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, 2011

OR

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

For the transition period from ______________ to _____________

Commission file number:  0-52517

DELANCO BANCORP, INC.

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

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

615 Burlington Avenue, Delanco, New Jersey 08075

(Address of principal executive offices)

(856) 461-0611

(Issuer’s telephone number)

Not Applicable

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

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

Yes x   No o

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

Yes x   No o

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

Large accelerated filer    o                                                                Accelerated filer                                                     o

Non-accelerated filer      o                                                                Smaller reporting company                                   x

(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).

No x

As of November 10, 2011 there were 1,634,725 shares of the registrant’s common stock outstanding.

DELANCO BANCORP, INC.

FORM 10-Q

Index

			Page No.
PART I.  FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Financial Condition at  September 30, 2011 (Unaudited) and March 31, 2011	1
		Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010 (Unaudited)	2
		Consolidated Statements of Stockholders’ Equity for the six months ended September 30, 2011 (Unaudited)	3
		Consolidated Statements of Cash Flows for the six months ended September 30, 2011 and 2010 (Unaudited)	4
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
	Item 4.	Controls and Procedures	27
PART II.  OTHER INFORMATION
	Item 1.	Legal Proceedings	27
	Item 1A.	Risk Factors	27
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 3.	Defaults upon Senior Securities	27
	Item 4.	[Removed and Reserved]	27
	Item 5.	Other Information	28
	Item 6.	Exhibits	28
Signatures			29

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Financial Condition

	September 30, 2011			March 31, 2011
	(unaudited)
ASSETS
Cash and cash equivalents
Cash and amounts due from banks	$	558,560		$	658,449
Interest-bearing deposits		5,127,095			5,004,180
Total cash and cash equivalents		5,685,655			5,662,629
Investment securities:
Securities held-to-maturity (fair value $18,510,455 and $15,680,809 at September 30, 2011 and  March 31, 2011, respectively)		18,199,983			15,696,063
Securities available-for-sale (amortized cost of $244,836 and $249,295 at September 30, 2011  and March 31, 2011, respectively)		250,250			248,062
Total investment securities		18,450,233			15,944,125
Loans, net of allowance for loan losses of $1,343,767 at September 30, 2011 (unaudited), $1,286,301 at March 31, 2011		102,770,858			103,867,330
Accrued interest receivable		456,128			458,524
Premises and equipment, net		7,232,116			7,398,015
Federal Home Loan Bank, at cost		331,600			274,700
Deferred income taxes		722,592			747,900
Bank-owned life insurance		147,508			141,703
Real estate owned		409,300			770,639
Other assets		671,737			906,834
Total assets	$	136,877,727		$	136,172,399
LIABILITIES
Deposits
Non-interest bearing deposits		4,345,516			4,161,255
Interest bearing deposits		116,504,953			116,681,155
Total deposits		120,850,469			120,842,410
Line of credit from Atlantic Central Bankers Bank	─				1,000,000
Advances from Federal Home Loan Bank		2,500,000			1,100,000
Accrued interest payable		23,768			22,658
Advance payments by borrowers for taxes and insurance		350,842			394,864
Other liabilities		709,498			599,146
Total liabilities		124,434,577			123,959,078
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		6,606,577			6,606,577
Retained earnings, substantially restricted		6,372,163			6,150,811
Unearned common stock held by employee stock ownership plan		(512,648	)		(512,648	)
Accumulated other comprehensive (Loss)		(39,289	)		(47,766	)
Total stockholder’s equity		12,443,150			12,213,321
Total liabilities and stockholders’ equity	$	136,877,727		$	136,172,399

See Notes to the Unaudited Consolidated Financial Statements.

1

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,					Six Months Ended September 30,
	2011		2010			2011			2010
INTEREST INCOME
Loans	$	1,362,744	$	1,521,144		$	2,771,119		$	3,039,324
Investment securities		144,670		155,981			281,847			334,297
Total interest income		1,507,414		1,677,125			3,052,966			3,373,621
INTEREST EXPENSE
Interest-bearing checking accounts		14,048		22,568			28,909			45,898
Passbook and money market accounts		72,226		96,163			142,545			198,696
Certificates of deposits		283,538		376,357			574,208			800,463
Federal Home Loan Bank Advances		72	─				149		─
Total interest expense		369,884		495,088			745,811			1,045,057
Net interest income		1,137,530		1,182,037			2,307,155			2,328,564
Provision for loan losses		80,000		123,000			155,000			273,000
Net interest income after provision for loan losses		1,057,530		1,059,037			2,152,155			2,055,564
NON-INTEREST INCOME
Income from bank-owned life insurance	─		─				5,805			5,699
Gain (loss) on sale of real estate owned	─		─				(56,018	)	─
Service charges		36,429		29,065			75,498			64,494
Rental income		2,850		3,617			5,700			3,617
Other		2,896		3,102			7,039			6,047
Total non-interest income		42,175		35,784			38,024			79,857
NON-INTEREST EXPENSE
Salaries and employee benefits		394,492		381,441			795,363			791,051
Advertising		7,339		5,687			12,347			10,539
Office supplies, telephone and postage		32,416		30,598			54,336			49,587
Loan expenses		38,311		(3,878	)		43,693			(5,035	)
Net occupancy expense		163,516		173,564			331,994			339,313
Federal insurance premiums		75,504		103,166			174,428			175,850
Data processing expenses		53,867		52,463			106,518			84,582
ATM expenses		5,105		5,349			10,335			9,502
Bank charges and fees		19,180		23,574			36,958			48,320
Insurance and surety bond premiums		20,140		19,261			41,068			33,373
Dues and subscriptions		9,170		4,587			15,793			12,183
Professional fees		65,843		63,220			125,070			125,387
Real Estate Owned expense		2,633		29,026			11,615			33,479
Other		28,645		37,586			56,937			74,601
Total non-interest expense		916,161		925,644			1,816,455			1,782,732
INCOME BEFORE INCOME TAX EXPENSE		183,544		169,177			373,724			352,689
Income taxes		73,380		66,994			152,372			118,730
NET INCOME		110,164		102,183			221,352			233,959
INCOME PER COMMON SHARE	$	0.07	$	0.06		$	0.14		$	0.15

