10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

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

For the transition period from ______________ to _____________

Commission file number:  0-52517

DELANCO BANCORP, INC.

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

United States	36-4519533
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)

615 Burlington Avenue, Delanco, New Jersey 08075

(Address of principal executive offices)

(856) 461-0611

(Issuer’s telephone number)

Not Applicable

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

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

Yes x                           No ¨

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

Yes ¨                   No ¨

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

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

(Do not check if a smaller reporting company)

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

Yes o  No x

As of November 10, 2010 there were 1,634,725 shares of the registrant’s common stock outstanding.

DELANCO BANCORP, INC.

FORM 10-Q

Index

		Page No.
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Statements of Financial Condition at September 30, 2010 (Unaudited) and March 31, 2010	1
	Consolidated Statements of Operations for the three and six months ended September 30, 2010 and 2009 (Unaudited)	2
	Consolidated Statements of Stockholders’ Equity for the six months ended September 30, 2010 (Unaudited)	3
	Consolidated Statements of Cash Flows for the six months ended September 30, 2010 and 2009 (Unaudited)	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults upon Senior Securities	17
Item 4.	[Removed and Reserved]	17
Item 5.	Other Information	17
Item 6.	Exhibits	17
Signatures

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

	September 30, 2010			March 31, 2010
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	736,961		$	674,788
Interest-bearing deposits		4,624,774			4,208,881
Total cash and cash equivalents		5,361,735			4,883,669
Investment securities:
Securities held-to-maturity (fair value $14,835,219 and $16,806,099 at September 30, 2010 and March 31, 2010, respectively)		14,423,173			16,359,598
Securities available-for-sale (amortized cost of $249,615 and $255,699 at September 30, 2010 and March 31, 2010,respectively)		258,825			258,163
Total investment securities		14,681,998			16,617,761
Loans, net of allowance for loan losses of $1,124,574 at September 30, 2010 (unaudited), $998,526 at March 31, 2010		105,784,375			107,204,042
Accrued interest receivable		459,497			492,682
Premises and equipment, net		7,560,694			7,723,970
Investment required by law-stock in Federal Home Loan Bank, at cost		225,200			206,700
Deferred income taxes		908,900			1,029,028
Bank-owned life insurance		141,703			136,004
Prepaid and refundable income taxes		13,122			11,822
Real estate owned		1,005,221			412,969
Other assets		993,536			1,203,676
Total assets	$	137,135,981		$	139,922,323
LIABILITIES
Deposits
Non-interest bearing deposits	$	3,836,097		$	3,940,884
Interest bearing deposits		120,383,057			123,222,698
Total deposits		124,219,154			127,163,582
Accrued interest payable		33,393			45,580
Advance payments by borrowers for taxes and insurance		356,295			424,291
Other liabilities		554,256			553,994
Total liabilities		125,163,098			128,187,447
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, 3,000,000 shares authorized; no shares issued		–			–
Common stock, $.01 par value, 7,000,000 shares authorized; 1,634,725 shares issued and outstanding		16,347			16,347
Additional paid-in capital		6,625,801			6,625,801
Retained earnings, substantially restricted		5,916,923			5,682,964
Unearned common stock held by employee stock ownership plan		(544,688	)		(544,688	)
Accumulated other comprehensive (Loss)		(41,500	)		(45,548	)
Total stockholder’s equity		11,972,883			11,734,876
Total liabilities and stockholders’ equity	$	137,135,981		$	139,922,323

