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, 2010





 ̈
            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
              36-4519533(State
      or other jurisdiction of
              (I.R.S.
      Employer Identification No.)incorporation
      or organization)615
      Burlington Avenue,Delanco,
      New Jersey
              08075(Address
      of principal executive offices)
              (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  ̈  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, 2009 was approximately $3.8
million.





The
number of shares outstanding of the registrant’s common stock as of June 30,
2010 was 1,634,725.


DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Proxy Statement for the 2010 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
                                      
                                      
                                      17Item
      2.
                                      Properties
                                      
                                      
                                      17Item
      3.
                                      Legal
      Proceedings
                                      
                                      
                                      17Item
      4.
                                      [Removed
      and Reserved]
                                      
                                      
                                      17Part
      IIItem
      5.
                                      Market
      for Registrant’s Common Equity, Related Stockholder Matters and
      IssuerPurchases
      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
      RelatedStockholder
      Matters
                                      
                                      
                                      35Item
      13.
                                      Certain
      Relationships and Related Transactions, and Director
      Independence
                                      
                                      
                                      35Item
      14.
                                      Principal
      Accounting Fees and Services
                                      
                                      
                                      35Part
      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 2009, 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 customers’ funds from money market
funds, mutual funds and other corporate and government securities.  At June
30, 2009, which is the most recent date for which data is available from the
FDIC, we held 1.55% 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 non-depository financial service companies, 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.  Federal law permits 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 March
17, 2010, Delanco Federal Savings Bank consented to the issuance of a Cease and
Desist Order (the “Order”) promulgated by the OTS.  The Order 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.  See “Regulation and Supervision-Cease
and Desist Order” for a detailed description of the Order.





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 $1.1 million at
March 31, 2010.  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.




4


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 $500,000 must be approved by the loan committee of
the board of directors.





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, 2010, our regulatory limit on loans to one borrower
was $1.8 million.  At that date, our
largest lending relationship was $1.2
million and was secured by residential investment real estate.  This loan
was performing in accordance with its modified terms at March 31,
2010.





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, 2010, our investment portfolio totaled $16.6 million, or 11.9% 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.




5


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
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.





Personnel





As of
March 31, 2010, we had 26 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 which
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.





Cease
and Desist Order




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





The Order
requires the Bank to take the following actions:





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


6





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





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





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





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





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





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





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





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





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





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





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





The Bank
continues to work with its borrowers where possible and is pursuing legal action
where the ability to work with the borrower does not exist.  As of March
31, 2010, the Bank has entered into formal forbearance agreements with fiverelationships totaling $3.2million that require current payments while
the borrowers restructure their finances.





At March
31, 2010, the Bank’s tier 1 (core) capital to adjusted total assets ratio was
7.76% and its total risk-based capital to
risk-weighted assets ratio was 12.62%. At
March 31, 2010, the Bank exceeded all of its regulatory capital requirements and
was considered “well capitalized” under regulatory guidelines.





On March
11, 2010 the Bank submitted to the OTS an updated business plan that it believes
satisfies the requirements of the Order.  Also on March 11, 2010, the Bank
submitted to the OTS a problem loan plan that outlines the Bank’s strategy for
addressing the levels of classified and non-performing assets.


7


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, lessdisallowed deferred tax assets and 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, 2010, 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.





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.


8





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, 2010, Delanco Federal Savings Bank maintained
92.1% 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 more favorable 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 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 Federal
Deposit Insurance Corporation. Under the Federal Deposit Insurance Corporation’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, with less risky institutions paying lower assessments. An
institution’s assessment rate depends upon the category to which it is assigned.
Effective April 1, 2009, assessment rates range from seven to 77-1/2 basis
points. No institution may pay a dividend if in default of the federal deposit
insurance assessment.





The
Federal Deposit Insurance Corporation imposed on all insured institutions a
special emergency assessment of five basis points of total assets minus Tier 1
capital, as of June 30, 2009 (capped at ten basis points of an institution’s
deposit assessment base), in order to cover losses to the Deposit Insurance
Fund. That special assessment was collected on September 30, 2009. The Federal
Deposit Insurance Corporation provided for similar assessments during the final
two quarters of 2009, if deemed necessary. However, in lieu of further special
assessments, the Federal Deposit Insurance Corporation required insured
institutions to prepay estimated quarterly risk-based assessments for the fourth
quarter of 2009 through the fourth quarter of 2012. The estimated assessments,
which include an assumed annual assessment base increase of 5%, were recorded as
a prepaid expense asset as of December 30, 2009. As of December 31, 2009, and
each quarter thereafter, a charge to earnings will be recorded for each regular
assessment with an offsetting credit to the prepaid asset.





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, 2014. In
addition, the Federal Deposit Insurance Corporation adopted an optional
Transaction Account Guarantee Program under which, for a fee, noninterest
bearing transaction accounts receive unlimited insurance coverage until December
31, 2010. Delanco Federal Savings Bank does not
participatein the Transaction Account Guarantee Program.





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. That payment is established
quarterly and during the calendar year ending December 31, 2009 averaged 1.06
basis points of assessable deposits.





The
Federal Deposit Insurance Corporation has authority to increase insurance
assessments. A significant increase in insurance premiums would likely have an
adverse effect on the operating expenses and results of operations of Delanco
Federal Savings Bank. Management cannot predict what insurance assessment rates
will be in the future.





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 Office of Thrift Supervision. The
management of Delanco Federal Savings Bank does not know of any practice,
condition or violation that might lead to termination of deposit
insurance.





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, 2010 of $207,000.




10


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.





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.


11





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.




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 a pre-tax losses for the last three fiscal years.  Continued losses may
have an adverse impact on our stock price.





We
reported a pre-tax loss of $299,000 for the year ended March 31, 2010 and
pre-tax losses of $1.7 million and $1.4 million for the years ended March 31,
2009 and 2008, respectively.   The primary reasons for our pre-tax
loss during the current fiscal year are attributable primarily to the
continued high level of provisions for loan losses, as our provision for
loan losses was approximately the same as the prior year.





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 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, 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 implemented 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 troubled debt
restructurings and non-performing assets.  Total troubled debt
restructurings and non-performing assets increased to $10.3 million at March 31, 2010 from $9.0 million at
March 31, 2009, while troubled debt restructurings and nonperforming assets as a
percentage of total assets increased to 7.34% at March 31, 2010 from 6.92% at March 31,
2009.  We took provisions for loan losses of
$1.1 and $1.1 million for the fiscal years ended March 31, 2010 and
2009.  At March 31, 2010, the allowance for loan losses was 16.5%of non-performing loans
and 0.9% 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 Cease and Desist with the Office of Thrift Supervision and our
failure to comply with that Order may result in further regulatory enforcement
actions, including restrictions on our operations.





On March
17, 2010, Delanco Federal Savings Bank consented to the issuance of a Cease and
Desist Order promulgated by the OTS.  The Order was based on the Bank’s
2009 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 Order 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 Order imposes certain minimum capital ratio requirements as
well as 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 Order
will remain in effect until terminated, modified, or suspended in writing by the
OTS.





A failure
to comply with the Order could result in the initiation of further enforcement
actions by the OTS, including the imposition of civil monetary penalties. 
The Order is expected to result in additional regulatory compliance expense for
the Company.  A detailed description of the Order can found at “Regulation and Supervision—Cease
and Desist Order.”





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, 2010 $26.8 million, or 24.8% of our loan portfolio consisted of
commercial and multi-family real estate loans and commercial business loans,
down from $30.7 million at March 31, 2009.  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.  Even though
the Bank has been working on collecting the money owed on non-performing loans
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—Cease
and Desist Order” 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.”





Financial
reform legislation may have a material impact on our
operations.


Separate legislation has been passed in
the United States Senate and House of Representatives that would implement
significant changes to the current bank regulatory scheme.  This
legislation, which as of the date of this report is in the process of being
reconciled into a single bill for consideration by both the House and Senate,
would eliminate our current primary federal regulator, the Office of Thrift
Supervision, by merging it into the Comptroller of the Currency (the primary
federal regulator for national banks).  The legislation would grant
the Board of Governors of the Federal Reserve System exclusive authority to
regulate all bank and savings and loan holding companies.  As a
result, Delanco Bancorp would become subject to oversight by the Federal Reserve
Board, as opposed to the Office of Thrift Supervision, and could become subject
to holding company capital requirements that it is not currently subject to. The
legislation would also create the Consumer Financial Protection Bureau, which
would be dedicated to protecting consumers in the financial products and
services market.  The creation of this agency could result in new
regulatory requirements and raise the cost of regulatory
compliance.  Because the final legislation may differ significantly
from the House and Senate bills, we cannot determine the specific impact of
regulatory reform at this time.


Increased
and/or special FDIC assessments will hurt our earnings.





The
recent economic recession has caused a high level of bank failures, which has
dramatically increased FDIC resolution costs and led to a significant reduction
in the balance of the Deposit Insurance Fund. As a result, the FDIC has
significantly increased the initial base assessment rates paid by financial
institutions for deposit insurance. Increases in the base assessment rate have
increased our deposit insurance costs and negatively impacted our earnings. In
addition, in May 2009, the FDIC imposed a special assessment on all insured
institutions. Our special assessment, which was reflected in earnings for the
quarter ended September 30, 2009, was
$62,118. In lieu of imposing an additional
special assessment, the FDIC required all institutions to prepay their
assessments for all of 2010, 2011 and 2012, which for us totaled $1,054,970.  Additional increases in the base
assessment rate or additional special assessments would negatively impact our
earnings.


14





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.





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, 2009, which is the
most recent date for which data is available from the FDIC, we held 1.55% 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.




15


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.





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 MHC 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.




16


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 $7.7 million as of March 31, 2010.





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.               [REMOVED AND
RESERVED]





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 2010 and 2009.  As of June 15, 2010 there were
approximately 463 holders of record of the Company’s common stock.





For
      the Year Ended
                          March
      31, 2010
                        
                        High
                        
                        
                        LowFirst
      Quarter
                        
                        $
                        4.00
                        
                        
                        $
                        2.03Second
      Quarter
                        
                        
                        7.00
                        
                        
                        
                        2.50Third
      Quarter
                        
                        
                        6.00
                        
                        
                        
                        1.75Fourth
      Quarter
                        
                        
                        2.30
                        
                        
                        
                        1.75For
      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




17


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, 2010, 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.





ITEM
      6.
            SELECTED
      FINANCIAL DATA





Years Ended March 31,(Dollars in thousands, except per share data)
                              
                              2010
                              
                              
                              2009
                              
                              
                              2008Financial
      Condition Data:Total
      assets
                              
                              $
                              139,922
                              
                              
                              $
                              130,468
                              
                              
                              $
                              131,530Investment
      securities
                              
                              
                              16,618
                              
                              
                              
                              14,505
                              
                              
                              
                              12,565Loans
      receivable, net
                              
                              
                              107,204
                              
                              
                              
                              103,624
                              
                              
                              
                              96,346Deposits
                              
                              
                              127,164
                              
                              
                              
                              113,983
                              
                              
                              
                              117,640Borrowings
                              
                              ─
                              
                              
                              
                              3,750
                              
                              
                              ─Total
      stockholders’ equity
                              
                              
                              11,735
                              
                              
                              
                              11,521
                              
                              
                              
                              12,757Operating
      Data:Interest
      income
                              
                              
                              6,973
                              
                              
                              $
                              6,793
                              
                              
                              $
                              7,340Interest
      expense
                              
                              
                              2,640
                              
                              
                              
                              3,578
                              
                              
                              
                              4,053Net
      interest income
                              
                              
                              4,333
                              
                              
                              
                              3,215
                              
                              
                              
                              3,287Provision
      for loan losses
                              
                              
                              1,140
                              
                              
                              
                              1,127
                              
                              
                              
                              1,450Net
      interest income after provision for loan losses
                              
                              
                              3,193
                              
                              
                              
                              2,088
                              
                              
                              
                              1,837Noninterest
      income
                              
                              
                              174
                              
                              
                              
                              188
                              
                              
                              
                              229Noninterest
      expenses
                              
                              
                              3,666
                              
                              
                              
                              4,010
                              
                              
                              
                              3,485Income
      before taxes
                              
                              
                              (299
                              )
                              
                              
                              (1,734
                              )
                              
                              
                              (1,419
                              )Income
      tax benefit
                              
                              
                              (482
                              )
                              
                              
                              (503
                              )
                              
                              
                              (352
                              )Net
      income
                              
                              $
                              183
                              
                              
                              $
                              (1,231
                              )
                              
                              $
                              (1,067
                              )Per
      Share Data:Earnings
      per share, basic
                              
                              $
                              0.12
                              
                              
                              $
                              (0.78
                              )
                              
                              $
                              (0.68
                              )Earnings
      per share, diluted
                              
                              $
                              0.12
                              
                              
                              $
                              (0.78
                              )
                              
                              $
                              (0.68
                              )Weighted
      average shares – basic
                              
                              
                              1,580,256
                              
                              
                              
                              1,577,052
                              
                              
                              
                              1,570,644Weighted
      average shares – diluted
                              
                              
                              1,580,256
                              
                              
                              
                              1,577,052
                              
                              
                              
                              1,570,644




18





Years Ended March 31,2010
                          
                          
                          2009
                          
                          
                          2008Performance
      Ratios:Return
      on average assets
                          
                          
                          0.13
                          %
                          
                          
                          (0.95
                          )%
                          
                          
                          (0.85
                          )%Return
      on average equity
                          
                          
                          1.59
                          
                          
                          
                          (9.97
                          )
                          
                          
                          (7.93
                          )Interest
      rate spread (1)
                          
                          
                          3.33
                          
                          
                          
                          2.50
                          
                          
                          
                          2.53Net
      interest margin (2)
                          
                          
                          3.43
                          
                          
                          
                          2.68
                          
                          
                          
                          2.84Noninterest
      expense to average assets
                          
                          
                          2.67
                          
                          
                          
                          3.08
                          
                          
                          
                          2.78Efficiency
      ratio (3)
                          
                          
                          81.34
                          
                          
                          
                          117.84
                          
                          
                          
                          99.12Average
      interest-earning assets to averageinterest-bearing
      liabilities
                          
                          
                          104.88
                          
                          
                          
                          106.88
                          
                          
                          
                          108.88Average
      equity to average assets
                          
                          
                          8.39
                          
                          
                          
                          9.48
                          
                          
                          
                          10.73Capital
      Ratios (4):Tangible
      capital
                          
                          
                          7.76
                          
                          
                          
                          8.68
                          
                          
                          
                          7.29Core
      capital
                          
                          
                          7.76
                          
                          
                          
                          8.68
                          
                          
                          
                          7.29Total
      risk-based capital
                          
                          
                          12.62
                          
                          
                          
                          13.91
                          
                          
                          
                          9.46Asset
      Quality Ratios:Allowance
      for loan losses as a percent of total loans
                          
                          
                          0.92
                          
                          
                          
                          1.47
                          
                          
                          
                          1.37Allowance
      for loan losses as a percent of nonperformingloans
                          
                          
                          16.47
                          
                          
                          
                          17.74
                          
                          
                          
                          76.83Net
      charge-offs (recoveries) to average outstanding loansduring
      the period
                          
                          
                          1.57
                          
                          
                          
                          0.94
                          
                          
                          
                          0.64Non-performing
      loans as a percent of total loans
                          
                          
                          5.60
                          
                          
                          
                          8.27
                          
                          
                          
                          1.78


____________________________________


(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 and expenses of stockholder communications and
meetings.  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.





