTS. If an
application is not required, the institution must still provide prior notice to
the OTS of the capital distribution if, like Delanco Federal Savings Bank, it is
a subsidiary of a holding company. If Delanco Federal Savings Bank’s capital
were ever to fall below its regulatory requirements or the OTS notified it that
it was in need of increased supervision, its ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution that would otherwise be permitted by the
regulation, if the agency determines that such distribution would constitute an
unsafe or unsound practice.





Qualified
Thrift Lender Test. Federal law requires savings institutions to meet a
qualified thrift lender test. Under the test, a savings association is required
to either qualify as a “domestic building and loan association” under the
Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total
assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain “qualified thrift investments” (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
in at least 9 months out of each 12 month period. Education loans, credit card
loans and small business loans may be considered “qualified thrift investments.”
A savings institution that fails the qualified thrift lender test is subject to
certain operating restrictions and may be required to convert to a bank charter.
As of March 31, 2009, Delanco Federal Savings Bank maintained 97.2% of its
portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test.





Transactions
with Related Parties. Federal law limits Delanco Federal Savings Bank’s
authority to lend to, and engage in certain other transactions with
(collectively, “covered transactions”), “affiliates” (e.g., any company that
controls or is under common control with an institution, including Delanco
Bancorp, Inc., Delanco MHC and their non-savings institution subsidiaries). The
aggregate amount of covered transactions with any individual affiliate is
limited to 10% of the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is limited to 20%
of the savings institution’s capital and surplus.  Loans and other
specified transactions with affiliates are required to be secured by collateral
in an amount and of a type described in federal law.  The purchase of
low quality assets from affiliates is generally
prohibited.  Transactions with affiliates must be on terms and under
circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.  In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.





The Sarbanes-Oxley Act generally
prohibits loans by Delanco Bancorp to its executive officers and
directors.  However, the Sarbanes-Oxley Act contains a specific
exemption from such prohibition for loans by Delanco Federal Savings Bank to its
executive officers and directors in compliance with federal banking
regulations.  Federal regulations require that all loans or extensions
of credit to executive officers and directors of insured institutions must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
and must not involve more than the normal risk of repayment or present other
unfavorable features.   Delanco Federal Savings Bank is therefore
prohibited from making any new loans or extensions of credit to executive
officers and directors at different rates or terms than those offered to the
general public.  Notwithstanding this rule, federal regulations permit
Delanco Federal Savings Bank to make loans to executive officers at reduced
interest rates if the loan is made under a benefit program generally available
to all other employees and does not give preference to any executive officer or
director over any other employee.


9


In addition, loans made to a director
or executive officer in an amount that, when aggregated with the amount of all
other loans to the person and his or her related interests, are in excess of the
greater of $25,000 or 5% of Delanco Federal Savings Bank’s capital and surplus,
or in any case totaling $500,000 or more, must be approved in advance by a
majority of the disinterested members of the board of
directors.  There are further specific restrictions on loans to
executive officers.





Insurance
of Deposit Accounts.   Delanco Federal Savings Bank’s
deposits are insured up to applicable limits by the Deposit Insurance Fund of
the FDIC.  The Deposit Insurance Fund is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in
2006.  Under the FDIC’s risk-based assessment system, insured
institutions are assigned to one of four risk categories based on supervisory
evaluations, regulatory capital levels and certain other factors.  An
institution’s assessment rate depends upon the category to which it is assigned,
with less risky institutions paying lower assessments.  For calendar
2008, assessments ranged from five to forty-three basis points of assessable
deposits.  No institution may pay a dividend if in default of the
federal deposit insurance assessment.





Due to losses incurred by the Deposit
Insurance Fund from failed institutions in 2008, and anticipated future losses,
the FDIC adopted, pursuant to a Restoration Plan to replenish the fund, an
across the board seven basis point increase in the assessment range for the
first quarter of 2009.  The FDIC subsequently adopted further
refinements to its risk-based assessment system, effective April 1, 2009, that
effectively make the range seven to 771/2 basis
points.  The FDIC may adjust the scale uniformly from one quarter to
the next, except that no adjustment can deviate more than three basis points
from the base scale without notice and comment rulemaking.  The FDIC
has also imposed on all insured institutions an emergency special assessment of
5 basis points of an institution’s assets minus its Tier 1 capital as of June
30, 2009 in order to cover losses to the Deposit Insurance Fund.  The
amount of the special assessment, however, would not exceed 10 basis points
times the institution’s assessment base for the 2nd quarter
2009 risk-based assessment.  The FDIC  reserves the
authority to impose additional emergency assessments of up to five basis points
per quarter in 2009, as deemed necessary.





Due to the recent difficult economic
conditions, deposit insurance per account owner has been raised to $250,000 for
all types of accounts until January 1, 2010.  In addition, the FDIC
adopted an optional Temporary Liquidity Guarantee Program by which, for a fee,
noninterest bearing transaction accounts would receive unlimited insurance
coverage until December 31, 2009 and certain senior unsecured debt issued by
institutions and their holding companies would be guaranteed by the FDIC for a
limited period.  Delanco Federal Savings Bank made the business
decision to participatein the unlimited
noninterest bearing transaction account coverage and Delanco Federal Savings
Bank, Delanco MHC and Delanco Bancorp optedto not participate in
the unsecured debt guarantee program.





Insurance of deposits may be terminated
by the Federal Deposit Insurance Corporation upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the Federal Deposit Insurance Corporation or the
OTS.  We do not know of any practice, condition or violation that
might lead to termination of deposit insurance.





In addition to the assessment for
deposit insurance, institutions are required to make payments on bonds issued in
the late 1980s by the Financing Corporation to recapitalize a predecessor
deposit insurance fund.





Federal
Home Loan Bank System.  Delanco Federal Savings Bank is a
member of the Federal Home Loan Bank System, which consists of 12 regional
Federal Home Loan Banks.  The Federal Home Loan Bank provides a
central credit facility primarily for member institutions.  Delanco
Federal Savings Bank, as a member of the Federal Home Loan Bank of New York, is
required to acquire and hold shares of capital stock in that Federal Home Loan
Bank.  Delanco Federal Savings Bank was in compliance with this
requirement with an investment in Federal Home Loan Bank stock at March 31,
2009 of $346,000.





Community
Reinvestment Act.Under the Community
Reinvestment Act, as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods.  The Community Reinvestment Act
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution’s discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the Community Reinvestment Act.  The
Community Reinvestment Act requires the OTS, in connection with its examination
of a savings association, to assess the institution’s record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution.


10





The Community Reinvestment Act requires
public disclosure of an institution’s rating and requires the OTS to provide a
written evaluation of an association’s Community Reinvestment Act performance
utilizing a four-tiered descriptive rating system.





Delanco Federal Savings Bank received
an “outstanding” rating as a result of its most recent Community Reinvestment
Act assessment.





Holding
Company Regulation





General.Delanco
Bancorp and Delanco MHC are savings and loan holding companies within the
meaning of federal law.  As such, they are registered with the OTS and
are subject to OTS regulations, examinations, supervision, reporting
requirements and regulations concerning corporate governance and
activities.  In addition, the OTS has enforcement authority over
Delanco Bancorp and Delanco MHC and their non-savings institution
subsidiaries.  Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to
Delanco Federal Savings Bank.





Restrictions
Applicable to Mutual Holding Companies.According
to federal law and OTS regulations, a mutual holding company, such as Delanco
MHC, may generally engage in the following activities:  (1) investing
in the stock of a savings association; (2) acquiring a mutual association
through the merger of such association into a savings association subsidiary of
such holding company or an interim savings association subsidiary of such
holding company; (3) merging with or acquiring another holding company, one of
whose subsidiaries is a savings association; (4) investing in
the  stock of a corporation that is available for purchase by a
federal savings association or a state savings association of the state in which
the subsidiary savings association has its home office; and (5) any activity
approved by the Federal Reserve Board for a bank holding company or financial
holding company or previously approved by OTS for multiple savings and loan
holding companies.  Financial holding companies may engage in a broad
array of financial service activities including insurance and
securities.





Federal law prohibits a savings and
loan holding company, including a federal mutual holding company, from directly
or indirectly, or through one or more subsidiaries, acquiring more than 5% of
the voting stock of another savings institution, or its holding company, without
prior written approval of the OTS.  Federal law also prohibits a
savings and loan holding company from acquiring more than 5% of a company
engaged in activities other than those authorized for savings and loan holding
companies by federal law; or acquiring or retaining control of a depository
institution that is not insured by the Federal Deposit Insurance
Corporation.  In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors.





The OTS is prohibited from approving
any acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state,
except:  (1) the approval of interstate supervisory acquisitions
by savings and loan holding companies, and (2) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions.  The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.





If the savings institution subsidiary
of a savings and loan holding company fails to meet the qualified thrift lender
test, the holding company must register with the Federal Reserve Board as a bank
holding company within one year of the savings institution’s failure to so
qualify.





Stock
Holding Company Subsidiary Regulation.The
OTS has adopted regulations governing the two-tier mutual holding company form
of organization and subsidiary stock holding companies that are controlled by
mutual holding companies.  Delanco Bancorp is the stock holding
company subsidiary of Delanco MHC.  Delanco Bancorp is permitted to
engage in activities that are permitted for Delanco MHC subject to the same
restrictions and conditions.


11





Waivers
of Dividends by Delanco MHC.OTS
regulations require Delanco MHC to notify the OTS if it proposes to waive
receipt of dividends from Delanco Bancorp.  The OTS reviews dividend
waiver notices on a case-by-case basis, and, in general, does not object to a
waiver if:  (i) the waiver would not be detrimental to the safe and
sound operation of the savings association; and (ii) the mutual holding
company’s board of directors determines that such waiver is consistent with such
directors’ fiduciary duties to the mutual holding company’s
members.  We anticipate that Delanco MHC will seek to waive dividends
that Delanco Bancorp may pay, if any.





Conversion
of Delanco MHC to Stock Form.OTS
regulations permit Delanco MHC to convert from the mutual form of organization
to the capital stock form of organization. There can be no assurance when, if
ever, a conversion transaction will occur, and the Board of Directors has no
current intention or plan to undertake a conversion transaction. In a conversion
transaction a new holding company would be formed as the successor to Delanco
Bancorp, Delanco MHC’s corporate existence would end, and certain depositors of
Delanco Federal Savings Bank would receive the right to subscribe for additional
shares of the new holding company.  In a conversion transaction, each
share of common stock held by stockholders other than Delanco MHC would be
automatically converted into a number of shares of common stock of the new
holding company based on an exchange ratio determined at the time of conversion
that ensures that stockholders other than Delanco MHC own the same percentage of
common stock in the new holding company as they owned in Delanco Bancorp
immediately before conversion.  The total number of shares held by
stockholders other than Delanco MHC after a conversion transaction would be
increased by any purchases by such stockholders in the stock offering conducted
as part of the conversion transaction.





Acquisition
of Control.Under
the federal Change in Bank Control Act, a notice must be submitted to the OTS if
any person (including a company), or group acting in concert, seeks to acquire
“control” of a savings and loan holding company or savings
association.  An acquisition of “control” can occur upon the
acquisition of 10% or more of the voting stock of a savings and loan holding
company or savings institution or as otherwise defined by the
OTS.  Under the Change in Bank Control Act, the OTS has 60 days from
the filing of a complete notice to act, taking into consideration certain
factors, including the financial and managerial resources of the acquirer and
the anti-trust effects of the acquisition.  Any company that so
acquires control would then be subject to regulation as a savings and loan
holding company.





ITEM 1A. RISK FACTORS





We
had operating losses during the last three fiscal years.  Continued
losses may have an adverse impact on our stock price.





We
reported net losses of $1,231,000, $1,067,000 and $155,000 for the years ended
March 31, 2009, 2008 and 2007, respectively.  Included in net income
for fiscal 2007 was an after-tax gain of $270,000 relating to the sale of
Freddie Mac stock.  Without this gain, we would have incurred a larger
loss for the year ended March 31, 2007.  The primary reasons for
our losses were that we increased our provision for loan losses, our expenses
increased as a result of building and staffing our new Cinnaminson facility and
our net interest spread declined as a result of market conditions.





A
continuation of recent turmoil in the financial markets could have an adverse
effect on our financial position or results of operations.




Beginning in 2008, United States and
global financial markets have experienced severe disruption and volatility, and
general economic conditions have declined significantly. Adverse developments in
credit quality, asset values and revenue opportunities throughout the financial
services industry, as well as general uncertainty regarding the economic,
industry and regulatory environment, have had a marked negative impact on the
industry.  Dramatic declines in the U.S. housing market over the past
eighteen months, with falling home prices, increasing foreclosures and
increasing unemployment, have negatively affected the credit performance of
mortgage loans and resulted in significant write-downs of asset values by many
financial institutions. The United States and the governments of other countries
have taken steps to try to stabilize the financial system, including investing
in financial institutions, and have also been working to design and implement
programs to improve general economic conditions. Notwithstanding the actions of
the United States and other governments, there can be no assurances that these
efforts will be successful in restoring industry, economic or market conditions
and that they will not result in adverse unintended
consequences.  Factors that could continue to pressure financial
services companies, including Delanco Bancorp, are numerous and include (1)
worsening credit quality, leading among other things to increases in loan losses
and reserves, (2) continued or worsening disruption and volatility in financial
markets, leading among other things to continuing reductions in asset values,
(3)  capital and liquidity concerns regarding financial institutions
generally, (4) limitations resulting from or imposed in connection with
governmental actions intended to stabilize or provide additional regulation of
the financial system, or (5) recessionary conditions that are deeper or last
longer than currently anticipated.


12





Over the
past two fiscal years, we have experienced an increase in non-performing and
classified assets.  Total nonperforming assets increased to $8.7
million at March 31, 2009 from $1.8 million at March 31, 2008, while
nonperforming assets as a percentage of total loans increased to 6.92% at March
31, 3009 from 1.34% at March 31, 2008.  We took provisions for loan
losses of $1.1 and $1.5 million for the fiscal years ended March 31, 2009 and
2008.  At March 31, 2009, the allowance for loan losses was
17.74%of
non-performing loans and 1.47% of total loans.  For more information,
see Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Risk
Management.”





We
are a party to a Supervisory Agreement with the Office of Thrift Supervision and
our failure to comply with that Agreement may result in further regulatory
enforcement actions, including restrictions on our operations.





On December 17, 2007, Delanco Federal
Savings Bank entered into a Supervisory Agreement with the OTS. The entry
into the Supervisory Agreement was based on the Bank’s 2007 report of
examination in which the OTS concluded that grounds existed for the initiation
of administrative proceedings against the Bank.  Without admitting or
denying that such grounds existed, the Bank determined to enter into the
Supervisory Agreement to cooperate with the OTS and as evidence of the Bank’s
intent to comply with all applicable laws and regulations and engage in safe and
sound practices.  The Supervisory Agreement imposes certain
restrictions on the operations of the Bank, including limiting the Bank’s
ability to engage in commercial lending without prior written approval from the
OTS and the Bank’s ability to grow its assets.  The Supervisory
Agreement will remain in effect until terminated, modified, or suspended in
writing by the OTS.





The Company believes that the Bank is
in substantial compliance with, or has received a waiver of, the requirements of
the Supervisory Agreement and has received confirmation that the OTS views the
Bank to be in substantial compliance with the Supervisory
Agreement.  However, a failure to comply with the Supervisory
Agreement could result in the initiation of a formal enforcement action by the
OTS, including the imposition of civil monetary penalties.  The
Supervisory Agreement is expected to result in additional regulatory compliance
expense for the Company.  A detailed description of the Supervisory
Agreement can found at “Regulation and
Supervision—Supervisory
Agreement.”





If
we do not rent the excess office space in our Cinnaminson branch building, it
will negatively impact earnings.





Our
Cinnaminson branch was designed and built to have rental units for third party
tenants. Our inability to rent those units will necessitate that the Bank cover
all of the operating expenses for the building without the rental income to
offset those expenses, thus having a negative impact on our
earnings.  Currently, all of the rental space is vacant.





Our
previous emphasis on commercial lending may expose us to increased lending
risks.





At March 31, 2009 $30.7 million,
or 29.1% of our loan portfolio consisted of commercial and multi-family real
estate loans and commercial business loans, down from $32.2 million at March
31,2008.  These types of loans generally expose a lender to greater
risk of non-payment and loss than one- to four-family residential mortgage loans
because repayment of the loans often depends on the successful operation of the
property or a business.  These types of loans typically involve larger
loan balances to single borrowers or groups of related borrowers compared to
one- to four-family residential mortgage loans.  Commercial business
loans expose us to additional risks since they typically are made on the basis
of the borrower’s ability to make repayments from the cash flow of the
borrower’s business and are secured by non-real estate collateral that may
depreciate over time.  In addition, since such loans generally entail
greater risk than one- to four-family residential mortgage loans, we may need to
increase our allowance for loan losses in the future to account for potential
losses.  While the number of new commercial loans generated in the
past year has been significantly reduced as compared to recent years, the
existing commercial loan portfolio contains potential risks. The amount of
non-performing and classified commercial loans has increased during the past
year. Even though the Bank has been working on collecting the money owed by
either collection efforts or the repossession of collateral and/or foreclosure
of real estate, there is no guaranty that the Bank will receive the full amount
due and that the existing loan loss allowance will be sufficient to cover the
losses. See “Regulation and
Supervision—Supervisory Agreement” for further information on certain
restrictions regarding our ability to engage in commercial
lending.


13





Changes
in interest rates may hurt our earnings and asset value.





Our net interest income is the interest
we earn on loans and investment less the interest we pay on our deposits and
borrowings.  Our net interest margin is the difference between the
yield we earn on our assets and the interest rate we pay for deposits and our
other sources of funding.  Changes in interest rates—up or down—could
adversely affect our net interest margin and, as a result, our net interest
income.  Although the yield we earn on our assets and our funding
costs tend to move in the same direction in response to changes in interest
rates, one can rise or fall faster than the other, causing our net interest
margin to expand or contract.  Our liabilities tend to be shorter in
duration than our assets, so they may adjust faster in response to changes in
interest rates.  As a result, when interest rates rise, our funding
costs may rise faster than the yield we earn on our assets, causing our net
interest margin to contract until the yield catches up.  Changes in
the slope of the “yield curve”—or the spread between short-term and long-term
interest rates—could also reduce our net interest margin.  Normally,
the yield curve is upward sloping, meaning short-term rates are lower than
long-term rates.  Because our liabilities tend to be shorter in
duration than our assets, when the yield curve flattens or even inverts, we
could experience pressure on our net interest margin as our cost of funds
increases relative to the yield we can earn on our assets.  See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Risk Management—Interest Rate
Risk Management.”





Special
FDIC Assessments Will Hurt Our Earnings




Beginning in late 2008, the economic
environment caused higher levels of bank failures, which dramatically increased
FDIC resolution costs and led to a significant reduction in the Deposit
Insurance Fund.  As a result, the FDIC has significantly increased the
initial base assessment rates paid by financial institutions for deposit
insurance.  The base assessment rate was increased by seven basis
points (7 cents for every $100 of deposits) for the first quarter of
2009.  Effective April 1, 2009, initial base assessment rates were
changed to range from 12 basis points to 45 basis points across all risk
categories with possible adjustments to these rates based on certain
debt-related components.  These increases in the base assessment rate
will increase our deposit insurance costs and negatively impact our
earnings.  In addition, in May 2009, the FDIC imposed a special
assessment on all insured institutions due to recent bank and savings
association failures.  The emergency assessment amounts to 5 basis
points on each institution’s assets minus Tier 1 capital as of June 30, 2009,
subject to a maximum equal to 10 basis points times the institution’s assessment
base.  The assessment will be collected on September 30,
2009.  The special assessment will negatively impact our
earnings.  In addition, the FDIC may impose additional emergency
special assessments after June 30, 2009, of up to 5 basis points per
quarter on each institution’s assets minus Tier 1 capital if necessary to
maintain public confidence in federal deposit insurance or as a result of
deterioration in the deposit insurance fund reserve ratio due to institution
failures. The earliest possible date for imposing any such additional special
assessment is September 30, 2009, with collection on December 30,
2009.  The latest date possible for imposing any such additional
special assessment is December 31, 2009, with collection on March 30,
2010.  Any additional emergency special assessment imposed by the FDIC
will further hurt our earnings.





Our
allowance for loan losses may be inadequate, which could hurt our
earnings.





When
borrowers default and do not repay the loans that we make to them, we may lose
money.  The allowance for loan losses is the amount estimated by
management as necessary to cover probable losses in the loan portfolio at the
statement of financial condition date.  The allowance is established
through the provision for loan losses, which is charged to
income.  Determining the amount of the allowance for loan losses
necessarily involves a high degree of judgment.  Among the material
estimates required to establish the allowance are:  loss exposure at
default; the amount and timing of future cash flows on impacted loans; value of
collateral; and determination of loss factors to be applied to the various
elements of the portfolio.  If our estimates and judgments regarding
such matters prove to be incorrect, our allowance for loan losses might not be
sufficient, and additional loan loss provisions might need to be
made.  Depending on the amount of such loan loss provisions, the
adverse impact on our earnings could be material.  We might increase
the allowance because of changing economic conditions. For example, in a rising
interest rate environment, borrowers with adjustable-rate loans could see their
payments increase. There may be a significant increase in the number of
borrowers who are unable or unwilling to repay their loans, resulting in our
charging off more loans and increasing our allowance. In addition, when real
estate values decline, the potential severity of loss on a real estate-secured
loan can increase significantly, especially in the case of loans with high
combined loan-to-value ratios. The recent decline in the national economy and
the local economies of the areas in which the loans are concentrated could
result in an increase in loan delinquencies, foreclosures or repossessions
resulting in increased charge-off amounts and the need for additional loan loss
allowances in future periods.


14





In
addition, bank regulators may require us to make a provision for loan losses or
otherwise recognize further loan charge-offs following their periodic review of
our loan portfolio, our underwriting procedures, and our loan loss
allowance.  Any increase in our allowance for loan losses or loan
charge-offs as required by such regulatory authorities could have a material
adverse effect on our financial condition and results of
operations.  A large loss could deplete the allowance and require
increased provisions to replenish the allowance, which would negatively affect
earnings.  Please see “Allowance for Loan Losses”under “Critical
Accounting Policies” in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” for a discussion of the
procedures we follow in establishing our loan loss allowance.





Strong
competition within our market area could hurt our profits and slow
growth.





We face intense competition in making
loans, attracting deposits and hiring and retaining experienced
employees.  This competition has made it more difficult for us to make
new loans and attract deposits.  Price competition for loans and
deposits sometimes results in us charging lower interest rates on our loans and
paying higher interest rates on our deposits, which reduces our net interest
income.  Competition also makes it more difficult and costly to
attract and retain qualified employees.  At June 30, 2008, which is
the most recent date for which data is available from the FDIC, we held less
than 1% of the deposits in Burlington County, New Jersey.  Many of the
institutions with which we compete have substantially greater resources and
lending limits than we have and may offer services that we do not
provide.  We expect competition to increase in the future as a result
of legislative, regulatory and technological changes and the continuing trend of
consolidation in the financial services industry.  Our profitability
depends upon our continued ability to compete successfully in our market
area.





We
operate in a highly regulated environment and we may be adversely affected by
changes in laws and regulations.