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
INTEREST INCOME
Loans	$	1,521,144	$	1,518,517		$	3,039,324	$	3,115,336
Investment securities		155,981		177,901			334,297		345,614
Total interest income		1,677,125		1,696,418			3,373,621		3,460,950
INTEREST EXPENSE
Interest-bearing checking accounts		22,568		27,345			45,898		53,365
Passbook and money market accounts		96,163		132,140			198,696		269,835
Certificates of deposits		376,357		512,812			800,463		1,039,200
Federal Home Loan Bank Advances		–		5,580			–		15,236
Total interest expense		495,088		677,877			1,045,057		1,377,636
Net interest income		1,182,037		1,018,541			2,328,564		2,083,314
Provision for loan losses		123,000		705,000			273,000		805,000
Net interest income after provision for loan losses		1,059,037		313,541			2,055,564		1,278,314
NON-INTEREST INCOME
Income from bank-owned life insurance		–		–			5,699		5,962
Service charges		29,065		33,886			64,494		69,731
Rental income		3,617		–			3,617		–
Other		3,102		14,157			6,047		19,183
Total non-interest income		35,784		48,043			79,857		94,876
NON-INTEREST EXPENSE
Salaries and employee benefits		381,441		464,073			791,051		944,776
Advertising		5,687		10,778			10,539		20,709
Office supplies, telephone and postage		30,715		41,530			49,993		68,783
Net occupancy expense		173,564		172,441			339,313		341,692
Federal insurance premiums		103,166		90,013			175,850		147,708
Data processing expenses		52,463		25,285			84,582		70,687
ATM expenses		5,349		7,327			9,502		11,109
Bank charges and fees		23,574		26,497			48,320		57,006
Insurance and surety bond premiums		19,261		17,101			33,373		33,306
Dues and subscriptions		4,587		5,066			12,183		19,124
Professional fees		63,220		58,386			125,387		106,210
Real Estate Owned expense		29,026		–			33,479		–
Other		33,591		9,877			69,160		56,050
Total non-interest expense		925,644		928,374			1,782,732		1,877,160
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)		169,177		(566,790	)		352,689		(503,970	)
Income taxes (benefits)		66,994		(210,152	)		118,730		(192,987	)
NET INCOME (LOSS)		102,183	$	(356,638	)		233,959	$	(310,983	)
INCOME (LOSS) PER COMMON SHARE	$	0.06	$	(0.23	)	$	0.15	$	(0.20	)

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

(Unaudited)

									Unearned
					Additional				Employee Stock			Accumulated			Total
	Common Stock				Paid-in		Retained		Ownership			Other-Comprehensive			Stockholders’
	Shares		Amount		Capital		Earnings		Plan			Income (Loss)			Equity
Balance at March 31, 2010		1,634,725	$	16,347	$	6,625,801	$	5,682,964	$	(544,688	)	$	(45,548	)	$	11,734,876
Comprehensive income								233,959								233,959
Net income
Other comprehensive income, net of tax:
Change in unrealized gain on securities available-for-sale, net of deferred income taxes of $(14,911)													4,048			4,048
Total comprehensive income								233,959					4,048			238,007
Balance at September 30, 2010		1,634,725	$	16,347	$	6,625,801	$	5,916,923	$	(544,688	)	$	(41,500	)	$	11,972,883

See Notes to the Unaudited Consolidated Financial Statements.

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DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30,
	2010			2009
Cash flow from operating activities
Net Income	$	233,959		$	(310,983	)
Adjustments to reconcile net income (loss) to net cash provided by (uses in) operating activities:
Deferred income taxes		117,430			(148,535	)
Depreciation		172,206			170,037
Discount accretion net of premium amortization		(24,060	)		(3,331	)
Provision for loan losses		273,000			805,000
Income from bank owned life insurance		(5,699	)		(5,962	)
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		33,185			(10,047	)
Other assets		210,140			189,461
Prepaid income taxes		(1,300	)		9,610
Increase (decrease) in:
Accrued interest payable		(12,186	)		(145,749	)
Other liabilities		262			(105,279	)
Net cash provided by operating activities		996,937		$	444,222
Cash flows from investing activities
(Purchases) of securities available-for-sale		–			(195	)
Proceeds of securities available for sale		6,084			–
Purchases of securities held-to-maturity		(10,642,500	)		(3,500,000	)
Proceeds from maturities and principal repayments of securities held-to-maturity		12,602,984			3,120,636
Purchase of investment required by law – stock in Federal Home Loan Bank		(18,500	)		94,200
Net (increase) decrease in loans		554,415			(6,463,558	)
Purchases of premises and equipment		(8,930	)		(30,783	)
Net cash provided by(used in) investing activities		2,493,553		$	(6,779,700	)
Cash flows from financing activities
Net increase (decrease) in deposits		(2,944,428	)		10,923,362
Net increase (decrease) in advance payments by borrowers for taxes and insurance		(67,996	)		63,329
Decrease  in Federal home Loan Bank Advances		–			(2,750,000	)
Net cash provided by (used in) financing activities	$	(3,012,424	)	$	8,236,691