See Notes to the Unaudited Consolidated Financial Statements.

2

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock				Additional Paid-in		Retained		Unearned Employee Stock Ownership			Accumulated Other-Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Earnings		Plan			Income (Loss)			Equity
Balance at March 31, 2011		1,634,725	$	16,347	$	6,606,577	$	6,150,811	$	(512,648	)	$	(47,766	)	$	12,213,321
Comprehensive income
Net income								221,352								221,352
Other comprehensive income, net of tax:
Change in unrealized gain on securities available-for-sale, net of deferred income taxes of $3,391													8,477			8,477
Total comprehensive income								221,352					8,477			229,829
Balance at September 30, 2011		1,634,725	$	16,347	$	6,606,577	$	6,372,163	$	(512,648	)	$	(39,289	)	$	12,443,150

See Notes to the Unaudited Consolidated Financial Statements.

3

DELANCO BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30,
	2011			2010
Cash flow from operating activities
Net Income	$	221,352		$	233,959
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		27,138			117,430
Depreciation		169,500			172,206
Discount accretion net of premium amortization		(1,128	)		(24,060	)
Provision for loan losses		155,000			273,000
Income from bank owned life insurance		(5,805	)		(5,699	)
Loss on sale of real estate owned		56,018		─
Changes in operating assets and liabilities
(Increase) decrease in:
Accrued interest receivable		2,396			33,185
Other assets		235,097			210,140
Prepaid income taxes	─				(1,300	)
Increase (decrease) in:
Accrued interest payable		1,110			(12,186	)
Other liabilities		110,352			262
Net cash provided by operating activities	$	971,030		$	996,937
Cash flows from investing activities
Proceeds of securities available for sale		4,459			6,084
Purchases of securities held-to-maturity		(6,500,000	)		(10,642,500	)
Proceeds from maturities and principal repayments of securities held-to-maturity		3,997,207			12,602,984
Purchase of investment required by law – stock in Federal Home Loan Bank		(56,900	)		(18,500	)
Net decrease in loans		901,472			554,415
Purchases of premises and equipment		(3,600	)		(8,930	)
Proceeds from sale of real estate owned		345,321		─
Net cash provided by(used in) investing activities	$	(1,312,041	)	$	2,493,553
Cash flows from financing activities
Net increase (decrease) in deposits		8,059			(2,944,428	)
Net decrease in advance payments by borrowers for taxes and insurance		(44,022	)		(67,996	)
Increase in Federal home Loan Bank Advances		400,000		─
Net cash provided by (used in) financing activities	$	364,037		$	(3,012,424	)

(continued)

4

	Six Months Ended September 30,
	2011		2010
Net decrease in cash and cash equivalents		23,026		478,066
Cash and cash equivalents, beginning of the period		5,662,629		4,883,669
Cash and cash equivalents, end of period		5,685,655		5,361,735
Supplemental Disclosures:
Cash paid during the period for interest		745,134		1,057,243
Cash paid during the period for income taxes		2,250		1,040
Loans transferred to foreclosed real estate during the period		40,000		405,000
Total increase in unrealized gain on securities available-for-sale	$	5,414	$	6,745

See Notes to the Unaudited Consolidated Financial Statements.

5

DELANCO BANCORP, INC. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

September 30, 2011

 (1)           Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP).  However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included.  Such adjustments were of a normal recurring nature.  The results of operations for the six month period ended September 30, 2011 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, 2011.