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.  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 required us to record a valuation allowance against our deferred
tax assets.  A recent state tax law change and current income projections
have resulted in the elimination of the deferred tax valuation allowance. The
New Jersey tax law has extended the net loss carry-forward from seven years to
twenty years, putting the State tax law in agreement with the Federal tax
law.  This change has provided the Bank with additional $193,000 state
income tax benefit and an additional $156,000 in Federal income tax
benefit.





The
calculation of deferred taxes for GAAP capital differs from the calculation of
deferred taxes for regulatory capital. For regulatory capital, deferred tax
assets that are dependent upon future taxable income for realization are limited
to the lesser of either the amount of deferred tax assets that the institution
expects to realize within one year of the calendar quarter-end date, or 10% of
Delanco Federal Savings Bank’s (the “Bank”)Tier I capital. As a result of this
variance, our Tier I regulatory capital ratio is lower then our GAAP capital
ratio by 34 basis points.





Balance
Sheet Analysis





Overview.Total
assets at March 31, 2010 were $139.9 million, an increase of $9.4 million, or
7.2%, from total assets of $130.5 million at March 31, 2009.  The change in
the asset composition primarily reflected growth of the real estate loan and
investment portfolio.





Loans.At March 31, 2010, total
loans, net, were $107.2 million, or 76.6% of total assets.  During the year
ended March 31, 2010, the loan portfolio grew $3.6 million, or 3.5%, with the
residential real estate loan portfolio accounting for $8.8 million of the
increase.  Commercial loans declined from the year earlier
period.





Table
1:  Loan Portfolio Analysis




2010
                        
                        
                        2009
                        
                        
                        2008March 31, (Dollars in thousands)
                        
                        Amount
                        
                        
                        Percent
                        
                        
                        Amount
                        
                        
                        Percent
                        
                        
                        Amount
                        
                        
                        PercentReal
      estate loans:Residential
                        
                        $
                        79,637
                        
                        
                        
                        73.5
                        %
                        
                        $
                        70,806
                        
                        
                        
                        67.2
                        %
                        
                        $
                        61,007
                        
                        
                        
                        61.7
                        %Commercial and multi-family
                        
                        
                        23,998
                        
                        
                        
                        22.2
                        
                        
                        
                        26,054
                        
                        
                        
                        24.7
                        
                        
                        
                        23,974
                        
                        
                        
                        24.2Construction
                        
                        
                        395
                        
                        
                        
                        0.4
                        
                        
                        
                        1,796
                        
                        
                        
                        1.7
                        
                        
                        
                        3,121
                        
                        
                        
                        3.2Total real estate loans
                        
                        
                        104,030
                        
                        
                        
                        96.1
                        
                        
                        
                        98,656
                        
                        
                        
                        93.6
                        
                        
                        
                        88,102
                        
                        
                        
                        89.1Commercial
      loans
                        
                        
                        2,821
                        
                        
                        
                        2.6
                        
                        
                        
                        4,618
                        
                        
                        
                        4.4
                        
                        
                        
                        8,214
                        
                        
                        
                        8.3Consumer
      loans
                        
                        
                        1,419
                        
                        
                        
                        1.3
                        
                        
                        
                        2,134
                        
                        
                        
                        2.0
                        
                        
                        
                        2,553
                        
                        
                        
                        2.6Total loans
                        
                        
                        108,270
                        
                        
                        
                        100.0
                        %
                        
                        
                        105,408
                        
                        
                        
                        100.0
                        %
                        
                        
                        98,869
                        
                        
                        
                        100.0
                        %Loans
      in process
                        
                        ─
                        
                        
                        
                        
                        
                        
                        
                        (139
                        )
                        
                        
                        
                        
                        
                        
                        (1,032
                        )Net
      deferred loan fees
                        
                        
                        (67
                        )
                        
                        
                        
                        
                        
                        
                        (98
                        )
                        
                        
                        
                        
                        
                        
                        (138
                        )Allowance
      for losses
                        
                        
                        (999
                        )
                        
                        
                        
                        
                        
                        
                        (1,547
                        )
                        
                        
                        
                        
                        
                        
                        (1,353
                        )Loans, net
                        
                        $
                        107,204
                        
                        
                        
                        
                        
                        
                        $
                        103,624
                        
                        
                        
                        
                        
                        
                        $
                        96,346





The
following table sets forth certain information at March 31, 2010 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, 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 Sensitivity





March 31, 2010 (Dollars in thousands)
                      
                      Real Estate
                        Loans
                      
                      
                      Commercial
                        Loans
                      
                      
                      Consumer
                        Loans
                      
                      
                      Total
                        LoansAmounts
      due in:One year or less
                      
                      $
                      4,476
                      
                      
                      $
                      1,515
                      
                      
                      $
                      119
                      
                      
                      $
                      6,110More than one to five years
                      
                      
                      32,829
                      
                      
                      
                      1,089
                      
                      
                      
                      670
                      
                      
                      
                      34,588More than five years
                      
                      
                      66,725
                      
                      
                      
                      217
                      
                      
                      
                      630
                      
                      
                      
                      67,572Total
                      
                      $
                      104,030
                      
                      
                      $
                      2,821
                      
                      
                      $
                      1,419
                      
                      
                      $
                      108,270Interest
      rate terms on amounts due after one year:Fixed-rate loans
                      
                      $
                      90,563
                      
                      
                      $
                      1,327
                      
                      
                      $
                      941
                      
                      
                      $
                      92,831Adjustable-rate loans
                      
                      
                      8,291
                      
                      
                      
                      50
                      
                      
                      
                      357
                      
                      
                      
                      8,698Total
                      
                      $
                      98,854
                      
                      
                      $
                      1,377
                      
                      
                      $
                      1,298
                      
                      
                      $
                      101,529





Securities.The
investment securities portfolio was $16.6 million, or 11.9% of total assets, at
March 31, 2010.  At that date, 56.3% of the investment portfolio was
invested in mortgage-backed securities, while the remainder was invested
primarily inU.S.
Government agency and other debt securities.  The increase in our portfolio
represents the purchase of Government sponsored enterprise securities.





Table
3:  Investment Securities





2010
                          
                          
                          2009
                          
                          
                          2008March 31, 
      (Dollars in thousands)
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            Value
                          
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            Value
                          
                          
                          Amortized
                            Cost
                          
                          
                          Fair
                            ValueSecurities
      available for sale:Mutual funds
                          
                          $
                          256
                          
                          
                          $
                          258
                          
                          
                          $
                          245
                          
                          
                          $
                          223
                          
                          
                          $
                          234
                          
                          
                          $
                          278Total available for sale
                          
                          
                          256
                          
                          
                          
                          258
                          
                          
                          
                          245
                          
                          
                          
                          223
                          
                          
                          
                          234
                          
                          
                          
                          278Securities
      held to maturity:Government
      sponsored enterprise securities
                          
                          
                          6,997
                          
                          
                          
                          7,013
                          
                          
                          
                          2,500
                          
                          
                          
                          2,508
                          
                          
                          
                          3,500
                          
                          
                          
                          3,513Mortgage-backed securities
                          
                          
                          9,363
                          
                          
                          
                          9,793
                          
                          
                          
                          11,782
                          
                          
                          
                          12,223
                          
                          
                          
                          8,787
                          
                          
                          
                          9,015Total held to maturity
                          
                          
                          16,360
                          
                          
                          
                          16,806
                          
                          
                          
                          14,282
                          
                          
                          
                          14,731
                          
                          
                          
                          12,287
                          
                          
                          
                          12,528Total
                          
                          $
                          16,616
                          
                          
                          $
                          17,064
                          
                          
                          $
                          14,527
                          
                          
                          $
                          14,954
                          
                          
                          $
                          12,521
                          
                          
                          $
                          12,806





The
following table sets forth the stated maturities and weighted average yields of
our mortgage-backed securities at March 31, 2010.  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 $1.1 million of the mortgage-backed
securities listed have adjustable interest rates.





Table
4:  Investment Maturities Schedule




One Year or Less
                
                
                More than One Year to
      Five Years
                
                
                More than Five Years
      to Ten Years
                
                
                More than Ten Years
                
                
                TotalMarch 31, 2010
                  (Dollars in thousands)
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  Yield
                
                
                Carrying
                  Value
                
                
                Weighted
                  Average
                  YieldSecurities
      available-for-sale:Mutual
      funds
                
                $
                –
                
                
                
                –
                %
                
                $
                –
                
                
                
                –
                %
                
                $
                –
                
                
                
                –
                %
                
                $
                –
                
                
                
                –
                %
                
                $
                258
                
                
                
                –
                %Total
      available for sale
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                –
                
                
                $
                258
                
                
                –Securities
      held to maturity:Government
      sponsored enterprise securities
                
                –
                
                
                –
                
                
                
                2,999
                
                
                
                2.99
                
                
                
                3,998
                
                
                
                3.85
                
                
                –
                
                
                –
                
                
                
                6,997
                
                
                
                3.48Mortgage-backed
      securities
                
                
                1,258
                
                
                
                4.77
                
                
                
                3,692
                
                
                
                5.71
                
                
                
                11
                
                
                
                8.73
                
                
                
                4,402
                
                
                
                4.67
                
                
                
                9,363
                
                
                
                5.10Total
      held to maturity
                
                
                1,258
                
                
                
                4.77
                
                
                
                6,691
                
                
                
                4.49
                
                
                
                4,009
                
                
                
                3.86
                
                
                
                4,402
                
                
                
                4.67
                
                
                
                16,360
                
                
                
                4.41Total
                
                $
                1,258
                
                
                
                4.77
                %
                
                $
                6,691
                
                
                
                4.49
                %
                
                $
                4,009
                
                
                
                3.86
                %
                
                $
                4,402
                
                
                
                4.67
                %
                
                $
                16,618
                
                
                
                4.41
                %




22


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, 2010, core
deposits were 44.3% of total deposits.  Deposits increased $13.2 million,
or 11.6%, during the year ended March 31, 2010, as core deposits grew $4.6
million and time deposits grew $8.6 million.





Table
5:  Deposits




2010
                        
                        
                        2009
                        
                        
                        2008March 31, (Dollars in thousands)
                        
                        Amount
                        
                        
                        Percent
                        
                        
                        Amount
                        
                        
                        Percent
                        
                        
                        Amount
                        
                        
                        PercentNoninterest-bearing
      demand deposits
                        
                        $
                        3,941
                        
                        
                        
                        3.1
                        %
                        
                        $
                        2,519
                        
                        
                        
                        2.2
                        %
                        
                        $
                        4,860
                        
                        
                        
                        4.1
                        %Interest-bearing
      demand deposits
                        
                        
                        9,922
                        
                        
                        
                        7.8
                        
                        
                        
                        10,036
                        
                        
                        
                        8.8
                        
                        
                        
                        7,839
                        
                        
                        
                        6.7Savings
      and money market accounts
                        
                        
                        42,510
                        
                        
                        
                        33.4
                        
                        
                        
                        39,241
                        
                        
                        
                        34.4
                        
                        
                        
                        35,369
                        
                        
                        
                        30.1Certificates
      of deposit
                        
                        
                        70,791
                        
                        
                        
                        55.7
                        
                        
                        
                        62,187
                        
                        
                        
                        54.6
                        
                        
                        
                        69,572
                        
                        
                        
                        59.1Total
                        
                        $
                        127,164
                        
                        
                        
                        100.0
                        %
                        
                        $
                        113,983
                        
                        
                        
                        100.0
                        %
                        
                        $
                        117,640
                        
                        
                        
                        100.0
                        %




Table
6:  Time Deposit Maturities of $100,000 or more





March 31, 2010 (Dollars in thousands)
                      
                      Certificates
                        of DepositMaturity
      PeriodThree
      months or less
                      
                      $
                      6,497Over
      three through six months
                      
                      
                      2,912Over
      six through twelve months
                      
                      
                      4,664Over
      twelve months
                      
                      
                      7,199Total
                      
                      $
                      21,272





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


Table
7:  Borrowings




March 31, (Dollars in thousands)
                        
                        2010
                        
                        
                        2009
                        
                        
                        2008Maximum
      amount outstanding at any month end during the period:FHLB advances
                        
                        $
                        3,000
                        
                        
                        $
                        3,750
                        
                        
                        $
                        750Average
      amount outstanding during the period (1):FHLB advances
                        
                        
                        917
                        
                        
                        
                        833
                        
                        
                        
                        104Weighted
      average interest rate during the period (1):FHLB advances
                        
                        
                        1.89
                        %
                        
                        
                        1.48
                        %
                        
                        
                        5.19
                        %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, 2010 and 2009





Financial
Highlights.Net income for the year ended March 31, 2010 was $183,000
compared to a loss of $1.2 million for the year ended March 31, 2009.  Net
interest income improved significantly over the prior year primarily as a result
of a larger average balance of interest-earning assets and a lower cost of
funds.  Credit costs remained elevated, however, as the provision for loan
losses was approximately the same as the prior year.  Lower non-interest
expense also contributed to the improved results.  Changes in state income
tax law resulted in additional state and federal income tax benefits of
$349,000.





23


Table
8:  Summary Income Statements





Year Ended March 31, (Dollars in thousands)
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010 v. 2009
                          
                          
                          % ChangeNet
      interest income
                          
                          $
                          4,333
                          
                          
                          $
                          3,215
                          
                          
                          $
                          1,118
                          
                          
                          
                          34.8
                          %Provision
      for loan losses
                          
                          
                          1,140
                          
                          
                          
                          1,127
                          
                          
                          
                          13
                          
                          
                          
                          1.2Noninterest
      income
                          
                          
                          174
                          
                          
                          
                          188
                          
                          
                          
                          (14
                          )
                          
                          
                          (7.4
                          )Noninterest
      expenses
                          
                          
                          3,666
                          
                          
                          
                          4,010
                          
                          
                          
                          (344
                          )
                          
                          
                          (8.6
                          )Net
      income
                          
                          
                          183
                          
                          
                          
                          (1,231
                          )
                          
                          
                          1,414
                          
                          
                          
                          114.9Return
      on average equity
                          
                          
                          1.59
                          %
                          
                          
                          (9.97
                          )%Return
      on average assets
                          
                          
                          0.13
                          
                          
                          
                          (0.95
                          )%





Net
Interest Income.  Net interest income increased $1.1 million to $4.3
million for the year ended March 31, 2010 from $3.2 million for the year ended
March 31, 2009 primarily due to a decline of interest paid on deposits. The 75
basis point increase in the net interest margin to 3.43% reflected the decrease
in the ratio of average interest earning assets to average interest bearing
liabilities.