We are subject to extensive regulation,
supervision and examination by the OTS, our chartering authority, and by the
Federal Deposit Insurance Corporation, as insurer of our
deposits.  Delanco MHC, Delanco Bancorp and Delanco Federal Savings
Bank are all subject to regulation and supervision by the OTS.  Such
regulation and supervision governs the activities in which an institution and
its holding company may engage and are intended primarily for the protection of
the insurance fund and the depositors and borrowers of Delanco Federal Savings
Bank rather than for holders of Delanco Bancorp common
stock.  Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on our operations, the classification of our assets and determination of the
level of our allowance for loan losses.  Any change in such regulation
and oversight, whether in the form of regulatory policy, regulations,
legislation or supervisory action, may have a material impact on our
operations.





Delanco
MHC’s majority control of our common stock will enable it to exercise voting
control over most matters put to a vote of stockholders and will prevent
stockholders from forcing a sale or a second-step conversion transaction you may
find advantageous.




Delanco
MHC owns a majority of Delanco Bancorp’s common stock and, through its board of
directors, is able to exercise voting control over most matters put to a vote of
stockholders. For example, Delanco MHC may exercise its voting control to
prevent a sale or merger transaction or to defeat a stockholder nominee for
election to the board of directors of Delanco Bancorp.  The same
directors and officers who manage Delanco Bancorp and Delanco Federal Savings
Bank also manage Delanco MHC. As a federally chartered mutual holding company,
the board of directors of Delanco MHC must ensure that the interests of
depositors of Delanco Federal Savings Bank are represented and considered in
matters put to a vote of stockholders of Delanco Bancorp. Therefore, the votes
cast by Delanco MHC may not be in your personal best interests as a stockholder.
For example, Delanco MHC may exercise its voting control to defeat a stockholder
nominee for election to the board of directors of Delanco
Bancorp.  Delanco MHC’s ability to control the outcome of the election
of the board of directors of Delanco Bancorp restricts the ability of minority
stockholders to effect a change of management.  In addition,
stockholders will not be able to force a merger or second-step conversion
transaction without the consent of Delanco MHC, as such transactions require the
approval of at least two-thirds of all outstanding voting stock, which can only
be achieved if Delanco MHC voted to approve such transactions.  Some
stockholders may desire a sale or merger transaction, since stockholders
typically receive a premium for their shares, or a second-step conversion
transaction, since fully converted institutions tend to trade at higher
multiples than mutual holding companies.


15




Our
mutual holding company structure limits our ability to raise additional equity
capital.




Our
mutual holding company structure limits our ability to raise additional equity
capital without undertaking a second-step conversion transaction because we
cannot issue stock in an amount that would cause Delanco HC to own less than a
majority of our outstanding shares.  Currently, Delanco MHC owns 55%
of our outstanding shares.  In addition, any stock issuance by us must
be approved by the Office of Thrift Supervision and must be structured in a
manner similar to a mutual to stock conversion, including the stock purchase
priorities accorded to members of the mutual holding company, unless otherwise
approved by the Office of Thrift Supervision.  These requirements
limit our ability to control the timing and structure of a stock
offering.





OTS
policy on remutualization transactions could prevent acquisition of Delanco
Bancorp, which may adversely affect our stock price.




Current
OTS regulations permit a mutual holding company to be acquired by a mutual
institution in what is commonly called a “remutualization”
transaction.  In the past, remutualization transactions resulted in
minority stockholders receiving a significant premium for their
shares.  However, in 2003 the OTS issued a policy statement indicating
that it views remutualization transactions as raising significant issues
concerning disparate treatment of minority stockholders and mutual members of
the target entity and raising issues concerning the effect on the mutual members
of the acquiring entity.  Under certain circumstances, the OTS intends
to give these issues special scrutiny and reject applications providing for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the OTS’ concerns are not warranted in the particular
case.  Should the OTS prohibit or further restrict these transactions
in the future, our per share stock price may be adversely affected.




OTS
regulations and anti-takeover provisions in our charter restrict the
accumulation of our common stock, which may adversely affect our stock
price.




OTS
regulations provide that for a period of three years following the date of the
completion of the stock offering, no person, acting alone, together with
associates or in a group of persons acting in concert, may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of our common stock without the prior written approval of the OTS. In addition,
Delanco Bancorp’s charter provides that, for a period of five years from the
date of the stock offering, no person, other than Delanco MHC may acquire
directly or indirectly the beneficial ownership of more than 10% of any class of
any equity security of Delanco Bancorp. In the event a person acquires shares in
violation of this charter provision, all shares beneficially owned by such
person in excess of 10% will be considered “excess shares” and will not be
counted as shares entitled to vote or counted as voting shares in connection
with any matters submitted to the stockholders for a vote.  These
restrictions make it more difficult and less attractive for stockholders to
acquire a significant amount of our common stock, which may adversely affect our
stock price.





ITEM 1B.
            UNRESOLVED STAFF
      COMMENTS





None.





ITEM
      2.
            PROPERTIES





We conduct our business through our
main office in Delanco, New Jersey and our branch office in Cinnaminson, New
Jersey, both of which we own.  The net book value of our land,
buildings, furniture, fixtures and equipment was $8.0 million as of
March 31, 2009.


16





ITEM
      3.
            LEGAL
      PROCEEDINGS





Periodically, there have been various
claims and lawsuits against us, such as claims to enforce liens, condemnation
proceedings on properties in which we hold security interests, claims involving
the making and servicing of real property loans and other issues incident to our
business.  We are not a party to any pending legal proceedings that we
believe would have a material adverse effect on our financial condition, results
of operations or cash flows.





ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





Not Applicable.





PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





The common stock of Delanco Bancorp
is quoted on the OTC Bulletin Board under the symbol “DLNO.OB.”  The
following table sets forth the high and low sales prices of the common stock, as
reported by the OTC Bulletin Board, during each quarter of fiscal 2009 and
2008.  As of June 15, 2009 there were approximately 420 holders of
record of the Company’s common stock.





For
      the Year Ended
                        March
      31, 2009
                      
                      High
                      
                      
                      LowFirst
      Quarter
                      
                      $
                      7.50
                      
                      
                      $
                      6.15Second
      Quarter
                      
                      
                      7.10
                      
                      
                      
                      5.00Third
      Quarter
                      
                      
                      8.75
                      
                      
                      
                      1.50Fourth
      Quarter
                      
                      
                      4.00
                      
                      
                      
                      1.50





For
      the Year Ended
                    March
      31, 2008
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  10.25
                  
                  
                  $
                  8.50Second
      Quarter
                  
                  
                  9.40
                  
                  
                  
                  8.41Third
      Quarter
                  
                  
                  9.00
                  
                  
                  
                  6.40Fourth
      Quarter
                  
                  
                  7.50
                  
                  
                  
                  6.15





Delanco
Bancorp is not subject to OTS regulatory restrictions on the payment of
dividends.  However, Delanco Bancorp’s ability to pay dividends may
depend, in part, upon its receipt of dividends from Delanco Federal Savings Bank
because Delanco Bancorp has no source of income other than earnings from the
investment of the net proceeds from the offering that it
retained.  Payment of cash dividends on capital stock by a savings
institution is limited by OTS regulations.  Delanco Federal Savings
Bank may not make a distribution that would constitute a return of capital
during the three-year term of the business plan submitted in connection with its
reorganization.  No insured depository institution may make a capital
distribution if, after making the distribution, the institution would be
undercapitalized.





As of March 31, 2009, Delanco
Bancorp satisfied all prescribed capital requirements.  Future
dividend payments will depend on the Company’s profitability, approval by its
Board of Directors and prevailing OTS regulations.  To date, we have
not declared any cash dividends.





Since completion of the offering on
March 30, 2007, we have not repurchased any of our common stock and have no
publicly announced repurchase plans or programs.


17


ITEM
      6.
            SELECTED
      FINANCIAL DATA





Years Ended March 31,(Dollars
      in thousands)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007Financial
      Condition Data:Total
      assets
                                    
                                    $
                                    130,468
                                    
                                    
                                    $
                                    131,530
                                    
                                    
                                    $
                                    111,061Investment
      securities
                                    
                                    
                                    14,505
                                    
                                    
                                    
                                    12,565
                                    
                                    
                                    
                                    16,075Loans
      receivable, net
                                    
                                    
                                    103,624
                                    
                                    
                                    
                                    96,346
                                    
                                    
                                    
                                    76,498Deposits
                                    
                                    
                                    113,983
                                    
                                    
                                    
                                    117,640
                                    
                                    
                                    
                                    95,989Borrowings
                                    
                                    
                                    3,750
                                    
                                    
                                    ─
                                    
                                    
                                    ─Total
      stockholders’ equity
                                    
                                    
                                    11,521
                                    
                                    
                                    
                                    12,757
                                    
                                    
                                    
                                    13,822Operating
      Data:Interest
      income
                                    
                                    $
                                    6,793
                                    
                                    
                                    $
                                    7,340
                                    
                                    
                                    $
                                    4,765Interest
      expense
                                    
                                    
                                    3,578
                                    
                                    
                                    
                                    4,053
                                    
                                    
                                    
                                    2,534Net
      interest income
                                    
                                    
                                    3,215
                                    
                                    
                                    
                                    3,287
                                    
                                    
                                    
                                    2,231Provision
      for loan losses
                                    
                                    
                                    1,127
                                    
                                    
                                    
                                    1,450
                                    
                                    
                                    
                                    255Net
      interest income after provision for loan losses
                                    
                                    
                                    2,088
                                    
                                    
                                    
                                    1,837
                                    
                                    
                                    
                                    1,976Noninterest
      income
                                    
                                    
                                    188
                                    
                                    
                                    
                                    229
                                    
                                    
                                    
                                    622Noninterest
      expenses
                                    
                                    
                                    4,010
                                    
                                    
                                    
                                    3,485
                                    
                                    
                                    
                                    2,862Income
      before taxes
                                    
                                    
                                    (1,734
                                    )
                                    
                                    
                                    (1,419
                                    )
                                    
                                    
                                    (264
                                    )Income
      tax expense
                                    
                                    
                                    (503
                                    )
                                    
                                    
                                    (352
                                    )
                                    
                                    
                                    (109
                                    )Net
      income
                                    
                                    
                                    (1,231
                                    )
                                    
                                    $
                                    (1,067
                                    )
                                    
                                    $
                                    (155
                                    )Per
      Share Data:Earnings
      per share, basic
                                    
                                    $
                                    (0.78
                                    )
                                    
                                    
                                    (0.68
                                    )
                                    
                                    
                                    (0.10
                                    )Earnings
      per share, diluted
                                    
                                    
                                    (0.78
                                    )
                                    
                                    
                                    (0.68
                                    )
                                    
                                    
                                    (0.10
                                    )Weighted
      average shares – basic
                                    
                                    
                                    1,577,052
                                    
                                    
                                    
                                    1,570,644
                                    
                                    
                                    
                                    1,570,644Weighted
      average shares – diluted
                                    
                                    
                                    1,577,052
                                    
                                    
                                    
                                    1,570,644
                                    
                                    
                                    
                                    1,570,644


18





Years
      Ended March 31,2009
                              
                              
                              2008
                              
                              
                              2007Performance
      Ratios:Return
      on average assets
                              
                              
                              (0.95
                              )%
                              
                              
                              (0.85
                              )%
                              
                              
                              (0.17
                              )%Return
      on average equity
                              
                              
                              (9.97
                              )
                              
                              
                              (7.93
                              )
                              
                              
                              (1.83
                              )Interest
      rate spread (1)
                              
                              
                              2.50
                              
                              
                              
                              2.53
                              
                              
                              
                              2.64Net
      interest margin (2)
                              
                              
                              2.68
                              
                              
                              
                              2.84
                              
                              
                              
                              2.76Noninterest
      expense to average assets
                              
                              
                              3.08
                              
                              
                              
                              2.78
                              
                              
                              
                              3.16Efficiency
      ratio (3)
                              
                              
                              117.84
                              
                              
                              
                              99.12
                              
                              
                              
                              100.32Average
      interest-earning assets to averageinterest-bearing liabilities
                              
                              
                              106.88
                              
                              
                              
                              108.88
                              
                              
                              
                              104.00Average
      equity to average assets
                              
                              
                              9.48
                              
                              
                              
                              10.73
                              
                              
                              
                              9.40Capital
      Ratios (4):Tangible
      capital
                              
                              
                              8.68
                              
                              
                              
                              7.29
                              
                              
                              
                              9.66Core
      capital
                              
                              
                              8.68
                              
                              
                              
                              7.29
                              
                              
                              
                              9.66Total
      risk-based capital
                              
                              
                              13.91
                              
                              
                              
                              9.46
                              
                              
                              
                              13.62Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
                              
                              
                              1.47
                              
                              
                              
                              1.37
                              
                              
                              
                              0.63Allowance
      for loan losses as a percent of nonperformingloans
                              
                              
                              17.74
                              
                              
                              
                              76.83
                              
                              
                              
                              87.23Net
      charge-offs (recoveries) to average outstanding loansduring
      the period
                              
                              
                              0.94
                              
                              
                              
                              0.64
                              
                              
                              ─Non-performing
      loans as a percent of total loans
                              
                              
                              8.27
                              
                              
                              
                              1.78
                              
                              
                              
                              0.72





(1)
            Represents
      the difference between the weighted average yield on average
      interest-earning assets and the weighted average cost of interest-bearing
      liabilities.


(2)
            Represents
      net interest income as a percent of average interest-earning
      assets.


(3)
            Represents
      noninterest expense divided by the sum of net interest income and
      noninterest income.


(4)
            Capital
      ratios are for Delanco Federal Savings
Bank.





ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION





The objective of this section is to
help potential investors understand our views on our results of operations and
financial condition.  You should read this discussion in conjunction
with the financial statements and notes to the financial statements that appear
at the end of this report.





Overview





Our principal business is to acquire
deposits from individuals and businesses in the communities surrounding our
offices and to use these deposits to fund loans.  We focus on
providing our products and services to two segments of
customers:  individuals and small businesses.





Income.Our
primary source of pre-tax income is net interest income.  Net interest
income is the difference between interest income, which is the income that we
earn on our loans and investments, and interest expense, which is the interest
that we pay on our deposits and borrowings.  Changes in levels of
interest rates affect our net interest income.





A secondary source of income is
non-interest income, which is revenue that we receive from providing products
and services.  The majority of our non-interest income generally comes
from service charges (mostly from service charges on deposit
accounts).  In some years, we recognize income from the sale of loans
and securities.  Our facility in Cinnaminson includes space that we
will rent to other businesses. Currently, all of the rental space is
vacant.


19





Allowance
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.





Expenses.  The
noninterest expenses we incur in operating our business consist of salaries and
employee benefits expenses, occupancy expenses, data processing expenses and
other miscellaneous expenses, such as office supplies, telephone, postage,
advertising and professional services.





Our largest noninterest expense is
salaries and employee benefits, which consist primarily of salaries and wages
paid to our employees, payroll taxes, and expenses for health insurance,
retirement plans and other employee benefits.  We have incurred
additional noninterest expenses as a result of operating as a public
company.  These additional expenses consist primarily of legal and
accounting fees, expenses of stockholder communications and meetings and
expenses related to the addition of personnel in our accounting
department.  In the future, we may recognize additional annual
employee compensation expenses stemming from share-based
compensation.  We cannot determine the actual amount of this expense
at this time because applicable accounting practices require that they be based
on the fair market value of the shares of common stock at specific points in the
future.





Occupancy expenses, which are the fixed
and variable costs of buildings and equipment, consist primarily of depreciation
charges, furniture and equipment expenses, maintenance, real estate taxes and
costs of utilities.  Our occupancy expenses have increased in recent
periods because of the expansion of our main office and the addition of our
Cinnaminson facility.





Critical
Accounting Policies





In the preparation of our consolidated
financial statements, we have adopted various accounting policies that govern
the application of accounting principles generally accepted in the United
States. Our significant accounting policies are described in the notes to our
financial statements.





Certain
accounting policies involve significant judgments and assumptions by us that
have a material impact on the carrying value of certain assets and
liabilities.  We consider these accounting policies to be critical
accounting policies.  The judgments and assumptions we use are based
on historical experience and other factors, which we believe to be reasonable
under the circumstances.  Actual results could differ from these
judgments and estimates under different conditions, resulting in a change that
could have a material impact on the carrying values of our assets and
liabilities and our results of operations.





Allowance
for Loan Losses.We
consider the allowance for loan losses to be a critical accounting
policy.  The allowance for loan losses is the amount estimated by
management as necessary to cover losses inherent in the loan portfolio at the
balance sheet date.  The allowance is established through the
provision for loan losses, which is charged to income.  Determining
the amount of the allowance for loan losses necessarily involves a high degree
of judgment.  Among the material estimates required to establish the
allowance are:  loss exposure at default; the amount and timing of
future cash flows on impacted loans; value of collateral; and determination of
loss factors to be applied to the various elements of the
portfolio.  All of these estimates are susceptible to significant
change.  Management reviews the level of the allowance at least
quarterly and establishes the provision for loan losses based upon an evaluation
of the portfolio, past loss experience, current economic conditions and other
factors related to the collectibility of the loan portfolio.  Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making the
evaluation.  In addition, the OTS, as an integral part of its
examination process, periodically reviews our allowance for loan
losses.  Such agency may require us to recognize adjustments to the
allowance based on its judgments about information available to it at the time
of its examination.  A large loss could deplete the allowance and
require increased provisions to replenish the allowance, which would adversely
affect earnings.  See note 1 of the notes to the financial
statements included in this report.


20





Deferred
Income Taxes. We use
the asset and liability method of accounting for income taxes as prescribed in
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes.” Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. If current available information raises doubt as to
the realization of the deferred tax assets, a valuation allowance is
established. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. We exercise significant
judgment in evaluating the amount and timing of recognition of the resulting tax
liabilities and assets. These judgments require us to make projections of future
taxable income. The judgments and estimates we make in determining our deferred
tax assets, which are inherently subjective, are reviewed on a continual basis
as regulatory and business factors change. A reduction in estimated future
taxable income requires us to record a valuation allowance against our deferred
tax assets. A valuation allowance totaling $500,000 was set up resulting in an
additional income tax of $80,000 in the period.





Balance
Sheet Analysis





Overview.Total
assets at March 31, 2009 were $130.5 million, a decrease of $1.0 million,
or 0.8%, from total assets of $131.5 million at March 31, 2008.  The
change in the asset composition primarily reflected growth of the loan and
investment portfolios, offset by a decrease in cash.





Loans.At March 31, 2009,
total loans, net, were $103.6 million, or 79.4% of total
assets.  During the year ended March 31, 2009, the loan portfolio
grew $7.3 million, or 7.6%, with the residential real estate loan portfolio
accounting for $9.8 million of the increase.  Commercial loans
declined from the year earlier period.





Table
      1: Loan Portfolio Analysis2009
                              
                              
                              2008
                              
                              
                              2007March
      31, (Dollars in thousands)
                              
                              Amount
                              
                              
                              Percent
                              
                              
                              Amount
                              
                              
                              Percent
                              
                              
                              Amount
                              
                              
                              PercentReal
      estate loans:Residential
                              
                              $
                              70,806
                              
                              
                              
                              67.2
                              %
                              
                              $
                              61,007
                              
                              
                              
                              61.7
                              %
                              
                              $
                              46,782
                              
                              
                              
                              59.9
                              %Commercial
      and multi-family
                              
                              
                              26,054
                              
                              
                              
                              24.7
                              
                              
                              
                              23,974
                              
                              
                              
                              24.2
                              
                              
                              
                              12,681
                              
                              
                              
                              16.3Construction
                              
                              
                              1,796
                              
                              
                              
                              1.7
                              
                              
                              
                              3,121
                              
                              
                              
                              3.2
                              
                              
                              
                              2,061
                              
                              
                              
                              2.6Total
      real estate loans
                              
                              
                              98,656
                              
                              
                              
                              93.6
                              
                              
                              
                              88,102
                              
                              
                              
                              89.1
                              
                              
                              
                              61,524
                              
                              
                              
                              78.8Commercial
      loans
                              
                              
                              4,618
                              
                              
                              
                              4.4
                              
                              
                              
                              8,214
                              
                              
                              
                              8.3
                              
                              
                              
                              15,124
                              
                              
                              
                              19.4Consumer
      loans
                              
                              
                              2,134
                              
                              
                              
                              2.0
                              
                              
                              
                              2,553
                              
                              
                              
                              2.6
                              
                              
                              
                              1,396
                              
                              
                              
                              1.8Total
      loans
                              
                              
                              105,408
                              
                              
                              
                              100.0
                              %
                              
                              
                              98,869
                              
                              
                              
                              100.0
                              %
                              
                              
                              78,044
                              
                              
                              
                              100.0
                              %Loans
      in process
                              
                              
                              (139
                              )
                              
                              
                              
                              
                              
                              
                              (1,032
                              )
                              
                              
                              
                              
                              
                              
                              (916
                              )Net
      deferred loan fees
                              
                              
                              (98
                              )
                              
                              
                              
                              
                              
                              
                              (138
                              )
                              
                              
                              
                              
                              
                              
                              (138
                              )Allowance
      for losses
                              
                              
                              (1,547
                              )
                              
                              
                              
                              
                              
                              
                              (1,353
                              )
                              
                              
                              
                              
                              
                              
                              (492
                              )Loans,
      net
                              
                              $
                              103,624
                              
                              
                              
                              
                              
                              
                              $
                              96,346
                              
                              
                              
                              
                              
                              
                              $
                              76,498




The following table sets forth certain
information at March 31, 2009 regarding the dollar amount of loan principal
repayments becoming due during the periods indicated.  The table does
not include any estimate of prepayments which significantly shorten the average
life of all loans and may cause our actual repayment experience to differ from
that shown below.  Demand loans having no stated schedule of
repayments and no stated maturity are reported as due in one year or less.The
amounts shown below exclude applicable loans in process, unearned interest in
consumer loans and net deferred loan costs.Our adjustable-rate
mortgage loans generally do not provide for downward adjustments below the
initial discounted contract rate.  When market interest rates rise, as
has occurred in recent periods, the interest rates on these loans may increase
based on the contract rate (the index plus the margin) exceeding the initial
interest rate floor.




21




Table
      2: Contractual Maturities and Interest Rate
    SensitivityMarch
      31, 2009 (Dollars in thousands)
                      
                      Real
      Estate
                        Loans
                      
                      
                      Commercial
                        Loans
                      
                      
                      Consumer
                        Loans
                      
                      
                      Total
                        LoansAmounts
      due in:One
      year or less
                      
                      $
                      5,382
                      
                      
                      $
                      1,970
                      
                      
                      $
                      186
                      
                      
                      $
                      7,538More
      than one to five years
                      
                      
                      39,795
                      
                      
                      
                      2,352
                      
                      
                      
                      749
                      
                      
                      
                      42,896More
      than five years
                      
                      
                      53,479
                      
                      
                      
                      296
                      
                      
                      
                      1,199
                      
                      
                      
                      54,974Total
                      
                      $
                      98,656
                      
                      
                      $
                      4,618
                      
                      
                      $
                      2,134
                      
                      
                      $
                      105,408Interest
      rate terms on amounts due after one year:Fixed-rate
      loans
                      
                      $
                      87,407
                      
                      
                      $
                      1,943
                      
                      
                      $
                      1,089
                      
                      
                      $
                      90,439Adjustable-rate
      loans
                      
                      
                      11,249
                      
                      
                      
                      2,675
                      
                      
                      
                      1,045
                      
                      
                      
                      14,969Total
                      
                      $
                      98,656
                      
                      
                      $
                      4,618
                      
                      
                      $
                      2,134
                      
                      
                      $
                      105,408





Securities.The
investment securities portfolio was $14.5 million, or 11.1% of total assets, at
March 31, 2009.  At that date, 81.1% of the investment portfolio was
invested in mortgage-backed securities, while the remainder was invested
primarily inU.S.
Government agency and other debt securities.  In recent periods we
have focused on growing our loan portfolio.  The $2 million increase
in our portfolio represents the purchase of mortgage backed securities to
increase our net income.