(2)           Use of Estimates

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

(3)           Deferred Income Taxes

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

The calculation of deferred taxes for GAAP capital differs from the calculation of deferred taxes for regulatory capital. For regulatory capital, deferred tax assets that are dependent upon future taxable income for realization are limited to the lesser of either the amount of deferred tax assets that the institution expects to realize within one year of the calendar quarter-end date, or 10% of Delanco Federal Savings Bank’s (the “Bank”) Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower than our GAAP capital ratio by 9 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 2007 through 2010 remain subject to examination as of September 30, 2011, while tax years 2007 through 2010 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,
	2011		2010		2011		2010
Numerator	$	110,164	$	102,183	$	221,352		233,959
Denominators:
Basic shares outstanding		1,583,460		1,580,256		1,583,460		1,580,256
Effect of dilutive securities	─		─		─		─
Dilutive shares outstanding		1,583,460		1,580,256		1,583,460		1,580,256
Earnings per share:
Basic	$	0.07	$	0.06	$	0.14	$	0.15
Dilutive	$	0.07	$	0.06	$	0.14	$	0.15

(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 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, 2011, the Bank has entered into formal forbearance agreements with eleven relationships totaling $4.2 million that require current payments while the borrowers restructure their finances.

At September 30, 2011, the Bank’s tier 1 (core) capital to adjusted total assets ratio was 8.81% and its total risk-based capital to risk-weighted assets ratio was 14.99%. At September 30, 2011, 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.

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

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

(8)           Fair Value of Financial Instruments

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

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

● Level 1 Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

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

● Level 3 Level 3 inputs are unobservable inputs.

9

Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
September 30, 2011
Available-for-sale securities	$	250		NONE		NONE
March 31, 2011
Available-for-sale securities	$	248		NONE		NONE

Assets and Liabilities on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis at September 30, 2011 and March 31, 2011 are as follows (dollars in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
September 30, 2011
Impaired loans	$		$	7,158	$
Real estate owned				409
Total	$	NONE	$	7,567	$	NONE
March 31, 2011
Impaired loans	$		$	4,956	$
Real estate owned				771
Total	$	NONE	$	5,727	$	NONE

The fair value of impaired loans and real estate owned 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.

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.

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.

10

As required by ASC Topic 825-10-65, the estimated fair value of financial instruments at September 30, 2011 and March 31, 2011 was as follows:

	September 30, 2011				March 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(Dollars in Thousands)
Financial Assets:
Cash and cash equivalents	$	5,686	$	5,686	$	5,663	$	5,663
Investment securities		18,445		18,760		15,945		15,929
Loans – net		102,771		105,744		103,867		107,877
FHLB stock		332		332		275		275
Accrued interest receivable		456		456		459		459
Real estate owned		409		409		771		771
Total financial assets	$	128,099	$	131,387	$	126,979	$	130,973
Financial Liabilities:
Deposits		120,850		121,516		120,842		122,053
Line of credit from ACBB	─		─			1,000		1,000
Advances from FHLB		2,500		2,500		1,100		1,100
Advance payments by borrowers for taxes and insurance		351		351		395		395
Accrued interest payable		709		709		23		23
Total financial liabilities	$	124,410	$	125,076	$	123,360	$	124,571

	September 30, 2011				March 31, 2011
	Contract Value		Estimated Fair Value		Contract Value		Estimated Fair Value
Off-balance sheet instruments
Commitments to extend credit	$	5,488	$	5,488	$	5,706	$	5,706

(9) Loans

The Bank monitors and assesses the credit risk of its loan portfolio using the classes set forth below.  These classes also represent the segments by which the Bank monitors the performance of its loan portfolio and estimates its allowance for loan losses.

Residential real estate loans consist of loans secured by one to four family residences located in the Bank’s market area.  The Bank has originated one to four family residential mortgage loans in amounts up to 80% of the lesser of the appraised value or selling price of the mortgaged property without requiring mortgage insurance.  A mortgage loan originated by the Bank, for owner occupied property, whether fixed rate or adjustable rate, can have a term of up to 30 years.  Non-owner occupied property, whether fixed rate or adjustable rate, can have a term of up to 30 years.  Adjustable rate loan terms limit the periodic interest rate adjustment and the minimum and maximum rates that may be charged over the term of the loan based on the type of loan.

11

Commercial real estate loans are generally originated in amounts up to the lower of 80% of the appraised value or cost of the property and are secured by improved property such as multi-family dwelling units, office buildings, retail stores, warehouses, church buildings and other non-residential buildings, most of which are located in the Bank’s market area.  Commercial real estate loans are generally made with fixed interest rates which mature or re-price in 5 to 7 years with principal amortization of up to 25 years.

Commercial loans include short and long-term business loans and commercial lines of credit for the purposes of providing working capital, supporting accounts receivable, purchasing inventory and acquiring fixed assets.  The loans generally are secured by these types of assets as collateral and /or by personal guarantees provided by principals of the borrowers.

Construction loans will be made only if there is a permanent mortgage commitment in place.  Interest rates on commercial construction loans are typically in line with normal commercial mortgage loan rates, while interest rates on residential construction loans are slightly higher than normal residential mortgage loan rates.  These loans usually are adjustable rate loans and generally have terms of up to one year.

Consumer loans include installment loans and home equity loans, secured by first or second mortgages on homes owned or being purchased by the loan applicant.  Home equity term loans and credit lines are credit accommodations secured by either a first or second mortgage on the borrower’s residential property.  Interest rates charged on home equity term loans are generally fixed; interest on credit lines is usually a floating rate related to the prime rate.  The Bank generally requires a loan to value ratio of less than or equal to 80% of the appraised value, including any outstanding prior mortgage balance.