Average
loans in the year ended March 31, 2010 increased $7.6 million, or 7.7%, compared
with the same period in 2009, driven by growth in residential and home equity
loans.  Average investment securities in year ended March 31, 2010
decreased $242,000, or 1.6%, compared to the same period in 2009.  The
decrease in the investment portfolio was due to mortgage backed securities
pay-down of principle.  Lower market rates decreased the average yield on
earning assets to 5.52% for the year ended March 31, 2010, compared with 5.67%
for the same period in 2009.





Average
interest-bearing deposits in the year ended March 31, 2010 increased $7.2
million, or 6.5%, compared with the same period in 2009 due to increases in
savings accounts and time deposits partially offset by lower interest bearing
demand deposits.  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 increased as we
promoted select deposit maturities.  Decreases in market interest rates
reduced the average cost of deposits to 2.19%, compared with 3.17% for the same
period in 2009.





Table
9:  Analysis of Net Interest Income





Year Ended March 31, (Dollars in thousands)
                              
                              2010
                              
                              
                              2009
                              
                              
                              2010 v. 2009
                              
                              
                              % ChangeComponents
      of net interest incomeLoans
                              
                              $
                              6,279
                              
                              
                              $
                              5,987
                              
                              
                              $
                              292
                              
                              
                              
                              4.9
                              %Investment securities
                              
                              
                              694
                              
                              
                              
                              806
                              
                              
                              
                              (112
                              )
                              
                              
                              (13.9
                              )Total interest income
                              
                              
                              6,973
                              
                              
                              
                              6,793
                              
                              
                              
                              180
                              
                              
                              
                              2.6Deposits
                              
                              
                              2,620
                              
                              
                              
                              3,568
                              
                              
                              
                              (948
                              )
                              
                              
                              (26.6
                              )Borrowings
                              
                              
                              20
                              
                              
                              
                              10
                              
                              
                              
                              10
                              
                              
                              
                              100.0Total interest expense
                              
                              
                              2,640
                              
                              
                              
                              3,578
                              
                              
                              
                              (938
                              )
                              
                              
                              (26.2
                              )Net interest income
                              
                              
                              4,333
                              
                              
                              
                              3,215
                              
                              
                              
                              1,118
                              
                              
                              
                              34.8Average
      yields and rates paidInterest-earning assets
                              
                              
                              5.52
                              %
                              
                              
                              5.67
                              %
                              
                              
                              (15
                              )Interest-bearing liabilities
                              
                              
                              2.19
                              
                              
                              
                              3.17
                              
                              
                              
                              (98
                              )Interest rate spread
                              
                              
                              3.33
                              
                              
                              
                              2.50
                              
                              
                              
                              83Net interest margin
                              
                              
                              3.43
                              
                              
                              
                              2.68
                              
                              
                              
                              75Average
      balancesLoans
                              
                              $
                              107,341
                              
                              
                              $
                              99,692
                              
                              
                              $
                              7,649
                              
                              
                              
                              7.7Investment securities
                              
                              
                              14,484
                              
                              
                              
                              14,726
                              
                              
                              
                              (242
                              )
                              
                              
                              (1.6
                              )Earning assets
                              
                              
                              126,350
                              
                              
                              
                              119,843
                              
                              
                              
                              6,507
                              
                              
                              
                              5.4Interest-bearing deposits
                              
                              
                              119,369
                              
                              
                              
                              112,128
                              
                              
                              
                              7,241
                              
                              
                              
                              6.5





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, 2010 compared to $1.1 million in the year
ended March 31, 2009.  Theprovision
for loan losses was primarily attributable to management’s systematic evaluation
of risk associated with the loan portfolio.  We had $1.7 million in
charge-offs in the year ended March 31, 2010, compared to $1.3 million in
charge-offs in the year ended March 31, 2009.




24




The
allowance for loan losses was $1.0 million, or 0.92% of total loans outstanding
as of March 31, 2010 as compared with $1.5 million, or 1.47% as of March 31,
2009.  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, 2010 compared to the prior year
primarily as a result of a
reduction in our ATM income for the reasons described below with respect to the
offsetting of ATM income and expenses. Other income decreased as a result of
the conversion of the ATM processor. Our new processor offsets fees earned
against the expenses incurred, thus reducing our ATM income and ATM expense. The
gain on sale of investment securities increased $15,000 due to the sale of an
equity mutual fund which otherwise would have negatively impacted our regulatory
capital calculation.





Table
10:  Noninterest Income Summary





Year Ended March 31, (Dollars in thousands)
                  
                  2010
                  
                  
                  2009
                  
                  
                  $ Change
                  
                  
                  % ChangeService
      charges
                  
                  $
                  127
                  
                  
                  $
                  108
                  
                  
                  $
                  19
                  
                  
                  
                  17.6
                  %Gain
      on sale of investment
                  
                  
                  15
                  
                  
                  ─
                  
                  
                  
                  15
                  
                  
                  ─Rental
      income
                  
                  
                  1
                  
                  
                  
                  6
                  
                  
                  
                  (5
                  )
                  
                  
                  (83.3
                  )Income
      from bank owned life insurance
                  
                  
                  6
                  
                  
                  
                  6
                  
                  
                  ─
                  
                  
                  ─Other
                  
                  
                  25
                  
                  
                  
                  68
                  
                  
                  
                  (43
                  )
                  
                  
                  (63.2
                  )Total
                  
                  $
                  174
                  
                  
                  $
                  188
                  
                  
                  $
                  (14
                  )
                  
                  
                  (7.4
                  )%




Noninterest
Expenses.Noninterest
expenses decreased in the year ended March 31, 2010 over the prior year dueto reduced professional
fees, salaries and employee benefits and lower overall data processing costs.
The on-line banking expense is now included in the data processing expense. The
combined expense of data processing costs including the ATM expense decreased
$365,000. The reductions were offset by the $173,000 increase in the Federal
Deposit Insurance premiums. The increased premiums include a special assessment
charged to all FDIC insured financial institutions, which for us was $62,000.
Real estate owned valuation provision increased $75,000 as the Bank established
a reserve against the real estate owned.





Table
11:  Noninterest Expense Summary




Year Ended March 31, (Dollars in thousands)
                            
                            2010
                            
                            
                            2009
                            
                            
                            $ Change
                            
                            
                            % ChangeSalaries
      and employee benefits
                            
                            $
                            1,762
                            
                            
                            $
                            1,863
                            
                            
                            $
                            (101
                            )
                            
                            
                            (5.4
                            )%Advertising
                            
                            
                            34
                            
                            
                            
                            51
                            
                            
                            
                            (17
                            )
                            
                            
                            (33.3
                            )Office
      supplies, telephone and postage
                            
                            
                            117
                            
                            
                            
                            150
                            
                            
                            
                            (33
                            )
                            
                            
                            (22.0
                            )Net
      occupancy expense
                            
                            
                            697
                            
                            
                            
                            667
                            
                            
                            
                            30
                            
                            
                            
                            4.5Real estate owned loss
    reserve
                            
                            
                            75
                            
                            
                            ─
                            
                            
                            
                            75
                            
                            
                            ─Federal
      insurance premiums
                            
                            
                            289
                            
                            
                            
                            116
                            
                            
                            
                            173
                            
                            
                            
                            149.1Data
      processing expenses
                            
                            
                            131
                            
                            
                            
                            338
                            
                            
                            
                            (207
                            )
                            
                            
                            (61.2
                            )ATM
      expenses
                            
                            
                            23
                            
                            
                            
                            70
                            
                            
                            
                            (47
                            )
                            
                            
                            (67.1
                            )Bank
      charges and fees
                            
                            
                            103
                            
                            
                            
                            71
                            
                            
                            
                            32
                            
                            
                            
                            45.1Insurance
      and surety bond premiums
                            
                            
                            69
                            
                            
                            
                            42
                            
                            
                            
                            27
                            
                            
                            
                            64.3Dues
      and subscriptions
                            
                            
                            35
                            
                            
                            
                            52
                            
                            
                            
                            (17
                            )
                            
                            
                            (32.7
                            )Professional
      fees
                            
                            
                            193
                            
                            
                            
                            329
                            
                            
                            
                            (136
                            )
                            
                            
                            (41.3
                            )On-line
      banking expenses
                            
                            ─
                            
                            
                            
                            111
                            
                            
                            
                            (111
                            )
                            
                            
                            100.0Other
                            
                            
                            138
                            
                            
                            
                            150
                            
                            
                            
                            (12
                            )
                            
                            
                            (8.0
                            )Total
                            
                            $
                            3,666
                            
                            
                            $
                            4,010
                            
                            
                            $
                            (344
                            )
                            
                            
                            (8.6
                            )%




Income
Tax Benefit.The
credit for income taxes was $482,000 for 2010, compared to a credit of $503,000
for 2009. The New Jersey tax law has extended the net loss carry-forward from
seven years to twenty years, putting the State tax law in agreement with the
Federal tax law.  This change has provided the Bank with an additional
$194,000 state income tax benefit.





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 Tables




2010
                                          
                                          
                                          2009Year Ended March 31, (Dollars in thousands)
                                          
                                          Average
                                            Balance
                                          
                                          
                                          Interest
                                            and
                                            Dividends
                                          
                                          
                                          Yield/
                                            Cost
                                          
                                          
                                          Average
                                            Balance
                                          
                                          
                                          Interest
                                            and
                                            Dividends
                                          
                                          
                                          Yield/
                                            CostAssets:Interest-earning
      assets:Loans
                                          
                                          $
                                          107,341
                                          
                                          
                                          $
                                          6,279
                                          
                                          
                                          
                                          5.85
                                          %
                                          
                                          $
                                          99,692
                                          
                                          
                                          $
                                          5,987
                                          
                                          
                                          
                                          6.01
                                          %Investment securities
                                          
                                          
                                          14,484
                                          
                                          
                                          
                                          670
                                          
                                          
                                          
                                          4.63
                                          
                                          
                                          
                                          14,726
                                          
                                          
                                          
                                          735
                                          
                                          
                                          
                                          4.99Other interest-earning assets
                                          
                                          
                                          4,525
                                          
                                          
                                          
                                          24
                                          
                                          
                                          
                                          0.53
                                          
                                          
                                          
                                          5,425
                                          
                                          
                                          
                                          71
                                          
                                          
                                          
                                          1.31Total interest-earning assets
                                          
                                          
                                          126,350
                                          
                                          
                                          
                                          6,973
                                          
                                          
                                          
                                          5.52
                                          
                                          
                                          
                                          119,843
                                          
                                          
                                          
                                          6,793
                                          
                                          
                                          
                                          5.67Noninterest-earning
      assets
                                          
                                          
                                          11,155
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          10,407Total assets
                                          
                                          $
                                          137,505
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          130,250Liabilities
      and equity:Interest-bearing
      liabilities:Interest-bearing demand deposits
                                          
                                          $
                                          11,945
                                          
                                          
                                          
                                          105
                                          
                                          
                                          
                                          0.88
                                          
                                          
                                          $
                                          10,610
                                          
                                          
                                          
                                          78
                                          
                                          
                                          
                                          0.74Savings and money market accounts
                                          
                                          
                                          39,331
                                          
                                          
                                          
                                          497
                                          
                                          
                                          
                                          1.26
                                          
                                          
                                          
                                          35,452
                                          
                                          
                                          
                                          668
                                          
                                          
                                          
                                          1.88Certificates of deposit
                                          
                                          
                                          68,093
                                          
                                          
                                          
                                          2,018
                                          
                                          
                                          
                                          2.96
                                          
                                          
                                          
                                          66,066
                                          
                                          
                                          
                                          2,822
                                          
                                          
                                          
                                          4.27Total interest-bearing deposits
                                          
                                          
                                          119,369
                                          
                                          
                                          
                                          2,620
                                          
                                          
                                          
                                          2.19
                                          
                                          
                                          
                                          112,128
                                          
                                          
                                          
                                          3,568
                                          
                                          
                                          
                                          3.18FHLB advances
                                          
                                          
                                          1,099
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          1.82
                                          
                                          
                                          
                                          833
                                          
                                          
                                          
                                          10
                                          
                                          
                                          
                                          1.20Total interest-bearing liabilities
                                          
                                          
                                          120,468
                                          
                                          
                                          
                                          2,640
                                          
                                          
                                          
                                          2.19
                                          
                                          
                                          
                                          112,961
                                          
                                          
                                          
                                          3,578
                                          
                                          
                                          
                                          3.17Noninterest-bearing
      demand deposits
                                          
                                          
                                          4,121
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          3,584Other
      noninterest-bearing liabilities
                                          
                                          
                                          1,382
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1,354Total liabilities
                                          
                                          
                                          125,971
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          117,899Retained
      earnings
                                          
                                          
                                          11,534
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          12,351Total liabilities and retained earnings
                                          
                                          $
                                          137,505
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          130,250Net
      interest income
                                          
                                          
                                          
                                          
                                          
                                          $
                                          4,333
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          3,215Interest
      rate spread
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          3.33
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2.50Net
      interest margin
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          3.43
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2.68Average
      interest-earning assets toaverage
      interest-bearing liabilities
                                          
                                          
                                          104.88
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          106.88
                                          %




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





2010 Compared to 2009 (Dollars in thousands)
                      
                      Volume
                      
                      
                      Rate
                      
                      
                      NetInterest
      income:Loans receivable
                      
                      $
                      460
                      
                      
                      $
                      (168
                      )
                      
                      $
                      292Investment securities
                      
                      
                      (12
                      )
                      
                      
                      (53
                      )
                      
                      
                      (65
                      )Other interest-earning assets
                      
                      
                      (12
                      )
                      
                      
                      (35
                      )
                      
                      
                      (47
                      )Total
                      
                      
                      436
                      
                      
                      
                      (256
                      )
                      
                      
                      180Interest
      expense:Deposits
                      
                      
                      235
                      
                      
                      
                      (1,183
                      )
                      
                      
                      (948
                      )FHLB advances
                      
                      
                      3
                      
                      
                      
                      7
                      
                      
                      
                      10Total
                      
                      
                      238
                      
                      
                      
                      (1,176
                      )
                      
                      
                      (938
                      )Increase
      (decrease) in net interest income
                      
                      $
                      198
                      
                      
                      $
                      920
                      
                      
                      $
                      1,118





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—Cease
and Desist Order” 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.





