United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

[X]

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

For the fiscal year ended March 31, ~~2012~~2013

[ ]

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

For the transition period from _________ to __________

Commission File Number: 0-52517

DELANCO BANCORP, INC.

(Name of small business issuer in its charter)

United States

(State or other jurisdiction of

incorporation or organization)

36-4519533

(I.R.S. Employer Identification No.)

615 Burlington Avenue,

Delanco, New Jersey

(Address of principal executive offices)

08075

(Zip Code)

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

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

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

Common Stock, par value $0.01 per share (Title of class)

(Title of class)

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

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

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

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

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

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

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

~~Non-accelerated~~Indicate ~~filer [ ]~~by ~~(Do~~check ~~not~~mark ~~check~~whether ifthe aregistrant ~~smaller~~is ~~reporting~~a shell company (as defined by Rule 12b-2 of the Act) ~~Smaller~~.Yes ~~reporting~~____ ~~company [~~ No X ]

~~Indicate~~The byaggregate ~~check~~market ~~mark~~value ~~whether~~of the ~~registrant~~voting isand anon-voting ~~shell~~common ~~company~~equity ~~(as~~held ~~defined~~ by ~~Rule 12b~~non-2affiliates as of ~~the~~September ~~Act)~~30, 2012 was approximately $6.5 million.

~~Yes~~The ~~____ No X~~number of shares outstanding of the registrant’s common stock as of June 11, 2013 was 1,634,725.

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of September 30, 2011 was approximately $8.2 million.

The number of shares outstanding of the registrant’s common stock as of June 29, 2012 was 1,634,725.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2012 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

INDEX

Part I

	Part I
		Page

Item 1.	Business	1
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18

	Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8.	Financial Statements and Supplementary Data	37
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	37
Item 9A.	Controls and Procedures	37
Item 9B.	Other Information	38

	Part III

Item 10.	Directors, Executive Officers and Corporate Governance	39
Item 11.	Executive Compensation	41
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 13.	Certain Relationships and Related Transactions, and Director Independence	43
Item 14.	Principal Accounting Fees and Services	44

	Part IV

Item 15.	Exhibits and Financial Statement Schedules	44

SIGNATURES		46

		Page
Item 1.	Business	1
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	18

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

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	34

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	35
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	36
Item 14.	Principal Accounting Fees and Services	36

Part IV

Item 15. Exhibits and Financial Statement Schedules 37

SIGNATURES

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

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

PART I

ITEM 1.

BUSINESS

General

We are headquartered in Delanco ~~Bancorp~~Township, ~~Inc.~~New ~~was~~Jersey ~~organized~~and inoperate ~~2002~~ as a ~~federal~~community-oriented ~~corporation~~financial atinstitution dedicated to serving the ~~direction~~financial services needs of consumers and businesses within our market areas. Delanco Federal ~~Savings~~is ~~Bank,~~engaged primarily in ~~connection with~~ the ~~reorganization~~business of ~~the~~attracting ~~Bank~~deposits from the ~~mutual~~general ~~form~~public ofand ~~organization~~using such funds to originate one- to four-family real estate loans and to a much lesser extent, multi-family and nonresidential real estate loans, home equity and consumer loans which we primarily hold for investment. Delanco Federal also maintains an investment portfolio. Delanco Federal’s primary federal regulator is the ~~mutual~~Office ~~holding~~of ~~company~~the ~~form~~Comptroller of ~~organization~~the Currency (the “OCC”). On ~~March~~The 30FDIC, ~~2007~~through the Deposit Insurance Fund, insures Delanco ~~Bancorp~~Federal’s ~~completed~~deposit accounts up to the applicable legal limits. Delanco Federal is a ~~minority~~member ~~stock~~of ~~offering~~the Federal Home Loan Bank (“FHLB”) of New York.