(continued)

4

	Six Months Ended September 30,
	2010		2009
Net decrease in cash and cash equivalents		478,066	$	1,901,213
Cash and cash equivalents, beginning of the period		4,883,669		1,716,955
Cash and cash equivalents, end of period		5,361,735	$	3,618,168
Supplemental Disclosures:
Cash paid during the period for interest		1,057,243	$	1,523,385
Cash paid during the period for income taxes		1,040		520
Loans transferred to foreclosed real estate during the period		405,000		487,968
Proceeds from sales of foreclosed real estate financed through loans		–		–
Total increase in unrealized gain on securities available-for-sale	$	6,745	$	31,019

See Notes to the Unaudited Consolidated Financial Statements.

5

DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

September 30, 2010

 (1) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America.  However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included.  Such adjustments were of a normal recurring nature.  The results of operations for the three and six month periods ended September 30, 2010 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.  For additional information, refer to the consolidated financial statements and footnotes thereto of Delanco Bancorp, Inc. (the “Company”) included in the Company’s annual report on Form 10-K for the year ended March 31, 2010.

(2) Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans and the evaluation of deferred taxes.

(3) Deferred Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change.

The calculation of deferred taxes for GAAP capital differs from the calculation of deferred taxes for regulatory capital. For regulatory capital, deferred tax assets that are dependent upon future taxable income for realization are limited to the lesser of either the amount of deferred tax assets that the institution expects to realize within one year of the calendar quarter-end date, or 10% of Delanco Federal Savings Bank’s (the “Bank”) Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower then our GAAP capital ratio by 38  basis points.

(4) Income Taxes

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

6

Federal tax years 2006 through 2009 remain subject to examination as of September 30, 2010, while tax years 2005 through 2009 remain subject to examination by state taxing jurisdictions. In the event the Bank is assessed for interest and/or penalties by taxing authorities, such assessed amounts will be classified in the financial statements as income tax expense.

(5) Earnings Per Share

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

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

The calculated basic and dilutive EPS are as follows:

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Numerator	$	102,183	$	(356,638	)	$	233,959	$	(310,983	)
Denominators:
Basic shares outstanding		1,580,256		1,577,052			1,580,256		1,577,052
Effect of dilutive securities		–		–			–		–
Dilutive shares outstanding		1,580,256		1,577,052			1,580,256		1,577,052
Earnings per share:
Basic	$	0.06	$	( 0.23	)	$	0.15	$	(0.20	)
Dilutive	$	0.06	$	(0.23	)	$	0.15	$	(0.20	)

(6) Cease and Desist Order

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

The Order requires the Bank to take the following actions:

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

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

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

7

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

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

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

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

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

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

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

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

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

The Bank continues to work with its borrowers where possible and is pursuing legal action where the ability to work with the borrower does not exist.  As of September 30, 2010, the Bank has entered into formal forbearance agreements with eight relationships totaling $4.3 million that require current payments while the borrowers restructure their finances.

At September 30, 2010, the Bank’s tier 1 (core) capital to adjusted total assets ratio was 8.16% and its total risk-based capital to risk-weighted assets ratio was 13.30%. At September 30, 2010, the Bank exceeded all of its regulatory capital requirements and was considered “well capitalized” under regulatory guidelines.