27


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.




Table
14:  Nonperforming Assets




March 31, (Dollars in thousands)
                                                    
                                                    2010
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2008Nonaccrual loans:Residential real estate
                                                    
                                                    $
                                                    2,053
                                                    
                                                    
                                                    $
                                                    361
                                                    
                                                    
                                                    $
                                                    ─Commercial
      and multi-family real estate
                                                    
                                                    
                                                    3,789
                                                    
                                                    
                                                    
                                                    6,031
                                                    
                                                    
                                                    ─Construction
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    760
                                                    
                                                    
                                                    ─Commercial
                                                    
                                                    
                                                    225
                                                    
                                                    
                                                    
                                                    596
                                                    
                                                    
                                                    ─Consumer
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    550
                                                    
                                                    
                                                    ─Total
                                                    
                                                    
                                                    6,067
                                                    
                                                    
                                                    
                                                    8,298
                                                    
                                                    
                                                    ─Accruing
      loans past due 90 days or more:Residential
      real estate
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    128
                                                    
                                                    
                                                    
                                                    78Commercial
      and multi-family real estate
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    1,630Construction
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    ─Commercial
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    ─Consumer
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    53Total
                                                    
                                                    ─
                                                    
                                                    
                                                    
                                                    128
                                                    
                                                    
                                                    
                                                    1,761Other
      nonperforming assets
                                                    
                                                    
                                                    413
                                                    
                                                    
                                                    
                                                    295
                                                    
                                                    
                                                    ─Total
      nonperforming assets
                                                    
                                                    
                                                    6,480
                                                    
                                                    
                                                    
                                                    8,721
                                                    
                                                    
                                                    
                                                    1,761Troubled
      debt restructurings
                                                    
                                                    
                                                    3,792
                                                    
                                                    
                                                    
                                                    303
                                                    
                                                    
                                                    ─Troubled
      debt restructurings and total nonperforming assets
                                                    
                                                    $
                                                    10,272
                                                    
                                                    
                                                    $
                                                    9,024
                                                    
                                                    
                                                    $
                                                    1,761Total
      nonperforming loans to total loans
                                                    
                                                    
                                                    5.60
                                                    %
                                                    
                                                    
                                                    8.27
                                                    %
                                                    
                                                    
                                                    1.78
                                                    %Total
      nonperforming loans to total assets
                                                    
                                                    
                                                    4.34
                                                    
                                                    
                                                    
                                                    6.46
                                                    
                                                    
                                                    
                                                    1.34Total
      nonperforming assets and troubled debt restructurings to total
      assets
                                                    
                                                    
                                                    7.34
                                                    
                                                    
                                                    
                                                    6.92
                                                    
                                                    
                                                    
                                                    1.34




Interest
income that would have been recorded for the year ended March 31, 2010, had
non-accruing loans been current according to their original terms amounted to
$472,000.  No uncollected interest related to nonaccrual loans was included
in interest income for the year ended March 31, 2010.





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)
                      
                      2010
                      
                      
                      2009
                      
                      
                      2008Special
      mention assets
                      
                      $
                      2,545
                      
                      
                      $
                      5,105
                      
                      
                      $
                      2,372Substandard
      assets
                      
                      
                      9,898
                      
                      
                      
                      6,515
                      
                      
                      
                      4,348Doubtful
      assets
                      
                      
                      225
                      
                      
                      
                      13
                      
                      
                      
                      243Loss
      assets
                      
                      ─
                      
                      
                      
                      
                      
                      Total classified assets
                      
                      $
                      12,668
                      
                      
                      $
                      11,633
                      
                      
                      $
                      6,963





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, 2010, our allowance for loan losses represented 0.92% of total gross loans.
The allowance for loan losses decreased 35.4% from March 31, 2009 to March 31,
2010.  The decrease in the allowance was primarily attributable to
charging off non- performing
loans. While non-performing loans decreased during the year ended March 31,
2010, the allowance for loan losses was deemed sufficient.





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




29







Table
16:  Allocation of Allowance of Loan Losses





2010
                                          
                                          
                                          2009
                                          
                                          
                                          2008March 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
                                          
                                          $
                                          125
                                          
                                          
                                          
                                          73.5
                                          %
                                          
                                          $
                                          —
                                          
                                          
                                          
                                          67.2
                                          %
                                          
                                          $
                                          25
                                          
                                          
                                          
                                          61.7
                                          %Commercial
      and multi-family real estate
                                          
                                          
                                          683
                                          
                                          
                                          
                                          22.2
                                          
                                          
                                          
                                          571
                                          
                                          
                                          
                                          24.7
                                          
                                          
                                          
                                          1,130
                                          
                                          
                                          
                                          24.2Construction
                                          
                                          –
                                          
                                          
                                          
                                          0.4
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1.7
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3.2Commercial
                                          
                                          
                                          101
                                          
                                          
                                          
                                          2.6
                                          
                                          
                                          
                                          758
                                          
                                          
                                          
                                          4.4
                                          
                                          
                                          
                                          13
                                          
                                          
                                          
                                          8.3Consumer
                                          
                                          
                                          91
                                          
                                          
                                          
                                          1.3
                                          
                                          
                                          
                                          218
                                          
                                          
                                          
                                          2.0
                                          
                                          
                                          
                                          185
                                          
                                          
                                          
                                          2.6Unallocated
                                          
                                          –
                                          
                                          
                                          –
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Total
      allowance for loan losses
                                          
                                          $
                                          999
                                          
                                          
                                          
                                          100.0
                                          %
                                          
                                          $
                                          1,547
                                          
                                          
                                          
                                          100.0
                                          %
                                          
                                          $
                                          1,353
                                          
                                          
                                          
                                          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)
                                
                                2010
                                
                                
                                2009
                                
                                
                                2008Allowance
      at beginning of period
                                
                                $
                                1,547
                                
                                
                                $
                                1,353
                                
                                
                                $
                                492Provision
      for loan losses
                                
                                
                                1,140
                                
                                
                                
                                1,127
                                
                                
                                
                                1,450Charge
      offs:Residential
      real estate loans
                                
                                –
                                
                                
                                
                                2
                                
                                
                                
                                —Commercial
      and multi-family real estate loans
                                
                                
                                815
                                
                                
                                
                                444
                                
                                
                                
                                357Construction
      loans
                                
                                –
                                
                                
                                
                                —
                                
                                
                                
                                —Commercial
      loans
                                
                                
                                503
                                
                                
                                
                                614
                                
                                
                                
                                105Consumer
      loans
                                
                                
                                419
                                
                                
                                
                                194
                                
                                
                                
                                131Total
      charge-offs
                                
                                
                                1,737
                                
                                
                                
                                1,254
                                
                                
                                
                                593Recoveries
                                
                                
                                49
                                
                                
                                
                                321
                                
                                
                                
                                4Net
      charge-offs
                                
                                
                                1,688
                                
                                
                                
                                933
                                
                                
                                
                                589Allowance
      at end of period
                                
                                $
                                999
                                
                                
                                $
                                1,547
                                
                                
                                $
                                1,353Allowance
      to nonperforming loans
                                
                                
                                16.47
                                %
                                
                                
                                17.74
                                %
                                
                                
                                76.83
                                %Allowance
      to total loans outstanding at the end of the period
                                
                                
                                0.92
                                
                                
                                
                                1.47
                                
                                
                                
                                1.37Net
      charge-offs (recoveries) to average loans outstanding during the
      period
                                
                                
                                1.57
                                
                                
                                
                                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, 2010 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
                              
                              
                              $
                              7,459
                              
                              
                              $
                              (8,423
                              )
                              
                              
                              (53
                              )%
                              
                              
                              5.5
                              %
                              
                              
                              (538
                              ) bp200
                              
                              
                              
                              10,631
                              
                              
                              
                              (5,251
                              )
                              
                              
                              (33
                              )
                              
                              
                              7.63
                              
                              
                              
                              (325
                              )100
                              
                              
                              
                              13,678
                              
                              
                              
                              (2,204
                              )
                              
                              
                              (14
                              )
                              
                              
                              9.56
                              
                              
                              
                              (132
                              )50
                              
                              
                              
                              14,467
                              
                              
                              
                              (1,415
                              )
                              
                              
                              (9
                              )
                              
                              
                              10.03
                              
                              
                              
                              (85
                              )0
                              
                              
                              
                              15,882
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              10.88(50
                              )
                              
                              
                              16,224
                              
                              
                              
                              343
                              
                              
                              
                              2
                              
                              
                              
                              11.07
                              
                              
                              
                              18(100
                              )
                              
                              
                              17,134
                              
                              
                              
                              1,252
                              
                              
                              
                              8
                              
                              
                              
                              11.59
                              
                              
                              
                              71





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, 2010, cash and cash equivalents totaled $4.9 million.  At March 31, 2010, we had
no outstanding borrowings and had
arrangements to borrow up to additional $8.6 million from the Federal Home Loan Bank of
New York.





At March 31, 2010, substantially all of
our investment securities were classified as held to maturity.  We have
classified our investments in this manner, rather than as available for sale,
because they were purchased primarily to provide a source of income and not to
provide liquidity.   We anticipate that a portion of future
investments 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, 2010, we had $1.2 million in loan commitments
outstanding.  In addition, we had $1.5
million in unused lines of credit.  Historically, many of the lines of
credit expire without being fully drawn; therefore, the total commitment amounts
do not necessarily represent future cash requirements.  Another significant
use of our liquidity is the funding of deposit withdrawals.  Certificates
of deposit due within one year of March 31, 2010 totaled $47.9 million, or 67.7% of certificates of deposit.  The large
percentage of certificates of deposit that mature within one year reflects
customers’ hesitancy to invest their funds for long periods in the recent low
interest rate environment.  If these maturing deposits do not remain with
us, we will be required to seek other sources of funds, including other
certificates of deposit and borrowings.  Depending on market conditions, we
may be required to pay higher rates on such deposits or other borrowings than we
currently pay on the certificates of deposit due on or before March 31,
2011.  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, 2010, 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 19 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, 2010, we
did not engage in any off-balance sheet transactions reasonably likely to have a
material effect on our financial condition, results of operations or cash
flows.


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, 2010 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 2010 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, 2010.  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 President





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.





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 49.





Douglas R. Allen, Jr. has
served as Senior Vice President since March 4, 2010 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 62.





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 2010 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.


34


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 2010 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 2010 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 2010 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 2010 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, 2010.


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


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 2010 Annual Meeting of Stockholders is
incorporated by reference.





Corporate
Governance





For information regarding director
independence, the section captioned “Corporate Governance—Director
Independence” in the Company’s Proxy Statement for the 2010 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 2010 Annual Meeting of
Stockholders is incorporated by reference.


35




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 Form 8-K filed with the Securities and Exchange Commission on
      August 21, 2009


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
            Order
      to Cease and Desist dated March 17, 2010, by and between Delanco Federal
      Savings Bank and the Office of Thrift
  Supervision


10.2
            Employment
      Agreement between Delanco Bancorp, Inc. and James E. Igo (Incorporated by
      reference from Exhibits to the Form 10-K filed with the Securities and
      Exchange Commission on June 26,
2009)


10.3
            Employment
      Agreement between Delanco Federal Savings Bank and James E. Igo
      (Incorporated by reference from Exhibits to the Form 10-K filed with the
      Securities and Exchange Commission on June 26,
  2009)


10.4
            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)


10.5
            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))


10.6
            Delanco
      Bancorp, Inc. 2009 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,
      2009)


31.1 
      Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer


31.2 
      Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer


32.0 
      Section 1350 Certification


36


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 23, 2010
                By:
                /s/ James E. IgoJames
      E. IgoChairman,
      President 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
                
                Chairman,
      President and Chief Executive
                
                June
      23, 2010James
      E. Igo
                
                Officer/s/ Eva Modi
                
                Chief
      Financial Officer (principal financial
                
                June
      21, 2010Eva
      Modi
                
                and
      accounting officer)/s/ Thomas J. Coleman, III
                
                Director
                
                June
      21, 2010Thomas
      J. Coleman, III/s/ William C. Jenkins
                
                Director
                
                June
      21, 2010William
      C. Jenkins/s/ John A. Latimer
                
                Director
                
                June
      21, 2010John
      A. Latimer/s/ Donald R. Neff
                
                Director
                
                June
      21, 2010Donald
      R. Neff/s/ James W. Verner
                
                Director
                
                June
      21, 2010James
      W. Verner/s/ Renee C. Vidal
                
                Director
                
                June
      21, 2010Renee
      C. Vidal








MANAGEMENT’S
      REPORT ONINTERNAL
      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,
2010, 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, 2010, 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


March 31, 2010 And
2009





Contents




PageReport
      of Independent Registered Public Accounting Firm
                      F-1Financial
      StatementsConsolidated
      Statements of Financial ConditionAs
      of March 31, 2010 and 2009
                      F-2Consolidated
      Statements of OperationsFor
      the Years Ended March 31, 2010 and 2009
                      F-3Consolidated
      Statements of Changes in Stockholders’ EquityFor
      the Years Ended March 31, 2010 and 2009
                      F-4Consolidated
      Statements of Cash FlowsFor
      the Years Ended March 31, 2010 and 2009
                      F-5Notes
      to Consolidated Financial Statements
                      F-6
      –
F-32









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, 2010 and
2009, 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
consolidated 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also
includes 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, 2010 and 2009, 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





June 7,
2010


F-1


Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Financial Condition





March 31,2010
                                                            
                                                            
                                                            2009AssetsCash
      and cash equivalentsCash
      and amount due from depository institutions
                                                            
                                                            $
                                                            674,788
                                                            
                                                            
                                                            $
                                                            476,087Interest-bearing
      deposits in other banks
                                                            
                                                            
                                                            4,208,881
                                                            
                                                            
                                                            
                                                            1,240,868Total
      cash and cash equivalents
                                                            
                                                            
                                                            4,883,669
                                                            
                                                            
                                                            
                                                            1,716,955Investment
      securitiesSecurities
      held-to-maturity (fair value of $16,810,104 and$14,730,626
      at March 31, 2010 and 2009, respectively)
                                                            
                                                            
                                                            16,359,598
                                                            
                                                            
                                                            
                                                            14,282,255Securities
      available-for-sale (amortized cost of $255,699and
      $245,043 at March 31, 2010 and 2009, respectively)
                                                            
                                                            
                                                            258,163
                                                            
                                                            
                                                            
                                                            222,719Total
      investment securities
                                                            
                                                            
                                                            16,617,761
                                                            
                                                            
                                                            
                                                            14,504,974Loans,
      net of allowance for loan losses of $998,526and
      $1,546,601 at March 31, 2010 and 2009, respectively
                                                            
                                                            
                                                            107,204,042
                                                            
                                                            
                                                            
                                                            103,624,343Accrued
      interest receivable
                                                            
                                                            
                                                            492,682
                                                            
                                                            
                                                            