Table
      3: Investment Securities2009
                          
                          
                          2008
                          
                          
                          2007March
      31,  (Dollars in thousands)
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            Value
                          
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            Value
                          
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            ValueSecurities
      available for sale:Mutual
      funds
                          
                          $
                          245
                          
                          
                          
                          223
                          
                          
                          $
                          234
                          
                          
                          $
                          278
                          
                          
                          $
                          212
                          
                          
                          $
                          253Total
      available for sale
                          
                          
                          245
                          
                          
                          
                          223
                          
                          
                          
                          234
                          
                          
                          
                          278
                          
                          
                          
                          212
                          
                          
                          
                          253Securities
      held to maturity:Government
      sponsored enterprise securities
                          
                          
                          2,500
                          
                          
                          
                          2,508
                          
                          
                          
                          3,500
                          
                          
                          
                          3,513
                          
                          
                          
                          4,000
                          
                          
                          
                          3,942Mortgage-backed
      securities
                          
                          
                          11,782
                          
                          
                          
                          12,223
                          
                          
                          
                          8,787
                          
                          
                          
                          9,015
                          
                          
                          
                          11,822
                          
                          
                          
                          11,810Total
      held to maturity
                          
                          
                          14,282
                          
                          
                          
                          14,731
                          
                          
                          
                          12,287
                          
                          
                          
                          12,528
                          
                          
                          
                          15,822
                          
                          
                          
                          15,752Total
                          
                          $
                          14,527
                          
                          
                          $
                          14,954
                          
                          
                          $
                          12,521
                          
                          
                          $
                          12,806
                          
                          
                          $
                          16,034
                          
                          
                          $
                          16,005





The following table sets forth the
stated maturities and weighted average yields of our mortgage-backed securities
at March 31, 2009.  Certain mortgage-backed securities have adjustable
interest rates and will reprice annually within the various maturity
ranges.  These repricing schedules are not reflected in the table
below.  Approximately $1.5 million of the mortgage-backed securities
listed have adjustable interest rates.




Table 4:  Investment
      Maturities ScheduleOne
      Year or Less
                                                                    
                                                                    
                                                                    More
      than One
                                                                      Year
      to Five Years
                                                                    
                                                                    
                                                                    More
      than Five
                                                                      Years
      to Ten Years
                                                                    
                                                                    
                                                                    More
      than Ten
                                                                      Years
                                                                    
                                                                    
                                                                    TotalWeighted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Weighted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Weighted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Weighted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    WeightedMarch
      31, 2009
                                                                    
                                                                    Carrying
                                                                    
                                                                    
                                                                    Average
                                                                    
                                                                    
                                                                    Carrying
                                                                    
                                                                    
                                                                    Average
                                                                    
                                                                    
                                                                    Carrying
                                                                    
                                                                    
                                                                    Average
                                                                    
                                                                    
                                                                    Carrying
                                                                    
                                                                    
                                                                    Average
                                                                    
                                                                    
                                                                    Carrying
                                                                    
                                                                    
                                                                    Average(Dollars
      in thousands)
                                                                    
                                                                    Value
                                                                    
                                                                    
                                                                    Yield
                                                                    
                                                                    
                                                                    Value
                                                                    
                                                                    
                                                                    Yield
                                                                    
                                                                    
                                                                    Value
                                                                    
                                                                    
                                                                    Yield
                                                                    
                                                                    
                                                                    Value
                                                                    
                                                                    
                                                                    Yield
                                                                    
                                                                    
                                                                    Value
                                                                    
                                                                    
                                                                    YieldSecurities
      available-for-sale:Mutual
      funds
                                                                    
                                                                    $
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %
                                                                    
                                                                    $
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %
                                                                    
                                                                    $
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %
                                                                    
                                                                    $
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %
                                                                    
                                                                    $
                                                                    223
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %Total
      available for sale
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    223
                                                                    
                                                                    
                                                                    
                                                                    –Securities
      held to maturity:Government
      sponsored enterprise securities
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    2,500
                                                                    
                                                                    
                                                                    
                                                                    4.04
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    2,500
                                                                    
                                                                    
                                                                    
                                                                    4.04Mortgage-backed
      securities
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    4,926
                                                                    
                                                                    
                                                                    
                                                                    5.25
                                                                    
                                                                    
                                                                    
                                                                    922
                                                                    
                                                                    
                                                                    
                                                                    4.41
                                                                    
                                                                    
                                                                    
                                                                    5,934
                                                                    
                                                                    
                                                                    
                                                                    .84
                                                                    
                                                                    
                                                                    
                                                                    11,782
                                                                    
                                                                    
                                                                    
                                                                    4.98Total
      held to maturity
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    4,926
                                                                    
                                                                    
                                                                    
                                                                    5.25
                                                                    
                                                                    
                                                                    
                                                                    3,422
                                                                    
                                                                    
                                                                    
                                                                    4.14
                                                                    
                                                                    
                                                                    
                                                                    5,934
                                                                    
                                                                    
                                                                    
                                                                    4.84
                                                                    
                                                                    
                                                                    
                                                                    14,282
                                                                    
                                                                    
                                                                    
                                                                    4.82Total
                                                                    
                                                                    $
                                                                    –
                                                                    
                                                                    
                                                                    
                                                                    –
                                                                    %
                                                                    
                                                                    $
                                                                    4,926
                                                                    
                                                                    
                                                                    
                                                                    5.25
                                                                    %
                                                                    
                                                                    $
                                                                    3,422
                                                                    
                                                                    
                                                                    
                                                                    4.14
                                                                    %
                                                                    
                                                                    $
                                                                    5,934
                                                                    
                                                                    
                                                                    
                                                                    4.84
                                                                    %
                                                                    
                                                                    $
                                                                    14,505
                                                                    
                                                                    
                                                                    
                                                                    4.82
                                                                    %





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.  At March 31, 2009, core
deposits were 45.4% of total deposits.  Deposits decreased $3.7
million, or 3.1%, during the year ended March 31, 2009, as core deposits grew
$3.7 million and time deposits decreased $7.4 million. Certificates of deposit
declined due to the maturity of high interest rate certificates of deposit
opened as a promotion of our Cinnaminson branch office.




22




Table
      5: Deposits2009
                      
                      
                      2008
                      
                      
                      2007March
      31, (Dollars in thousands)
                      
                      Amount
                      
                      
                      Percent
                      
                      
                      Amount
                      
                      
                      Percent
                      
                      
                      Amount
                      
                      
                      PercentNoninterest-bearing
      demand deposits
                      
                      $
                      2,519
                      
                      
                      
                      2.2
                      %
                      
                      $
                      4,860
                      
                      
                      
                      4.1
                      %
                      
                      $
                      3,372
                      
                      
                      
                      3.5
                      %Interest-bearing
      demand deposits
                      
                      
                      10,036
                      
                      
                      
                      8.8
                      %
                      
                      
                      7,839
                      
                      
                      
                      6.7
                      
                      
                      
                      7,930
                      
                      
                      
                      8.3Savings
      and money market accounts
                      
                      
                      39,241
                      
                      
                      
                      34.4
                      %
                      
                      
                      35,369
                      
                      
                      
                      30.1
                      
                      
                      
                      33,163
                      
                      
                      
                      34.5Certificates
      of deposit
                      
                      
                      62,187
                      
                      
                      
                      54.6
                      %
                      
                      
                      69,572
                      
                      
                      
                      59.1
                      
                      
                      
                      51,524
                      
                      
                      
                      53.7Total
                      
                      $
                      113,983
                      
                      
                      
                      100.0
                      %
                      
                      $
                      117,640
                      
                      
                      
                      100.0
                      %
                      
                      $
                      95,989
                      
                      
                      
                      100.0
                      %





Table
      6:  Time Deposit Maturities of $100,000 or moreMarch
      31, 2009 (Dollars in thousands)
                        
                        Certificates
                          of
      DepositMaturity
      PeriodThree
      months or less
                        
                        $
                        2,916Over
      three through six months
                        
                        
                        2,247Over
      six through twelve months
                        
                        
                        3,032Over
      twelve months
                        
                        
                        5,821Total
                        
                        $
                        14,016





Borrowings.For recent periods, we have occasionally used short-term FHLB advances as
an additional source of liquidity.  At March 31, 2009, we had $3.8
million of short-term advances outstanding.





Table
      7: BorrowingsMarch
      31, (Dollars in thousands)
                          
                          2009
                          
                          
                          2008
                          
                          
                          2007Maximum
      amount outstanding at any month end during the period:FHLB
      advances
                          
                          $
                          3,750
                          
                          
                          $
                          750
                          
                          
                          $
                          2,800Average
      amount outstanding during the period (1):FHLB
      advances
                          
                          
                          833
                          
                          
                          
                          104
                          
                          
                          
                          658Weighted
      average interest rate during the period (1):FHLB
      advances
                          
                          
                          1.48
                          %
                          
                          
                          5.19
                          %
                          
                          
                          5.62
                          %Balance
      outstanding at end of period:FHLB
      advances
                          
                          
                          3,750
                          
                          
                          ─
                          
                          
                          
                          —Weighted
      average interest rate at end of period:FHLB
      advances
                          
                          
                          1.26
                          
                          
                          ─
                          
                          
                          
                          —




(1)
            Averages
      are based on month-end balances.





Results
of Operations for the Years Ended March 31, 2009 and 2008





Financial
Highlights.Net loss for the year ended March 31, 2009 was $1.2 million
compared to a loss of $1.1 million for the year ended March 31,
2008.  The increase of $212,000 in data processing expense due to the
core processor conversion, an increase of $195,000 in professional fees
associated with the Supervisory Agreement and the additional $1.1 million
provision for loan losses were the primary reasons for the net
loss.




23




Table
      8:  Summary Income StatementsYear
      Ended March 31, (Dollars in thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      
                      2009 v. 2008
                      
                      
                      %
      ChangeNet
      interest income
                      
                      $
                      3,215
                      
                      
                      $
                      3,287
                      
                      
                      $
                      (72
                      )
                      
                      
                      (2.2
                      )%Provision
      for loan losses
                      
                      
                      1,127
                      
                      
                      
                      1,450
                      
                      
                      
                      (323
                      )
                      
                      
                      (22.3
                      )Noninterest
      income
                      
                      
                      188
                      
                      
                      
                      229
                      
                      
                      
                      (41
                      )
                      
                      
                      (17.9
                      )Noninterest
      expenses
                      
                      
                      4,010
                      
                      
                      
                      3,485
                      
                      
                      
                      525
                      
                      
                      
                      15.1Net
      income
                      
                      
                      (1,231
                      )
                      
                      
                      (1,067
                      )
                      
                      
                      (164
                      )
                      
                      
                      (15.4
                      )Return
      on average equity
                      
                      
                      (9.97
                      )%
                      
                      
                      (7.93
                      )
      %Return
      on average assets
                      
                      
                      (0.95
                      )%
                      
                      
                      (0.85
                      )
      %





Net
Interest Income.  Net interest income decreased $72,000 to $3.2
million for the year ended March 31, 2009 from $3.3 million for the year ended
March 31, 2008 primarily due to a decline in interest earned on loans and
investment securities, partially offset by a decline in interest paid on
deposits. The 16 basis point decrease in the net interest margin to 2.68%
reflected the decrease in the ratio of average interest-earning assets to
average interest-bearing liabilities.





Average loans in the year ended March
31, 2009 increased $7.0 million, or 7.6%, compared with the same period in 2008,
driven by growth in residential, commercial and multi-family mortgages and home
equity loans.  Average investment securities in year ended March 31,
2009 increased $431,000, or 3.0%, compared to the same period in
2008.  The increase in the investment portfolio was achieved through
transfer of cash and cash equivalents to higher yielding investments. Lower
market rates decreased the average yield on earning assets to 5.67% for the year
ended March 31, 2009, compared with 6.34% for the same period in
2008.





Average interest-bearing deposits in
the year ended March 31, 2009 increased $5.9 million, or 5.5%, compared with the
same period in 2008 due to increases in savings accounts and time deposits,
partially offset by lower demand deposit balances.  Average savings
and money market balances increased over the prior year as higher rates for
these accounts made them more attractive and we promoted a tiered money market
account.  Average time deposits decreased as we promoted select
deposit maturities.  Decreases in market interest rates reduced the
average cost of deposits to 3.17%, compared with 3.81% for the same period in
2008.





Table
      9:  Analysis of Net Interest IncomeYear
      Ended March 31, (Dollars in thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      
                      2009
      v. 2008
                      
                      
                      %
      ChangeComponents
      of net interest incomeLoans
                      
                      $
                      5,987
                      
                      
                      $
                      6,298
                      
                      
                      $
                      (311
                      )
                      
                      
                      (4.9
                      )%Investment
      securities
                      
                      
                      806
                      
                      
                      
                      1,042
                      
                      
                      
                      (236
                      )
                      
                      
                      (22.6
                      )Total
      interest income
                      
                      
                      6,793
                      
                      
                      
                      7,340
                      
                      
                      
                      (547
                      )
                      
                      
                      (7.5
                      )Deposits
                      
                      
                      3,568
                      
                      
                      
                      4,048
                      
                      
                      
                      (480
                      )
                      
                      
                      (11.9
                      )Borrowings
                      
                      
                      10
                      
                      
                      
                      5
                      
                      
                      
                      5
                      
                      
                      
                      100.0Total
      interest expense
                      
                      
                      3,578
                      
                      
                      
                      4,053
                      
                      
                      
                      (475
                      )
                      
                      
                      (11.7
                      )Net
      interest income
                      
                      
                      3,215
                      
                      
                      
                      3,287
                      
                      
                      
                      (72
                      )
                      
                      
                      (2.2
                      )Average
      yields and rates paidInterest-earning
      assets
                      
                      
                      5.67
                      %
                      
                      
                      6.34
                      %
                      
                      
                      (67
                      )bpInterest-bearing
      liabilities
                      
                      
                      3.17
                      
                      
                      
                      3.81
                      
                      
                      
                      (64
                      )Interest
      rate spread
                      
                      
                      2.50
                      
                      
                      
                      2.53
                      
                      
                      
                      (3
                      )Net
      interest margin
                      
                      
                      2.68
                      
                      
                      
                      2.84
                      
                      
                      
                      (16
                      )Average
      balancesLoans
                      
                      $
                      99,692
                      
                      
                      $
                      92,667
                      
                      
                      $
                      7,025
                      
                      
                      
                      7.6Investment
      securities
                      
                      
                      14,726
                      
                      
                      
                      14,295
                      
                      
                      
                      431
                      
                      
                      
                      3.0Earning
      assets
                      
                      
                      119,843
                      
                      
                      
                      115,794
                      
                      
                      
                      4,049
                      
                      
                      
                      3.5Interest-bearing
      deposits
                      
                      
                      112,128
                      
                      
                      
                      106,244
                      
                      
                      
                      5,884
                      
                      
                      
                      5.5





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 $1.1 million in the
year ended March 31, 2009 compared to $1.5 million in the year ended March 31,
2008.  The decrease in the provision for loan losses was primarily
attributable to management’s systematic evaluation of risk associated with the
loan portfolio.  We had $1.3 million in charge-offs in the year ended
March 31, 2009, compared to $593,000 in charge-offs in the year ended March 31,
2008.




24




The allowance for loan losses was $1.5
million, or 1.47% of total loans outstanding as of March 31, 2009 as compared
with $1.4 million, or 1.37% as of March 31, 2008.  An analysis of the
changes in the allowance for loan losses is presented under “Risk Management – Analysis and
Determination of the Allowance for Loan Losses.”





Noninterest
Income.Noninterest income decreased in the year ended March
31, 2009 compared to the prior year primarily as a result of income from
services charges.  Rental income declined due to the vacant rental
space, which was previously occupied.





Table
      10:  Noninterest Income SummaryYear
      Ended March 31, (Dollars in thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            $
      Change
                            
                            
                            %
      ChangeService
      charges
                            
                            $
                            108
                            
                            
                            $
                            134
                            
                            
                            $
                            (26
                            )
                            
                            
                            (19.4
                            )%Rental
      income
                            
                            
                            6
                            
                            
                            
                            22
                            
                            
                            
                            (16
                            )
                            
                            
                            (72.7
                            )Income
      from bank owned life insurance
                            
                            
                            6
                            
                            
                            –
                            
                            
                            
                            6
                            
                            
                            Other
                            
                            
                            68
                            
                            
                            
                            73
                            
                            
                            
                            (5
                            )
                            
                            
                            (6.8
                            )Total
                            
                            $
                            188
                            
                            
                            $
                            229
                            
                            
                            $
                            (41
                            )
                            
                            
                            (17.9
                            )%




Noninterest
Expenses.Noninterest
expenses rose in the year ended March 31, 2009 over the prior year due primarily
to increases in professional fees and federal deposit insurance premiums
associated with the Supervisory Agreement. Data processing expense increased due
to the core processor conversion expense of $181,000.





Table
      11:  Noninterest Expense SummaryYear
      Ended March 31, (Dollars in thousands)
                          
                          2009
                          
                          
                          2008
                          
                          
                          $
      Change
                          
                          
                          %
      ChangeSalaries
      and employee benefits
                          
                          $
                          1,863
                          
                          
                          $
                          1,810
                          
                          
                          $
                          53
                          
                          
                          
                          2.9
                          %Advertising
                          
                          
                          51
                          
                          
                          
                          61
                          
                          
                          
                          (10
                          )
                          
                          
                          (16.4
                          )Office
      supplies, telephone and postage
                          
                          
                          150
                          
                          
                          
                          129
                          
                          
                          
                          21
                          
                          
                          
                          16.3Net
      occupancy expense
                          
                          
                          667
                          
                          
                          
                          686
                          
                          
                          
                          (19
                          )
                          
                          
                          (2.8
                          )Federal
      insurance premiums
                          
                          
                          116
                          
                          
                          
                          29
                          
                          
                          
                          87
                          
                          
                          
                          300.0Data
      processing expenses
                          
                          
                          338
                          
                          
                          
                          126
                          
                          
                          
                          212
                          
                          
                          
                          168.3ATM
      expenses
                          
                          
                          70
                          
                          
                          
                          61
                          
                          
                          
                          9
                          
                          
                          
                          14.8Bank
      charges and fees
                          
                          
                          71
                          
                          
                          
                          55
                          
                          
                          
                          16
                          
                          
                          
                          29.1Insurance
      and surety bond premiums
                          
                          
                          42
                          
                          
                          
                          57
                          
                          
                          
                          (15
                          )
                          
                          
                          (26.3
                          )Dues
      and subscriptions
                          
                          
                          52
                          
                          
                          
                          79
                          
                          
                          
                          (27
                          )
                          
                          
                          (34.2
                          )Professional
      fees
                          
                          
                          329
                          
                          
                          
                          134
                          
                          
                          
                          195
                          
                          
                          
                          145.5On-line
      banking expenses
                          
                          
                          111
                          
                          
                          
                          91
                          
                          
                          
                          20
                          
                          
                          
                          22.0Other
                          
                          
                          150
                          
                          
                          
                          167
                          
                          
                          
                          (17
                          )
                          
                          
                          (10.2
                          )Total
                          
                          $
                          4,010
                          
                          
                          $
                          3,485
                          
                          
                          $
                          525
                          
                          
                          
                          15.1
                          %





Income
Tax Benefit.The
credit for income taxes was $503,000 for 2009, compared to a credit of $353,000
for 2008.




25




Average
Balance Sheets and Related Yields and Rates
 
 The following table presents
information regarding average balances of assets and liabilities, the total
dollar amounts of interest income and dividends from average interest-earning
assets, the total dollar amounts of interest expense on average interest-bearing
liabilities, and the resulting annualized average yields and
costs.  The yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the periods presented.  For purposes of this table,
average balances have been calculated using month-end balances, and nonaccrual
loans are included in average balances only.  Management does not
believe that use of month-end balances instead of daily average balances has
caused any material differences in the information presented. Loan fees are
included in interest income on loans and are insignificant.  None of
the income reflected in the following table is tax-exempt income.
 
 Table
      12: Average Balance Tables2009
                                
                                
                                2008Year
      Ended March 31, (Dollars in thousands)
                                
                                Average
                                  Balance
                                
                                
                                Interest
                                  and
                                  Dividends
                                
                                
                                Yield/
                                  Cost
                                
                                
                                Average
                                  Balance
                                
                                
                                Interest
                                  and
                                  Dividends
                                
                                
                                Yield/
                                  CostAssets:Interest-earning
      assets:Loans
                                
                                $
                                99,692
                                
                                
                                $
                                5,987
                                
                                
                                
                                6.01
                                %
                                
                                $
                                92,667
                                
                                
                                $
                                6,298
                                
                                
                                
                                6.80
                                %Investment
      securities
                                
                                
                                14,726
                                
                                
                                
                                735
                                
                                
                                
                                4.99
                                
                                
                                
                                14,295
                                
                                
                                
                                765
                                
                                
                                
                                5.35Other
      interest-earning assets
                                
                                
                                5,425
                                
                                
                                
                                71
                                
                                
                                
                                1.31
                                
                                
                                
                                8,832
                                
                                
                                
                                277
                                
                                
                                
                                3.14Total
      interest-earning assets
                                
                                
                                119,843
                                
                                
                                
                                6,793
                                
                                
                                
                                5.67
                                
                                
                                
                                115,794
                                
                                
                                
                                7,340
                                
                                
                                
                                6.34Noninterest-earning
      assets
                                
                                
                                10,407
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                9,532Total
      assets
                                
                                $
                                130,250
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                125,326Liabilities
      and equity:Interest-bearing
      liabilities:Interest-bearing
      demand deposits
                                
                                $
                                10,610
                                
                                
                                
                                78
                                
                                
                                
                                0.74
                                
                                
                                $
                                7,926
                                
                                
                                
                                50
                                
                                
                                
                                0.63Savings
      and money market accounts
                                
                                
                                35,452
                                
                                
                                
                                668
                                
                                
                                
                                1.88
                                
                                
                                
                                35,801
                                
                                
                                
                                978
                                
                                
                                
                                2.73Certificates
      of deposit
                                
                                
                                66,066
                                
                                
                                
                                2,822
                                
                                
                                
                                4.27
                                
                                
                                
                                62,517
                                
                                
                                
                                3,020
                                
                                
                                
                                4.83Total
      interest-bearing deposits
                                
                                
                                112,128
                                
                                
                                
                                3,568
                                
                                
                                
                                3.18
                                
                                
                                
                                106,244
                                
                                
                                
                                4,048
                                
                                
                                
                                3.81FHLB
      advances
                                
                                
                                833
                                
                                
                                
                                10
                                
                                
                                
                                1.20
                                
                                
                                
                                104
                                
                                
                                
                                5
                                
                                
                                
                                4.81Total
      interest-bearing liabilities
                                
                                
                                112,961
                                
                                
                                
                                3,578
                                
                                
                                
                                3.17
                                
                                
                                
                                106,348
                                
                                
                                
                                4,053
                                
                                
                                
                                3.81Noninterest-bearing
      demand deposits
                                
                                
                                3,584
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                4,370Other
      noninterest-bearing liabilities
                                
                                
                                1,354
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,390Total
      liabilities
                                
                                
                                117,899
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                112,108Retained
      earnings
                                
                                
                                12,351
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                13,218Total
      liabilities and retained earnings
                                
                                $
                                130,250
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                125,326Net
      interest income
                                
                                
                                
                                
                                
                                $
                                3,215
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                $
                                3,287Interest
      rate spread
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.50
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.53Net
      interest margin
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.68
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2.84Average
      interest-earning assets to average interest-bearing
      liabilities
                                
                                
                                106.88
                                %
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                108.88
                                %
  26


Rate/Volume
Analysis.  The
following tables set forth the effects of changing rates and volumes on our net
interest income.  The rate column shows the effects attributable to
changes in rate (changes in rate multiplied by prior volume).  The
volume column shows the effects attributable to changes in volume (changes in
volume multiplied by prior rate).  Changes due to both volume and rate
have been allocated proportionally to the volume and rate changes. The net
column represents the sum of the prior columns.