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

8

(7) Recent Accounting Pronouncements

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

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

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

(8) Fair Value of Financial Instruments

ASC Topic 820-10, “Fair Value Measurement and Disclosures” establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosure requirements for fair value measurements. ASC Topic 820 does not require any new fair value measurements. The adoption of ASC Topic 820-10 did not have a material impact on the consolidated financial statements.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as described below:

Ÿ	Level 1	Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Ÿ	Level 2	Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets, quoted prices in markets that are not considered to be active, and observable inputs other than quoted prices such as interest rates.

Ÿ Level 3 Level 3 inputs are unobservable inputs.

9

A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input significant to the fair value measurement.

As required by ASC Topic 825-10-65, the estimated fair value of financial instruments at September 30, 2010 and March 31, 2010 was as follows:

	September 30, 2010				March 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents	$	5,362	$	5,362	$	4,884	$	4,884
Investment securities		14,673		15,094		16,615		17,064
Loans – net		105,784		109,218		107,204		111,865
FHLB stock		225		225		207		207
Accrued interest receivable		459		459		493		493
Total financial assets	$	126,503	$	130,358	$	129,403	$	134,513
Financial Liabilities:
Deposits	$	124,219	$	127,273	$	127,164	$	128,742
Advance payments by borrowers for taxes and insurance		356		356		424		424
Accrued interest payable		33		33		46		46
Total financial liabilities	$	124,608	$	127,662	$	127,634	$	129,212

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

Management’s discussion and analysis of the financial condition and results of operations at and for the six months ended September 30, 2010 and 2009 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Unaudited Financial Statements and the notes thereto, appearing in Part I, Item 1 of this report.

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe our future plans, strategies and expectations. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, changes in real estate market values in our area, and changes in relevant accounting principles and guidelines.

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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

General

Delanco Bancorp, Inc. is the holding company for Delanco Federal Savings Bank. Delanco Federal Savings Bank operates from two offices in Burlington County, New Jersey. Delanco Federal Savings Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate a variety of consumer and business loans.

Balance Sheet Analysis

Overview. Total assets at September 30, 2010 were $137.1 million, a decrease of $2.8 million, or 2.0%, from total assets of $139.9 million at March 31, 2010. The change in the asset composition reflected a decrease in loans of $1.4 million and in investment securities of $1.9 million offset by an increase in cash and cash equivalents of $478 thousand and real estate owned by $592 thousand.

Loans. At September 30, 2010, total loans, net, were $105.8 million, or 77.1% of total assets. Overall loans decreased by $1.4 million due primarily to payoffs in commercial and multi-family real estate loans, the transfer of a $467 thousand multi-family loan to Real Estate Owned and significant amortization and line pay down in the commercial loan portfolio, offset by an increase in residential mortgage loans. Commercial and multi-family real estate loans decreased by $1.4 million, commercial loans decreased by $1.1 million and residential loans increased by $1.4 million.

Table 1: Loan Portfolio Analysis
	September 30,						March 31,
	2010						2010
(Dollars in thousands)	Amount			Percent			Amount			Percent
Real estate loans:
Residential	$	81,079			75.8	%	$	79,637			73.5	%
Commercial and multi-family		22,603			21.1			23,998			22.2
Construction		337			0.3			395			0.4
Total real estate loans		104,019			97.2			104,030			96.1
Commercial loans		1,759			1.7			2,821			2.6
Consumer loans		1,190			1.1			1,419			1.3
Total loans		106,968			100.0	%		108,270			100.0	%
Loans in process		–						–
Net deferred loan fees		(59	)					(67	)
Allowance for losses		(1,125	)					(999	)
Loans, net	$	105,784					$	107,204

Non-performing Loans. Total nonperforming loans at September 30, 2010 decreased $782,000 primarily due to a decrease in nonperforming commercial loans of $1.9 million, partially offset by an increase in nonperforming residential loans of $1.1 million. The troubled debt restructurings as of March 31, 2010 of $3.8 million include $1.9 million of loans also reported in the non-accrual loan total. The total for troubled debt restructurings as of September 30, 2010 does not include loans that are reported as non-accrual loans, which total $2.0 million.