Delanco Bancorp’s, ~~business activity is the ownership of the outstanding capital stock of Delanco Federal Savings Bank~~Inc. ~~Delanco~~ ~~Bancorp~~was ~~does~~organized ~~not~~in ~~own~~2002 oras ~~lease~~a ~~any~~federal ~~property~~corporation ~~but~~at ~~instead uses~~ the ~~premises,~~direction ~~equipment and other property~~ of Delanco Federal, ~~Savings~~in ~~Bank~~connection with the ~~payment~~reorganization of ~~appropriate~~the ~~rental~~Bank ~~fees,~~from asthe ~~required~~mutual byform ~~applicable~~of ~~law~~organization ~~and~~to ~~regulations, under~~ the ~~terms~~mutual ofholding ancompany ~~expense~~form ~~allocation~~of ~~agreement~~organization. In ~~the~~On ~~future,~~March ~~Delanco Bancorp may acquire or organize other operating subsidiaries; however~~30, ~~there are no current plans~~2007, ~~arrangements,~~Delanco ~~agreements~~Bancorp orcompleted ~~understandings,~~a ~~written~~minority orstock ~~oral, to do so~~offering.

Delanco ~~Federal~~Bancorp’s ~~Savings~~business ~~Bank~~activity ~~operates~~is asthe aownership ~~community-oriented~~of ~~financial~~the ~~institution~~outstanding ~~offering~~capital ~~traditional~~stock ~~financial~~of ~~services~~Delanco toFederal. ~~consumers~~Delanco ~~and~~Bancorp ~~businesses~~does innot ~~our~~own ~~market~~or ~~area. We~~lease ~~attract~~any ~~deposits~~property ~~from~~but instead uses the ~~general~~premises, ~~public~~equipment and ~~use~~other ~~those~~property ~~funds~~of toDelanco ~~originate~~Federal awith ~~variety~~the payment of ~~consumer~~appropriate rental fees, as required by applicable law and ~~business~~regulations, ~~loans~~under the terms of an expense allocation agreement. In the future, Delanco Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.

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

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

Market Area

We are headquartered in Delanco Township, New Jersey. In addition to our main office, we operate a full-service branch office in Cinnaminson, New Jersey. Delanco and Cinnaminson are in western Burlington County, New Jersey, across the Delaware River from northeastern Philadelphia. ~~Historically,~~ ~~substantially~~We ~~all~~consider ofBurlington ~~our~~County ~~loans were made~~ to ~~borrowers~~be ~~who resided within approximately ten miles of~~ our ~~main~~primary ~~office. Beginning~~market ~~in 2005, we expanded our lending~~ area ~~to all of Pennsylvania and New Jersey, with a focus on Philadelphia and southwestern New Jersey~~. ~~During~~ ~~2009, we refocused our lending to southwestern New Jersey.~~

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms, credit unions and insurance companies. Several large holding companies operate banks in our market area, including Bank of America, Wells Fargo & Company (formerly known as Wachovia), TD Bank and PNC Bank. These institutions are significantly larger than us and, therefore, have significantly greater resources. We also face competition for customers’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2011, which is the most recent date for which data is available from the FDIC, we held 1.53% of the deposits in Burlington County, New Jersey.

Competition

We face significant competition for the attraction of deposits and origination of loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms, credit unions and insurance companies. Several large banks operate in our market area, including Bank of America, Wells Fargo & Company (formerly known as Wachovia), TD Bank and PNC Bank. These institutions are significantly larger than us and, therefore, have significantly greater resources. We also face competition for customers’ funds from money market funds, mutual funds and other corporate and government securities. At June 30, 2012, which is the most recent date for which data is available from the FDIC, we held 1.44% of the deposits in Burlington County, New Jersey.