Table
13:  Net Interest Income – Changes Due to Rate and Volume





2009 Compared to 2008 (Dollars in thousands)
                          
                          Volume
                          
                          
                          Rate
                          
                          
                          NetInterest income:Loans  receivable
                          
                          $
                          478
                          
                          
                          $
                          (789
                          )
                          
                          $
                          (311
                          )Investment   securities
                          
                          
                          23
                          
                          
                          
                          (53
                          )
                          
                          
                          (30
                          )Other
      interest-earning assets
                          
                          
                          (107
                          )
                          
                          
                          (99
                          )
                          
                          
                          (206
                          )Total
                          
                          
                          394
                          
                          
                          
                          (941
                          )
                          
                          
                          (547
                          )Interest
      expense:Deposits
                          
                          
                          226
                          
                          
                          
                          (706
                          )
                          
                          
                          (480
                          )FHLB
      advances
                          
                          
                          35
                          
                          
                          
                          (30
                          )
                          
                          
                          5Total
                          
                          
                          261
                          
                          
                          
                          (736
                          )
                          
                          
                          (475
                          )Increase
      (decrease) in net interest income
                          
                          $
                          133
                          
                          
                          $
                          (205
                          )
                          
                          $
                          (72
                          )





Risk
Management





Overview.  Managing
risk is an essential part of successfully managing a financial
institution.  Our most prominent risk exposures are credit risk,
interest rate risk and market risk.  Credit risk is the risk of not
collecting the interest and/or the principal balance of a loan or investment
when it is due.  Interest rate risk is the potential reduction of
interest income as a result of changes in interest rates.  Market risk
arises from fluctuations in interest rates that may result in changes in the
values of financial instruments, such as available-for-sale securities that are
accounted for on a mark-to-market basis.  Other risks that we face are
operational risks, liquidity risks and reputation risk.  Operational
risks include risks related to fraud, regulatory compliance, processing errors,
technology and disaster recovery.  Liquidity risk is the possible
inability to fund obligations to depositors, lenders or
borrowers.  Reputation risk is the risk that negative publicity or
press, whether true or not, could cause a decline in our customer base or
revenue.





Credit
Risk Management.  Our
strategy for credit risk management focuses on having well-defined credit
policies and uniform underwriting criteria and providing prompt attention to
potential problem loans.  See “Regulation and
Supervision—Supervisory Agreement” for further information on certain
regulatory directives applicable to our credit functions.





When a borrower fails to make a
required loan payment, we take a number of steps to have the borrower cure the
delinquency and restore the loan to current status, including contacting the
borrower by letter and phone at regular intervals.  When the borrower
is in default, we may commence collection proceedings.  If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the real property securing the
loan generally is acquired at foreclosure and subsequently
sold.  Generally, when a consumer loan becomes 60 days past due, we
institute collection proceedings and attempt to repossess any personal property
that secures the loan.  Management informs the board of directors
monthly of the amount of loans delinquent more than 30 days, all loans in
foreclosure and repossessed property that we own.





Analysis
of Nonperforming and Classified Assets.  We
consider repossessed assets and loans that are 90 days or more past due to be
nonperforming assets.  Loans are generally placed on nonaccrual status
when they become 90 days delinquent at which time the accrual of interest ceases
and the allowance for any uncollectible accrued interest is established and
charged against operations.  Typically, payments received on a
nonaccrual loan are applied to the outstanding principal and interest as
determined at the time of collection of the loan. Due to the deterioration of
the loan portfolio and the current economic environment, a greater number of
loans were placed on  non-accrual status as a reduced probability of
collection is anticipated.





Real estate that we acquire as a result
of foreclosure or by deed-in-lieu of foreclosure is classified as real estate
owned until it is sold.  When property is acquired it is recorded at
the lower of its cost, which is the unpaid balance of the loan plus foreclosure
costs, or fair market value at the date of foreclosure.  Holding costs
and declines in fair value after acquisition of the property result in charges
against income.





27




Table
14:  Nonperforming Assets


March 31, (Dollars in thousands)
                                                              
                                                              2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2007Nonaccrual
      loans:Residential
      real estate
                                                              
                                                              $
                                                              361
                                                              
                                                              
                                                              $
                                                              –
                                                              
                                                              
                                                              $
                                                              –Commercial
      and multi-family real estate
                                                              
                                                              
                                                              6,031
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Construction
                                                              
                                                              
                                                              760
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Commercial
                                                              
                                                              
                                                              596
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Consumer
                                                              
                                                              
                                                              550
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Total
                                                              
                                                              
                                                              8,298
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Accruing
      loans past due 90 days or more:Residential
      real estate
                                                              
                                                              
                                                              128
                                                              
                                                              
                                                              
                                                              
                                                              78
                                                              
                                                              
                                                              
                                                              
                                                              326Commercial
      and multi-family real estate
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              
                                                              1,630
                                                              
                                                              
                                                              
                                                              
                                                              238Construction
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Commercial
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Consumer
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              53
                                                              
                                                              
                                                              
                                                              Total
                                                              
                                                              
                                                              128
                                                              
                                                              
                                                              
                                                              
                                                              1,761
                                                              
                                                              
                                                              
                                                              
                                                              564Other
      nonperforming assets
                                                              
                                                              
                                                              295
                                                              
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              
                                                              –Total
      nonperforming assets
                                                              
                                                              
                                                              8,721
                                                              
                                                              
                                                              
                                                              
                                                              1,761
                                                              
                                                              
                                                              
                                                              
                                                              564Troubled
      debt restructurings
                                                              
                                                              
                                                              303
                                                              
                                                              
                                                              
                                                              –
                                                              
                                                              
                                                              
                                                              –Troubled
      debt restructurings and total nonperforming assets
                                                              
                                                              $
                                                              9,024
                                                              
                                                              
                                                              
                                                              $
                                                              1,761
                                                              
                                                              
                                                              
                                                              $
                                                              564Total
      nonperforming loans to total loans
                                                              
                                                              
                                                              8.27
                                                              %
                                                              
                                                              
                                                              
                                                              1.78
                                                              %
                                                              
                                                              
                                                              
                                                              0.72
                                                              %Total
      nonperforming loans to total assets
                                                              
                                                              
                                                              6.46
                                                              
                                                              
                                                              
                                                              
                                                              1.34
                                                              
                                                              
                                                              
                                                              
                                                              0.51Total
      nonperforming assets and troubled debt restructurings to total
      assets
                                                              
                                                              
                                                              6.92
                                                              
                                                              
                                                              
                                                              
                                                              1.34
                                                              
                                                              
                                                              
                                                              
                                                              0.51


Interest income that would have been
recorded for the year ended March 31, 2009, had non-accruing loans been current
according to their original terms amounted to $406,000.  No
uncollected interest related to nonaccrual loans was included in interest income
for the  year ended March 31, 2009.





Federal regulations require us to
review and classify our assets on a regular basis.  In addition, the
OTS has the authority to identify problem assets and, if appropriate, require
them to be classified.  There are three classifications for problem
assets:  substandard, doubtful and loss.  “Substandard
assets” must have one or more defined weaknesses and are characterized by the
distinct possibility that we will sustain some loss if the deficiencies are not
corrected.  “Doubtful assets” have the weaknesses of substandard
assets with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss.  An
asset classified “loss” is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted.  The
regulations also provide for a “special mention” category, described as assets
which do not currently expose us to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving our close attention.  When we classify an asset as
substandard or doubtful we establish a specific allowance for loan
losses.  If we classify an asset as loss, we charge off an amount
equal to 100% of the portion of the asset classified loss.





Table
15:  Classified Assets




March 31, (Dollars in thousands)
                      
                      2009
                      
                      
                      2008
                      
                      
                      2007Special mention assets
                      
                      $
                      5,105
                      
                      
                      $
                      2,372
                      
                      
                      $
                      2,287Substandard assets
                      
                      
                      6,515
                      
                      
                      
                      4,348
                      
                      
                      
                      3,201Doubtful assets
                      
                      
                      13
                      
                      
                      
                      243
                      
                      
                      
                      300Loss assets
                      
                      
                      
                      
                      –
                      
                      
                      
                      –Total classified assets
                      
                      $
                      11,633
                      
                      
                      $
                      6,963
                      
                      
                      $
                      5,788





Other than disclosed in the above
tables, there are no other loans that management has serious doubts about the
ability of the borrowers to comply with the present loan repayment
terms.


28


Analysis
and Determination of the Allowance 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.





Our methodology for assessing the
appropriateness of the allowance for loan losses consists of:  (1) a
specific valuation allowance on identified problem loans; (2) a general
valuation allowance on the remainder of the loan portfolio; and (3) an
unallocated component.  Although we determine the amount of each
element of the allowance separately, the entire allowance for loan losses is
available to absorb losses in the loan portfolio.





For loans that are classified as
impaired, we establish an allowance when the discounted cash flows (or
collateral value or observable market price) of the loan is lower than its
carrying value.  We also establish a specific allowance for classified
loans that do not have an individual allowance. The evaluation is based on our
asset review and classified loan list.





We establish a general allowance for
loans that are not classified to recognize the inherent losses associated with
lending activities.  This general valuation allowance is determined by
segregating the loans by loan category and assigning allowance percentages to
each category.  The allowance percentages have been derived using
percentages commonly applied under the regulatory framework for Delanco Federal
Savings Bank and other similarly-sized institutions.  The percentages
may be adjusted for significant factors that, in management’s judgment, affect
the collectibility of the portfolio as of the evaluation date.  These
significant factors may include changes in lending policies and procedures,
changes in existing general economic and business conditions affecting our
primary lending areas, credit quality trends, collateral value, loan volumes and
concentrations, seasoning of the loan portfolio, recent loss experience in
particular segments of the portfolio, duration of the current business cycle and
bank regulatory examination results.  The applied loss factors are
reevaluated periodically to ensure their relevance in the current economic
environment.  An unallocated component is maintained to cover
uncertainties that could affect our estimate of probable losses.





We identify loans that may need to be
charged off as a loss by reviewing all delinquent loans, classified loans and
other loans that management may have concerns about
collectibility.  For individually reviewed loans, the borrower’s
inability to make payments under the terms of the loan or a shortfall in
collateral value would result in our charging off the loan or the portion of the
loan that was impaired.





The OTS, as an integral part of its
examination process, periodically reviews our allowance for loan
losses.  The OTS may require us to make additional provisions for loan
losses based on judgments different from ours.  As a result of a
recent examination, we classified several commercial loans due to documentation
deficiencies.





At March 31, 2009, our allowance for
loan losses represented 1.47% of total gross loans. The allowance for loan
losses increased 14.3% from March 31, 2008 to March 31,
2009.  The increase in the allowance was primarily attributable to an
increase in non-performing commercial and multifamily real estate loans and
commercial loans. While non-performing loans significantly increased during the
year ended March 31, 2009, the allowance for loan losses was deemed sufficient.
During the year ended March 31, 2008, management’s evaluation of the loan
portfolio and subsequent allocation of loan loss allowance included loans that
were performing at March 31, 2008 but had sufficient weaknesses to warrant an
allowance. Continued deterioration in the loan portfolio during the current
fiscal  year resulted in previously weak credits becoming
non-performing.


29


The following table sets forth the
breakdown of the allowance for loan losses by loan category at the dates
indicated.





Table
16:  Allocation of Allowance of Loan Losses




2009
                      
                      
                      2008
                      
                      
                      2007March 31, (Dollars in thousands)
                      
                      Amount
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        Loans
                      
                      
                      Amount
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        Loans
                      
                      
                      Amount
                      
                      
                      % of
                        Loans in
                        Category
                        to Total
                        LoansResidential
      real estate
                      
                      $
                      —
                      
                      
                      
                      67.2
                      %
                      
                      $
                      25
                      
                      
                      
                      37.6
                      %
                      
                      $
                      65
                      
                      
                      
                      30.9
                      %Commercial
      and multi-family real estate
                      
                      
                      571
                      
                      
                      
                      24.7
                      
                      
                      
                      1,130
                      
                      
                      
                      24.2
                      
                      
                      
                      200
                      
                      
                      
                      16.3Construction
                      
                      
                      —
                      
                      
                      
                      1.7
                      
                      
                      
                      —
                      
                      
                      
                      3.2
                      
                      
                      
                      —
                      
                      
                      
                      2.6Commercial
                      
                      
                      758
                      
                      
                      
                      4.4
                      
                      
                      
                      13
                      
                      
                      
                      8.3
                      
                      
                      
                      132
                      
                      
                      
                      19.4Consumer
                      
                      
                      218
                      
                      
                      
                      2.0
                      
                      
                      
                      185
                      
                      
                      
                      26.7
                      
                      
                      
                      78
                      
                      
                      
                      30.8Unallocated
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      17
                      
                      
                      
                      —Total
      allowance for loan losses
                      
                      $
                      1,547
                      
                      
                      
                      100.0
                      %
                      
                      $
                      1,353
                      
                      
                      
                      100.0
                      %
                      
                      $
                      492
                      
                      
                      
                      100.0
                      %





Although we believe that we use the
best information available to establish the allowance for loan losses, future
adjustments to the allowance for loan losses may be necessary and our results of
operations could be adversely affected if circumstances differ substantially
from the assumptions used in making the determinations.  Furthermore,
while we believe we have established our allowance for loan losses in conformity
with generally accepted accounting principles, there can be no assurance that
regulators, in reviewing our loan portfolio, will not require us to increase our
allowance for loan losses.  In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
increases will not be necessary should the quality of any loans deteriorate as a
result of the factors discussed above.  Any material increase in the
allowance for loan losses may adversely affect our financial condition and
results of operations.





Table
17:  Analysis of Loan Loss Experience




Year Ended March 31, (Dollars in
      thousands)
                    
                    2009
                    
                    
                    2008
                    
                    
                    2007Allowance
      at beginning of
      period
                    
                    $
                    1,353
                    
                    
                    $
                    492
                    
                    
                    $
                    237Provision
      for loan
      losses
                    
                    
                    1,127
                    
                    
                    
                    1,450
                    
                    
                    
                    255Charge
      offs:Residential
      real estate loans
                    
                    
                    2
                    
                    
                    
                    —
                    
                    
                    
                    —Commercial
      and multi-family real estate loans
                    
                    
                    444
                    
                    
                    
                    357
                    
                    
                    
                    —Construction
      loans
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Commercial
      loans
                    
                    
                    614
                    
                    
                    
                    105
                    
                    
                    
                    —Consumer
      loans
                    
                    
                    194
                    
                    
                    
                    131
                    
                    
                    
                    —Total
      charge-offs
                    
                    
                    1,254
                    
                    
                    
                    593
                    
                    
                    
                    —Recoveries
                    
                    
                    321
                    
                    
                    
                    4
                    
                    
                    
                    —Net
      charge-offs
                    
                    
                    933
                    
                    
                    
                    589
                    
                    
                    
                    —Allowance
      at end of period
                    
                    $
                    1,547
                    
                    
                    $
                    1,353
                    
                    
                    $
                    492Allowance
      to nonperforming
      loans
                    
                    
                    17.74
                    %
                    
                    
                    76.83
                    %
                    
                    
                    87.23
                    %Allowance
      to total loans outstanding at the end of the period
                    
                    
                    1.47
                    
                    
                    
                    1.37
                    
                    
                    
                    0.63Net
      charge-offs (recoveries) to average loans outstanding during the
      period
                    
                    
                    0.94
                    
                    
                    
                    0.64
                    
                    
                    
                    —





Interest
Rate Risk Management.Our earnings
and the market value of our assets and liabilities are subject to fluctuations
caused by changes in the level of interest rates.  We manage the
interest rate sensitivity of our interest-bearing liabilities and
interest-earning assets in an effort to minimize the adverse effects of changes
in the interest rate environment.  Deposit accounts typically react
more quickly to changes in market interest rates than mortgage loans because of
the shorter maturities of deposits.  As a result, sharp increases in
interest rates may adversely affect our earnings while decreases in interest
rates may beneficially affect our earnings.  To reduce the potential
volatility of our earnings, we have sought to improve the match between asset
and liability maturities and rates, while maintaining an acceptable interest
rate spread.  Our strategy for managing interest rate risk emphasizes
originating balloon loans or loans with adjustable interest rates and promoting
core deposit products and short-term time deposits.


30


We have an Asset/Liability Management
Committee to coordinate all aspects involving asset/liability management. The
committee establishes and monitors the volume, maturities, pricing and mix of
assets and funding sources with the objective of managing assets and funding
sources to provide results that are consistent with liquidity, growth, risk
limits and profitability goals.





We use an interest rate sensitivity
analysis prepared by the OTS to review our level of interest rate
risk.  This analysis measures interest rate risk by computing changes
in net portfolio value of our cash flows from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in market
interest rates.  Net portfolio value represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet
items.  This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained 50 to 300 basis
point increase or 50 to 100 basis point decreases in market interest rates with
no effect given to any steps that we might take to counter the effect of that
interest rate movement.  We measure interest rate risk by modeling the
changes in net portfolio value over a variety of interest rate
scenarios.  The following table, which is based on information that we
provide to the OTS, presents the change in our net portfolio value at March 31,
2009 that would occur in the event of an immediate change in interest rates
based on OTS assumptions, with no effect given to any steps that we might take
to counteract that change.





Table
18:  NPV Analysis




Net Portfolio Value
                  (Dollars in thousands)
                
                
                Net Portfolio Value as % of
                  Portfolio Value of AssetsBasis Point (“bp”)
                  Change in Rates
                
                $ Amount
                
                
                $ Change
                
                
                % Change
                
                
                NPV Ratio
                
                
                Change300
                
                $
                11,538
                
                
                $
                (3,270
                )
                
                
                (22
                )%
                
                
                8.79
                %
                
                
                (208
                )bp200
                
                
                13,207
                
                
                
                (1,601
                )
                
                
                (11
                )
                
                
                9.89
                
                
                
                (97
                )100
                
                
                14,328
                
                
                
                (480
                )
                
                
                (3
                )
                
                
                10.60
                
                
                
                (27
                )50
                
                
                14,613
                
                
                
                (195
                )
                
                
                (1
                )
                
                
                10.76
                
                
                
                (10
                )0
                
                
                14,808
                
                
                
                
                
                
                
                
                
                
                
                10.87(50)
                
                
                14,960
                
                
                
                152
                
                
                
                1
                
                
                
                10.94
                
                
                
                7(100)
                
                
                14,951
                
                
                
                143
                
                
                
                1
                
                
                
                10.91
                
                
                
                5





The OTS uses certain assumptions in
assessing the interest rate risk of savings associations.  These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under differing interest rate
scenarios, among others.  As with any method of measuring interest
rate risk, certain shortcomings are inherent in the method of analysis presented
in the foregoing table.  For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates.  Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates.  Additionally, certain assets,
such as adjustable-rate mortgage loans, have features that restrict changes in
interest rates on a short-term basis and over the life of the
asset.  Further, in the event of a change in interest rates, expected
rates of prepayments on loans and early withdrawals from certificates could
deviate significantly from those assumed in calculating the table.





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





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


31





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 March 31, 2009, cash and cash equivalents totaled $1.7
million.  At March 31, 2009, we had $3.8 million in outstanding
borrowings and had arrangements to borrow up to additional $7.8 million from the
Federal Home Loan Bank of New York.





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





A significant use of our liquidity is
the funding of loan originations.  At March 31, 2009, we had $1.9
million in loan commitments outstanding.  In addition, we had $6.4
million in unused lines of credit.  Historically, many of the lines of
credit expire without being fully drawn; therefore, the total commitment amounts
do not necessarily represent future cash requirements.  Another
significant use of our liquidity is the funding of deposit
withdrawals.  Certificates of deposit due within one year of March 31,
2009 totaled $37.7 million, or 60.5% 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
March 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.





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





Capital
Management.  We are subject to various regulatory capital
requirements administered by the OTS, 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 March 31, 2009, we exceeded all of our regulatory
capital requirements.  We are considered “well capitalized” under
regulatory guidelines.  See “Regulation and
Supervision—Regulation of Federal Savings Associations—Capital
Requirements,” and note 17 of the notes to the financial
statements.





Off-Balance
Sheet Arrangements.  In
the normal course of operations, we engage in a variety of financial
transactions that, in accordance with generally accepted accounting principles,
are not recorded in our financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity risk. Such
transactions are used primarily to manage customers’ requests for funding and
take the form of loan commitments and lines of credit.  For
information about our loan commitments and unused lines of credit, see
note 18 of the notes to the financial statements.





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


32





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The
information required by this item is incorporated herein by reference to Part
II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”





ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





Information required by this item is
included herein beginning on page F-1.





ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
      9A(T).
            CONTROLS
      AND PROCEDURES





(a)
            Disclosure
      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.





(b)
            Internal
      Control Over Financial Reporting





Management’s
      report on internal control over financial reporting is incorporated herein
      by reference to the section captioned “Management’s Report on
      Internal Control Over Financial Reporting”  immediately
      preceding the Company’s Consolidated Financial Statements beginning on
      page F-1 of this Annual Report on Form
10-K.





(c)
            Changes
      in Internal Control Over Financial
Reporting





Except as
indicated herein, there were no changes in the Company’s internal control over
financial reporting during the three months ended March 31, 2009 that have
materially affected, or are reasonable likely to materially affect, the
Company’s internal control over financial reporting.





ITEM
      9B.
            OTHER
      INFORMATION





None.


33


PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Directors





For information relating to the
directors of the Company, the section captioned “Proposal 1 – Election of
Directors” in the Company’s Proxy Statement for the 2009 Annual Meeting
of Stockholders is incorporated by reference.





Executive
Officers and Key Employees





The executive officers of Delanco MHC
and Delanco Bancorp are elected annually by the board of directors and serve at
the board’s discretion.  Ages presented are as of March 31,
2009.  The executive officers of Delanco MHC and Delanco Bancorp
are:





Name
                
                PositionJames
      E. Igo
                
                President
      and Chief Executive OfficerEva
      Modi
                
                Chief
      Financial Officer





The officers of Delanco Federal Savings
Bank are elected annually by the board of directors and serve at the board’s
discretion.  The executive officers and key employees of Delanco
Federal Savings Bank are:





Name
                
                PositionJames
      E. Igo
                
                President
      and Chief Executive OfficerEva
      Modi
                
                Chief
      Financial OfficerDouglas
      R. Allen, Jr.
                
                Senior
      Vice PresidentThomas
      D. Schlett
                
                Vice
      President – Business Development, Branch
Manager





Below is information regarding our
officers who are not also directors.  Each officer has held his or her
current position for at least the last five years, unless otherwise
stated.