                                                            499,981Premises
      and equipment, net
                                                            
                                                            
                                                            7,723,970
                                                            
                                                            
                                                            
                                                            8,024,232Federal
      Home Loan Bank stock, at cost
                                                            
                                                            
                                                            206,700
                                                            
                                                            
                                                            
                                                            345,900Deferred
      income taxes
                                                            
                                                            
                                                            1,029,028
                                                            
                                                            
                                                            
                                                            561,000Bank-owned
      life insurance
                                                            
                                                            
                                                            136,004
                                                            
                                                            
                                                            
                                                            130,042Prepaid
      and refundable income taxes
                                                            
                                                            
                                                            11,822
                                                            
                                                            
                                                            
                                                            561,971Real
      estate owned
                                                            
                                                            
                                                            412,969Other
      assets
                                                            
                                                            
                                                            1,203,676
                                                            
                                                            
                                                            
                                                            498,966Total
      Assets
                                                            
                                                            $
                                                            139,922,323
                                                            
                                                            
                                                            $
                                                            130,468,364Liabilities and Stockholders’
      EquityLiabilitiesDepositsNon-interest
      bearing deposits
                                                            
                                                            $
                                                            3,940,884
                                                            
                                                            
                                                            $
                                                            2,518,934Interest-bearing
      deposits
                                                            
                                                            
                                                            123,222,698
                                                            
                                                            
                                                            
                                                            111,464,281Total
      deposits
                                                            
                                                            
                                                            127,163,582
                                                            
                                                            
                                                            
                                                            113,983,215Advances
      from Federal Home Loan Bank
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            3,750,000Accrued
      interest payable
                                                            
                                                            
                                                            45,580
                                                            
                                                            
                                                            
                                                            211,962Advance
      payments by borrowers for taxes and insurance
                                                            
                                                            
                                                            424,291
                                                            
                                                            
                                                            
                                                            359,738Other
      liabilities
                                                            
                                                            
                                                            553,994
                                                            
                                                            
                                                            
                                                            642,032Total
      liabilities
                                                            
                                                            
                                                            128,187,447
                                                            
                                                            
                                                            
                                                            118,946,947Commitments
      and Contingencies (Note 18)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, 2010 and
2009
                                                            
                                                            $
                                                            16,347
                                                            
                                                            
                                                            $
                                                            16,347Additional
      paid-in capital
                                                            
                                                            
                                                            6,625,801
                                                            
                                                            
                                                            
                                                            6,652,235Retained
      earnings, substantially restricted
                                                            
                                                            
                                                            5,682,964
                                                            
                                                            
                                                            
                                                            5,499,813Unearned
      common stock held by employee stock ownership plan
                                                            
                                                            
                                                            (544,688
                                                            )
                                                            
                                                            
                                                            (576,729
                                                            )Accumulated
      other comprehensive loss
                                                            
                                                            
                                                            (45,548
                                                            )
                                                            
                                                            
                                                            (70,249
                                                            )Total
      stockholders’ equity
                                                            
                                                            
                                                            11,734,876
                                                            
                                                            
                                                            
                                                            11,521,417Total
      Liabilities and Stockholders’ Equity
                                                            
                                                            $
                                                            139,922,323
                                                            
                                                            
                                                            $
                                                            130,468,364





See
accompanying notes to consolidated financial statements.





F-2


Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of
Operations




Years
      EndedMarch 31,2010
                        
                        
                        2009Interest
      IncomeLoans
                        
                        $
                        6,278,720
                        
                        
                        $
                        5,986,689Investment
      securities
                        
                        
                        694,104
                        
                        
                        
                        805,843Total
      interest income
                        
                        
                        6,972,824
                        
                        
                        
                        6,792,532Interest
      ExpenseInterest-bearing
      checking accounts
                        
                        
                        104,995
                        
                        
                        
                        78,453Passbook
      and money market accounts
                        
                        
                        497,228
                        
                        
                        
                        667,886Certificates
      of deposits
                        
                        
                        2,017,976
                        
                        
                        
                        2,821,478Advances
      from Federal Home Loan Bank
                        
                        
                        19,676
                        
                        
                        
                        10,167Total
      interest expense
                        
                        
                        2,639,875
                        
                        
                        
                        3,577,984Net
      interest income
                        
                        
                        4,332,949
                        
                        
                        
                        3,214,548Provision
      for loan losses
                        
                        
                        1,140,000
                        
                        
                        
                        1,127,000Net
      interest income after provision for loan losses
                        
                        
                        3,192,949
                        
                        
                        
                        2,087,548Non-Interest
      IncomeService
      charges
                        
                        
                        127,052
                        
                        
                        
                        107,961Income
      from bank-owned life insurance
                        
                        
                        5,962
                        
                        
                        
                        5,630Rental
      income
                        
                        
                        783
                        
                        
                        
                        5,875Other
                        
                        
                        25,219
                        
                        
                        
                        68,136Net
      gain from sales of available-for-sale securities
                        
                        
                        15,053Total
      non-interest income
                        
                        
                        174,069
                        
                        
                        
                        187,602Non-Interest
      ExpenseSalaries
      and employee benefits
                        
                        
                        1,761,953
                        
                        
                        
                        1,862,789Advertising
                        
                        
                        33,701
                        
                        
                        
                        51,201Office
      supplies, telephone and postage
                        
                        
                        117,175
                        
                        
                        
                        150,180Occupancy
      expense
                        
                        
                        697,250
                        
                        
                        
                        666,646Federal
      insurance premiums
                        
                        
                        289,090
                        
                        
                        
                        116,457Real
      estate owned – impairment losses
                        
                        
                        75,000Data
      processing expenses
                        
                        
                        130,724
                        
                        
                        
                        337,699ATM
      expenses
                        
                        
                        23,052
                        
                        
                        
                        69,833Bank
      charges and fees
                        
                        
                        102,872
                        
                        
                        
                        71,366Insurance
      and surety bond premium
                        
                        
                        69,268
                        
                        
                        
                        41,713Dues
      and subscriptions
                        
                        
                        34,913
                        
                        
                        
                        51,932Professional
      fees
                        
                        
                        193,024
                        
                        
                        
                        328,698On-line
      banking expense
                        
                        
                        
                        
                        
                        
                        111,035Other
                        
                        
                        138,291
                        
                        
                        
                        150,019Total
      non-interest expense
                        
                        
                        3,666,313
                        
                        
                        
                        4,009,568Loss
      Before Income Tax Benefit
                        
                        
                        (299,295
                        )
                        
                        
                        (1,734,418
                        )Income
      tax benefit
                        
                        
                        (482,446
                        )
                        
                        
                        (503,432
                        )Net
      Income (Loss)
                        
                        $
                        183,151
                        
                        
                        $
                        (1,230,986
                        )Income
      (loss) per shareBasic
                        
                        $
                        0.12
                        
                        
                        $
                        (
      0.78
                        )Diluted
                        
                        $
                        0.12
                        
                        
                        $
                        (
      0.78
                        )Weighted
      average shares outstandingBasic
                        
                        
                        1,580,256
                        
                        
                        
                        1,577,052Diluted
                        
                        
                        1,580,256
                        
                        
                        
                        1,577,052




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, 2010
and 2009




AccumulatedAdditional
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          Common
                                                          
                                                          
                                                          Other
                                                          
                                                          
                                                          TotalCommon
      Stock
                                                          
                                                          
                                                          Paid-in
                                                          
                                                          
                                                          Retained
                                                          
                                                          
                                                          Stock
      Held
                                                          
                                                          
                                                          Comprehensive
                                                          
                                                          
                                                          Stockholders’
                                                          
                                                          
                                                          ComprehensiveShares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Capital
                                                          
                                                          
                                                          Earnings
                                                          
                                                          
                                                          By
      ESOP
                                                          
                                                          
                                                          Income
      (Loss)
                                                          
                                                          
                                                          Equity
                                                          
                                                          
                                                          Income
      (Loss)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 taxesof
      ($26,438)
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (39,656
                                                          )
                                                          
                                                          
                                                          (39,656
                                                          )
                                                          
                                                          
                                                          (39,656
                                                          )Postretirement
      benefit planadjustments
      – net of deferredtaxes
      of $4,961
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          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
                                                          )
                                                          
                                                          $
                                                          11,521,417Net
      income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          183,151
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          183,151
                                                          
                                                          
                                                          
                                                          183,151Net
      change in unrealized gain(loss)
      on securities available-for-sale,
      net of deferred taxesof
      $9,915
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          14,873
                                                          
                                                          
                                                          
                                                          14,873
                                                          
                                                          
                                                          
                                                          14,873Postretirement
      benefit planadjustments
      – net of deferredtaxes
      of $6,552
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          9,828
                                                          
                                                          
                                                          
                                                          9,828
                                                          
                                                          
                                                          
                                                          9,828Comprehensive
      income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          207,8523204.05
      shares of common stocktransferred
      to ESOP for services
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (26,434
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          32,041
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,607BALANCES,
      MARCH 31, 2010
                                                          
                                                          
                                                          1,634,725
                                                          
                                                          
                                                          $
                                                          16,347
                                                          
                                                          
                                                          $
                                                          6,625,801
                                                          
                                                          
                                                          $
                                                          5,682,964
                                                          
                                                          
                                                          $
                                                          (544,688
                                                          )
                                                          
                                                          $
                                                          (45,548
                                                          )
                                                          
                                                          $
                                                          11,734,876




See
accompanying notes to consolidated financial statements.





F-4


Delanco Bancorp, Inc. and
Subsidiary


Consolidated Statements of Cash
Flows




Years
      EndedMarch
      31,2010
                        
                        
                        2009Cash
      Flows from Operating ActivitiesNet
      income (loss)
                        
                        $
                        183,151
                        
                        
                        $
                        (1,230,986
                        )Adjustments
      to reconcile net income (loss) to netcash
      provided by operating activities:Amortization
      of ESOP
                        
                        
                        5,607
                        
                        
                        
                        27,395Deferred
      income tax benefit
                        
                        
                        (453,062
                        )
                        
                        
                        (132,121
                        )Gain
      from sale of available-for-sale securities, net
                        
                        
                        (15,053
                        )Depreciation
                        
                        
                        341,858
                        
                        
                        
                        318,685Discount
      accretion net of premium amortization
                        
                        
                        (4,834
                        )
                        
                        
                        34,773Income
      from bank owned life insurance
                        
                        
                        (5,962
                        )
                        
                        
                        (5,630
                        )Provision
      for loan losses
                        
                        
                        1,140,000
                        
                        
                        
                        1,127,000Proceeds
      on sale of other property owned
                        
                        
                        294,000Impairment
      losses, real estate owned
                        
                        
                        75,000Changes
      in operating assets and liabilities(Increase)
      decrease in:Accrued
      interest receivable
                        
                        
                        7,299
                        
                        
                        
                        99,533Other
      assets
                        
                        
                        (998,710
                        )
                        
                        
                        49,602Prepaid
      and refundable income taxes
                        
                        
                        550,149
                        
                        
                        
                        (264,292
                        )Increase
      (decrease) in:Accrued
      interest payable
                        
                        
                        (166,382
                        )
                        
                        
                        (87,456
                        )Other
      liabilities
                        
                        
                        (88,038
                        )
                        
                        
                        99,854Net cash provided by operating activities
                        
                        
                        865,023
                        
                        
                        
                        36,357Cash
      Flows from Investing ActivitiesProceeds
      from sale of securities available-for-sale
                        
                        
                        106,358
                        
                        
                        
                        3,868Purchases
      of securities available-for-sale
                        
                        
                        (117,014
                        )
                        
                        
                        (14,806
                        )Purchases
      of securities held-to-maturity
                        
                        
                        (9,000,000
                        )
                        
                        
                        (9,681,320
                        )Proceeds
      from maturities and principal repayments ofsecurities
      held-to-maturity
                        
                        
                        6,927,491
                        
                        
                        
                        7,651,558Proceeds
      from (purchase) of Federal Home Loan Bank stock
                        
                        
                        139,200
                        
                        
                        
                        (206,800
                        )Net
      increase in loans
                        
                        
                        (5,207,668
                        )
                        
                        
                        (8,699,816
                        )Purchases
      of premises and equipment
                        
                        
                        (41,596
                        )
                        
                        
                        (213,235
                        )Net
      cash used in investing activities
                        
                        
                        (7,193,229
                        )
                        
                        
                        (11,160,551
                        )Cash
      Flows from Financing ActivitiesNet
      increase (decrease) in deposits
                        
                        
                        13,180,367
                        
                        
                        
                        (3,656,858
                        )Net
      increase in advance payments by borrowers for taxes and
      insurance
                        
                        
                        64,553
                        
                        
                        
                        68,874(Payments
      on) advances from Federal Home Loan Bank
                        
                        
                        (3,750,000
                        )
                        
                        
                        3,750,000Net cash provided by financing activities
                        
                        
                        9,494,920
                        
                        
                        
                        162,016Net
      Increase (Decrease) in Cash and Cash Equivalents
                        
                        $
                        3,166,714
                        
                        
                        $
                        (
      10,962,178
                        )Cash
      and Cash Equivalents, Beginning of Year
                        
                        
                        1,716,955
                        
                        
                        
                        12,679,133Cash
      and Cash Equivalents, End of Year
                        
                        $
                        4,883,669
                        
                        
                        $
                        1,716,955Supplemental
      Disclosures of Cash Flow InformationCash
      paid during the year for interest
                        
                        $
                        2,806,257
                        
                        
                        $
                        3,665,440Cash
      paid during the year for income taxes
                        
                        $
                        1,560
                        
                        
                        $
                        4,620Loans
      transferred to real estate owned
                        
                        $
                        412,969
                        
                        
                        $Loans
      transferred to other property owned
                        
                        $
                        
                        
                        
                        $
                        294,000Proceeds
      from sales of other property owned
                        
                        $
                        294,000
                        
                        
                        $
                        -0-Total
      increase (decrease) in unrealized gain on securities available-for-sale,
      net of tax
                        
                        $
                        24,788
                        
                        
                        $
                        (66,094
                        )




See
accompanying notes to consolidated financial statements.




F-5




Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





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
      accounting and reporting policies of the Company and Bank conform with
      U.S. generally accepted accounting principles (“GAAP”) and predominant
      practices within the banking industry.  The consolidated financial
      statements of the Company 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, 2010 and
2009





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 classified as neither trading securities nor
      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, 2010 and
2009





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





Bank-Owned Life
      Insurance





The
      Bank owns a life insurance policy on the life of a retired 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, 2010 and
2009





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.