Loans at September 30, 2011 and March 31, 2011 are summarized as follows (dollars in thousands):

	September 30,			March 31,
	2011			2011
Residential (one-to four-family) real estate	$	63,386		$	62,875
Multi-family and commercial real estate		20,878			21,866
Commercial		1,611			1,736
Home equity		16,951			17,347
Consumer		994			1,026
Construction		359			374
Total loans		104,179			105,224
Net deferred loan origination fees		(64	)		(71	)
Allowance for loan losses		(1,344	)		(1,286	)
Loans, net	$	102,771		$	103,867

The Bank is subject to a loans-to-one-borrower limitation of 15% of capital funds.  At September 30, 2011, the loans-to-one-borrower limitation was $2.0 million; this excluded an additional 10% of adjusted capital funds or approximately $1.4 million, which may be loaned if collateralized by readily marketable securities.  At September 30, 2011, there were no loans outstanding or committed to any one borrower, which individually or in the aggregate exceeded the Bank’s loans to-one-borrower limitations of 15% of capital funds.

12

A summary of the Bank’s credit quality indicators is as follows:

Pass – A credit which is assigned a rating of Pass shall exhibit some or all of the following characteristics:

a. Loans that present an acceptable degree of risk associated with the financing being considered as measured against earnings and balance sheet trends, industry averages, etc.  Actual and projected indicators and market conditions provide satisfactory evidence that the credit will perform as agreed.

b. Loans to borrowers that display acceptable financial conditions and operating results.  Debt service capacity is demonstrated and future prospects are considered good.

c. Loans to borrowers where a comfort level is achieved by the strength of the cash flows from the business or project and the strength and quantity of the collateral or security position (i.e.; receivables, inventory and other readily marketable securities) as supported by a current valuation and/or the strong capabilities of a guarantor.

Special Mention – Loans on which the credit risk requires more than ordinary attention by the Loan Officer.  This may be the result of some erosion in the borrower’s financial condition, the economics of the industry, the capability of management, or changes in the original transaction.  Loans which are currently sound yet exhibit potentially unacceptable credit risk or deteriorating long term prospects, will receive this classification.  Loans which deviate from loan policy or regulations will not generally be classified in this category, but will be separately reported as an area of concern.

Classified – Classified loans include those considered by the Bank to be substandard, doubtful or loss.

An asset is considered “substandard” if it involves more than an acceptable level of risk due to a deteriorating financial condition, unfavorable history of the borrower, inadequate payment capacity, insufficient security or other negative factors within the industry, market or management.  Substandard loans have clearly defined weaknesses which can jeopardize the timely payment of the loan.

Assets classified as “doubtful” exhibit all of the weaknesses defined under the substandard category but with enough risk to present a high probability of some principal loss on the loan, although not yet fully ascertainable in amount.

Assets classified as “loss” are those considered uncollectible or of little value, even though a collection effort may continue after the classification and potential charge-off.

Non-Performing Loans

Non-performing loans consist of non-accrual loans (loans on which the accrual of interest has ceased), loans over ninety days delinquent and still accruing interest, renegotiated loans and impaired loans.  Loans are generally placed on non-accrual status if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more, unless the collateral is considered sufficient to cover principal and interest and the loan is in the process of collection.

13

The following table represents loans by credit quality indicator at September 30, 2011 (dollars in thousands):

	Pass		Special Mention Loans		Classified Loans		Non-Performing Loans		Total
Residential real estate	$	60,455	$	0	$	239	$	2,692	$	63,386
Multi-family and commercial real estate		13,974		434		549		5,921		20,878
Commercial		1,309		268		34		0		1,611
Home equity		15,798		0		0		1,153		16,951
Consumer		627		0		0		367		994
Construction		359		0		0		0		359
	$	92,522	$	702	$	822	$	10,133	$	104,179

The following table represents past-due loans as of September 30, 2011 (dollars in thousands):

	30-89 Days Past Due and Still Accruing			90 Days or More Past Due and Still Accruing			Total Past Due and Still Accruing			Accruing Current Balances			Non-Accrual Balances			Total Loan Balances
Residential real estate	$	1,473		$	0		$	1,473		$	59,464		$	2,449		$	63,386
Multi-family and commercial real estate		1,727			0			1,727			15,360			3,791			20,878
Commercial		0			0			0			1,611			0			1,611
Home Equity		100			0			100			15,699			1,152			16,951
Consumer		50			0			50			577			367			994
Construction		0			0			0			359			0			359
Total Loans	$	3,350		$	0		$	3,350		$	93,070		$	7,759		$	104,179
Percentage of Total Loans		3.2	%		0.0	%		3.2	%		89.3	%		7.4	%		100.0	%