James
E. Igo has served as President and Chief Executive Officer of Delanco
MHC, Delanco Bancorp and Delanco Federal Savings Bank since March 4, 2009 and
previously served as Executive Vice President and Chief Operating Officer of
Delanco Bancorp and Delanco Federal Savings Bank since April,
2008.  Mr. Igo previously served as
senior vice president and senior loan officer of Farmers & Mechanics Bank
(“FMB ”) from 1992 until FMB’s acquisition by Beneficial Bank in July
2007.  Mr. Igo served as senior vice president of Beneficial Bank
until April, 2008.  Age 52.





Eva Modi has been Chief
Financial Officer of Delanco MHC, Delanco Bancorp and Delanco Federal Savings
Bank since March 4, 2009.  Ms. Modi served as Vice President –
Accounting of Delanco Federal Savings Bank since December, 2007. Ms. Modi was
previously employed by a public accounting firm from May 2002 until November
2007 as Senior Manager. Age 48.





Douglas R. Allen, Jr. has
served as Senior Vice President since March 4, 2009 and previously served as
President, Chief Executive Officer and Chief Financial Officer of Delanco MHC,
Delanco Bancorp and Delanco Federal Savings Bank since January 1,
2008.  Mr. Allen served as Senior Vice President and Chief Financial
Officer of Delanco Federal Savings Bank since 1990 and of Delanco MHC and
Delanco Bancorp since their formation.  Mr. Allen joined Delanco
Federal Savings Bank in 1976.  Age 61.





Thomas D. Schlett has been
Vice President – Business Development, Branch Manager of Delanco Federal Savings
Bank since February 2006.  Prior to joining Delanco Federal Savings
Bank, Mr. Schlett served as Vice President, Senior Financial Specialist with
Wachovia Bank and Wachovia Securities.   Mr. Schlett was employed
by Wachovia Bank from 1978 until February 2006.  Age
57.


34


Compliance
with Section 16(a) of the Exchange Act





For information regarding compliance
with Section 16(a) of the Exchange Act, the section captioned “Compliance with Section 16(a) of
the Exchange Act”in the Company’s Proxy Statement for the 2009 Annual
Meeting of Stockholders is incorporated by reference.





Disclosure
of Code of Ethics





The Board of Directors has adopted a
Code of Ethics that applies to all employees of the Company.  A copy
of the code of ethics can be obtained, without charge, upon written request to
James E. Igo, Delanco Bancorp, Inc., 615 Burlington Avenue, Delanco, New Jersey
08075.





Corporate
Governance





For information regarding the audit
committee and its composition and the audit committee financial expert, the
section captioned “Corporate
Governance—Committees of the Board of Directors—Audit Committee” in the
Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders is
incorporated by reference.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





For
information regarding executive compensation the section entitled“Executive Compensation” and
“Directors’
Compensation” in the Company’s Proxy Statement for the 2009 Annual
Meeting of Stockholders are incorporated by reference.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





(a) Security
Ownership of Certain Owners





The
information required by this item is incorporated herein by reference to the
section captioned “Stock
Ownership” in the Proxy Statement for the 2009 Annual Meeting of
Stockholders.





(b) Security
Ownership of Management





The
information required by this item is incorporated herein by reference to the
section captioned “Stock
Ownership” in the Proxy Statement for the 2009 Annual Meeting of
Stockholders.





(c) Changes
in Control





Management
of the Company knows of no arrangements, including any pledge by any person of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the registrant.





(d) Equity
Compensation





We did
not have any equity compensation plans at March 31, 2009.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Certain
Relationships and Related Transactions





For information regarding certain
relationships and related party transactions, the section captioned “Other Information Relating to
Directors and Executive Officers—Transactions with Related Persons” in
the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders is
incorporated by reference.


35


Corporate
Governance





For information regarding director
independence, the section captioned “Corporate Governance—Director
Independence” in the Company’s Proxy Statement for the 2009 Annual
Meeting of Stockholders is incorporated by reference.





ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





For
information regarding the principal accountant fees and expenses, the section
captioned “Items to be Voted
on by Stockholders—Item 2— Ratification of Independent Registered Public
Accounting Firm—Audit and Non-Audit Fees” and “Items to be Voted on by
Stockholders—Item 2—Ratification of Independent Registered Public Accounting
Firm—Policy on Audit Committee Pre-Approval of Audit Committee and Permissible
Non-Audit Services by the Independent Registered Public Accounting Firm”in the Company’s Proxy Statement for the 2009 Annual Meeting of
Stockholders is incorporated by reference.




ITEM
      15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(1)
            The
      financial statements required in response to this item are incorporated by
      reference from Item 8 of this
report.





(2)
            All
      financial statement schedules are omitted because they are not required or
      applicable, or the required information is shown in the consolidated
      financial statements or the notes
thereto.





(3)
            Exhibits





3.1
            Charter
      of Delanco Bancorp, Inc. (Incorporated herein by reference to Exhibit
      3.1 to the Registration Statement on Form SB-2 (File No.
      333-139339))


3.2
            Bylaws
      of Delanco Bancorp, Inc. (Incorporated herein by reference to Exhibit
      3.2 to the Registration Statement on Form SB-2 (File No.
      333-139339))


4.0
            Stock
      Certificate of Delanco Bancorp, Inc. (Incorporated herein by
      reference to Exhibit 4.1 to the Registration Statement on Form SB-2 (File
      No. 333-139339))


10.1
            Supervisory
      Agreement, dated December 17, 2007, by and between Delanco Federal Savings
      Bank and the Office of Thrift Supervision(1)


10.2
            Employment
      Agreement between Delanco Bancorp, Inc. and Douglas R. Allen, Jr.*
      (Incorporated by reference from Exhibit 10.3 of the Form 10-KSB filed with
      the Securities and Exchange Commission on July 13,
  2007)


10.3
            Employment
      Agreement between Delanco Federal Savings Bank and Douglas R. Allen, Jr.*
      (Incorporated by reference from Exhibit 10.4 of the Form 10-KSB filed with
      the Securities and Exchange Commission on July 13,
  2007)


10.4
            First
      Amendment to Company Employment Agreement between Delanco Bancorp, Inc.
      and Douglas R.Allen,
      Jr.(2)


10.5
            First
      Amendment to Bank Employment Agreement between Delanco Federal Savings
      Bank and Douglas R. Allen, Jr.(3)


10.6
            Employment
      Agreement between Delanco Bancorp, Inc. and James E.
  Igo*


10.7
            Employment
      Agreement between Delanco Federal Savings Bank and James E.
      Igo*


10.8
            Delanco
      Federal Savings Bank Employee Severance Compensation Plan* (Incorporated
      by reference from Exhibit 10.5 of the Form 10-KSB filed with the
      Securities and Exchange Commission on July 13,
  2007)


10.9
            Delanco
      Federal Savings Bank Directors Retirement Plan* (Incorporated herein by
      reference to Exhibit 10.5 to the Registration Statement on Form SB-2 (File
      No. 333-139339))


10.10
            Non-Qualified
      Retirement Program Selective Incentive Plan for John W. Seiber*(Incorporated
      herein by reference to Exhibit 10.6 to the Registration Statement on Form
      SB-2 (File No. 333-139339))


10.11
              Delanco
      Bancorp, Inc. 2008 Equity Incentive Plan* (Incorporated herein by
      reference the Company’s definitive proxy materials for the Annual Meeting
      of Stockholders filed with the Securities and Exchange Commission on July
      17, 2008)31.1
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer31.2
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer32.0
              Section
      1350 Certification





*
            Management
      contract or compensatory plan contract or arrangement filed pursuant to
      Item 601(b)(10)(ii)(A) of Regulation
S-B.


(1)
            Incorporated
      by reference from Exhibit 99.1 of the Form 8-K filed with the
      Securities and Exchange Commission on December 20,
    2007.


36





(2)
            Incorporated
      by reference from Exhibit 10.1 of the Form 10-QSB filed with the
      Securities and Exchange Commission on November 14,
  2007.


(3)
            Incorporated by reference from
      Exhibit 10.2 of the Form 10-QSB filed with the Securities and
      ExchangeCommission
      on November 14, 2007.


37





SIGNATURES





In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.





DELANCO
      BANCORP, INC.Date:  June
      22, 2009
                By:
                /s/
      James E. IgoJames
      E. IgoPresident
      and Chief Executive
Officer





In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.





Name
                                                                                          
                                                                                          Title
                                                                                          
                                                                                          Date/s/
      James E. Igo
                                                                                          
                                                                                          President
      and Chief Executive Officer
                                                                                          
                                                                                          June
      22, 2009James
      E. Igo/s/
      Eva Modi
                                                                                          
                                                                                          Chief
      Financial Officer (principal
                                                                                          
                                                                                          June
      22, 2009Eva
      Modi
                                                                                          
                                                                                          financial
      and accounting officer)/s/
      Thomas J. Coleman, III
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009Thomas
      J. Coleman, III/s/
      Robert H. Jenkins, Jr.
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009Robert
      H. Jenkins, Jr./s/
      William C. Jenkins
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009William
      C. Jenkins/s/
      John A. Latimer
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009John
      A. Latimer/s/
      Donald R. Neff
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009Donald
      R. Neff/s/
      Robert M. Notigan
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009Robert
      M. Notigan/s/
      John W. Seiber
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009John
      W. Seiber/s/
      James W. Verner
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009James
      W. Verner/s/
      Renee C. Vidal
                                                                                          
                                                                                          Director
                                                                                          
                                                                                          June
      22, 2009Renee
      C. Vidal





MANAGEMENT’S
REPORT ON
 INTERNAL
CONTROL OVER FINANCIAL REPORTING





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting.  Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of our financial reporting and of the preparation of
our consolidated financial statements for external purposes in accordance with
United States generally accepted accounting principles.





A
company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements
in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the consolidated financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





The
Company’s management assessed the effectiveness of its internal control over
financial reporting as of March 31,
2009, using the criteria established in Internal Control-Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).  Based on this assessment, management has
concluded that, as of March 31, 2009, the Company’s internal control over
financial reporting was effective based on the criteria.





This
annual report does not include an attestation report of the Company’s
Independent Registered Public Accounting Firm regarding internal control over
financial reporting.  Management’s report was not subject to
attestation by the Company’s Independent Registered Public Accounting Firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in this annual
report.









Delanco
Bancorp, Inc.


and
Subsidiary





Consolidated
Financial Statements





Years
Ended


March 31,
2009 And 2008









Delanco Bancorp, Inc. and
Subsidiary


March 31, 2009 And
2008





Contents





PageReport
      of Independent Registered Public Accounting Firm
                
                F-1Financial
      StatementsConsolidated
      Statements of Financial Condition As of March 31, 2009 and
      2008
                
                F-2Consolidated
      Statements of Operations For the Years Ended March 31, 2009 and
      2008
                
                F-3Consolidated
      Statements of Changes in Stockholders’ Equity For the Years Ended March
      31, 2009 and 2008
                
                F-4Consolidated
      Statements of Cash Flows For the Years Ended March 31, 2009 and
      2008
                
                F-5Notes
      to Consolidated Financial Statements
                
                F-6
      – F-31









REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


Delanco
Bancorp, Inc.


615
Burlington Avenue


Delanco,
New Jersey 08075





We have
audited the accompanying consolidated statements of financial condition of
Delanco Bancorp, Inc. and subsidiary (the Company) as of March 31, 2009 and
2008, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for the years then ended.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Delanco Bancorp, Inc. and
subsidiary as of March 31, 2009 and 2008, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.





/s/
Connolly, Grady & Cha, P.C.





Certified
Public Accountants





Philadelphia,
Pennsylvania





May 29,
2009




F-1




Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Financial Condition





March 31,2009
                              
                              
                              2008AssetsCash
      and cash equivalentsCash
      and amount due from depository institutions
                              
                              $
                              476,087
                              
                              
                              $
                              357,136Interest-bearing
      deposits in other banks
                              
                              
                              1,240,868
                              
                              
                              
                              12,321,997Total
      cash and cash equivalents
                              
                              
                              1,716,955
                              
                              
                              
                              12,679,133Investment
      securitiesSecurities
      held-to-maturity (fair value of $14,730,626 and $12,527,691 at March 31,
      2009 and 2008, respectively)
                              
                              
                              14,282,255
                              
                              
                              
                              12,287,265Securities
      available-for-sale (amortized cost of $245,043 and $234,106 at March 31,
      2009 and 2008, respectively)
                              
                              
                              222,719
                              
                              
                              
                              277,876Total
      investment securities
                              
                              
                              14,504,974
                              
                              
                              
                              12,565,141Loans,
      net of allowance for loan losses of $1,546,601 and $1,353,467 at March 31,
      2009 and 2008, respectively
                              
                              
                              103,624,343
                              
                              
                              
                              96,345,527Accrued
      interest receivable
                              
                              
                              499,981
                              
                              
                              
                              599,514Premises
      and equipment, net
                              
                              
                              8,024,232
                              
                              
                              
                              8,129,682Federal
      Home Loan Bank stock, at cost
                              
                              
                              345,900
                              
                              
                              
                              139,100Deferred
      income taxes
                              
                              
                              561,000
                              
                              
                              
                              395,000Bank-owned
      life insurance
                              
                              
                              130,042
                              
                              
                              
                              124,412Pre-paid
      and refundable income taxes
                              
                              
                              561,971
                              
                              
                              
                              297,679Other
      assets
                              
                              
                              498,966
                              
                              
                              
                              254,568Total
      Assets
                              
                              $
                              130,468,364
                              
                              
                              $
                              131,529,756Liabilities
      and Stockholders’ EquityLiabilitiesDepositsNon-interest
      bearing deposits
                              
                              $
                              2,518,934
                              
                              
                              $
                              4,860,365Interest-bearing
      deposits
                              
                              
                              111,464,281
                              
                              
                              
                              112,779,708Total
      deposits
                              
                              
                              113,983,215
                              
                              
                              
                              117,640,073Advances
      from Federal Home Loan Bank
                              
                              
                              3,750,000Accrued
      interest payable
                              
                              
                              211,962
                              
                              
                              
                              299,418Advance
      payments by borrowers for taxes and insurance
                              
                              
                              359,738
                              
                              
                              
                              290,864Other
      liabilities
                              
                              
                              642,032
                              
                              
                              
                              542,178Total
      liabilities
                              
                              
                              118,946,947
                              
                              
                              
                              118,772,533Commitments
      and Contingencies (Note 19)Stockholders’ EquityPreferred
      stock, $.01 par value, 3,000,000 shares authorized;None
      issuedCommon
      stock, $.01 par value, 7,000,000 shares authorized;1,634,725
      shares issued and outstanding as of March 31, 2009 and
2008
                              
                              $
                              16,347
                              
                              
                              $
                              16,347Additional
      paid-in capital
                              
                              
                              6,652,235
                              
                              
                              
                              6,688,921Retained
      earnings, substantially restricted
                              
                              
                              5,499,813
                              
                              
                              
                              6,730,799Unearned
      common stock held by employee stock ownership plan
                              
                              
                              (576,729
                              )
                              
                              
                              (640,810
                              )Accumulated
      other comprehensive (loss)
                              
                              
                              (70,249
                              )
                              
                              
                              (38,034
                              )Total
      stockholders’ equity
                              
                              
                              11,521,417
                              
                              
                              
                              12,757,223Total
      Liabilities and Stockholders’ Equity
                              
                              $
                              130,468,364
                              
                              
                              $
                              131,529,756





See
accompanying notes to consolidated financial statements.


F-2
  Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Operations





Years
      EndedMarch 31,2009
                      
                      
                      2008Interest
      IncomeLoans
                      
                      $
                      5,986,689
                      
                      
                      $
                      6,297,509Investment
      securities
                      
                      
                      805,843
                      
                      
                      
                      1,042,092Total
      interest income
                      
                      
                      6,792,532
                      
                      
                      
                      7,339,601Interest
      ExpenseInterest-bearing
      checking accounts
                      
                      
                      78,453
                      
                      
                      
                      49,506Passbook
      and money market accounts
                      
                      
                      667,886
                      
                      
                      
                      978,378Certificates
      of deposits
                      
                      
                      2,821,478
                      
                      
                      
                      3,020,015Advances
      from Federal Home Loan Bank
                      
                      
                      10,167
                      
                      
                      
                      4,946Total
      interest expense
                      
                      
                      3,577,984
                      
                      
                      
                      4,052,845Net
      interest income
                      
                      
                      3,214,548
                      
                      
                      
                      3,286,756Provision
      for loan losses
                      
                      
                      1,127,000
                      
                      
                      
                      1,450,000Net
      interest income after provision for loan losses
                      
                      
                      2,087,548
                      
                      
                      
                      1,836,756Non-Interest
      IncomeService
      charges
                      
                      
                      107,961
                      
                      
                      
                      134,329Income
      from bank-owned life insurance
                      
                      
                      5,630Rental
      income
                      
                      
                      5,875
                      
                      
                      
                      21,669Other
                      
                      
                      68,136
                      
                      
                      
                      72,804Total
      non-interest income
                      
                      
                      187,602
                      
                      
                      
                      228,802Non-Interest
      ExpenseSalaries
      and employee benefits
                      
                      
                      1,862,789
                      
                      
                      
                      1,809,625Advertising
                      
                      
                      51,201
                      
                      
                      
                      61,002Office
      supplies, telephone and postage
                      
                      
                      150,180
                      
                      
                      
                      129,270Occupancy
      expense
                      
                      
                      666,646
                      
                      
                      
                      685,548Federal
      insurance premiums
                      
                      
                      116,457
                      
                      
                      
                      29,262Data
      processing expenses
                      
                      
                      337,699
                      
                      
                      
                      126,289ATM
      expenses
                      
                      
                      69,833
                      
                      
                      
                      61,443Bank
      charges and fees
                      
                      
                      71,366
                      
                      
                      
                      54,649Insurance
      and surety bond premium
                      
                      
                      41,713
                      
                      
                      
                      57,429Dues
      and subscriptions
                      
                      
                      51,932
                      
                      
                      
                      78,539Professional
      fees
                      
                      
                      328,698
                      
                      
                      
                      133,994On-line
      banking expense
                      
                      
                      111,035
                      
                      
                      
                      90,822Other
                      
                      
                      150,019
                      
                      
                      
                      167,033Total
      non-interest expense
                      
                      
                      4,009,568
                      
                      
                      
                      3,484,905Loss
      Before Income Tax Benefit
                      
                      
                      (1,734,418
                      )
                      
                      
                      (1,419,347
                      )Federal
      income tax benefit
                      
                      
                      (482,637
                      )
                      
                      
                      (320,185
                      )State
      income tax benefit
                      
                      
                      (20,795
                      )
                      
                      
                      (32,409
                      )Total
      income tax benefit
                      
                      
                      (503,432
                      )
                      
                      
                      (352,594
                      )Net
      Loss
                      
                      $
                      (1,230,986
                      )
                      
                      $
                      (1,066,753
                      )(Loss)
      per shareBasic
                      
                      $
                      (0.78
                      )
                      
                      $
                      (0.68
                      )Diluted
                      
                      $
                      (0.78
                      )
                      
                      $
                      (0.68
                      )Weighted
      average shares outstandingBasic
                      
                      
                      1,577,052
                      
                      
                      
                      1,570,644Diluted
                      
                      
                      1,577,052
                      
                      
                      
                      1,570,644





See
accompanying notes to consolidated financial statements.





F-3




Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Changes in Stockholders’ Equity


Years Ended March 31, 2009
and 2008





AccumulatedAdditional
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          Common
                                                                                                          
                                                                                                          
                                                                                                          Other
                                                                                                          
                                                                                                          
                                                                                                          TotalCommon
      Stock
                                                                                                          
                                                                                                          
                                                                                                          Paid-in
                                                                                                          
                                                                                                          
                                                                                                          Retained
                                                                                                          
                                                                                                          
                                                                                                          Stock
      Held
                                                                                                          
                                                                                                          
                                                                                                          Comprehensive
                                                                                                          
                                                                                                          
                                                                                                          Stockholders’
                                                                                                          
                                                                                                          
                                                                                                          ComprehensiveShares
                                                                                                          
                                                                                                          
                                                                                                          Amount
                                                                                                          
                                                                                                          
                                                                                                          Capital
                                                                                                          
                                                                                                          
                                                                                                          Earnings
                                                                                                          
                                                                                                          
                                                                                                          By
      ESOP
                                                                                                          
                                                                                                          
                                                                                                          Income
      (Loss)
                                                                                                          
                                                                                                          
                                                                                                          Equity
                                                                                                          
                                                                                                          
                                                                                                          (Loss)BALANCES,
      MARCH 31,
      2007
                                                                                                          
                                                                                                          
                                                                                                          1,634,725
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          16,347
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          6,688,921
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          7,797,552
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (640,810
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (39,661
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          13,822,349Net
      loss
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1,066,753
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1,066,753
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (1,066,753
                                                                                                          )Net
      change in unrealized gain(loss)
      on securities available-for-sale,
      net of deferred taxesof
      $1,085
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,627
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,627
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          1,627Comprehensive
      loss
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (1,065,126
                                                                                                          )BALANCES,
      MARCH 31,
      2008
                                                                                                          
                                                                                                          
                                                                                                          1,634,725
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          16,347
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          6,688,921
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          6,730,799
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (640,810
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (38,034
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          12,757,223Net
      loss
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1,230,986
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (1,230,986
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (1,230,986
                                                                                                          )Net
      change in unrealized gain(loss)
      on securities available-for-sale, net of deferred taxes of
      ($26,438)
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (39,656
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (39,656
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (39,656
                                                                                                          )Net change in
      applying SFAS158
      – net of tax
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          7,441
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          7,441
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          7,441Comprehensive
      loss
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (1,263,201
                                                                                                          )6408.1 shares of common stocktransferred to ESOP
      for services
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (36,686
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          64,081
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          27,395BALANCES,
      MARCH 31, 2009
                                                                                                          
                                                                                                          
                                                                                                          1,634,725
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          16,347
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          6,652,235
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          5,499,813
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          (576,729
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (70,249
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          11,521,417





See
accompanying notes to consolidated financial statements.