Real Estate
Owned





Real
estate owned is comprised of properties acquired through foreclosure proceedings
or acceptance of a deed in lieu of foreclosure.  Real estate owned is
recorded at the lower of the carrying value of the loan or the fair value of the
property, net of estimated selling costs.  Any write-downs based on the
asset’s fair value at the date of acquisition are charged to the allowance for
loan losses.  After foreclosure, valuations are periodically performed by
management and any subsequent write-downs are recorded as a charge to
operations.  Costs relating to the development or improvement of the
properties are capitalized while expenses related to the operation and
maintenance of properties are recorded as an expense as incurred.  Gains or
losses upon dispositions are reflected in earnings as realized.  The
Company had $412,969 and $-0- in real estate owned at March 31, 2010 and 2009,
respectively.





Other Property
      Owned





Other
      property owned includes repossessed property other than real estate. 
      At the time of repossession, other 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 repossession are
      charged to the allowance for loan losses.  After repossession,
      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.  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, 2010 and
      2009, the Company had $-0- and $294,000 of other property owned. 
      These amounts were included in other
assets.





Income
Taxes





Income
taxes are provided for the tax effects of the transactions reported in the
financial statements and consist of taxe scurrently due plus deferred taxes
related primarily to tax net operating loss carryforwards and differences
between the basis of available-for-sale securities, allowance for loan losses,
estimated losses on foreclosed real estate, accumulated depreciation, and
accrued employee benefits for financial and income tax reporting.





Deferred
      tax assets and liabilities represent the future tax return consequences of
      these differences, which will either be taxable or deductible when assets
      and liabilities are recovered or settled, 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.





F-9


Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)





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 $33,701and
$51,201 for the years ended March 31,
2010 and 2009, respectively.





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





Below is
a discussion of recent accounting pronouncements.  Recent pronouncements
not discussed below were deemed to not be applicable to the
Company.





FASB
STATEMENT NO. 168, THE FASB ACCOUNTING STANDARDS CODIFICATION AND THE HIERARCHY
OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES





In June
2009, the FASB issued FASB Statement No. 168 “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles – a
replacement of FASB Statement No. 162” (SFAS No. 168).  SFAS No. 168
established the FASB Accounting Standards Codification.  The Codification
will become the exclusive authoritative reference for nongovernmental U.S. GAAP
for use in financial statements issued for interim and annual periods ending
after September 15, 2009, except for SEC rules and interpretative releases,
which are also authoritative GAAP for SEC registrants.  The contents of the
Codification will carry the same level of authority, eliminating the four-level
GAAP hierarchy previously set forth in Statement No. 162, which has been
superseded by Statement No. 168.  All authoritative GAAP issued by the FASB
after this Statement will be referred to as Accounting Standards Updates. 
Accounting Standards Updates will not be considered authoritative in their own
right, rather they will only serve to update the Codification, provide
background information about the guidance and provide basis for conclusions on
changes in the Codification.  The Codification retains existing GAAP
without changing it except in one instance related to software revenue
recognition, which does not impact the Company.  The Codification is
effective for the Company for the interim period ending September 30,
2009.  All references to authoritative literature are required to cite the
Codification as opposed to legacy accounting pronouncements.




F-10


Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





2.
            RECENT
      ACCOUNTING PRONOUNCEMENTS
(Continued)





ASC TOPIC
820 “FAIR VALUE MEASUREMENTS AND DISCLOSURES”





On April
1, 2008, the Bank adopted ASC Topic 820 “Fair Value Measurements and
Disclosures.”  ASC Topic 820 defines fair value, establishes a framework
for measuring fair value in U.S. generally accepted accounting principles, and
expands disclosure requirements for fair value measurements.  ASC Topic 820
does not require any fair value measurements.  The adoption of ASC Topic
820 did not have a material impact on the Bank’s consolidated financial
statements.





In
conjunction with the adoption of ASC Topic 820, the Bank also adopted the
guidance from ASC paragraphs 820-10-50-8A, 55-23A, and 55-23B on April 1,
2008.  This guidance defers the effective date of ASC Topic 820 for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008, or April 1, 2009 for
the Company.





ASC TOPIC
820-10-65, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE
ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS
THAT ARE NOT ORDERLY





In April
2009, the FASB issued guidance regarding identifying circumstances that indicate
a transaction is not orderly and guidance on estimating fair value when the
volume and level of activity for the asset or liability have significantly
decreased.  This guidance emphasizes that fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date under current
market conditions.  This guidance was adopted by the Company April 1, 2009
and did not have a material effect on the Company’s financial position or
results of operations.





ASC TOPIC
320-10-65, RECOGNITION AND PRESENTATION OF OTHER-THAN-TEMPORARY
IMPAIRMENTS





In April
2009, the FASB issued guidance regarding the recognition and presentation of
other-than-temporary impairments (“OTTI”) on debt and equity securities in the
financial statements.  This guidance modified the presentation of OTTI
losses and expands existing disclosure requirements about OTTI.  The
guidance was adopted by the Company April 1, 2009, and did not have a material
effect on the Company’s financial position or results of
operations.





ASC TOPIC
855, SUBSEQUENT EVENTS





In May
2009, the FASB issued additional guidance on the evaluation of subsequent events
and requires the disclosure of the date through which subsequent events have
been evaluated.  This guidance was adopted by the Company for the interim
period June 30, 2009.





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, 2010 and 2009 was $
-0-.





F-11


Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





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, 2010 and 2009 are as
follows:




Held-to-MaturityMarch 31, 2010Gross
                          
                          
                          GrossAmortized
                          
                          
                          Unrealized
                          
                          
                          Unrealized
                          
                          
                          FairCost
                          
                          
                          Gains
                          
                          
                          Losses
                          
                          
                          ValueFederal
      Home Loan Bank Bonds
                          
                          $
                          997,238
                          
                          
                          $
                          5,417
                          
                          
                          $
                          
                          
                          
                          $
                          1,002,655Federal
      Farm Credit Bonds
                          
                          
                          1,000,000
                          
                          
                          
                          3,125
                          
                          
                          
                          (1,250
                          )
                          
                          
                          1,001,875Federal
      Home Loan MortgageCorporation
      Bonds
                          
                          
                          3,000,000
                          
                          
                          
                          6,870
                          
                          
                          
                          ( 3,510
                          )
                          
                          
                          3,003,360Federal
      National Mortgage Association
                          
                          
                          2,000,000
                          
                          
                          
                          5,940
                          
                          
                          
                          (465
                          )
                          
                          
                          2,005,4756,997,238
                          
                          
                          
                          21,352
                          
                          
                          
                          (5,225
                          )
                          
                          
                          7,013,365Mortgage-Backed
      Securities:Federal
      Home Loan MortgageCorporation
                          
                          
                          2,693,176
                          
                          
                          
                          108,680
                          
                          
                          
                          
                          
                          
                          
                          2,801,856Federal
      National MortgageAssociation
                          
                          
                          6,104,708
                          
                          
                          
                          299,944
                          
                          
                          
                          (116
                          )
                          
                          
                          6,404,536Government
      National MortgageCorporation
                          
                          
                          564,476
                          
                          
                          
                          22,800
                          
                          
                          
                          (934
                          )
                          
                          
                          586,3429,362,360
                          
                          
                          
                          431,424
                          
                          
                          
                          (1,050
                          )
                          
                          
                          9,792,734Total
                          
                          $
                          16,359,598
                          
                          
                          $
                          452,776
                          
                          
                          $
                          (6,275
                          )
                          
                          $
                          16,806,099





F-12





Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





4.
            INVESTMENT
      SECURITIES (Continued)




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 MortgageCorporation
      Bonds
                                
                                
                                500,000
                                
                                
                                
                                1,665
                                
                                
                                
                                
                                
                                
                                
                                501,6652,500,000
                                
                                
                                
                                8,010
                                
                                
                                
                                
                                
                                
                                
                                2,508,010Mortgage-Backed
      Securities:Federal
      Home Loan MortgageCorporation
                                
                                
                                3,717,034
                                
                                
                                
                                115,265
                                
                                
                                
                                
                                
                                
                                
                                3,832,299Federal
      National MortgageAssociation
                                
                                
                                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




Available-for-SaleMarch
      31, 2010Gross
                        
                        
                        GrossAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairCost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueMutual
      Fund Shares
                        
                        $
                        255,699
                        
                        
                        $
                        2,692
                        
                        
                        $
                        (228
                        )
                        
                        $
                        258,163Available-for-SaleMarch
      31, 2009Gross
                        
                        
                        GrossAmortized
                        
                        
                        Unrealized
                        
                        
                        Unrealized
                        
                        
                        FairCost
                        
                        
                        Gains
                        
                        
                        Losses
                        
                        
                        ValueMutual
      Fund Shares
                        
                        $
                        245,043
                        
                        
                        $
                        238
                        
                        
                        $
                        (22,562
                        )
                        
                        $
                        222,719




F-13





Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009




4.
            INVESTMENT
      SECURITIES (Continued)




The
      following is a summary of maturities of securities held-to-maturity and
      available-for-sale as of March 31, 2010 and
  2009.




March 31, 2010Held-to-maturity
                                                
                                                
                                                Available-for-saleAmortized
                                                
                                                
                                                Fair
                                                
                                                
                                                Amortized
                                                
                                                
                                                FairCost
                                                
                                                
                                                Value
                                                
                                                
                                                Cost
                                                
                                                
                                                ValueAmounts
      maturing in:One
      year or less
                                                
                                                $
                                                1,257,508
                                                
                                                
                                                $
                                                1,279,463
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $After
      one year throughfive
      years
                                                
                                                
                                                6,691,053
                                                
                                                
                                                
                                                6,889,401After
      five years throughten
      years
                                                
                                                
                                                4,008,761
                                                
                                                
                                                
                                                4,023,142After
      ten years
                                                
                                                
                                                4,402,276
                                                
                                                
                                                
                                                4,614,093Equity
      securities
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                255,699
                                                
                                                
                                                
                                                258,163$
                                                16,359,598
                                                
                                                
                                                $
                                                16,806,099
                                                
                                                
                                                $
                                                255,699
                                                
                                                
                                                $
                                                258,163March 31, 2009Held-to-maturity
                                                
                                                
                                                Available-for-saleAmortized
                                                
                                                
                                                Fair
                                                
                                                
                                                Amortized
                                                
                                                
                                                FairCost
                                                
                                                
                                                Value
                                                
                                                
                                                Cost
                                                
                                                
                                                ValueAmounts
      maturing in:One
      year or less
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $
                                                
                                                
                                                
                                                $After
      one year throughfive
      years
                                                
                                                
                                                4,925,679
                                                
                                                
                                                
                                                5,128,225After
      five years throughten
      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




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
2010, the Bank sold securities available-for-sale for total proceeds of $106,358
resulting in gross realized gains of $15,053.  During
2009, the Bank sold securities available-for-sale for total proceeds of
$3,868resulting in gross realized gains of $-0-.





F-14


Delanco Bancorp, Inc. and
Subsidiary


Notes to Consolidated
Financial Statements


March 31, 2010 and
2009





4.
            INVESTMENT
      SECURITIES (Continued)





Information
      pertaining to securities with gross unrealized losses at March 31, 2010
      and 2009, 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, 2010
                                            
                                            Value
                                            
                                            
                                            Losses
                                            
                                            
                                            Value
                                            
                                            
                                            Losses
                                            
                                            
                                            Value
                                            
                                            
                                            LossesFederal
      Home Loan BankBonds
                                            
                                            $
                                            
                                            
                                            
                                            $
                                            
                                            
                                            
                                            $
                                            
                                            
                                            
                                            $
                                            
                                            
                                            
                                            $
                                            
                                            
                                            
                                            $Federal
      Farm CreditBonds
                                            
                                            
                                            498,750
                                            
                                            
                                            
                                            (1,250
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            498,750
                                            
                                            
                                            
                                            (1,250
                                            )Federal
      Home LoanMortgage
      Corporation
                                            
                                            
                                            496,490
                                            
                                            
                                            
                                            (3,510
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            496,490
                                            
                                            
                                            
                                            (3,510
                                            )Federal
      NationalMortgage
      Association
                                            
                                            
                                            999,535
                                            
                                            
                                            
                                            (465
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            999,535
                                            
                                            
                                            
                                            (465
                                            )1,994,775
                                            
                                            
                                            
                                            (5,225
                                            )
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            -0-
                                            
                                            
                                            
                                            1,994,775
                                            
                                            
                                            
                                            (5,225
                                            )Mortgage-Backed
      Securities:Federal
      Home LoanMortgage
      CorporationFederal
      NationalMortgage
      Association
                                            
                                            
                                            15,850
                                            
                                            
                                            
                                            (116
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            15,850
                                            
                                            
                                            
                                            (116
                                            )Government
      NationalMortgage
      Association
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            49,989
                                            
                                            
                                            
                                            (934
                                            )
                                            
                                            
                                            49,989
                                            
                                            
                                            
                                            (934
                                            )15,850
                                            
                                            
                                            
                                            (116
                                            )
                                            
                                            
                                            49,989
                                            
                                            
                                            
                                            (934
                                            )
                                            
                                            
                                            65,839
                                            
                                            
                                            
                                            (1,050
                                            )Mutual
      Fund Shares
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            71,341
                                            
                                            
                                            
                                            (228
                                            )
                                            
                                            
                                            71,341
                                            
                                            
                                            
                                            (228
                                            )Total
                                            
                                            $
                                            2,010,625
                                            
                                            
                                            $
                                            (5,341
                                            )
                                            
                                            $
                                            121,330
                                            
                                            
                                            $
                                            (1,162
                                            )
                                            
                                            $
                                            2,131,955
                                            
                                            
                                            $
                                            (6,503
                                            )




F-15


Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 4.
              INVESTMENT
      SECURITIES (Continued)
 
 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 Association
                      
                      
                      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
                      )
 
 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, 2010, the eight debt securities with unrealized losses have depreciated 0.31 %
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 $337,000 and $472,000 at March 31, 2010 and 2009, 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, 2010 and
2009
 
 5.
              LOANS
 
 Loans at
March 31, 2010 and 2009 are summarized as follows:
 
 March 31,2010
                    
                    
                    2009Residential
      (one to four family) real estate
                    
                    $
                    59,363,703
                    
                    
                    $
                    46,686,288Multi-family
      and commercial real estate
                    
                    
                    23,998,000
                    
                    
                    
                    26,054,000Commercial
                    
                    
                    2,821,000
                    
                    
                    
                    4,618,000Home
      equity
                    
                    
                    20,272,944
                    
                    
                    
                    24,119,310Consumer
                    
                    
                    1,419,000
                    
                    
                    
                    2,134,000Construction
                    
                    
                    395,000
                    
                    
                    
                    1,796,000Total
      loans
                    
                    
                    108,269,647
                    
                    
                    
                    105,407,598Loans
      in process
                    
                    
                    
                    
                    
                    
                    (138,674
                    )Net
      deferred loan origination fees
                    
                    
                    (67,079
                    )
                    
                    
                    (97,980
                    )Allowance
      for loan losses
                    
                    
                    (998,526
                    )
                    
                    
                    (1,546,601
                    )(1,065,605
                    )
                    
                    
                    (1,783,255
                    )Loans,
      net
                    
                    $
                    107,204,042
                    
                    
                    $
                    103,624,343
 
 An
analysis of the allowance for loan losses at March 31, 2010 and 2009 is as
follows:
 
 March 31,2010
                    
                    
                    2009Balance,
      beginning of year
                    
                    $
                    1,546,601
                    
                    
                    $
                    1,353,467Loans
      charged-off
                    
                    
                    (1,737,604
                    )
                    
                    
                    (1,254,449
                    )Recoveries
                    
                    
                    49,529
                    
                    
                    
                    320,583Provision
      for losses
                    
                    
                    1,140,000
                    
                    
                    
                    1,127,000Balance,
      end of year
                    
                    $
                    998,526
                    
                    
                    $
                    1,546,601
 
 At March
31, 2010 and 2009, the total recorded investment in loans on nonaccrual amounted
to approximately $6.1 million and $8.3 million, respectively, and the total
recorded investment in loans past due ninety days or more and still accruing
interest amounted to approximately $-0- and $128,000,
respectively.
 