11

Table 2: Nonperforming Assets
	September 30,			March 31,
(Dollars in thousands)	2010			2010
Nonaccrual loans	$	5,285		$	6,067
Accruing loans past due 90 days or more		–			—
Total of nonaccrual and 90 days or more past due loans		5,285			6,067
Other nonperforming assets		1,005			413
Total nonperforming assets		6,290			6,480
Troubled debt restructurings		2,590			3,792
Troubled debt restructurings and total nonperforming assets	$	8,880		$	10,272
Total nonperforming loans to total loans		4.94	%		5.60	%
Total nonperforming loans to total assets		3.85			4.34
Total nonperforming assets and troubled debt restructurings to total assets		6.47			7.34

Securities. The investment securities portfolio was $14.7 million, or 10.7 % of total assets, at September 30, 2010. At that date, 56.4% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily inU.S. Government agency and other debt securities. Investment securities decreased $1.9 million, primarily due to calls of U.S government and agency securities, while mortgage backed securities decreased due to paydown of principal.

Table 3: Investment Securities
	September 30,				March 31,
	2010				2010
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Mutual funds		250		259	$	256	$	258
Total available for sale		250		259		256		258
Securities held to maturity:
U.S. Government and agency securities		6,142		6,169		6,997		7,013
Mortgage-backed securities		8,281		8,666		9,363		9,793
Total held to maturity		14,423		14,835		16,360		16,806
Total	$	14,673	$	15,094	$	16,616	$	17,064

Deposits. Our deposit base is comprised of demand deposits, money market and passbook accounts and time deposits. We consider demand deposits and money market and passbook accounts to be core deposits. We do not have any brokered deposits. At September 30, 2010, core deposits were 46.2% of total deposits. Overall deposits decreased by $2.9 million as the Bank attracted core deposits and reduced higher costing time deposits. Core deposits increased for the quarter by $1.0 million while time deposits decreased by $4.0 million.

Table 4: Deposits
	September 30,					March 31,
	2010					2010
(Dollars in thousands)	Amount		Percent			Amount		Percent
Noninterest-bearing demand deposits	$	3,836		3.1	%	$	3,941		3.1	%
Interest-bearing demand deposits		12,922		10.4			9,922		7.8
Savings and money market accounts		40,644		32.7			42,510		33.4
Certificates of deposit		66,817		53.8			70,791		55.7
Total	$	124,219		100.0	%	$	127,164		100.0	%

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Borrowings. In recent periods, we have occasionally used short-term FHLB advances as an additional source of liquidity. At September 30, 2010, we did not have short-term advances outstanding.

Results of Operations for the Six Months Ended September 30, 2010 and 2009

Financial Highlights. Net income for the six months ended September 30, 2010, was $234,000 compared to a net loss of $311,000 for the six months ended September 30, 2009. The increase in net income was the result of an increase in net interest income and a decrease in non-interest expense partially offset by an increase in income taxes.

Table 5: Summary Income Statements
Six months ended September 30, (Dollars in thousands)	2010			2009			2010 v. 2009			% Change
Net interest income	$	2,329		$	2,083			246			11.8	%
Provision for loan losses		273			805			(532	)		(66.1	)
Noninterest income		80			95			(15	)		(15.8	)
Noninterest expenses		1,783			1,877			(94	)		(5.0	)
Net income (loss)		234			(311	)		545			175.2
Return on average equity (annualized)		4.03	%		(5.36	)%
Return on average assets (annualized)		0.34	%		(0.46	)%

Net Interest Income. Net interest income increased $246,000 to $2,329,000 for the six months ended September 30, 2010 from $2,083,000 for the six months ended September 30, 2009 driven by a decline of interest paid on deposits. Both the 32 basis point increase in our interest rate spread and the 32 basis point increase in our net interest margin reflect the improvement the Bank has made in reducing our cost of funds. The rates earned on our assets declined, resulting in a 2.5% decrease in total interest income as compared to a 24.2% decrease in total interest expense.