F-4





Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Cash Flows





Years
      EndedMarch 31,Cash
      Flows from Operating Activities
                                                
                                                2009
                                                
                                                
                                                2008Net
      loss
                                                
                                                $
                                                (1,230,986
                                                )
                                                
                                                $
                                                (1,066,753
                                                )Adjustments
      to reconcile net loss to netcash
      provided by (used in) operating activities:Amortization
      of ESOP
                                                
                                                
                                                27,395Deferred
      income tax benefit
                                                
                                                
                                                (132,121
                                                )
                                                
                                                
                                                (155,985
                                                )Depreciation
                                                
                                                
                                                318,685
                                                
                                                
                                                
                                                323,298Discount
      accretion net of premium amortization
                                                
                                                
                                                34,773
                                                
                                                
                                                
                                                (28,728
                                                )Income
      from bank owned life insurance
                                                
                                                
                                                (5,630
                                                )Provision
      for loan losses
                                                
                                                
                                                1,127,000
                                                
                                                
                                                
                                                1,450,000Changes
      in operating assets and liabilities(Increase)
      decrease in:Accrued
      interest receivable
                                                
                                                
                                                99,533
                                                
                                                
                                                
                                                (173,642
                                                )Other
      assets
                                                
                                                
                                                49,602
                                                
                                                
                                                
                                                10,636Prepaid
      taxes
                                                
                                                
                                                (264,292
                                                )
                                                
                                                
                                                (66,449
                                                )Increase
      (decrease) in:Accrued
      interest payable
                                                
                                                
                                                (87,456
                                                )
                                                
                                                
                                                (49,760
                                                )Other
      liabilities
                                                
                                                
                                                99,854
                                                
                                                
                                                
                                                (98,028
                                                )Net
      cash provided by (used in) operating activities
                                                
                                                
                                                36,357
                                                
                                                
                                                
                                                144,589Cash
      Flows from Investing ActivitiesProceeds
      from sale of securities available-for-sale
                                                
                                                
                                                3,868
                                                
                                                
                                                
                                                4,811Purchases
      of securities available-for-sale
                                                
                                                
                                                (14,806
                                                )
                                                
                                                
                                                (27,328
                                                )Purchases
      of securities held-to-maturity
                                                
                                                
                                                (9,681,320
                                                )
                                                
                                                
                                                (3,000,000
                                                )Proceeds
      from maturities and principal repayments ofsecurities
      held-to-maturity
                                                
                                                
                                                7,651,558
                                                
                                                
                                                
                                                6,563,992Purchase
      of Federal Home Loan Bank stock
                                                
                                                
                                                (206,800
                                                )
                                                
                                                
                                                (36,400
                                                )Net
      increase in loans
                                                
                                                
                                                (8,699,816
                                                )
                                                
                                                
                                                (21,297,788
                                                )Purchases
      of premises and equipment
                                                
                                                
                                                (213,235
                                                )
                                                
                                                
                                                (30,523
                                                )Net
      cash used in investing activities
                                                
                                                
                                                (11,160,551
                                                )
                                                
                                                
                                                (17,823,236
                                                )Cash
      Flows from Financing ActivitiesNet
      increase (decrease) in deposits
                                                
                                                
                                                (3,656,858
                                                )
                                                
                                                
                                                21,650,798Net
      increase in advance payments by borrowers for taxes and
      insurance
                                                
                                                
                                                68,874
                                                
                                                
                                                
                                                30,602Advances
      from Federal Home Loan Bank
                                                
                                                
                                                3,750,000Net
      cash provided by financing activities
                                                
                                                
                                                162,016
                                                
                                                
                                                
                                                21,681,400Net
      Increase (Decrease) in Cash and Cash Equivalents
                                                
                                                $
                                                (10,962,178
                                                )
                                                
                                                $
                                                4,002,753Cash
      and Cash Equivalents, Beginning of Year
                                                
                                                
                                                12,679,133
                                                
                                                
                                                
                                                8,676,380Cash
      and Cash Equivalents, End of Year
                                                
                                                $
                                                1,716,955
                                                
                                                
                                                $
                                                12,679,133Supplemental
      Disclosures of Cash Flow InformationCash
      paid during the year for interest
                                                
                                                $
                                                3,665,440
                                                
                                                
                                                $
                                                4,102,605Cash
      paid during the year for income taxes
                                                
                                                $
                                                4,620
                                                
                                                
                                                $
                                                -0-Loans
      transferred to other property owned
                                                
                                                $
                                                294,000
                                                
                                                
                                                $
                                                -0-Proceeds
      from sales of other property owned
                                                
                                                $
                                                -0-
                                                
                                                
                                                $
                                                -0-Total
      increase (decrease) in unrealized gain on securities available-for-sale,
      net of tax
                                                
                                                $
                                                (66,094
                                                )
                                                
                                                $
                                                2,712





See
accompanying notes to consolidated financial statements.





F-5




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Nature of
Operations





Delanco
      Bancorp, Inc. (the “Company”) is a federally-chartered subsidiary holding
      company whose principal activity is the ownership and management of its
      wholly-owned subsidiary, Delanco Federal Savings Bank (the “Bank”), and
      its wholly-owned inactive subsidiary, Delanco Financial Services
      Corporation.  The Company is majority owned by Delanco MHC, a
      federally chartered mutual holding company.  Delanco MHC has
      virtually no operations or assets other than an investment in the Company,
      and is not included in these financial statements.  The Bank
      provides a variety of financial services to individual and business
      customers located primarily in Southern New Jersey and Southeastern
      Pennsylvania.  The Bank’s primary source of revenue is from
      single-family residential and commercial loans.  The Bank is
      subject to regulation by the Office of Thrift Supervision and the Federal
      Deposit Insurance Corporation.





Basis of
      Consolidation





The
      consolidated financial statements include the accounts of Delanco Federal
      Savings Bank and its subsidiary, Delanco Financial Services
      Corporation.  All intercompany accounts and transactions have
      been eliminated in consolidation.





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
      disclosure of contingent assets and liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





Material
      estimates that are particularly susceptible to significant change relate
      to the determination of the allowance for losses on loans, the valuation
      of foreclosed real estate and the evaluation of income
      taxes.  In connection with the determination of the estimated
      losses on loans and foreclosed real estate, management obtains independent
      appraisals for significant
properties.





A
      majority of the Bank’s loan portfolio consists of single-family
      residential and commercial loans in Southern New Jersey and Southeastern
      Pennsylvania.  Accordingly, the ultimate collectibility of a
      substantial portion of the Bank’s loan portfolio and the recovery of a
      substantial portion of the carrying amount of foreclosed real estate are
      susceptible to changes in local market
  conditions.





While
      management uses available information to recognize losses on loans and
      foreclosed real estate, further reductions in the carrying amounts of
      loans and foreclosed assets may be necessary based on changes in local
      economic conditions.  In addition, regulatory agencies, as an
      integral part of their examination process, periodically review the
      estimated losses on loans and foreclosed real estate.  Such
      agencies may require the Bank to recognize additional losses based on
      their judgments about information available to them at the time of their
      examination.  Because of these factors, it is reasonably
      possible that the estimated losses on loans and foreclosed real estate may
      change materially in the near term.  However, the amount of the
      change that is reasonably possible cannot be
  estimated.




F-6




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Investment
      Securities




Securities
      Held-to-Maturity:  Securities that management has the
      positive intent and ability to hold to maturity are reported at cost,
      adjusted for amortization of premiums and accretion of discounts that are
      recognized in interest income using methods approximating the interest
      method over the period to maturity.  Mortgage-backed securities
      represent participating interests in pools of long-term first mortgage
      loans originated and serviced by issuers of the
      securities.  Mortgage-backed securities are carried at unpaid
      principal balances, adjusted for unamortized premiums and unearned
      discounts.  Premiums and discounts are amortized using methods
      approximating the interest method over the remaining period to contractual
      maturity, adjusted for anticipated
prepayments.





Securities
      Available-for-Sale:  Available-for-sale securities
      consist of investment securities not classified as trading securities not
      as held-to-maturity securities.  Unrealized holding gains and
      losses, net of tax, on available-for-sale securities are included in other
      comprehensive income.  Realized gains (losses) on
      available-for-sale securities are included in other income (expense) and,
      when applicable, are reported as a reclassification adjustment, net of
      tax, in other comprehensive income.  Gains and losses on the
      sale of available-for-sale securities are determined using the
      specific-identification method.  The amortization of premiums
      and the accretion of discounts are recognized in interest income using
      methods approximating the interest method over the period of
      maturity.





Declines
      in the fair value of individual held-to-maturity and available-for-sale
      securities below their cost that are other than temporary result in
      write-downs of the individual securities to their fair value. The related
      write-downs are included in earnings as realized losses.  In
      estimating other than temporary impairment losses, management considers
      (1) the length of time and the extent to which the fair value has been
      less than cost, (2) the financial condition and near-term prospects of the
      issuer, and (3) the intent and ability of the Bank to retain its
      investment in the issuer for a period of time sufficient to allow for any
      anticipated recovery in fair value.





Loans and Allowance
      for Loan Losses





The
      Bank grants mortgage, commercial, consumer and lines of credit loans to
      customers.  A substantial portion of the loan portfolio is
      represented by mortgage and commercial loans in Southern New Jersey and
      Southeastern Pennsylvania.  The ability of the Bank’s debtors to
      honor their contracts is dependent upon the real estate and general
      economic conditions in these areas.





Loans
      are stated at unpaid principal balances, less the allowance for loan
      losses and net deferred loan fees and unearned
  discounts.





Loan
      origination and commitment fees, as well as certain direct origination
      costs, are deferred and amortized as a yield adjustment over the lives of
      the related loans using the interest method.  Amortization of
      deferred loan fees is discontinued when a loan is placed on nonaccrual
      status.





The
      recognition of income on a loan is discontinued and previously accrued
      interest is reversed, when interest or principal payments become ninety
      (90) days past due unless, in the opinion of management, the outstanding
      interest remains collectible.  Past due status is determined
      based on contractual terms.  Interest is subsequently recognized
      only as received until the loan is returned to accrual
      status.  A loan is restored to accrual status when all interest
      and principal payments are current and the borrower has demonstrated to
      management the ability to make payments of principal and interest as
      scheduled.  The Bank’s practice is to charge off any loan or
      portion of a loan when the loan is determined by management to be
      uncollectible due to the borrower’s failure to meet repayment terms, the
      borrower’s deteriorating or deteriorated financial condition, the
      depreciation of the underlying collateral, the loan’s classification as a
      loss by regulatory examiners, or for other
  reasons.




F-7




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





The
      allowance for loan losses is established as losses are estimated to have
      occurred through a provision for loan losses charged to
      earnings.  Loan losses are charged against the allowance when
      management believes the uncollectibility of a loan balance is
      confirmed.  Subsequent recoveries, if any, are credited to the
      allowance.





The
      allowance for loan losses is evaluated on a regular basis by management
      and is based upon management’s periodic review of the collectibility of
      the loans in light of historical experience, the nature and volume of the
      loan portfolio, adverse situations that may affect the borrower’s ability
      to repay, estimated value of any underlying collateral, and prevailing
      economic conditions. This evaluation is inherently subjective as it
      requires estimates that are susceptible to significant revision as more
      information becomes available.





The
      allowance consists of specific, general, and unallocated
      components.  The specific component relates to loans that are
      classified as doubtful, substandard, or special mention.  For
      such loans that are also classified as impaired, an allowance is
      established when the discounted cash flows (or collateral value or
      observable market price) of the impaired loan is lower than the carrying
      value of that loan.  The general component covers non-classified
      loans and is based on historical loss experience adjusted for qualitative
      factors.  An unallocated component is maintained to cover
      uncertainties that could affect management’s estimate of probable
      losses.  The unallocated component of the allowance reflects the
      margin of imprecision inherent in the underlying assumptions used in the
      methodologies for estimating specific and general losses in the
      portfolio.





A
      loan is considered impaired when, based on current information and events,
      it is probable that the Bank will be unable to collect the scheduled
      payments of principal or interest when due according to the contractual
      terms of the loan agreement.  Factors considered by management
      in determining impairment include payment status, collateral value, and
      the probability of collecting scheduled principal and interest payments
      when due.  Loans that experience insignificant payment delays
      and payment shortfalls generally are not classified as
      impaired.  Management determines the significance of payment
      delays and payment shortfalls on a case-by-case basis, taking into
      consideration all of the circumstances surrounding the loan and the
      borrower, including the length of the delay, the reason for the delay, the
      borrower’s prior payment record, and the amount of the shortfall in
      relation to the principal and interest owed.  Impairment is
      measured on a loan-by-loan basis for commercial loans by either the
      present value of expected future cash flows discounted at the loan’s
      effective interest rate, the loan’s obtainable market price, or the fair
      value of the collateral if the loan is collateral
    dependent.





Large
      groups of smaller balance homogeneous loans are collectively evaluated for
      impairment.  Accordingly, the Bank does not separately identify
      individual consumer and residential loans for impairment disclosures,
      unless such loans are the subject of a restructuring
      agreement.





Bank-Owned Life
      Insurance





The
      Bank owns a life insurance policy on the life of a member of the Board of
      Directors.  The cash surrender value of the policy is recorded
      as an asset of the bank and changes in this value are reflected in
      non-interest income.  Death benefit proceeds in excess of the
      policy’s cash surrender value will be recognized as income upon
      receipt.  There are no policy loans offset against the cash
      surrender value or restrictions on the use of the
  proceeds.




F-8




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Premises and
      Equipment





Land
      is carried at cost.  Other premises and equipment are recorded
      at cost less accumulated depreciation.  Office buildings and
      improvements are depreciated using the straight line method using useful
      lives ranging from 3 to 40 years.  Furniture, fixtures and
      equipment are depreciated using the straight line method with useful lives
      ranging from 3 to 10 years.   Charges for maintenance and
      repairs are expensed as incurred.





Other Property
      Owned





Other
      property owned includes both formally foreclosed property and in-substance
      foreclosed property.  In-substance foreclosed properties are
      those properties for which the Bank has taken physical possession,
      regardless of whether formal foreclosure proceedings have taken
      place.





At
      the time of foreclosure, foreclosed property owned is recorded at the fair
      value less cost to sell, which becomes the property’s new
      basis.  Any write-downs based on the asset’s fair value at date
      of acquisition are charged to the allowance for loan
      losses.  After foreclosure, valuations are periodically
      performed by management and property held for sale is carried at the lower
      of the new cost basis or fair value less cost to
      sell.  Impairment losses on property to be held and used are
      measured as the amount by which the carrying amount of a property exceeds
      its fair value.  Costs incurred in maintaining other property
      owned and subsequent adjustments to the carrying amount of the property
      are included in income (loss) on other property
  owned.





As
      of March 31, 2009 and 2008, the Company had $294,000 and $-0- of other
      property owned.  These amounts were included in other
      assets.





Income
Taxes





Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying
      amounts of existing assets and liabilities and their respective tax bases,
      as well as operating loss carry forwards.  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.  The effect on deferred tax
      assets and liabilities of a change in tax rates is recognized in income in
      the period that includes the enactment date.  A valuation
      allowance is established against deferred tax assets when in the judgment
      of management, it is more likely than not that such deferred tax assets
      will not become available.  Because the judgment about the level
      of future taxable income is dependent to a great extent on matters that
      may, at least in part be beyond the Company’s control, it is at least
      reasonably possible that management’s judgment about the need for a
      valuation allowance for deferred taxes could change in the near
      term.





Statements of Cash
Flows





The
      Company considers all cash and amounts due from depository institutions
      and interest-bearing deposits in other banks to be cash equivalents for
      purposes of the statements of cash
flows.





Advertising
      Costs





Advertising
costs are expensed as incurred.  Advertising expenses totaled
$ 51,201 and
$61,002 for the years ended March 31, 2009 and 2008,
respectively.




F-9




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





Employee Stock Ownership
Plan (“ESOP”)





The
Company accounts for its ESOP based on guidance from the American Institute of
Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 96-3
“Employer’s Accounting for Employee Stock Ownership Plans”.  Shares
are released to participants proportionately as the loan is
repaid.  If the Company declares a dividend, the dividends on the
allocated shares would be recorded as dividends and charged to retained
earnings.  Dividends declared on common stock held by the ESOP and not
allocated to the account of a participant can be used to repay the
loan.  Allocation of shares to the ESOP participants is contingent
upon the repayment of the loan to the Company.





Earnings Per
Share





Basic
earnings per share is calculated on the basis of net income divided by the
weighted average number of shares outstanding.  Diluted earnings per
share includes dilutive potential shares as computed under the treasury stock
method using average common stock prices.  Diluted earnings per share
is calculated on the basis of the weighted average number of shares outstanding
plus the weighted average number of additional dilutive shares.





2.
            RECENT
      ACCOUNTING PRONOUNCEMENTS





In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), which is effective for fiscal years beginning after
December 15, 2006.  FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes”.  This interpretation
prescribes a comprehensive model for how a company should recognize, measure,
present and disclose in its financial statements uncertain tax positions that
the company has taken or expects to take on a tax return.  The Company
adopted FIN 48 on April 1, 2007, and the adoption did not have a material impact
on the consolidated financial statements.





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurement” (Statement 157). Statement 157 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. Statement No. 157 does not require any new fair value
measurements. The Bank adopted this statement on April 1, 2008 and it did not
have a material impact on the consolidated financial statements.





In
conjunction with the adoption of Statement 157, the Bank also adopted FASB
Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS
157-2) on April 1, 2008.  FSP FAS 157-2 amends Statement 157 to defer
its effective date for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after November 15,
2008, or April 1, 2009 for the Bank.





Statement
157 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
            Quoted
      prices in active markets for identical assets or
    liabilities.





Level 2
            Observable
      inputs other than Level 1 prices, such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets of
      liabilities.




F-10




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





2.
            RECENT
      ACCOUNTING PRONOUNCEMENTS
(Continued)





Level 3
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets of
      liabilities.  Level 3 assets and liabilities include financial
      instruments whose value is determined using pricing models, discounted
      cash flow methodologies, or similar techniques, as well as instruments for
      which the determination of fair value requires significant management
      judgment or estimation.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”.  The Statement provides
companies with an option to report selected financial assets and liabilities at
fair value.  This Statement is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007.  Early
adoption is permitted under certain circumstances.  The Company
adopted SFAS No. 159 as of March 1, 2008 and it did not have an impact on the
Company’s financial condition or results of operation as the Company did not
elect to fair value any of its financial assets and financial liabilities that
are not currently required to be measured at fair value.





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment to ARB No. 51”.  This
Statement established new accounting and reporting standards that require that
ownership interests in subsidiaries held by parties other than the parent be
clearly identified and presented in the consolidated statement of financial
position within equity, but separate from the parent’s equity.  This
Statement also requires that the amount of consolidated net income attributable
to the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income.  In
addition, when a subsidiary is deconsolidated, any retained noncontrolling
equity investment in the former subsidiary shall be initially measured at fair
value, with the gain or loss on the deconsolidation of the subsidiary measured
using fair value of any noncontrolling equity investments rather than the
carrying amount of that retained investment.  SFAS No. 160 also
clarifies that changes in parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest.  This Statement is effective for fiscal years
beginning on or after December 15, 2008.  Early adoption is
prohibited.  The Company will evaluate the impact of adopting this
Statement on the consolidated financial statements.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” which
replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141”).  This
Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting
(formerly referred to as the purchase method) be used for all business combinations and that an
acquirer be identified for each business combination.  This Statement
defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as
of the date that the acquirer takes control.  This Statement requires
an acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
fair values.  This Statement requires the acquirer to recognize
acquisition-related costs and restructuring costs separately from the business
combination as period expense.  This Statement is effective for
business combinations for which the acquisition is on or after the first annual
reporting period of the acquisition beginning on or after December 15,
2008.  The adoption of this Statement will impact the accounting and
reporting of acquisitions after April 1, 2009.





In March
2008, the FASB issued SFAS No. 161, “ Disclosures About Derivative Instruments
and Hedging Activities”.  This Statement requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting.  This Statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early adoption encouraged.  The Company will
evaluate the impact of adopting this Statement on the Company’s consolidated
financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162).  SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP.  SFAS No. 162 is
effective sixty days following the SEC approval of the Public Company Accounting
Oversight Board (“PCAOB”) amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting
Principles.  The Company does not expect SFAS No. 162 will have an
impact on its financial condition or results of operations as it is not expected
to change current practices.




F-11




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





2.
            RECENT
      ACCOUNTING PRONOUNCEMENTS
(Continued)





In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active (“FSP FAS
157-3”).  The purpose of FSP FAS 157-3 was to clarify the application
of Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“SFAS 157”), for a market that is not active.  It also
allows for the use of management’s internal assumptions about future cash flows
with appropriately risk-adjusted discount rates when relevant observable market
data does not exist.  FSP FAS 157-3 did not change the objective of
SFAS 157 which is the determination of the price that would be received in an
orderly transaction that is not a forced liquidation or distressed sale at the
measurement date.  FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements
had not been issued.  The Company is currently assessing the impact of
FAS No. 157-3 on its financial statements.





In April
2009, the FASB issued FASB Staff Position FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP
FAS 157-4).  This FSP provides guidance on identifying circumstances
that indicate a transaction that is not orderly and guidance on estimating fair
value in accordance with SFAS 157 when the volume and level of activity for the
asset or liability have significantly decreased.  FSP FAS 157-4
emphasizes that fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date under current market
conditions.  This FSP requires additional disclosures for instruments
within the scope of SFAS 157.  FSP FAS 157-4 is effective for interim
and annual reporting periods ending after June 15, 2009, and is not expected to
have a material effect on the Company’s financial position or results of
operations.





In April
2009, the FASB issued FASB Staff Position FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS
124-2).  This FSP amends the other-than-temporary (“OTTI”) impairment
guidance in U.S. GAAP for debt securities to make the guidance more operational
and improve the presentation and disclosure of other-than-temporary impairments
on debt and equity securities in the financial statements.  The FSP
modifies the presentation of OTTI losses and expands existing disclosure
requirements about OTTI.  FSP FAS 115-2 and FAS 124-2 is effective for
interim and annual reporting periods ending after June 15, 2009, and is not
expected to have a material effect on the Company’s financial position or
results of operations.





3.
            RESTRICTIONS
      ON CASH AND DUE FROM BANKS





The Bank
is required to maintain reserve funds in cash or on deposit with the Federal
Reserve Bank.  The required reserve at March 31, 2009 and 2008 was $
-0-.





4.
            INVESTMENT
      SECURITIES





Investment
securities have been classified according to management’s intent.  The
amortized cost of securities and their approximate fair values as of March 31,
2009 and 2008 are as follows:





Held-to-MaturityMarch 31, 2009Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairCost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueFederal
      Home Loan Bank Bonds
                      
                      $
                      1,500,000
                      
                      
                      $
                      5,720
                      
                      
                      $
                      
                      
                      
                      $
                      1,505,720Federal
      Farm Credit Bonds
                      
                      
                      500,000
                      
                      
                      
                      625
                      
                      
                      
                      
                      
                      
                      
                      500,625Federal
      Home Loan Mortgage Corporation Bonds
                      
                      
                      500,000
                      
                      
                      
                      1,665
                      
                      
                      
                      
                      
                      
                      
                      501,6652,500,000
                      
                      
                      
                      8,010
                      
                      
                      
                      
                      
                      
                      
                      2,508,010




F-12




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





4.
            INVESTMENT
      SECURITIES (Continued)





Held-to-MaturityMarch 31, 2009Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      Unrealized
                      
                      
                      FairCost
                      
                      
                      Gains
                      
                      
                      Losses
                      
                      
                      ValueMortgage-Backed
      Securities:Federal
      Home Loan MortgageCorporation
                      
                      
                      3,717,034
                      
                      
                      
                      115,265
                      
                      
                      
                      
                      
                      
                      3,832,299Federal
      National MortgageCorporation
                      
                      
                      7,253,523
                      
                      
                      
                      304,347
                      
                      
                      
                      (30
                      )
                      
                      
                      7,557,840Government
      National MortgageCorporation
                      
                      
                      811,698
                      
                      
                      
                      24,990
                      
                      
                      
                      (4,211
                      )
                      
                      
                      832,47711,782,255
                      
                      
                      
                      444,602
                      
                      
                      
                      (4,241
                      )
                      
                      
                      12,222,616Total
                      
                      $
                      14,282,255
                      
                      
                      $
                      452,612
                      
                      
                      $
                      (4,241
                      )
                      
                      $
                      14,730,626





Held-to-MaturityMarch
      31, 2008Gross
                    
                    
                    GrossAmortized
                    
                    
                    Unrealized
                    
                    
                    Unrealized
                    
                    
                    FairCost
                    
                    
                    Gains
                    
                    
                    Losses
                    
                    
                    ValueFederal
      Home Loan Bank Bonds
                    
                    $
                    2,000,000
                    
                    
                    $
                    11,095
                    
                    
                    $
                    
                    
                    
                    $
                    2,011,095Federal
      Farm Credit Bonds
                    
                    
                    500,000
                    
                    
                    
                    625
                    
                    
                    
                    
                    
                    
                    
                    500,625Federal
      National Mortgage  Corporation Bonds
                    
                    
                    500,000
                    
                    
                    
                    470
                    
                    
                    
                    
                    
                    
                    
                    500,470Federal
      Home Loan Mortgage Corporation Bonds
                    
                    
                    500,000
                    
                    
                    
                    770
                    
                    
                    
                    
                    
                    
                    
                    500,7703,500,000
                    
                    
                    
                    12,960
                    
                    
                    
                    
                    
                    
                    
                    3,512,960Mortgage-Backed
      Securities:Federal
      Home Loan Mortgage  Corporation
                    
                    
                    1,360,099
                    
                    
                    
                    10,472
                    
                    
                    
                    
                    
                    
                    
                    1,370,571Federal
      National Mortgage Corporation
                    
                    
                    6,316,828
                    
                    
                    
                    180,959
                    
                    
                    
                    (9,284
                    )
                    
                    
                    6,488,503Government
      National Mortgage Corporation
                    
                    
                    1,110,338
                    
                    
                    
                    46,480
                    
                    
                    
                    (1,161
                    )
                    
                    
                    1,155,6578,787,265
                    
                    
                    
                    237,911
                    
                    
                    
                    (10,445
                    )
                    
                    
                    9,014,731Total
                    
                    $
                    12,287,265
                    
                    
                    $
                    250,871
                    
                    
                    $
                    (10,445
                    )
                    
                    $
                    12,527,691




F-13




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





4.
              INVESTMENT
      SECURITIES (Continued)





Available-for-SaleMarch 31, 2009Gross
                              
                              
                              GrossAmortized
                              
                              
                              Unrealized
                              
                              
                              Unrealized
                              
                              
                              FairCost
                              
                              
                              Gains
                              
                              
                              Losses
                              
                              
                              ValueMutual
      Fund Shares
                              
                              $
                              245,043
                              
                              
                              $
                              238
                              
                              
                              $
                              (22,562
                              )
                              
                              $
                              222,719





Available-for-SaleMarch 31, 2008Gross
                        
                        
                        GrossAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairCost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueMutual
      Fund Shares
                        
                        $
                        234,106
                        
                        
                        $
                        43,847
                        
                        
                        $
                        (77
                        )
                        
                        $
                        277,876





Investment
securities with a carrying amount of approximately $ 11,900,000 and
$5,228,000 were pledged as collateral with FHLB of New York as required at March
31, 2009 and 2008, respectively.