 Non-performing
assets include non-accrual loans, loans on which the accrual of interest has
ceased, and impaired loans.  At March 31, 2010, the Company had $6.1
million in non-accrual loans as compared to $8.3 million at March 31,
2009.  At March 31, 2010, the Company had thirty impaired loan
relationships totaling $7.6 million in which $6.5 million was sufficiently
collateralized and a specific reserve of $302,000 has been recorded for the
remaining balance.  At March 31, 2009, the Bank had 43 impaired loan
relationships totaling $8.9 million in which $6.3 million were sufficiently
collateralized and a specific reserve of $1.1 million has been recorded for the
remaining balance.
  F-17
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 5.
              LOANS  (Continued)
 
 In the
ordinary course of business, the Bank has and expects to continue to have
transactions, including borrowings, with its officers and
directors.  In the opinion of management, transactions with directors
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 collectability or present any
other unfavorable features to the Bank.  Officers of the company are
entitled to 1% loan discount, under a Bank wide employee discount program, from
those prevailing at the time of comparable transactions with other persons and
did not involve more than a normal risk of collectability or present any other
unfavorable features to the Bank.  Loans to such borrowers are
summarized as follows:
 
 March 31,2010
                      
                      
                      2009Balance,
      beginning of year
                      
                      $
                      891,150
                      
                      
                      $
                      1,622,193Payments
                      
                      
                      (16,744
                      )
                      
                      
                      (731,043
                      )Borrowings
                      
                      
                      134,555Balance,
      end of year
                      
                      $
                      1,008,961
                      
                      
                      $
                      891,150
 
 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, 2010 and 2009 are summarized as
  follows:
 
 March 31,2010
                        
                        
                        2009Mortgage
      Loan Servicing Portfolio:Mortgage
      PartnershipFinance
      FHLB New York
                        
                        $
                        425,947
                        
                        
                        $
                        435,210
 
 7.
              ACCRUED
      INTEREST RECEIVABLE
 
 Accrued
      interest receivable at March 31, 2010 and 2009 consists of the
      following:
 
 March 31,2010
                    
                    
                    2009Loans
                    
                    $
                    406,445
                    
                    
                    $
                    430,194Investment
      securities
                    
                    
                    62,826
                    
                    
                    
                    49,069Mortgage
      backed securities
                    
                    
                    23,411
                    
                    
                    
                    20,718$
                    492,682
                    
                    
                    $
                    499,981
  F-18
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 8.
              PREMISES
      AND EQUIPMENT
 
 Premises
      and equipment at March 31, 2010 and 2009 consists of the
      following:
 
 March 31,2010
                    
                    
                    2009Land
                    
                    $
                    1,451,203
                    
                    
                    $
                    1,451,203Buildings
                    
                    
                    6,806,760
                    
                    
                    
                    6,806,760Furniture,
      fixtures and equipment
                    
                    
                    1,948,305
                    
                    
                    
                    1,906,70910,206,268
                    
                    
                    
                    10,164,672Accumulated
      depreciation
                    
                    
                    (2,482,298
                    )
                    
                    
                    (2,140,440
                    )$
                    7,723,970
                    
                    
                    $
                    8,024,232
 
 Depreciation
      expense amounted to $341,858 and $318,685 for the years ended March 31,
      2010 and 2009, 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, 2010 and 2009 are summarized as
      follows:
 
 March 31, 2010Weighted Average
                        
                        
                        Percent ofAmount
                        
                        
                        Interest Rate
                        
                        
                        PortfolioNon
      interest bearing accounts
                        
                        $
                        3,940,884
                        
                        
                        
                        -
                        
                        
                        
                        3.10Interest
      bearing checking accounts
                        
                        
                        9,922,308
                        
                        
                        
                        0.84
                        %
                        
                        
                        7.80Passbook
      savings accounts
                        
                        
                        14,707,503
                        
                        
                        
                        0.45
                        
                        
                        
                        11.57Money
      Market accounts
                        
                        
                        27,658,755
                        
                        
                        
                        1.27
                        
                        
                        
                        21.75Club
      accounts
                        
                        
                        143,428
                        
                        
                        
                        0.40
                        
                        
                        
                        0.1156,372,878
                        
                        
                        
                        
                        
                        
                        
                        44.33Certificates
      of Deposits:1.00%
      to 1.99%
                        
                        
                        13,055,308
                        
                        
                        
                        1.68
                        
                        
                        
                        10.272.00%
      to 2.99%
                        
                        
                        35,128,582
                        
                        
                        
                        2.33
                        
                        
                        
                        27.633.00%
      to 3.99%
                        
                        
                        12,722,497
                        
                        
                        
                        3.29
                        
                        
                        
                        10.004.00%
      to 4.99%
                        
                        
                        9,884,317
                        
                        
                        
                        4.11
                        
                        
                        
                        7.7770,790,704
                        
                        
                        
                        
                        
                        
                        
                        55.67$
                        127,163,582
                        
                        
                        
                        
                        
                        
                        
                        100.00
                        %
  F-19
  Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 10.
              DEPOSITS
      (Continued)
 
 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
                    %
 
 The
      aggregate amount of time deposits including certificates of deposits with
      a minimum denomination of $100,000 or more was approximately $21,273,000
      and $15,227,000 at March 31, 2010 and 2009,
  respectively.
 
 Scheduled
      maturities of certificates of deposits at March 31, 2010 and 2009 are as
      follows:
 
 March 31,2010
                    
                    
                    20092010
                    
                    $
                    
                    
                    
                    $
                    37,652,7772011
                    
                    
                    47,899,059
                    
                    
                    
                    14,036,9432012
                    
                    
                    13,283,879
                    
                    
                    
                    5,192,3242013
                    
                    
                    5,231,818
                    
                    
                    
                    3,311,0072014
                    
                    
                    2,012,811
                    
                    
                    
                    1,993,9932015
      and thereafter
                    
                    
                    2,363,137$
                    70,790,704
                    
                    
                    $
                    62,187,044
 
 The Bank
held deposits from officers and directors of approximately $225,000 and
$280,000 at March 31, 2010 and 2009, 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, 2010 and
2009
 
 11.
              ADVANCES
      FROM FEDERAL HOME LOAN BANK
 
 As
      of March 31, 2010, the Bank had a borrowing capacity in a combination of
      term advances and overnight borrowings of up to $8,621,623 at the FHLB of
      New York.
 
 Advances
      from the Federal Home Loan Bank of New York are as
  follows:
 
 Maturity
                        
                        InterestDate
                        
                        Rate
                        
                        
                        March 31, 2010
                        
                        
                        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$
                        -0-
                        
                        
                        $
                        3,750,000
 
 Specific
      repos and other securities, with balances approximating $8,800,000 and
      $11,900,000 at March 31, 2010 and 2009, respectively, 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, 2010 and 2009 consists of the
      following:
 
 Years EndedMarch 31,2010
                      
                      
                      2009Income
      Tax Expense (benefit)Current
      federal tax expense (benefit)Federal
                      
                      $
                      (
      13,500
                      )
                      
                      $
                      (
      353,837
                      )State
                      
                      
                      2,500
                      
                      
                      
                      2,500Deferred
      tax (benefit)Federal
                      
                      
                      (356,800
                      )
                      
                      
                      (128,800
                      )State
                      
                      
                      (114,646
                      )
                      
                      
                      (23,295
                      )$
                      (482,446
                      )
                      
                      $
                      (503,432
                      )
 
 Valuation
Allowance
 
 Since the
year ending March 31, 2007, we reported significant cumulative losses and
generated substantial net operating losses for federal and state income tax
purposes.  To date, we have been able to utilize a substantial portion
of our federal net operating losses by carrying these losses back five
years.  The remaining unused federal net operating losses can be
carried forward for a maximum of twenty years.  Due to the extensive
carryforward period, among other things, we concluded that it was more likely
than not that the federal net operating loss carryforwards would eventually be
realized.
 
 Our state
net operating losses for tax years ended December 31, 2007 and December 31, 2008
are limited to a carryforward period of seven years.  Due to the
limited carryforward period for these losses, among other things, we concluded
in the past that it was more likely than not that these losses would not be
utilized and therefore, we recorded a tax asset valuation allowance of $120,000
and $80,000 for the fiscal years ended March 31, 2008 and 2009,
respectively.
  F-21
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 12.
              INCOME
      TAXES (Continued)
 
 For the
year ended March 31, 2010, we determined that it is more likely than not that we
will generate sufficient taxable income to realize our deferred tax assets,
including the state net operating loss carryforwards.  In addition,
the state has extended the net operating loss carryforward period for losses
sustained for tax years ending December 31, 2009 and beyond to a period of
twenty years.
 
 As a
result of the above, we reversed our $200,000 deferred tax asset valuation
allowance for the year ended March 31,
2010.
 
 The
consolidated provision for income taxes for the years ended March 31, 2010 and
2009 differs from that computed by applying federal statutory rates to income
before federal income tax expense, as indicated in the following
analysis:
 
 Years EndedMarch 31,2010
                      
                      
                      2009Expected
      federal tax provision (benefit) at 34% rate
                      
                      $
                      (
      101,760
                      )
                      
                      $
                      (
      589,702
                      )State
      income tax effect
                      
                      
                      (178,659
                      )
                      
                      
                      20,184Bank
      owned life insurance
                      
                      
                      (2,027
                      )
                      
                      
                      (1,914
                      )Increase
      (decrease) in deferred tax asset valuation allowance
                      
                      
                      (200,000
                      )
                      
                      
                      68,000Income
      tax (benefit)
                      
                      $
                      (482,446
                      )
                      
                      $
                      (503,432
                      )Effective
      tax rate (benefit)
                      
                      
                      (161.2
                      )%
                      
                      
                      (29.0
                      )%
 
 A
      summary of deferred tax assets and liabilities as of March 31, 2010 and
      2009 are as follows:
 
 March 31,2010
                          
                          
                          2009Deferred
      tax assets:Accrued
      pension costs
                          
                          $
                          4,700
                          
                          
                          $
                          3,600Accrued
      post retirement medical plan
                          
                          
                          13,200
                          
                          
                          
                          19,200Accrued
      retirement plan
                          
                          
                          27,500
                          
                          
                          
                          33,000Allowance
      for loan losses
                          
                          
                          338,400
                          
                          
                          
                          534,400Directors’
      benefit plans
                          
                          
                          102,900
                          
                          
                          
                          90,500FASB
      158 – unrecognized transition costs
                          
                          
                          31,400
                          
                          
                          
                          37,900Net
      operating loss carryforward
                          
                          
                          609,728
                          
                          
                          
                          135,400Unrealized
      losses on securities available-for-sale
                          
                          
                          
                          
                          
                          
                          9,0001,127,828
                          
                          
                          
                          863,000Less:
      Valuation allowance
                          
                          
                          -0-
                          
                          
                          
                          (200,000
                          )Total
      deferred tax assets
                          
                          $
                          1,127,828
                          
                          
                          $
                          663,000Deferred
      tax liabilities:Accumulated
      depreciation
                          
                          $
                          (97,900
                          )
                          
                          $
                          (
      102,000
                          )Unrealized
      gains on securities available-for-sale
                          
                          
                          (900
                          )Total
      deferred tax liabilities
                          
                          
                          (98,800
                          )
                          
                          
                          (102,000
                          )NET
      DEFERRED TAX ASSETS
                          
                          $
                          1,029,028
                          
                          
                          $
                          561,000
  F-22
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 12.
              INCOME
      TAXES (Continued)
 
 The
      Company accounts for uncertainties in income taxes in accordance with
      Financial ASC Topic 740 “Accounting for Uncertainty in Income
      Taxes”.  ASC Topic 740 prescribes a threshold and measurement
      process for recognizing in the financial statements a tax position taken
      or expected to be taken in a tax return.  ASC Topic 740 also
      provides guidance on derecognition, classification, interest and
      penalties, accounting in interim periods, disclosure and
      transition.  The Company has determined that there are no
      significant uncertain tax positions requiring recognition in its financial
      statements.
 
 In
      the event the Company is assessed for interest and/or penalties by taxing
      authorities, such assessed amounts will be classified in the financial
      statements as income tax expense.  Tax years 2006 through 2009
      remain subject to examination by Federal and New Jersey taxing
      authorities.
 
 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 federal and state net operating loss carryforwards of approximately
$1,080,000 and $3,166,000, respectively, at March 31, 2010.
 
 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, 2010 and
2009.
 
 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 $136,004and $130,042as of March 31,
      2010 and 2009, 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 of awards made pursuant to the 2008
Plan.  All the Company’s employees, officers, and directors are
eligible to participate in the 2008 Plan.  As of March 31, 2010, no
awards have been made under the 2008 Plan.
  F-23
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 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.
 