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

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

Lending Activities

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

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

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

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

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

Commercial and Multi-Family Real Estate Loans. We have traditionally offer fixed- and adjustable-rate mortgage loans secured by a variety of commercial and multi-family real estate, such as small office buildings, warehouses, retail properties and small apartment buildings. We originate a variety of fixed- and adjustable-rate commercial real estate and multi-family real estate loans generally for terms up to ~~5-7~~ five to seven years and payments based on an amortization schedule of up to 25 years. Adjustable-rate loans are typically based on the Prime Rate and the Constant Maturity Treasury rate. Loans are secured by first mortgages, and amounts generally do not exceed 80% of the property’s appraised value.

OnDuring ~~March~~2006 ~~17,~~and ~~2010~~2007, ~~Delanco~~we ~~Federal~~expanded ~~Savings~~our ~~Bank~~lending ~~consented~~area to ~~the~~all ~~issuance~~ of aPennsylvania ~~Cease~~ and ~~Desist~~New ~~Order~~Jersey, ~~(the~~with ~~“Order”)~~a ~~promulgated~~focus byon ~~the~~Philadelphia ~~Office~~and ofsouthwestern ~~Thrift~~New ~~Supervision ("OTS")~~Jersey. On ~~July~~As ~~21,~~a ~~2011~~result of the ~~OTS~~economic ~~was~~downturn ~~eliminated~~we ~~and~~experienced ~~merged~~a ~~into~~significant ~~the~~increase ~~Office~~in ofnon-performing ~~the~~assets, ~~Comptroller~~particularly ofin ~~the~~our ~~Currency~~commercial ~~(“OCC”)~~real estate portfolio. As ~~the~~Following ~~Bank’s~~a ~~primary~~change ~~regulator,~~in ~~the~~our ~~Order~~senior ismanagement ~~now~~in ~~enforced~~2009, bywe ~~the~~restricted ~~OCC~~our out-of-market commercial lending. ~~The~~We ~~Order~~were ~~imposes~~restricted ~~certain~~from ~~restrictions~~making onnew ~~the~~commercial ~~operations~~loans ofunder the ~~Bank,~~Cease ~~including~~and ~~limiting~~Desist Order issued by the ~~Bank’s~~Office ~~ability~~of toThrift ~~engage~~Supervision inon ~~commercial~~March ~~lending~~17, ~~including~~2010 ~~construction~~and, ~~loans~~as toa ~~builders~~result, ~~for~~we ~~residential~~have ~~and~~made few commercial ~~properties,~~and ~~without~~multi-family ~~prior~~real ~~written~~estate ~~non-objection~~loans ~~from~~in ~~the~~recent ~~OCC~~years. ~~See~~ ~~“Regulation~~The ~~and~~written ~~Supervision-Cease~~agreement ~~and~~with ~~Desist~~the ~~Order”~~OCC ~~for~~dated aNovember ~~detailed~~21, ~~description~~2012 ofeliminated ~~the~~this ~~Order~~lending restriction.

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

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

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

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

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

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

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

From time to time, we have purchased participations in loans from the Thrift Institutions Community Investment Corporation of New Jersey to supplement our lending portfolio. Loan participations totaled $144 thousand at March 31, 2013. Loan participations are also subject to the same credit analysis and loan approvals as loans we originate. We are permitted to review all of the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.

In the past, we have sold some of the 30-year fixed rate loans that we originated to the Federal Home Loan Bank of New York for interest risk management purposes. In recent periods we have retained all of the loans that we have originated. We may sell loans from time to time in the future to help manage our asset/liability mix and limit our interest rate risk. We intend to retain the servicing on any loans sold.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. The board of directors has granted loan approval authority to our President and Chief Executive Officer and Vice President – Lending up to prescribed limits, based on the officer’s experience and tenure. All loans over $500,000 with respect to residential mortgage loans and smaller amounts with respect to other types of loans must be approved by the loan committee of the board of directors or the full board.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At March 31, 2013, our regulatory limit on loans to one borrower was $1.8 million. At that date, our largest lending relationship was $1.1 million and was secured by residential real estate. This loan was performing in accordance with it terms at March 31, 2013.