Impaired loans are measured based on the present value of expected future discounted cash flows, the fair value of the loan or the fair value of the underlying collateral if the loan is collateral dependent.  The recognition of interest income on impaired loans is the same for non-accrual loans discussed above.  At September 30, 2011, the Bank had 29 loan relationships totaling $7.8 million in non-accrual loans as compared to 23 relationships totaling $5.5 million at March 31, 2011.  At September 30, 2011, the Bank had 29 impaired loan relationships totaling $7.8 million (included within the non-accrual loans discussed above) in which $3.8 million in impaired loans had a related allowance for credit losses of $601 thousand and $4.0 million in impaired loans in which there is no related allowance for credit losses.  The average balance of impaired loans totaled $7.8 million for the six months ended September 30, 2011 as compared to $5.4 million for the year ended March 31, 2011, and interest income recorded on impaired loans for the six months ended September 30, 2011 totaled $36 thousand as compared to $154 thousand for the year ended March 31, 2011.

14

The following table represents data on impaired loans at September 30, 2011 and March 31, 2011 (dollars in thousands):

	September 30, 2011		March 31, 2011
Impaired loans for which a valuation allowance     has been provided	$	3,728	$	2,882
Impaired loans for which no valuation allowance     has been provided		4,031		2,576
Total loans determined to be impaired	$	7,759	$	5,458
Allowance for loans losses related to impaired loans	$	601	$	502
Average recorded investment in impaired loans	$	7,888	$	5,445
Cash basis interest income recognized on impaired     Loans	$	36	$	154

The following table presents impaired loans by portfolio class at September 30, 2011 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Recorded Investment		Interest Income Recognized While On Impaired Status
Impaired loans with a   valuation allowance:
Residential real estate	$	1,514	$	1,456	$	254	$	1,519	$	─
Multi-family and   commercial real estate		1,907		1,869		319		1,906		4
Commercial	─		─		─		─		─
Home equity		403		403		28		403	─
Consumer	─		─		─		─		─
Construction	─		─		─		─		─
Subtotal	$	3,824	$	3,728	$	601	$	3,828	$	4

15

	Recorded Investment		Unpaid Principal Balance		Related Valuation Allowance		Average Recorded Investment		Interest Income Recognized While On Impaired Statues
Impaired loans with no   valuation allowance:
Residential real estate	$	1,002	$	993	$	─	$	1,001	$	16
Multi-family and commercial   real estate		1,950		1,922	─			1,943		6
Commercial	─		─		─		─		─
Home equity		749		749	─			749		10
Consumer		367		367	─			367	─
Construction	─		─		─		─		─
Subtotal	$	4,068	$	4,031	$	─	$	4,060	$	32

	September 30, 2011			March 31, 2011
Non-accrual loans:
Residential real estate	$	2,449		$	1,779
Multi-family and commercial real estate		3,791			2,374
Commercial		0			46
Consumer		367			11
Home Equity		1,152			1,194
Construction	─			─
Total non-accrual loans	$	7,759		$	5,404
Impaired loans	$	2,131		$	2,438
Total non-performing loans		9,890			7,842
Real estate owned		409			771
Total non-performing assets	$	10,299		$	8,613
Non-performing loans as a percentage of loans		9.49	%		7.24	%
Non-performing assets as a percentage of loans
and real estate owned		9.85	%		8.19	%
Non-performing assets as percentage of total assets		7.52	%		6.33	%

During the six months ended September 30, 2011, the Bank experienced a $2.3 million net increase in non-accrual loans.  This change reflects the downgrading of nine loan relationships to non-accrual status totaling $2.5 million during the six months ended September 30, 2011.  The downgraded loans consisted of five relationships representing residential mortgages totaling $437 thousand, three commercial relationships representing four loans totaling $1.7 million and two consumer relationships representing $367 thousand, partially offset by the return of one loan relationship consisting of one loan totaling $3 thousand to an accruing basis, the payoff of one loan relationship totaling $41 thousand and by total charge offs of two loan relationships representing two loans in the amount of $54 thousand.

16

The following table sets forth with respect to the Bank’s allowance for losses on loans (dollars in thousands):

	September 30, 2011			March 31, 2011
Balance at beginning of period	$	1,286		$	998
Provision:
Commercial		0			21
Commercial real estate		119			(2	)
Residential real estate		45			413
Consumer		(9	)		8
Total Provision	$	155		$	440

	September 30, 2011			March 31, 2011
Charge-Offs:
Commercial	$	83		$	143
Residential real estate		24			31
Consumer		8			32
Recoveries		(18	)		(54	)
Total Net Charge-Offs		97			152
Balance at end of period	$	1,344		$	1,286
Period-end loans outstanding	$	104,179		$	105,225
Average loans outstanding	$	105,917		$	105,400
Allowance as a percentage of period-end loans		1.29	%		1.22	%
Net charge-offs as a percentage of average loans		0.09	%		0.15	%

Additional details for changes in the allowance for loan by loan portfolio as of September 30, 2011 are as follows (dollars in thousands):