The
following is a summary of maturities of securities held-to-maturity and
available-for-sale as of March 31, 2009 and 2008.





March 31, 2009Held-to-maturity
                    
                    
                    Available-for-saleAmortized
                    
                    
                    Fair
                    
                    
                    Amortized
                    
                    
                    FairCost
                    
                    
                    Value
                    
                    
                    Cost
                    
                    
                    ValueAmounts
      maturing in:One
      year or less
                    
                    $
                    
                    
                    
                    $
                    
                    
                    
                    $
                    
                    
                    
                    $After
      one year through five years
                    
                    
                    4,925,679
                    
                    
                    
                    5,128,225After
      five years through ten years
                    
                    
                    3,422,356
                    
                    
                    
                    3,459,738After
      ten years
                    
                    
                    5,934,220
                    
                    
                    
                    6,142,663Equity
      securities
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    245,043
                    
                    
                    
                    222,719$
                    14,282,255
                    
                    
                    $
                    14,730,626
                    
                    
                    $
                    245,043
                    
                    
                    $
                    222,719





March 31, 2008Held-to-maturity
                        
                        
                        Available-for-saleAmortized
                        
                        
                        Fair
                        
                        
                        Amortized
                        
                        
                        FairCost
                        
                        
                        Value
                        
                        
                        Cost
                        
                        
                        ValueAmounts
      maturing in:One
      year or less
                        
                        $
                        1,080,415
                        
                        
                        $
                        1,083,317
                        
                        
                        $
                        
                        
                        
                        $After
      one year through five years
                        
                        
                        7,601,614
                        
                        
                        
                        7,821,535After
      five years through ten years
                        
                        
                        1,443,678
                        
                        
                        
                        1,437,628After
      ten years
                        
                        
                        2,161,558
                        
                        
                        
                        2,185,211Equity
      securities
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        234,106
                        
                        
                        
                        277,876$
                        12,287,265
                        
                        
                        $
                        12,527,691
                        
                        
                        $
                        234,106
                        
                        
                        $
                        277,876




F-14




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





4.
            INVESTMENT
      SECURITIES (Continued)





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





During
2009, the Bank sold securities available-for-sale for total proceeds of $3,868
resulting in gross realized gains of $-0-.  During 2008, the Bank sold
securities available-for-sale for total proceeds of $4,811 resulting in gross
realized gains of $-0-.





Information
pertaining to securities with gross unrealized losses at March 31, 2009 and
2008, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, follows:





Less Than 12 Months
                          
                          
                          12 Months or Greater
                          
                          
                          TotalGross
                          
                          
                          
                          
                          
                          GrossFair
                          
                          
                          Unrealized
                          
                          
                          Fair
                          
                          
                          Unrealized
                          
                          
                          
                          
                          
                          UnrealizedMarch 31, 2009
                          
                          Value
                          
                          
                          Losses
                          
                          
                          Value
                          
                          
                          Losses
                          
                          
                          Value
                          
                          
                          LossesFederal
      Home Loan Bank Bonds
                          
                          $
                          
                          
                          
                          $
                          
                          
                          
                          $
                          
                          
                          
                          $
                          
                          
                          
                          $
                          
                          
                          
                          $Federal
      Farm Credit  BondsFederal
      Home Loan  Mortgage Corporation-0-
                          
                          
                          
                          -0-
                          
                          
                          
                          -0-
                          
                          
                          
                          -0-
                          
                          
                          
                          -0-
                          
                          
                          
                          -0-Mortgage-Backed
      Securities:Federal
      Home Loan  Mortgage CorporationFederal
      National  Mortgage Corporation
                          
                          
                          30,910
                          
                          
                          
                          (30
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          30,910
                          
                          
                          
                          (30
                          )Government
      National Mortgage Association
                          
                          
                          254,239
                          
                          
                          
                          (2,623
                          )
                          
                          
                          71,705
                          
                          
                          
                          (1,588
                          )
                          
                          
                          325,944
                          
                          
                          
                          (4,211
                          )285,149
                          
                          
                          
                          (2,653
                          )
                          
                          
                          71,705
                          
                          
                          
                          (1,588
                          )
                          
                          
                          356,854
                          
                          
                          
                          (4,241
                          )Mutual
      Fund Shares
                          
                          
                          150,634
                          
                          
                          
                          (22,562
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          150,634
                          
                          
                          
                          (22,562
                          )Total
                          
                          $
                          435,783
                          
                          
                          $
                          (25,215
                          )
                          
                          $
                          71,705
                          
                          
                          $
                          (1,588
                          )
                          
                          $
                          507,488
                          
                          
                          $
                          (26,803
                          )




F-15




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





4.      INVESTMENT
SECURITIES (Continued)





Less Than 12 Months
                                      
                                      
                                      12 Months or Greater
                                      
                                      
                                      TotalGross
                                      
                                      
                                      
                                      
                                      
                                      GrossFair
                                      
                                      
                                      Unrealized
                                      
                                      
                                      Fair
                                      
                                      
                                      Unrealized
                                      
                                      
                                      
                                      
                                      
                                      UnrealizedMarch 31, 2008
                                      
                                      Value
                                      
                                      
                                      Losses
                                      
                                      
                                      Value
                                      
                                      
                                      Losses
                                      
                                      
                                      Value
                                      
                                      
                                      LossesFederal
      Home Loan Bank Bonds
                                      
                                      $
                                      
                                      
                                      
                                      $
                                      
                                      
                                      
                                      $
                                      
                                      
                                      
                                      $
                                      
                                      
                                      
                                      $
                                      
                                      
                                      
                                      $Federal
      Farm Credit  BondsFederal
      National Mortgage Association BondsFederal
      Home Loan  Mortgage Corporation-0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-
                                      
                                      
                                      
                                      -0-Mortgage-Backed
      Securities:Federal
      Home Loan  Mortgage CorporationFederal
      National  Mortgage Corporation
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      916,835
                                      
                                      
                                      
                                      (9,284
                                      )
                                      
                                      
                                      916,835
                                      
                                      
                                      
                                      (9,284
                                      )Government
      NationalMortgage Association
                                      
                                      
                                      83,369
                                      
                                      
                                      
                                      (1,022
                                      )
                                      
                                      
                                      8,223
                                      
                                      
                                      
                                      (139
                                      )
                                      
                                      
                                      91,592
                                      
                                      
                                      
                                      (1,161
                                      )83,369
                                      
                                      
                                      
                                      (1,022
                                      )
                                      
                                      
                                      925,058
                                      
                                      
                                      
                                      (9,423
                                      )
                                      
                                      
                                      1,008,427
                                      
                                      
                                      
                                      (10,445
                                      )Mutual
      Fund Shares
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      69,730
                                      
                                      
                                      
                                      (77
                                      )
                                      
                                      
                                      69,730
                                      
                                      
                                      
                                      (77
                                      )Total
                                      
                                      $
                                      83,369
                                      
                                      
                                      $
                                      (1,022
                                      )
                                      
                                      $
                                      994,788
                                      
                                      
                                      $
                                      (9,500
                                      )
                                      
                                      $
                                      1,078,157
                                      
                                      
                                      $
                                      (10,522
                                      )





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





At
      March 31, 2009, the four debt securities with unrealized losses have
      depreciated1.2% from the Bank’s amortized cost basis.  These
      unrealized losses relate principally to current interest rates for similar
      types of securities.  In analyzing an issuer’s financial
      condition, management considers whether the securities are issued by the
      federal government, its agencies, or other governments, whether downgrades
      by bond rating agencies have occurred, and the results of reviews of the
      issuer’s financial condition.  As management has the ability to
      hold debt securities until maturity, or for the foreseeable future if
      classified as available-for-sale, no declines are deemed to be
      other-than-temporary.





The Bank
has pledged FHLMC mortgage backed securities with a market value of
approximately $472,000and $607,000 at March 31, 2009 and 2008, respectively, to
the New Jersey Commissioner of Banking and Insurance under the provisions of the
Government Unit Deposit Protection Act that enables the Bank to act as a public
depository.





F-16




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





5.
            LOANS





Loans at
March 31, 2009 and 2008 are summarized as follows:





March 31,2009
                  
                  
                  2008Residential
      (one to four family) real estate
                  
                  $
                  46,686,288
                  
                  
                  $
                  37,183,231Multi-family
      and commercial real estate
                  
                  
                  26,054,000
                  
                  
                  
                  23,973,905Commercial
                  
                  
                  4,618,000
                  
                  
                  
                  8,214,750Home
      equity
                  
                  
                  24,119,310
                  
                  
                  
                  23,823,995Consumer
                  
                  
                  2,134,000
                  
                  
                  
                  2,552,510Construction
                  
                  
                  1,796,000
                  
                  
                  
                  3,121,003Total
      loans
                  
                  
                  105,407,598
                  
                  
                  
                  98,869,394Loans
      in process
                  
                  
                  (138,674
                  )
                  
                  
                  (1,032,036
                  )Net
      deferred loan origination fees
                  
                  
                  (97,980
                  )
                  
                  
                  (138,364
                  )Allowance
      for loan losses
                  
                  
                  (1,546,601
                  )
                  
                  
                  (1,353,467
                  )(1,783,255
                  )
                  
                  
                  (2,523,867
                  )Loans,
      net
                  
                  $
                  103,624,343
                  
                  
                  $
                  96,345,527





An
      analysis of the allowance for loan losses at March 31, 2009 and 2008 is as
      follows:





March 31,2009
                  
                  
                  2008Balance,
      beginning of year
                  
                  $
                  1,353,467
                  
                  
                  $
                  492,448Loans
      charged-off
                  
                  
                  (1,254,449
                  )
                  
                  
                  (592,881
                  )Recoveries
                  
                  
                  320,583
                  
                  
                  
                  3,900Provision
      for losses
                  
                  
                  1,127,000
                  
                  
                  
                  1,450,000Balance,
      end of year
                  
                  $
                  1,546,601
                  
                  
                  $
                  1,353,467





At March 31, 2009
      and 2008, the total recorded investment in loans on nonaccrual amounted to
      approximately $8,298,000 and $
      -0-, respectively, and the total recorded investment in loans past due
      ninety days or more and still accruing interest amounted to approximately
      $128,000 and $1,761,000,
  respectively.





The
      Bank has no commitments to loan additional funds to the borrowers whose
      loans have been modified.




F-17




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





5.
            LOANS  (Continued)





In
      the ordinary course of business, the Bank has and expects to continue to
      have transactions, including borrowings, with its officers, directors and
      employees.  In the opinion of management, such transactions were
      on substantially the same terms, including interest rates and collateral,
      as those prevailing at the time of comparable transactions with other
      persons and did not involve more than a normal risk of collectibility or
      present any other unfavorable features to the Bank. Loans to such
      borrowers are summarized as
follows:





March 31,2009
                    
                    
                    2008Balance,
      beginning of year
                    
                    $
                    1,622,193
                    
                    
                    $
                    997,099Payments
                    
                    
                    (731,043
                    )
                    
                    
                    (580,239
                    )Borrowings
                    
                    
                    
                    
                    
                    
                    1,205,333Balance,
      end of year
                    
                    $
                    891,150
                    
                    
                    $
                    1,622,193





6.      LOAN
SERVICING





Mortgage
      loans serviced for others are not included in the accompanying statement
      of financial condition.  The unpaid principal balances of these
      loans at March 31, 2009 and 2008 are summarized as
  follows:





March 31,2009
                          
                          
                          2008Mortgage
      Loan Servicing Portfolio:Mortgage
      PartnershipFinance
      FHLB New York
                          
                          $
                          435,210
                          
                          
                          $
                          443,494





7.      ACCRUED
INTEREST RECEIVABLE





Accrued
      interest receivable at March 31, 2009 and 2008 consists of the
      following:





March 31,2009
                  
                  
                  2008Loans
                  
                  $
                  430,194
                  
                  
                  $
                  500,882Investment
      securities
                  
                  
                  49,069
                  
                  
                  
                  59,446Mortgage
      backed securities
                  
                  
                  20,718
                  
                  
                  
                  39,186$
                  499,981
                  
                  
                  $
                  599,514




F-18




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





8.     PREMISES
AND EQUIPMENT





Premises
      and equipment at March 31, 2009 and 2008 consists of the
      following:





March 31,2009
                    
                    
                    2008Land
                    
                    $
                    1,451,203
                    
                    
                    $
                    1,380,609Buildings
                    
                    
                    6,806,760
                    
                    
                    
                    6,794,418Furniture,
      fixtures and equipment
                    
                    
                    1,906,709
                    
                    
                    
                    1,776,41010,164,672
                    
                    
                    
                    9,951,437Accumulated
      depreciation
                    
                    
                    (2,140,440
                    )
                    
                    
                    (1,821,755
                    )$
                    8,024,232
                    
                    
                    $
                    8,129,682





Depreciation
      expense amounted to $318,685 and $323,298 for the years ended March 31,
      2009 and 2008, respectively.





9.
            FEDERAL
      HOME LOAN BANK STOCK





The
      Bank is a member of the Federal Home Loan Bank System.  As a
      member, the Bank maintains an investment in the capital stock of the
      Federal Home Loan Bank of New York in an amount not less than 1% of its
      outstanding home loans or 1/20 of its outstanding notes payable, if any,
      to the Federal Home Loan Bank of New York, whichever is greater, as
      calculated December 31 of each
year.





10.   DEPOSITS





Deposit
      account balances at March 31, 2009 and 2008 are summarized as
      follows:





March 31, 2009Weighted
      Average
                    
                    
                    Percent
      ofAmount
                    
                    
                    Interest Rate
                    
                    
                    PortfolioNon
      interest bearing accounts
                    
                    $
                    2,518,934
                    
                    
                    
                    -
                    
                    
                    
                    2.21Interest
      bearing checking accounts
                    
                    
                    10,035,742
                    
                    
                    
                    0.90
                    %
                    
                    
                    8.80Passbook
      savings accounts
                    
                    
                    14,463,394
                    
                    
                    
                    0.44
                    
                    
                    
                    12.69Money
      Market accounts
                    
                    
                    24,635,815
                    
                    
                    
                    2.19
                    
                    
                    
                    21.61Club
      accounts
                    
                    
                    142,286
                    
                    
                    
                    0.40
                    
                    
                    
                    0.1351,796,171
                    
                    
                    
                    
                    
                    
                    
                    45.44Certificates
      of Deposits:1.00%
      to 1.99%
                    
                    
                    808,607
                    
                    
                    
                    1.72
                    
                    
                    
                    0.712.00%
      to 2.99%
                    
                    
                    4,091,381
                    
                    
                    
                    2.46
                    
                    
                    
                    3.593.00%
      to 3.99%
                    
                    
                    36,590,375
                    
                    
                    
                    3.49
                    
                    
                    
                    32.104.00%
      to 4.99%
                    
                    
                    20,696,681
                    
                    
                    
                    4.38
                    
                    
                    
                    18.1662,187,044
                    
                    
                    
                    
                    
                    
                    
                    54.56$
                    113,983,215
                    
                    
                    
                    
                    
                    
                    
                    100.00
                    %




F-19




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





10.   DEPOSITS
(Continued)





March 31, 2008Weighted
      Average
                  
                  
                  Percent
      ofAmount
                  
                  
                  Interest Rate
                  
                  
                  PortfolioNon
      interest bearing accounts
                  
                  $
                  4,860,365
                  
                  
                  
                  -
                  
                  
                  
                  4.13Interest
      bearing checking accounts
                  
                  
                  7,839,099
                  
                  
                  
                  0.37
                  %
                  
                  
                  6.66Passbook
      savings accounts
                  
                  
                  11,632,618
                  
                  
                  
                  0.5
                  
                  
                  
                  9.89Money
      Market accounts
                  
                  
                  23,584,296
                  
                  
                  
                  2.73
                  
                  
                  
                  20.05Club
      accounts
                  
                  
                  151,847
                  
                  
                  
                  0.5
                  
                  
                  
                  0.1348,068,225
                  
                  
                  
                  
                  
                  
                  
                  40.86Certificates
      of Deposits:3.00%
      to 3.99%
                  
                  
                  4,229,375
                  
                  
                  
                  3.73
                  
                  
                  
                  3.594.00%
      to 4.99%
                  
                  
                  35,444,079
                  
                  
                  
                  4.24
                  
                  
                  
                  30.135.00%
      to 5.99%
                  
                  
                  29,898,394
                  
                  
                  
                  5.41
                  
                  
                  
                  25.4269,571,848
                  
                  
                  
                  
                  
                  
                  
                  59.14$
                  117,640,073
                  
                  
                  
                  
                  
                  
                  
                  100.0
                  %





The
      aggregate amount of certificates of deposits with a minimum denomination
      of $100,000 was approximately $15,227,000 and $20,548,000 at March 31,
      2009 and 2008, respectively.





Scheduled
      maturities of certificates of deposits at March 31, 2009 and 2008 are as
      follows:





March 31,2009
                    
                    
                    20082009
                    
                    $
                    
                    
                    
                    $
                    54,285,6862010
                    
                    
                    37,652,777
                    
                    
                    
                    8,834,2142011
                    
                    
                    14,036,943
                    
                    
                    
                    2,049,7092012
                    
                    
                    5,192,324
                    
                    
                    
                    1,124,6962013
                    
                    
                    3,311,007
                    
                    
                    
                    3,277,5432014
      and thereafter
                    
                    
                    1,993,993$
                    62,187,044
                    
                    
                    $
                    69,571,848





The
      Bank held deposits from officers, directors and employees of approximately
      $280,000and $800,000 at March 31, 2009 and 2008,
      respectively.  These transactions were on the same terms as
      those prevailing at the time of comparable transactions with other
      persons.




F-20




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





11.
              ADVANCES
      FROM FEDERAL HOME LOAN BANK





As of
March 31, 2009, the Bank had a borrowing capacity in a combination of term
advances and overnight borrowings of up to $11,671,000 at the FHLB of New
York.





Advances
from the Federal Home Loan Bank of New York are as follows:





Maturity
                              
                              
                              InterestDate
                              
                              
                              Rate
                              
                              
                              March 31, 2009April
      10, 2009
                              
                              
                              
                              0.54
                              %
                              
                              $
                              750,000May
      13, 2009
                              
                              
                              
                              0.99
                              
                              
                              
                              1,000,000June
      30, 2009
                              
                              
                              
                              1.15
                              
                              
                              
                              1,000,000December
      15, 2009
                              
                              
                              
                              2.19
                              
                              
                              
                              1,000,000$
                              3,750,000





As
      of March 31, 2008, there were no borrowings from the Federal Home Loan
      Bank of New York.





Specific
      repos and other securities, with a balance of $11,895,453 at March 31,
      2009 were pledged to the FHLB of New York as
  collateral.





12.
            INCOME
      TAXES





The
      Company and subsidiary file a consolidated federal income tax
      return.  The Company’s consolidated provision for income taxes
      for the years ended March 31, 2009 and 2008 consists of the
      following:





Years EndedMarch 31,2009
                        
                        
                        2008Income
      Tax Expense (benefit)Current
      federal tax expense (benefit)Federal
                        
                        $
                        (353,837
                        )
                        
                        $
                        (199,185
                        )State
                        
                        
                        2,500
                        
                        
                        
                        2,500Deferred
      tax (benefit)Federal
                        
                        
                        (128,800
                        )
                        
                        
                        (121,000
                        )State
                        
                        
                        (23,295
                        )
                        
                        
                        (34,909
                        )$
                        (503,432
                        )
                        
                        $
                        (352,594
                        )





The
consolidated provision for income taxes for the years ended March 31, 2009 and
2008 differs from that computed by applying federal statutory rates to income
before federal income tax expense, as indicated in the following
analysis:




F-21




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





12.
              INCOME
      TAXES (Continued)





Years EndedMarch 31,2009
                      
                      
                      2008Expected
      federal tax provision (benefit) at 34% rate
                      
                      $
                      (589,702
                      )
                      
                      $
                      (482,578
                      )State
      income tax effect
                      
                      
                      20,184
                      
                      
                      
                      27,984Bank
      owned life insurance
                      
                      
                      (1,914
                      )Increase
      in deferred tax asset valuation allowance
                      
                      
                      68,000
                      
                      
                      
                      102,000Income
      tax (benefit)
                      
                      $
                      (503,432
                      )
                      
                      $
                      (352,594
                      )Effective
      tax rate (benefit)
                      
                      
                      (29.0
                      )%
                      
                      
                      (24.8
                      )%





A
      summary of deferred tax assets and liabilities as of March 31, 2009 and
      2008 are as follows:





March 31,2009
                                
                                
                                2008Deferred tax assets:Accrued
      pension costs
                                
                                $
                                3,600
                                
                                
                                $
                                11,400Accrued
      post retirement medical plan
                                
                                
                                19,200
                                
                                
                                
                                26,400Accrued
      retirement plan
                                
                                
                                33,000
                                
                                
                                
                                38,000Allowance
      for loan losses
                                
                                
                                534,400
                                
                                
                                
                                441,100Deferred
      loan fees
                                
                                
                                
                                
                                
                                
                                200Directors’
      benefit plans
                                
                                
                                90,500
                                
                                
                                
                                68,000FASB
      158 – unrecognized transition costs
                                
                                
                                37,900
                                
                                
                                
                                42,800Net
      operating loss carryforward
                                
                                
                                135,400Unrealized
      losses on securities available-for-sale
                                
                                
                                9,000863,000
                                
                                
                                
                                627,900Less:
      Valuation allowance
                                
                                
                                (200,000
                                )
                                
                                
                                (120,000
                                )Total
      deferred tax assets
                                
                                $
                                663,000
                                
                                
                                $
                                507,900Deferred tax liabilities:Accumulated
      depreciation
                                
                                $
                                (102,000
                                )
                                
                                $
                                (95,400
                                )Unrealized
      gains on securitiesavailable-for-sale
                                
                                
                                
                                
                                
                                
                                (17,500
                                )Total
      deferred tax liabilities
                                
                                
                                (102,000
                                )
                                
                                
                                (112,900
                                )NET
      DEFERRED TAX ASSETS
                                
                                $
                                561,000
                                
                                
                                $
                                395,000





The
Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”) on April
1, 2007.  FIN 48 clarifies the accounting and reporting for income
taxes where interpretation of the tax law may be uncertain.  FIN 48
prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax
returns.