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

Loan Underwriting Risks.

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

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

Commercial and Multi-Family Real Estate Loans. Loans secured by commercial and multi-family real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in commercial and multi-family real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements on commercial and multi-family real estate loans. In reaching a decision on whether to make a commercial or multi-family real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2525x. An environmental survey or environmental risk insurance is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials.

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

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

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

From time to time, we will purchase participations in loans from the Thrift Institutions Community Investment Corporation of New Jersey to supplement our lending portfolio. Loan participations totaled $460 thousand at March 31, 2012. Loan participations are also subject to the same credit analysis and loan approvals as loans we originate. We are permitted to review all of the documentation relating to any loan in which we participate. However, in a purchased participation loan, we do not service the loan and thus are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.

In the past, we have sold some of the 30-year fixed rate loans that we originated to the Federal Home Loan Bank of New York for interest risk management purposes. In recent periods we have retained all of the loans that we have originated. We may sell loans from time to time in the future to help manage our asset/liability mix and limit our interest rate risk. It would be the intent of the Bank to retain the servicing on any loans sold.

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management. The board of directors has granted loan approval authority to certain officers or groups of officers up to prescribed limits, based on the officer’s experience and tenure. All loans over $500,000 must be approved by the loan committee of the board of directors or the full board, depending on the size.

Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At March 31, 2012, our regulatory limit on loans to one borrower was $1.9 million. At that date, our largest lending relationship was $1.1 million and was secured by residential real estate. This loan was performing in accordance with it terms at 3/31/12.

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

Investment Activities

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

At March 31, ~~2012~~2013, our investment portfolio totaled $1722.73 million, or 1317.23% of total assets, and consisted primarily of mortgage-backed securities and debt securities of government sponsored enterprises.

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

Deposit Activities and Other Sources of Funds

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

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

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

~~Borrowings. We~~Deposit ~~have~~account ~~the~~terms ~~ability~~vary according to ~~utilize advances from~~ the ~~Federal~~minimum ~~Home~~balance ~~Loan Bank of New York~~required, ~~Atlantic~~the ~~Central~~time ~~Bankers~~periods ~~Bank~~the ~~and~~funds ~~The~~must ~~Federal~~remain ~~Reserve~~on ~~Bank~~deposit ofand ~~Philadelphia~~the tointerest ~~supplement~~rate, ~~our~~among ~~investable~~other ~~funds~~factors. ~~The~~ ~~Federal~~In ~~Home~~determining ~~Loan~~the ~~Bank~~terms ~~functions~~of asour adeposit ~~central reserve bank providing credit for member financial institutions. As a member~~accounts, we ~~are~~consider ~~required to own capital stock in~~ the ~~Federal~~rates ~~Home~~offered ~~Loan~~by ~~Bank and are authorized to apply for advances on the security of such stock and certain of~~ our ~~mortgage loans and other assets (principally securities which are obligations of~~competition, orour ~~guaranteed~~liquidity byneeds, ~~the~~profitability ~~United States), provided certain standards related~~ to ~~creditworthiness have been met. Advances are made under several different programs~~us, ~~each~~and ~~having~~customer ~~its~~preferences ~~own interest rate~~ and ~~range of maturities~~concerns. ~~Depending~~ onWe ~~the~~generally ~~program,~~review ~~limitations~~our ondeposit ~~the~~mix amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. Atlantic Central Bankers Bank provides correspondent banking services, both credit and ~~non~~pricing ~~credit, to financial institutions in the Mid~~bi-~~Atlantic region~~weekly. As aOur ~~member,~~deposit wepricing ~~are~~strategy ~~required~~has togenerally ~~own~~been ~~capital~~to ~~stock~~offer incompetitive ~~Atlantic~~rates ~~Central Bankers Bank~~ and ~~are authorized~~ to ~~apply~~be ~~for~~towards ~~advances~~the ~~under~~top ~~an unsecured line~~ of ~~credit. The~~the ~~Federal~~local ~~Reserve~~market ~~Bank of Philadelphia functions as a central reserve bank providing credit~~ for ~~member~~rates ~~financial institutions. We are authorized to apply for advances~~ on ~~the~~all ~~security~~types of ~~such~~deposit stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been metproducts.