Allowance for Loan Losses

	Commercial		Commercial Real Estate		Residential Real Estate		Consumer			Total
Balance, beginning of year	$	70	$	596	$	507	$	113		$	1,286
Loan charge-offs		46		37		24		8			115
Recoveries		17	─		─			1			18
Provision for loan losses		0		119		45		(9	)		155
Balance, end of year	$	41	$	678	$	528	$	97		$	1,344

17

The Bank prepares an allowance for loan loss model on a quarterly basis to determine the adequacy of the allowance.  Management considers a variety of factors when establishing the allowance, such as the impact of current economic conditions, diversification of the loan portfolio, delinquency statistics, results of independent loan review and related classifications.  The Bank’s historic loss rates and the loss rates of peer financial institutions are also considered.  In evaluating the Bank’s allowance for loan loss, the Bank maintains a loan committee consisting of senior management and the Board of Directors that monitors problem loans and formulates collection efforts and resolution plans for each borrower.  On a monthly basis, the loan committee meets to review each problem loan and determine if there has been any change in collateral value due to changes in market conditions.  Each quarter, when calculating the allowance for loan loss, the loan committee reviews an updated loan impairment analysis on each problem loan to determine if a specific provision for loan loss is warranted.  Management reviews the most recent appraisal on each loan adjusted for holding and selling costs.  In the event there is not a recent appraisal on file, the Bank will use the aged appraisal and apply a discount factor to the appraisal and then adjust the holding and selling costs from the discounted appraisal value.  At September 30, 2011, the Bank maintained an allowance for loan loss ratio of 1.29% to quarter end loans outstanding.  On a linked basis, non-performing assets have increased by $1.6 million over their stated levels at March 31, 2011 representing a non-performing asset to total asset ratio of 7.52% at September 30, 2011 as compared to a non-performing asset to total asset ratio of 6.33% at March 31, 2011.

The Bank’s charge-off policy states that any asset classified loss shall be charged-off within thirty days of such classification unless the asset has already been eliminated from the books by collection or other appropriate entry.  On a quarterly basis, the loan committee will review past due, classified, non-performing and other loans, as it deems appropriate, to determine the collectability of such loans.  If the loan committee determines a loan to be uncollectable, the loan shall be charged to the allowance for loan loss.  In addition, upon reviewing the collectability, the loan committee may determine a portion of the loan to be uncollectable; in which case that portion of the loan deemed uncollectable will be partially charged-off against the allowance for loan loss.

For the quarter ending September 30, 2011, the Bank experienced fivecharge-offs relating to five loan relationships totaling $115 thousand as compared to charge-offs of 11 loans representing 11 relationships totaling $206 thousand for the year ended March 31, 2011.

18

(10)         Investment Securities

Investment securities have been classified according to management’s intent.  The amortized cost of securities and their approximate fair values as of September 30, 2011 and March 31, 2011 are as follows:

Held-to-Maturity September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in Thousands)
Federal Home Loan Bank Bonds	$	7,497	$	29	$	(7	)	$	7,519
Federal Home Loan Mortgage		1,000		1					1,001
Corporation Bonds
Federal National Mortgage Association		3,500		29					3,529
Municipal Bond		104							104
		12,101		59		(7	)		12,153
Mortgage-Backed Securities:
Federal Home Loan Mortgage Corporation		1,802		106		(1	)		1,907
Federal National Mortgage Association		3,942		142					4,084
Government National Mortgage Corporation		355		12		(1	)		366
		6,099		260		(2	)		6,357
Total	$	18,200	$	319	$	(9	)	$	18,510

Held-to-Maturity March 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in Thousands)
Federal Home Loan Bank Bonds	$	4,747	$	-	$	(163	)	$	4,584
Federal Farm Credit Bonds		1,000		-		(22	)		978
Federal Home Loan Mortgage
Corporation Bonds		999		-		(14	)		985
Federal National Mortgage Association		2,000		3		(44	)		1,959
Municipal Bond		144		-		-			144
	$	8,890	$	3	$	(243	)	$	8,650

19

Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		2,028		72		(-	)		2,100
Federal National Mortgage Association		4,358		139		(-	)		4,497
Government National Mortgage Corporation		420		14		(-	)		434
		6,806		225		(-	)		7,031
Total	$	15,696	$	228	$	(243	)	$	15,681

Available for Sale
September 30, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses	Fair Value
Mutual Fund Shares	$	245	$	5	─	$	250

Available for Sale
March 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Mutual Fund Shares	$	249	$	-	$	(1	)	$	248

The following is a summary of maturities of securities held-to-maturity and available-for-sale as of September 30, 2011 and March 31, 2011:

September 30, 2011
	Held to Maturity				Available for Sale
(Dollars in Thousands)	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	1,766	$	1,768	$	─	$	─
After one year through five years		2,371		2,432		─		─
After five years through ten years		7,001		7,034		─		─
After ten years		7,062		7,276		─		─
Equity securities						245		250
	$	18,200	$	18,510	$	245	$	250

20

March 31, 2011
	Held to Maturity					Available for Sale
(Dollars in Thousands)	Amortized Cost		Fair Value			Amortized Cost			Fair Value
Amounts maturing in:
One year or less	$	2,020	$	2,035	$	─		$	─
After one year through five years		1,880		1,899		─			─
After five years through ten years		6,755		6,606		─			─
After ten years		5,041		5,141		─			─
Equity securities		-					249			248
	$	15,696	$	15,681	$		249	$		248

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.