As of
April 1, 2007 and March 31, 2008, the Company had no material unrecognized tax
benefits or accrued interest and penalties.  The Company’s policy is
to account for interest as a component of interest expense and penalties as a
component of other expense.  Tax years 2005 through 2008 remain
subject to examination by Federal and New Jersey taxing
authorities.




F-22




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





12.
            INCOME
      TAXES (Continued)





The
      Company believes that it is more likely than not that the deferred tax
      assets, net of a valuation allowance, will be realized through taxable
      earnings or alternative tax strategies.  The ultimate
      realization of deferred tax assets is dependent upon the generation of
      future taxable income during periods in which those temporary differences
      become deductible.  Based on the level of historical taxable
      income and projections for future taxable income over the periods in which
      the deferred tax assets are deductible; the Company believes the net
      deferred tax assets are more likely than not to be
    realized.





The Bank
has a federal net operating loss carry forward of approximately $340,000 which
will expire December 31, 2029 if not utilized.





13.
            EMPLOYEE
      BENEFITS





Cash/Deferred Profit
      Sharing Plan





The
      Bank maintains a cash/deferred profit sharing plan covering all full time
      employees with one year of service and who are at least twenty-one years
      of age.  Participants enter the Plan on the 1st of January or
      1st of July subsequent to meeting the above
  requirements.





The
      Bank may contribute up to 10% of the annual compensation of each eligible
      employee.  The Bank’s contribution to the plan was $-0- for the
      years ended March 31, 2009 and
2008.





Retirement Incentive
      Plan





A
      retired officer of the Bank is covered by a Retirement Incentive Plan that
      pays him $1,416.67 per month for ten years from the date of retirement at
      age sixty-five.





To
      fund the above benefit, the Bank has purchased and is the sole beneficiary
      of a life insurance policy on the life of the officer.  The cash
      surrender value of this policy was $130,042 and $124,412as of March 31,
      2009 and 2008, respectively, and is reflected on the consolidated
      statement of financial position as Bank-owned life
    insurance.





Delanco Bancorp, Inc. 2008
Equity Incentive Plan





On May
19, 2008, the Board of Directors adopted, and the stockholders approved on
August 18, 2008, the Delanco Bancorp, Inc. 2008 Equity Incentive
Plan.





The Board
of Directors has reserved a total of 112,141 shares of common stock for issuance
upon the grant or exercise ofawards made pursuant to the 2008
Plan.  All the Company’s employees, officers, and directors are
eligible to participate inthe 2008 Plan.  As of March 31, 2009, no
awards have been made under the 2008 Plan.





14.
            BOARD
      OF DIRECTORS’ RETIREMENT PLAN





The
      Bank established a Defined Benefit Retirement Plan for the Bank’s Board of
      Directors on January 1, 2002.  This plan provides a monthly
      retirement benefit equal to 4% of the board fees payable as of their
      retirement date, multiplied by their completed years of service, up to a
      maximum of 80% of the final fee amount.  Directors must complete
      at least ten years of service in order to receive a retirement benefit
      under the plan.  Director retirement benefits are payable in
      equal monthly installments during the director’s lifetime, unless the
      director elects to receive a life annuity with the first 129 months
      guaranteed or a life annuity with either 50% or 100% (joint and survivor
      benefits) continuing for the spouse’s lifetime after the Director
      dies.  Under these other options, the retirement benefit is
      reduced to account for the value of the potential additional
      payments.




F-23




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





14.
            BOARD
      OF DIRECTORS’ RETIREMENT PLAN
(Continued)





The
      estimated past service liability that will be amortized from accumulated
      other comprehensive income into net periodic pension costs over the next
      fiscal year is $15,192.





Net
      pension expense was $42,264 and $38,124 for years ended March 31, 2009 and
      2008, respectively.  The components of net pension cost are as
      follows:





Years Ended March 31,2009
                  
                  
                  2008Service
      cost
                  
                  $
                  8,508
                  
                  
                  $
                  7,348Interest
      cost
                  
                  
                  18,564
                  
                  
                  
                  15,584Return
      on assets
                  
                  
                  -0-
                  
                  
                  
                  -0-Net
      amortization and deferral
                  
                  
                  15,192
                  
                  
                  
                  15,192Net
      periodic pension cost
                  
                  $
                  42,264
                  
                  
                  $
                  38,124





The
following table presents a reconciliation of the funded status of the defined
benefit pension plan at March 31, 2009 and 2008:





March 31,2009
                  
                  
                  2008Accumulated
      benefit obligation
                  
                  $
                  250,709
                  
                  
                  $
                  248,935Projected
      benefit obligation
                  
                  
                  276,395
                  
                  
                  
                  277,853Fair
      value of plan assets
                  
                  
                  -0-
                  
                  
                  
                  -0-Unfunded
      projected benefit obligation
                  
                  
                  276,395
                  
                  
                  
                  277,853





The
following table presents a reconciliation of benefit obligations and plan
assets:





March 31,2009
                              
                              
                              2008Change in Benefit
ObligationProjected
      benefit obligation at beginning of year
                              
                              $
                              277,853
                              
                              
                              $
                              253,099Service
      cost
                              
                              
                              8,508
                              
                              
                              
                              7,348Interest
      cost
                              
                              
                              18,564
                              
                              
                              
                              15,584Adjustment
      for measurement date change
                              
                              
                              6,768Actuarial
      (gain) loss
                              
                              
                              (29,259
                              )
                              
                              
                              6,653Benefits
      paid
                              
                              
                              (6,039
                              )
                              
                              
                              (4,831
                              )Benefit
      obligation at end of year
                              
                              $
                              276,395
                              
                              
                              $
                              277,853Change in Plan AssetsFair
      value of Plan assets at beginning of year
                              
                              
                              -0-
                              
                              
                              
                              -0-Actual
      return on Plan assets
                              
                              
                              -0-
                              
                              
                              
                              -0-Employer
      contributions
                              
                              
                              6,039
                              
                              
                              
                              4,831Benefits
      paid
                              
                              
                              (6,039
                              )
                              
                              
                              (4,831
                              )Fair
      value of Plan assets at end of year
                              
                              
                              -0-
                              
                              
                              
                              -0-




F-24


Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





14.
            BOARD
      OF DIRECTORS’ RETIREMENT PLAN
(Continued)





Actuarial
      assumptions used in determining pension amounts are as
      follows:





Years Ended March 31,2009
                          
                          
                          2008Discount
      rate for periodic pension cost
                          
                          
                          7.50
                          %
                          
                          
                          6.75
                          %Discount
      rate for benefit obligation
                          
                          
                          4.00
                          %
                          
                          
                          3.50
                          %Rate
      of increase in compensation levelsand
      social security wage base
                          
                          
                          4.00
                          %
                          
                          
                          4.00
                          %Expected
      long-term rate of return onplan
      assets
                          
                          
                          N/A
                          
                          
                          
                          N/A





15.
            EMPLOYEE
      STOCK OWNERSHIP PLAN (ESOP)





In
      March 2007, the Company established an Employee Stock Ownership Plan
      (“ESOP”) covering all eligible employees as defined by the
      ESOP.  The ESOP is a tax-qualified plan, designed to invest in
      the Company’s common stock, which provides employees with the opportunity
      to receive a funded retirement benefit based primarily on the value of the
      Company’s common stock.  The Company accounts for its ESOP in
      accordance with Statement of Position (“SOP”) 93-6, “Employer’s Accounting
      for Employee Stock Ownership Plans,” issued by the Accounting Standards
      Division of the American Institute of Certified Public Accountants
      (“AICPA”).





To
      purchase the Company’s common stock, the ESOP borrowed $640,810 from the
      Company to purchase 64,081 shares of the Company’s common stock in the
      Company’s initial public offering.  The ESOP loan is being
      repaid principally from the Bank’s contributions to the ESOP over a period
      of up to 20 years.  Dividends declared on common stock held by
      the ESOP and not allocated to the account of a participant can be used to
      repay the loan.  Compensation expense is recognized in
      accordance with SOP 93-6.  The number of shares released
      annually is based upon the ratio that the current principal and interest
      payment bears to the current and all remaining scheduled future principal
      and interest payments.





All
      shares that have not been released for allocation to participants are held
      in a suspense account by the ESOP for future allocation as the loan is
      repaid.  Unallocated common stock purchased by the ESOP is
      recorded as a reduction of stockholders’ equity at cost.  As of
      March 31, 2009, the Company had allocated a total of 6408.1 shares from
      the suspense account to participants.  The Company recognized
      compensation expense related to the ESOP of $27,395 and $-0- for the years
      ended March 31, 2009 and 2008,
respectively.





16.
            FAIR
      VALUES OF FINANCIAL INSTRUMENTS





Statement
      of Financial Accounting Standards No. 107, Disclosures about Fair Value
      of Financial Instruments, requires disclosure of fair value
      information about financial instruments, whether or not recognized in the
      statement of financial condition.  In cases where quoted market
      prices are not available, fair values are based on estimates using present
      value or other valuation techniques.  Those techniques are
      significantly affected by the assumptions used, including the discount
      rate and estimates of future cash flows. In that regard, the derived fair
      value estimates cannot be substantiated by comparison to independent
      markets and, in many cases, could not be realized in immediate settlement
      of the instruments.  Statement No. 107 excludes certain
      financial instruments and all nonfinancial instruments from its disclosure
      requirements.  Accordingly, the aggregate fair value amounts
      presented do not represent the underlying value of the
      Company.




The
      following methods and assumptions were used by the Company in estimating
      its fair value disclosures for financial
  instruments:




F-25




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





16.
            FAIR
      VALUES OF FINANCIAL INSTRUMENTS
(Continued)





Cash and cash
      equivalents





The
      carrying amounts reported in the consolidated statements of financial
      condition for cash and cash equivalents approximate those assets' fair
      values.





Investment
      securities





Fair
      values for investment securities are based on quoted market prices, where
      available.  If quoted market prices are not available, fair
      values are based on quoted market prices of comparable
      instruments.





Loans





Fair
      values are estimated for portfolios of loans with similar financial
      characteristics.  Loans are segregated by type such as
      residential mortgage, construction, land and consumer.  Each
      loan category is further segmented into fixed and adjustable rate interest
      terms and by performing and nonperforming
  categories.





Fair
      value of performing loans is estimated by discounting cash flows using
      estimated market discount rates at which similar loans would be made to
      borrowers and reflect similar credit ratings and interest rate risk for
      the same remaining maturities.





Fair
      value for significant nonperforming loans is based on recent external
      appraisals of collateral securing such loans, adjusted for the timing of
      anticipated cash flows.





Deposits





The
      fair value of deposits with no stated maturity, such as
      noninterest-bearing demand deposits, savings, and NOW and money market
      accounts, is equal to the amount payable on demand.  The fair
      value of certificates of deposit is based on the discounted value of
      contractual cash flows.  The discount rate is estimated using
      the rates currently offered for deposits of similar remaining
      maturities.





Advances from Federal
      Home Loan Bank





The
      carrying amounts of advances from Federal Home Loan Bank approximate the
      fair value.





Accrued
      Interest





The
      carrying amounts of accrued interest approximate the fair
      values.





Advanced payments by
      borrowers for taxes and insurance
  (escrows)





The
      carrying amount of escrow accounts approximate fair
  value.





Off-balance sheet
      instruments





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




F-26




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008








16.
            FAIR
      VALUES OF FINANCIAL INSTRUMENTS
(Continued)





The
      estimated fair values of the Company’s financial instruments as of March
      31, 2009 and 2008 are as follows:





March 31, 2009
                  
                  
                  March 31, 2008Carrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairAmount
                  
                  
                  Value
                  
                  
                  Amount
                  
                  
                  ValueFinancial
      Assets:Cash
      and cash equivalents
                  
                  $
                  1,716,955
                  
                  
                  $
                  1,716,955
                  
                  
                  $
                  12,679,133
                  
                  
                  $
                  12,679,133Investment
      securities
                  
                  
                  14,527,298
                  
                  
                  
                  14,953,345
                  
                  
                  
                  12,521,371
                  
                  
                  
                  12,805,567Loans
      - net
                  
                  
                  103,624,343
                  
                  
                  
                  107,728,000
                  
                  
                  
                  96,345,527
                  
                  
                  
                  99,189,000FHLB
      stock
                  
                  
                  345,900
                  
                  
                  
                  345,900
                  
                  
                  
                  139,100
                  
                  
                  
                  139,100Accrued
      interest receivable
                  
                  
                  499,981
                  
                  
                  
                  499,981
                  
                  
                  
                  599,514
                  
                  
                  
                  599,514Total
      financial assets
                  
                  $
                  120,714,477
                  
                  
                  $
                  125,244,181
                  
                  
                  $
                  122,284,645
                  
                  
                  $
                  125,412,314Financial
      Liabilities:Deposits
                  
                  $
                  113,983,215
                  
                  
                  $
                  116,283,000
                  
                  
                  $
                  117,640,073
                  
                  
                  $
                  119,520,000Advances
      from FHLB
                  
                  
                  3,750,000
                  
                  
                  
                  3,750,000Advance
      payments by borrowers for taxes and insurance
                  
                  
                  359,738
                  
                  
                  
                  359,738
                  
                  
                  
                  290,864
                  
                  
                  
                  290,864Accrued
      interest payable
                  
                  
                  211,962
                  
                  
                  
                  211,962
                  
                  
                  
                  299,418
                  
                  
                  
                  299,418Total
      financial liabilities
                  
                  $
                  118,304,915
                  
                  
                  $
                  120,604,700
                  
                  
                  $
                  118,230,355
                  
                  
                  $
                  120,110,282





March 31, 2009
                  
                  
                  March 31, 2008Contract
                  
                  
                  Estimated
                  
                  
                  Contract
                  
                  
                  EstimatedValue
                  
                  
                  Fair Value
                  
                  
                  Value
                  
                  
                  Fair ValueOff-balance
      sheet instruments:Commitments
      to extend credit
                  
                  $
                  6,422,000
                  
                  
                  $
                  6,422,000
                  
                  
                  $
                  7,826,000
                  
                  
                  $
                  7,826,000





The
      carrying amounts in the preceding table are included in the statement of
      financial condition under the applicable captions.  The contract
      or notional amounts of the Company's financial instruments with
      off-balance-sheet risk are disclosed in Note 18.  No derivatives
      were held by the Company for trading purposes.  It is not
      practicable to estimate the fair value of Federal Home Loan Bank (FHLB)
      stock because it is not marketable.  The carrying amount of that
      investment is reported in the consolidated statements of financial
      condition.




F-27




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





17.
              FINANCIAL
      INSTRUMENTS WITH OFF-BALANCE SHEET
RISK





In
      the normal course of business, the Bank has outstanding commitments and
      contingent liabilities, such as commitments to extend credit which are not
      included in the accompanying consolidated financial
      statements.  The Bank’s exposure to credit loss in the event of
      nonperformance by the other party to the financial instruments for
      commitments to extend credit is represented by the contractual or notional
      amount of those instruments.  The Bank uses the same credit
      policies in making such commitments as it does for instruments that are
      included in the consolidated balance
sheet.





Financial
      instruments whose contract amount represents credit risk were as
      follows:





March 31,Commitments to Extend
Credit
                  
                  2009
                  
                  
                  2008Home
      equity line of credit
                  
                  $
                  5,294,000
                  
                  
                  $
                  5,812,000Commercial
      line of credit
                  
                  
                  1,123,000
                  
                  
                  
                  1,653,000Consumer
      line of credit
                  
                  
                  5,000
                  
                  
                  
                  361,000$
                  6,422,000
                  
                  
                  $
                  7,826,000





Commitments
      to extend credit are agreements to lend to a customer as long as there is
      no violation of any condition established in the
      contract.  Commitments generally have fixed expiration dates or
      other termination clauses and may require payment of a
      fee.  Since many of the commitments are expected to expire
      without being drawn upon, the total commitment amounts do not necessarily
      represent future cash requirements.  The Bank evaluates each
      customer’s creditworthiness on a case-by-case basis.  The amount
      of collateral obtained, if deemed necessary by the Bank upon extension of
      credit, is based on management’s credit evaluation.  Collateral
      held varies but may include accounts receivable, inventory, property and
      equipment, and income-producing commercial
  properties.





Cash and Cash
Equivalents


The
      Bank has deposit accounts with various financial
      institutions.  The first $100,000 of deposits with each
      institution was insured by agencies of the U.S. Government.  On
      October 3, 2008, the federal deposit insurance was temporarily raised to
      $250,000 for the period October 3, 2008 to December 31,
      2013.  On January 1, 2014, the federal deposit insurance will
      return to $100,000.  At March 31, 2009 and 2008, the uninsured
      portion of these deposits was approximately $1,046,000 and $12,013,000,
      respectively.





Although
      the Bank has credit risk due to the uninsured portion of the above
      deposits, the Bank does not anticipate any accounting
  loss.





18.
            COMMITMENTS
      AND CONTINGENT LIABILITIES





The
Company is subject to claims and lawsuits which arise primarily in the ordinary
course of business.  It is the opinion ofmanagement that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverseeffect on the consolidated financial position of the
Bank.





The Bank had outstanding commitment to
originate loans as of March 31, 2009 as follows:




March 31, 2009Fixed-
                    
                    
                    Variable-Rate
                    
                    
                    Rate
                    
                    
                    TotalFirst-mortgage
                    
                    $
                    1,897,000
                    
                    
                    $
                    
                    
                    
                    $
                    1,897,000




F-28




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





18.
            COMMITMENTS
      AND CONTINGENT
  LIABILITIES  (Continued)





The Bank did not have any outstanding
commitments to originate loans as of March 31, 2008.





19.
            REGULATORY
      CAPITAL





The Bank
is subject to various regulatory capital requirements administered by its
primary federal regulator, the Office of Thrift Supervision
(OTS).  Failure to meet the minimum regulatory capital requirements
can initiate certain mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material effect on the Bank
and the consolidated financial statements.  Under the regulatory
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines involving quantitative
measures of the Bank’s assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices.  The Bank’s
capital amounts and classification under the prompt corrective action guidelines
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.





Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios of:  total risk-based capital
and Tier I capital to risk-weighted assets (as defined in the regulations), Tier
I capital to adjusted total assets (as defined), and tangible capital to
adjusted total assets (as defined).   Management believes that,
as of March 31, 2009, the Bank met all capital adequacy requirements to which it
was subject.





As of
March 31, 2009, the most recent notification from the OTS, the Bank was
categorized as “well capitalized” under the regulatory framework for prompt
corrective action.  To remain categorized as “well capitalized”, the
Bank will have to maintain minimum total risk-based, Tier I risk-based, Tier I
leverage and Tangible Capital to adjusted total assets ratios as disclosed in
the table below.  There are no conditions or events since the most
recent notification that management believes have changed the Bank’s prompt
corrective action category.





The
Bank’s actual and required capital amounts and ratios as of March 31, 2009 and
2008 are as follows:





For Capital AdequacyPurposes and to BeAdequately CapitalizedUnder the Prompt CorrectiveActual
                                                                
                                                                
                                                                Action ProvisionsAmount
                                                                
                                                                
                                                                Ratio
                                                                
                                                                
                                                                Amount
                                                                
                                                                
                                                                RatioAs
      of March 31,
      2009:Total
      Risk-Based Capital(to
      Risk-Weighted Assets)
                                                                
                                                                $
                                                                12,475,000
                                                                
                                                                
                                                                
                                                                13.91
                                                                %
                                                                
                                                                ≥$
                                                                7,174,000
                                                                
                                                                
                                                                ≥
                                                                8.0
                                                                %Tier
      I Capital(to
      Risk-Weighted Assets)
                                                                
                                                                
                                                                11,349,000
                                                                
                                                                
                                                                
                                                                12.66
                                                                %
                                                                
                                                                ≥
                                                                3,587,000
                                                                
                                                                
                                                                ≥
                                                                4.0
                                                                %Tier
      I Capital(to
      Adjusted Total Assets)
                                                                
                                                                
                                                                11,349,000
                                                                
                                                                
                                                                
                                                                8.68
                                                                %
                                                                
                                                                ≥
                                                                5,227,800
                                                                
                                                                
                                                                ≥
                                                                4.0
                                                                %Tangible
      Capital(to
      Adjusted Total Assets)
                                                                
                                                                
                                                                11,349,000
                                                                
                                                                
                                                                
                                                                8.68
                                                                %
                                                                
                                                                ≥
                                                                1,960,400
                                                                
                                                                
                                                                ≥
                                                                1.5
                                                                %As
      of March 31,
      2008:Total
      Risk-Based Capital(to
      Risk-Weighted Assets)
                                                                
                                                                $
                                                                10,924,000
                                                                
                                                                
                                                                
                                                                9.46
                                                                %
                                                                
                                                                ≥$
                                                                9,235,700
                                                                
                                                                
                                                                ≥
                                                                8.0
                                                                %Tier
      I Capital(to
      Risk-Weighted Assets)
                                                                
                                                                
                                                                9,571,000
                                                                
                                                                
                                                                
                                                                8.29
                                                                %
                                                                
                                                                ≥
                                                                4,617,800
                                                                
                                                                
                                                                ≥
                                                                4.0
                                                                %Tier
      I Capital(to
      Adjusted Total Assets)
                                                                
                                                                
                                                                9,571,000
                                                                
                                                                
                                                                
                                                                7.29
                                                                %
                                                                
                                                                ≥
                                                                5,249,700
                                                                
                                                                
                                                                ≥
                                                                4.0
                                                                %Tangible
      Capital(to
      Adjusted Total Assets)
                                                                
                                                                
                                                                9,571,000
                                                                
                                                                
                                                                
                                                                7.29
                                                                %
                                                                
                                                                ≥
                                                                1,968,600
                                                                
                                                                
                                                                ≥
                                                                1.5
                                                                %




F-29




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





19.
            REGULATORY
      CAPITAL  (Continued)





Federal
regulations place certain restrictions on dividends paid by the Bank to the
Company.  The total amount of dividends that may be paid at any date
is generally limited to the earnings of the Bank year to date plus retained
earnings for the prior two fiscal years, net of any prior capital
distributions.  In addition, dividends paid by the Bank to the Company
would be prohibited if the distribution would cause the Bank’s capital to be
reduced below the applicable minimum capital requirements.





20.
            SUPERVISORY
      AGREEMENT





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





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





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





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





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





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





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





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





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





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





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




F-30




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2009 and
2008





20.
            SUPERVISORY
      AGREEMENT  (Continued)





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





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





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





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




F-31