 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 $43,488 and $42,264 for years ended March 31, 2010 and
      2009, respectively.  The components of net pension cost are as
      follows:
 
 Years EndedMarch 31,2010
                    
                    
                    2009Service
      cost
                    
                    $
                    7,780
                    
                    
                    $
                    8,508Interest
      cost
                    
                    
                    20,516
                    
                    
                    
                    18,564Return
      on assets
                    
                    
                    -0-
                    
                    
                    
                    -0-Net
      amortization and deferral
                    
                    
                    15,192
                    
                    
                    
                    15,192Net
      periodic pension cost
                    
                    $
                    43,488
                    
                    
                    $
                    42,264
 
 The
following table presents a reconciliation of the funded status of the defined
benefit pension plan at March 31,
2010 and 2009:
 
 March 31,2010
                    
                    
                    2009Accumulated
      benefit obligation
                    
                    $
                    333,832
                    
                    
                    $
                    250,709Projected
      benefit obligation
                    
                    
                    335,542
                    
                    
                    
                    276,395Fair
      value of plan assets
                    
                    
                    -0-
                    
                    
                    
                    -0-Unfunded
      projected benefit obligation
                    
                    
                    335,542
                    
                    
                    
                    276,395
 
 The
      following table presents a reconciliation of benefit obligations and plan
      assets:
 
 March 31,2010
                      
                      
                      2009Change
      in Benefit ObligationProjected
      benefit obligation at beginning of year
                      
                      $
                      276,395
                      
                      
                      $
                      277,853Service
      cost
                      
                      
                      7,780
                      
                      
                      
                      8,508Interest
      cost
                      
                      
                      20,516
                      
                      
                      
                      18,564Adjustment
      for measurement date change
                      
                      
                      
                      
                      
                      
                      6,768Actuarial
      (gain) loss
                      
                      
                      43,262
                      
                      
                      
                      (29,259
                      )Benefits
      paid
                      
                      
                      (12,411
                      )
                      
                      
                      (6,039
                      )Benefit
      obligation at end of year
                      
                      $
                      335,542
                      
                      
                      $
                      276,395
  F-24
  Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 14.
              BOARD
      OF DIRECTORS’ RETIREMENT PLAN
(Continued)
 
 March 31,2010
                          
                          
                          2009Change
      in Plan AssetsFair
      value of Plan assets at beginning of year
                          
                          
                          -0-
                          
                          
                          
                          -0-Actual
      return on Plan assets
                          
                          
                          -0-
                          
                          
                          
                          -0-Employer
      contributions
                          
                          
                          12,411
                          
                          
                          
                          6,039Benefits
      paid
                          
                          
                          (12,411
                          )
                          
                          
                          (6,039
                          )Fair
      value of Plan assets at end of year
                          
                          
                          -0-
                          
                          
                          
                          -0-
 
 Actuarial
      assumptions used in determining pension amounts are as
      follows:
 
 Years EndedMarch 31,2010
                        
                        
                        2009Discount
      rate for periodic pension cost
                        
                        
                        6.75
                        %
                        
                        
                        7.50
                        %Discount
      rate for benefit obligation
                        
                        
                        7.50
                        %
                        
                        
                        6.25
                        %Rate
      of increase in compensation levels and social security wage
      base
                        
                        
                        4.00
                        %
                        
                        
                        4.00
                        %Expected
      long-term rate of return on plan 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, 2010, the Company had allocated a total of 9612.15 shares from
      the suspense account to participants.  The Company recognized
      compensation expense related to the ESOP of $5,607 and $27,395 for the
      years ended March 31, 2010 and 2009,
  respectively.
  F-25
  Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 16.
              FAIR
      VALUES OF FINANCIAL INSTRUMENTS
 
 ASC
      Topic No. 820, “Fair Value Measurements and Disclosures” establishes a
      fair value hierarchy which requires an entity to maximize the use of
      observable inputs and minimize the use of unobservable inputs when
      measuring fair value.  The standard describes three levels of
      inputs that may be used to measure fair
value:
  Level
      1: Quoted prices (unadjusted) for identical assets or liabilities in
      active markets that the entity has the ability to access as of the
      measurement date.
  Level
      2: Significant other 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.
  Level
      3: Significant unobservable inputs that reflect a reporting entity’s own
      assumptions about the assumptions that market participants would use in
      pricing an asset or liability.
  The
      fair value of assets and liabilities measured on a recurring basis at
      March 31, 2010 and 2009 are as
follows:
  Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
                          
                          
                          SignificantMarkets for
                          
                          
                          Other
                          
                          
                          SignificantIdentical Assets/
                          
                          
                          Observable
                          
                          
                          UnobservableLiabilities
                          
                          
                          Inputs
                          
                          
                          InputsFair Value
                          
                          
                          Level 1
                          
                          
                          Level 2
                          
                          
                          Level 3March
      31, 2010Available-for-sale
      securities
                          
                          $
                          258,163
                          
                          
                          $
                          258,163
                          
                          
                          NONE
                          
                          
                          NONEMarch
      31, 2009Available-for-sale
      securities
                          
                          $
                          222,719
                          
                          
                          $
                          222,719
                          
                          
                          NONE
                          
                          
                          NONE
 
 The
      fair value of assets and liabilities measured on a non-recurring basis at
      March 31, 2010 and 2009 are as
follows:
  F-26
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 16.
              FAIR
      VALUES OF FINANCIAL INSTRUMENTS
(Continued)
 
 Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
                              
                              
                              SignificantMarkets for
                              
                              
                              Other
                              
                              
                              SignificantIdentical Assets/
                              
                              
                              Observable
                              
                              
                              UnobservableLiabilities
                              
                              
                              Inputs
                              
                              
                              InputsFair Value
                              
                              
                              Level 1
                              
                              
                              Level 2
                              
                              
                              Level 3March
      31, 2010Impaired
      loans
                              
                              $
                              7,559,115
                              
                              
                              $
                              
                              
                              
                              $
                              7,559,115
                              
                              
                              $Other
      real estate owned
                              
                              
                              412,969
                              
                              
                              
                              
                              
                              
                              
                              412,969Total
                              
                              $
                              7,972,084
                              
                              
                              $ NONE
                              
                              
                              $
                              7,972,084
                              
                              
                              $ NONEMarch
      31, 2009Impaired
      loans
                              
                              $
                              8,920,338
                              
                              
                              $ NONE
                              
                              
                              $
                              8,920,338
                              
                              
                              $ NONE
 
 The fair
value of impaired loans with specific allocations of the allowance for loan
losses is generally based on recent real estate appraisals.  These
appraisals may utilize a single valuation approach or a combination of
approaches including comparable sales and the income approach.
 
 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.
  F-27
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 16.
              FAIR
      VALUES OF FINANCIAL INSTRUMENTS
(Continued)
 
 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 amounts 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.
 
 The
      estimated fair values of the Company’s financial instruments as of March
      31, 2010 and 2009 are as follows:
 
 March 31, 2010
                    
                    
                    March 31, 2009Carrying
                    
                    
                    Estimated
                    
                    
                    Carrying
                    
                    
                    EstimatedAmount
                    
                    
                    Fair Value
                    
                    
                    Amount
                    
                    
                    Fair ValueFinancial
      Assets:Cash
      and cash equivalents
                    
                    $
                    4,883,669
                    
                    
                    $
                    4,883,669
                    
                    
                    $
                    1,716,955
                    
                    
                    $
                    1,716,955Investment
      securities
                    
                    
                    16,615,297
                    
                    
                    
                    17,064,262
                    
                    
                    
                    14,527,298
                    
                    
                    
                    14,953,345Loans
      - net
                    
                    
                    107,204,042
                    
                    
                    
                    111,865,000
                    
                    
                    
                    103,624,343
                    
                    
                    
                    107,728,000FHLB
      stock
                    
                    
                    206,700
                    
                    
                    
                    206,700
                    
                    
                    
                    345,900
                    
                    
                    
                    345,900Accrued
      interest receivable
                    
                    
                    492,682
                    
                    
                    
                    492,682
                    
                    
                    
                    499,981
                    
                    
                    
                    499,981Total
      financial assets
                    
                    $
                    129,402,390
                    
                    
                    $
                    134,512,313
                    
                    
                    $
                    120,714,477
                    
                    
                    $
                    125,244,181Financial
      Liabilities:Deposits
                    
                    
                    127,163,582
                    
                    
                    
                    128,742,000
                    
                    
                    
                    113,983,215
                    
                    
                    
                    116,283,000Advances
      from FHLB
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,750,000
                    
                    
                    
                    3,750,000Advance
      payments by borrowers for taxes and insurance
                    
                    
                    424,291
                    
                    
                    
                    424,291
                    
                    
                    
                    359,738
                    
                    
                    
                    359,738Accrued
      interest payable
                    
                    
                    45,580
                    
                    
                    
                    45,580
                    
                    
                    
                    211,962
                    
                    
                    
                    211,962Total
      financial liabilities
                    
                    $
                    127,633,453
                    
                    
                    $
                    129,211,871
                    
                    
                    $
                    118,304,915
                    
                    
                    $
                    120,604,700
  F-28
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 16.
              FAIR
      VALUES OF FINANCIAL INSTRUMENTS
(Continued)
 
 March 31, 2010
                    
                    
                    March 31, 2009Contract
                    
                    
                    Estimated
                    
                    
                    Contract
                    
                    
                    EstimatedValue
                    
                    
                    Fair Value
                    
                    
                    Value
                    
                    
                    Fair ValueOff-balance
      sheet instruments:Commitments
      to extend credit
                    
                    $
                    1,526,000
                    
                    
                    $
                    1,526,000
                    
                    
                    $
                    6,422,000
                    
                    
                    $
                    6,422,000
 
 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.
 
 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
                    
                    2010
                    
                    
                    2009Home
      equity line of credit
                    
                    $
                    439,000
                    
                    
                    $
                    5,294,000Commercial
      line of credit
                    
                    
                    1,086,000
                    
                    
                    
                    1,123,000Consumer
      line of credit
                    
                    
                    1,000
                    
                    
                    
                    5,000$
                    1,526,000
                    
                    
                    $
                    6,422,000
 
 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, 2010 and 2009, the uninsured
      portion of these deposits was approximately $3,886,000 and $1,046,000,
      respectively.
 
 Although
      the Bank has credit risk due to the uninsured portion of the above
      deposits, the Bank does not anticipate any accounting
  loss.
  F-29
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 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 of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of the
Company.
 
 The Bank had outstanding commitment to
originate loans as of March 31, 2010 as follows:
 
 March 31, 2010Fixed-
                    
                    
                    Variable-Rate
                    
                    
                    Rate
                    
                    
                    TotalFirst-mortgage
                    
                    $
                    1,202,000
                    
                    
                    $
                    
                    
                    
                    $
                    1,202,000
 
 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, 2010,
      the Bank met all capital adequacy requirements to which it was
      subject.
 
 As
      of March 31, 2010, 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 adequately
      capitalized, the Bank would 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, 2010
      and 2009 are as follows:
 
 For Capital AdequacyPurposes and to BeAdequately CapitalizedUnder the Prompt CorrectiveActual
                                                  
                                                  
                                                  Action ProvisionsAmount
                                                  
                                                  
                                                  Ratio
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  RatioAs
      of March 31, 2010:Total
      Risk-Based Capital (to Risk-Weighted Assets)
                                                  
                                                  $
                                                  11,501,000
                                                  
                                                  
                                                  
                                                  12.62
                                                  %
                                                  
                                                  ≥$
                                                  7,293,400
                                                  
                                                  
                                                  ≥
                                                  8.0
                                                  %Tier
      I Capital (to Risk-Weighted Assets)
                                                  
                                                  
                                                  10,804,000
                                                  
                                                  
                                                  
                                                  11.85
                                                  %
                                                  
                                                  ≥
                                                  3,646,700
                                                  
                                                  
                                                  ≥
                                                  4.0
                                                  %Tier
      I Capital (to Adjusted Total Assets)
                                                  
                                                  
                                                  10,804,000
                                                  
                                                  
                                                  
                                                  7.76
                                                  %
                                                  
                                                  ≥
                                                  5,569,600
                                                  
                                                  
                                                  ≥
                                                  4.0
                                                  %Tangible
      Capital (to Adjusted Total Assets)
                                                  
                                                  
                                                  10,804,000
                                                  
                                                  
                                                  
                                                  7.76
                                                  %
                                                  
                                                  ≥
                                                  2,088,600
                                                  
                                                  
                                                  ≥
                                                  1.5
                                                  %
  F-30
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 19.
                REGULATORY
      CAPITAL  (Continued)
 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
                          %
 
 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.
              CEASE
      AND DESIST ORDER
 
 On March
17, 2010, Delanco Federal Savings Bank (the “Bank”), the wholly owned subsidiary
of Delanco Bancorp, Inc. (the “Company”), entered into a Stipulation and Consent
to the Issuance of Order to Cease and Desist with the Office of Thrift
Supervision (the “OTS”), whereby the Bank consented to the issuance of an Order
to Cease and Desist (the “Order”) promulgated by the OTS, without admitting or
denying that grounds exist for the OTS to initiate an administrative proceeding
against the Bank.
 
 The Bank
Order requires the Bank to take the following actions:
 
 ·
                maintain
      (i) a tier 1 (core) capital to adjusted total assets ratio of at least
      6.0% and (ii) a total risk-based capital to risk-weighted assets ratio of
      at least 10.0% after the funding of an adequate allowance for loan and
      lease losses;
 
 ·
                if
      the Bank fails to meet these capital ratio requirements at any time,
      within 15 days thereafter prepare a written contingency plan detailing
      actions to be taken, with specific time frames, providing for (i) a merger
      with another federally insured depository institution or holding company
      thereof, or (ii) voluntary
liquidation;
 
 ·
                prepare
      a problem asset plan that will include strategies, targets and timeframes
      to reduce the Bank’s level of criticized assets and nonperforming
      loans;
 
 ·
                within
      30 days after the end of each quarter, beginning with the quarter ending
      June 30, 2010, prepare a quarterly written status report that will include
      the requirements contained in the
Order;
 
 ·
                prepare
      an updated business plan that will include the requirements contained in
      the Order and that also will include strategies to restructure the Bank’s
      operations, strengthen and improve the Bank’s earnings, reduce expenses
      and achieve positive core income and consistent
    profitability;
 
 ·
                restrict
      quarterly asset growth to an amount not to exceed net interest credited on
      deposit liabilities for the prior quarter without the prior non-objection
      of the OTS;
  F-31
 
 Delanco Bancorp, Inc. and
Subsidiary
 Notes to Consolidated
Financial Statements
 March 31, 2010 and
2009
 
 20.
              CEASE
      AND DESIST ORDER (Continued)
 
 ·
                refrain
      from making, investing in or purchasing any new commercial loans without
      the prior non-objection of the OTS (the Bank may refinance, extend or
      otherwise modify any existing commercial loans, so long as no new loan
      proceeds are advanced as part of the
  transaction);
 
 ·
                cease
      to accept, renew or roll over any brokered deposit or act as a deposit
      broker, without the prior written waiver of the Federal Deposit Insurance
      Corporation;
 
 ·
                not
      make any severance or indemnification payments without complying with
      regulatory requirements regarding such payments;
  and
 
 ·
                comply
      with prior regulatory notification requirements for any changes in
      directors or senior executive
officers.
 
 The
Order, which replaces the Supervisory Agreement previously entered into between
the Bank and the OTS, will remain in effect until terminated, modified, or
suspended in writing by the OTS.
 
 21.
              SUBSEQUENT
      EVENT
 
 The
Company has evaluated subsequent events through the filing date of this report
and determined that there were no recognized or non-recognized subsequent events
to report.
  F-32