Information pertaining to securities with gross unrealized losses at September 30, 2011 and March 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

September 30, 2011
	Less Than 12 Months					12 Months or Greater		Total
	Fair Value		Gross Unrealized Losses			Fair Value	Gross Unrealized Losses	Fair Value		Gross Unrealized Losses
(Dollars in Thousands)
Federal Home Loan Bank Bonds	$	1,493	$	(7	)	─	─	$	1,493	$	(7	)
Mortgage-Backed Securities:
Federal Home Loan Mortgage Corporation		460		(1	)	─	─		460		(1	)
Government National Mortgage Association		42		(1	)	─	─		42		(1	)
		502		(2	)	─	─		502		(2	)
Mutual Fund Shares	─		─			─	─	─		─
Total	$	1,995	$	(9	)	─	─	$	1,995	$	(9	)

21

March 31, 2011
	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
(Dollars in Thousands)
Federal Home Loan Bank     Bonds	$	4,582	$	(163	)	$	-	$	-		$	4,582	$	(163	)
Federal Farm Credit Bonds		978		(22	)		-		-			978		(22	)
Federal Home Loan Mortgage Corporation Bonds		985		(15	)		-		-			985		(15	)
Federal National Mortgage Association		1,457		(43	)		-		-			1,457		(43	)
		8,002		(243	)		-		-			8,002		(243	)
Mortgage-Backed Securities:
Federal Home Loan     Mortgage Corporation		-		-			-		-			-		-
Federal National Mortgage Association		146		-			-		-			146		-
Government National Mortgage Corporation		-		-			-		-			-		-
		146		-			-		-			146		-
Mutual Fund Shares		-		-			248	$	( 1	)		248	$	( 1	)
Total	$	8,148	$	( 243	)	$	248	$	( 1	)	$	8,396	$	( 244	)

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 September 30, 2011, the three debt securities with unrealized losses have depreciated 0.5% 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.

22

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 three and six months ended September 30, 2011 and 2010 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Unaudited Financial Statements and the notes thereto, appearing in Part I, Item 1 of this report.

Forward-Looking Statements

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

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

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

General

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

Balance Sheet Analysis

Overview.  Total assets at September 30, 2011 were $136.9 million, an increase of $705 thousand, or 0.5%, from total assets of $136.2 million at March 31, 2011.  Total liabilities increased by $475 thousand or 0.4% from $124.0 million at March 31, 2011 to $124.4 million at September 30, 2011.  Total stockholders’ equity of $12.4 million reflected an increase of $230 thousand from $12.2 million at March 31, 2011.

Loans.  At September 30, 2011, total loans, net, were $102.8 million, or 75.1% of total assets.  Overall loans decreased by $1.1million, primarily due to payoffs in the commercial real estate portfolio. Commercial and multi-family real estate loans decreased by $988 thousand, commercial loans decreased by $125 thousand and home equity loans decreased by $396 thousand, partially offset by an increase in residential real estate loans, which increased by $511 thousand.

23

Non-performing Loans. Total nonperforming loans at September 30, 2011 increased $1.6 million from March 31, 2011 primarily due to a $1.2 million commercial loan relationship that went on non-accrual in September 2011.  The majority of the increase related to the one relationship with two loans has suffered vacancy issues in their investment properties.  The Bank is working with the borrower as he attempts to resolve his situation.

Securities.  The investment securities portfolio was $18.5 million, or 13.5% of total assets, at September 30, 2011.  At that date, 33.1% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily inU.S. Government agency and other debt securities. Investment securities increased $2.5 million compared to March 31, 2011. The increase was primarily due to purchases of debt securities.

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, 2011, core deposits were 47.2% of total deposits.  Overall deposits increased by $8 thousand as the Bank made a conscious effort to attract core deposits and reduce its reliance of high costing time deposits.  Core deposits grew for the six months by $138 thousand while time deposits decreased by $130 thousand.

Borrowings.  In recent periods, we have occasionally used short-term borrowings as an additional source of liquidity.  At September 30, 2011, we had $2,500,000 in advances outstanding.

Results of Operations for the Three and Six Months Ended September 30, 2011 and 2010

Financial Highlights. Net income for the three and six months ended September 30, 2011 was $110 thousand and $221 thousand, respectively as compared to a net income of $102 thousand and $234 thousand for the same prior year periods. The decrease in net income for the six month period was primarily the result of a loss on the sale of real estate owned and an increase in loan expenses related to our continued work outs of problem assets and data processing costs.  These were partially offset by a decrease in loan loss provision, real estate owned expenses and other expenses.  Income before taxes was $184 thousand for the three months and $374 thousand for the six months ended September 30, 2011 as compared to $169 thousand and $353 thousand for the same prior year periods.  This was offset by a three month tax expense of $73 thousand and six month tax expense of $153 thousand as compared to $67 thousand and $119 thousand for the same prior year periods.