Average loans in the six months ended September 30, 2010 increased $63,000 or 0.1%, compared with the same period in 2009, driven by growth in residential real estate loans, which offset decreases in other segments of the loan portfolio. Average investment securities in the six months ended September 30, 2010 increased $1.7 million, or 11.6%, compared to the same period in 2009. The growth in the investment portfolio was due to the increase in U.S Government and agency securities. Declining interest rates decreased the average yield on earning assets to 5.31% for the six months ended September 30, 2010, compared with 5.55% for the same period in 2009.

Average interest-bearing deposits in the six months ended September 30, 2010 increased $3.2 million, compared with the same period in 2009 as the Bank benefited from the closing of nearby competitors and the desire of some depositors to deal with community banks rather than large banks due to negative publicity surrounding the larger banks. Declining interest rates decreased the average cost of deposits to 1.72%, compared with 2.28% for the same period in 2009.

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Table 6: Analysis of Net Interest Income

Six months ended September 30, (Dollars in thousands)	2010			2009			2010 v. 2009			% Change
Components of net interest income
Loans	$	3,039		$	3,115		$	(76	)		(2.4	)%
Investment securities		334			346			(12	)		(3.5	)
Total interest income		3,373			3,461			(88	)		(2.5	)
Deposits		1,045			1,363			(318	)		(23.3	)
Borrowings		–			15			(15	)		–
Total interest expense		1,045			1,378			(333	)		(24.2	)
Net interest income		2,329			2,083			246			11.8
Average yields and rates paid
Interest-earning assets		5.31	%		5.55	%		(.24	)bp
Interest-bearing liabilities		1.72			2.28			(.56	)
Interest rate spread		3.59			3.27			.32
Net interest margin		3.66			3.34			.32
Average balances
Loans	$	106,373		$	106,310		$	63			0.1	%
Investment securities		15,940			14,285			1,655			11.6
Other earning assets		4,815			4,207			608			14.5
Interest-bearing deposits		121,461			118,285			3,176			2.7
Borrowings		–			1,776			(1,776	)		–

 Provision for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. Provisions for loan losses were $273,000 in the six months ended September 30, 2010 compared to $805,000 in the six months ended September 30, 2009. We had $148,000 in charge-offs in the six months ended September 30, 2010, compared to $997,000 in charge-offs in the same prior year period.

Table 7: Analysis of Loan Loss Experience
Six months ended September 30, (Dollars in thousands)	2010			2009
Allowance at beginning of period	$	999		$	1,547
Provision for loan losses		273			805
Total charge-offs		(148	)		(997	)
Recoveries		1			1
Net charge-offs		(147	)		(996	)
Allowance at end of period	$	1,125		$	1,356
Allowance to nonperforming loans		21.3	%		14.5	%
Allowance to total loans outstanding at the end of the period		1.1			1.2
Net charge-offs (recoveries) to average loans outstanding during the period		0.14			0.94

Non-Interest Income. Noninterest income decreased in the six months ended September 30, 2010 compared to the same period in the prior year primarily as a result of a change in ATM fee recognition. Due to the conversion and the new service provider, the fee income previously recorded is now netted against the expense incurred.

Table 8: Noninterest Income Summary
Six months ended September 30, (Dollars in thousands)	2010		2009		$ Change			% Change
Income from bank-owned life insurance	$	6	$	6	$	–			–	%
Service charges		64	$	70		(6	)		(8.6	)
Rental income		4		–		4			–
Other		6		19		(13	)		(68.4	)
Total		80	$	95		(15	)		(15.8	)

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Non-Interest Expenses. Noninterest expenses declined in the six months ended September 30, 2010 by $94,000 over the same period in the prior year through decreases in most expense categories, but primarily in salaries and benefits, partially offset by increases in FDIC insurance premiums, real estate owned expense and professional fees incurred in our loan workout/recoveries.