Net Interest Income.  Net interest income decreased $45 thousand to $1.1 million for the three months and $21 thousand to $2.3 million for the six months ended September 30, 2011 from $1.2 million for the three months and from $2.3 million for the six months ended September 30, 2010. The Bank saw improvement in both the interest rate spread (3 basis points) and net interest margin (5 basis points) for the six month period reflecting the continued improvement the Bank has made in reducing its cost of funds.  These improvements were offset by a smaller asset base.  The rates earned on assets declined, resulting in a 10.1% decrease in total interest income for the three months ending September 30, 2011 compared to the three months ended September 30, 2010. Total interest expense decreased by 25.3% between the same periods.

For the six months ending September 30, 2011, the Bank had a 9.5% decrease in total interest income as compared to a 28.6% decrease in total interest expense.

Average loans in the six months ended September 30, 2011 decreased $1.7 million, or 1.6%, compared with the same period in 2010, driven by payoffs of higher yielding loans. Average investment securities in the six months ended September 30, 2011 increased $537 thousand, or 3.4%, compared to the same period in 2010. The increase in the investment portfolio was due to the purchases of debt securities. Declining interest rates decreased the average yield on earning assets to 4.91% for the six months ended September 30, 2011, compared with 5.31% for the same period in 2010.

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Average interest-bearing deposits in the six months ended September 30, 2011 decreased $5 million, or 4.1%, compared with the same period in 2010. Declining interest rates decreased the average cost of deposits to 1.28%, compared with 1.72% for the same period in 2010.

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 $80 thousand in the three months and $155 thousand in the six months ended September 30, 2011 compared to $123 thousand in the three months and $273 thousand in the six months ended September 30, 2010.  We had $108 thousand in charge-offs in the three months and $115 thousand in the six months ended September 30, 2011, compared to $122 thousand and $148 thousand in charge-offs in the same prior year periods.

Non-Interest Income.  Non-interest income increased $6,000 in the three month period ending September 30, 2011 compared to the three month period ended September 30, 2010. Non-interest income decreased $42,000 in the six months ended September 30, 2011 compared to the same period in the prior year, due to the loss on sale of real estate owned partially offset by the increase in rental income.

Non-Interest Expenses.  Non-interest expenses decreased $9,000 in the three months ending September 30, 2011 compared to the three months ended September 30, 2010 primarily due to lower equipment expense. Non-interest expense increased in the six months ended September 30, 2011 by $34 thousand over the same period in the prior year due to increased FDIC premiums and data processing costs.

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, Atlantic Central Bankers Bank and the Federal Reserve Bank of Philadelphia.  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, 2011, cash and cash equivalents totaled $5.7 million.  At September 30, 2011, we had $2.5 million in outstanding borrowings and had arrangements to borrow up to an additional $9.5 million from the Federal Home Loan Bank of New York and $1.0 million from Atlantic Central Bankers Bank.

At September 30, 2011, 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.

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A significant use of our liquidity is the funding of loan originations.  At September 30, 2011, we had $465 thousand in loan commitments outstanding.  In addition, we had $5.5 million in unused lines of credit.  Historically, many of the lines of credit expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements.  Another significant use of our liquidity is the funding of deposit withdrawals.  Certificates of deposit due within one year of September 30, 2011 totaled $37.8 million, or 59.1% 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, 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.

The Company is a separate entity and apart from the Bank and must provide for its own liquidity. As of September 30, 2011, the Company had $280 thousand in cash and cash equivalents compared to $270 thousand as of September 30, 2010.  Substantially all of the Company’s cash and cash equivalents were obtained from proceeds it retained from the Bank’s mutual-to-stock conversion completed in March 2007.  In addition to its operating expenses, Company may utilize its cash position for the payment of dividends or to repurchase common stock, subject to applicable restrictions. 

The Company can receive dividends from the Bank.  Payment of such dividends to the Company by the Bank is limited under federal law. The amount that can be paid in any calendar year, without prior regulatory approval, cannot exceed the retained net earnings (as defined) for the year plus the preceding two calendar years. The Company believes that such restriction will not have an impact on the Company’s ability to meet its ongoing cash obligations.

Capital Management.  We are subject to various regulatory capital requirements administered by the Office of the Comptroller of the Currency, 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, 2011, 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.

For the quarter ended September 30, 2011, 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.

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Not applicable as the Company is a smaller reporting company.

Item 4.   Controls and Procedures

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

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A.  Risk Factors

Other than as set forth below, 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, 2011, 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 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.   Submission of Matters to a Vote of Security Holders

[Removed and Reserved].

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Item 5.     Other Information

None.

Item 6.     Exhibits

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

101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of  Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text. *

* Furnished, not filed.

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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 14, 2011	By:	/s/ James E. Igo
		James E. Igo Chairman, President and Chief Executive Officer
Dated: November 14, 2011	By:	/s/ Eva Modi
		Eva Modi Chief Financial Officer

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