Table 9: Noninterest Expense Summary
Six months ended September 30, (Dollars in thousands)	2010		2009		$ Change			% Change
Salaries and employee benefits	$	791	$	944	$	(153	)		(16.2	)%
Advertising		11		21		(10	)		(47.6	)
Office supplies, telephone and postage		50		69		(19	)		(27.5	)
Net occupancy expense		339		342		(3	)		(0.9	)
Federal insurance premiums		176		148		28			18.9
Data processing expenses		85		71		14			19.7
ATM expenses		10		11		(1	)		(9.1	)
Bank charges and fees		48		57		(9	)		(15.8	)
Insurance and surety bond premiums		33		33		–			–
Dues and subscriptions		12		19		(7	)		(36.8	)
Professional fees		125		106		19			17.9
Real estate owned expense		34		–		34			–
Other		69		56		13			23.2
Total	$	1,783	$	1,877		(94	)		(5.0	)

Liquidity and Capital Management

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2010, cash and cash equivalents totaled $5.4 million. In addition, at September 30, 2010, we had arrangements to borrow up to $7.3 million from the Federal Home Loan Bank of New York. On September 30, 2010, we had no outstanding borrowings.

At September 30, 2010, substantially all of our investment securities were classified as held to maturity.  We have classified our investments in this manner, rather than as available for sale, because they were purchased primarily to provide a source of income and not to provide liquidity.   We anticipate that a portion of future investments may be classified as available for sale in order to give us greater flexibility in the management of our investment portfolio.

A significant use of our liquidity is the funding of loan originations. At September 30, 2010 we had outstanding loan commitments of $2.0 million. In addition, we had $6.1 million in unused lines of credit. Historically, many of the lines of credit expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of September 30, 2010 totaled $43.5 million, or 65.1% of certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the recent low interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before September 30, 2010. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

15

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2010, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

Off-Balance Sheet Arrangements

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

For the six months ended September 30, 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.

Subsequent Event

On October 1, 2010 Delanco received a payment of $104 thousand dollars from one relationship that represented all of the back interest due on the $912 thousand loan relationship as well as late charges due. As a result of these loans being brought current, they are no longer classified as non-performing.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 4.  Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rule 13(a)-15(e) that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

16

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

Delanco Bancorp is not involved in any pending legal proceedings. Delanco Federal Savings Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to its financial condition and results of operations.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010 and as set forth under Part II, Item 1A. “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, which could materially and adversely affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

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

Not Applicable.

Item 3.  Defaults upon Senior Securities

Not Applicable.

Item 4.  [Removed and Reserved].

Item 5.  Other Information

None.

Item 6.  Exhibits

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

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

32.0 Section 1350 Certification

17

SIGNATURES

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

	DELANCO BANCORP, INC.
Dated: November 9, 2010	By:	/s/ James E. Igo
		James E. Igo
		Chairman, President and Chief Executive
		Officer
Dated: November 9, 2010	By:	/s/ Eva Modi
		Eva Modi
		Chief Financial Officer

EX-31.1

Exhibit 31.1

Certification

I, James E. Igo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Delanco Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2010	/s/ James E. Igo
	James E. Igo
	Chairman, President and Chief Executive
	Officer

EX-31.2

Exhibit 31.2

Certification

I, Eva Modi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Delanco Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2010	/s/ Eva Modi
	Eva Modi
	Chief Financial Officer

EX-32

Exhibit 32.0

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Delanco Bancorp, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2010, as filed with the Securities and Exchange Commission (the “Report”), we hereby certify pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this Report fairly presents, in all material respects, the consolidated financial condition and results of the Company as of and for the period covered by this Report.

By:	/s/ James E. Igo
	James E. Igo
	President and Chief Executive Officer
	November 9, 2010
By:	/s/ Eva Modi
	Eva Modi
	Chief Financial Officer
	November 9, 2010