Borrowings. We have the ability to utilize advances from the Federal Home Loan Bank of New York, Atlantic Central Bankers Bank and the Federal Reserve Bank of Philadelphia to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness. Atlantic Central Bankers Bank provides correspondent banking services, both credit and non-credit, to financial institutions in the Mid-Atlantic region. As a member, we are required to own capital stock in Atlantic Central Bankers Bank and are authorized to apply for advances under an unsecured line of credit. The Federal Reserve Bank of Philadelphia functions as a central reserve bank providing credit for member financial institutions. We are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. At March 31, 2013, we had arrangements to borrow up to $11.4 million from the Federal Home Loan Bank of New York and $1.0 million from the Atlantic Central Bankers Bank.

Personnel

As of March 31, ~~2012~~2013, we had 2523 full-time equivalent employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good.

Subsidiaries

The only subsidiary of Delanco Bancorp is Delanco Federal ~~Savings Bank~~. Delanco Federal ~~Savings~~has ~~Bank~~one ~~does~~active ~~not~~subsidiary, ~~have~~DFSB ~~any~~Properties, ~~active~~LLC, ~~subsidiaries~~which is the title holder for repossessed real estate.

Regulation and Supervision

General

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

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes to the regulation of Delanco Federal. Under the Dodd-Frank Act, the Office of Thrift Supervision was eliminated and responsibility for the supervision and regulation of federal savings associations such as Delanco Federal was transferred to the OCC on July 21, 2011. The OCC is the agency that is primarily responsible for the regulation and supervision of national banks. Additionally, the Dodd-Frank Act created a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as Delanco Federal, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.

Certain of the regulatory requirements that are ~~or will be~~ applicable to Delanco Federal and Delanco Bancorp are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on Delanco Federal and Delanco Bancorp.

Federal Banking Regulation

Business Activities. The activities of federal savings banks, such as Delanco Federal, are governed by federal laws and regulations. Those laws and regulations delineate the nature and extent of the business activities in which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.

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

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor ~~of 0% to 100%,~~ assigned by the capital regulation based on the risks believed inherent in the type of asset. Tier 1 (core) capital is generally defined as common stockholders’ equity (including retained earnings), certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries, less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital (Tier 2 capital) include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible debt securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The OCC also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. At ~~March~~See ~~31,~~“—Regulatory ~~2012,~~Agreement” ~~Delanco~~below ~~Federal~~for ~~met~~information ~~each~~on ofthe ~~its~~individual minimum capital requirements currently applicable to Delanco Federal.

~~Prompt~~Savings ~~Corrective~~and ~~Regulatory~~loan ~~Action. The~~holding ~~OCC~~companies isare ~~required~~not tocurrently ~~take~~subject ~~certain~~to ~~supervisory~~specific ~~actions~~regulatory ~~against~~capital ~~undercapitalized~~requirements. ~~institutions,~~The ~~the~~Dodd-Frank ~~severity of which depends upon the institution’s degree of undercapitalization. Generally~~Act, ~~a savings association that has a ratio of total capital to risk weighted assets of less than 8%~~however, arequires ~~ratio~~the ofFederal ~~Tier 1~~Reserve ~~(core)~~Board ~~capital~~ to ~~risk-weighted~~promulgate ~~assets~~consolidated ~~of less than 4% or a ratio of core~~ capital torequirements ~~total assets of less than 4% (3% or less~~ for ~~institutions~~depository ~~with~~institution ~~the~~holding ~~highest~~companies, ~~examination~~including ~~rating)~~savings isand ~~considered~~loan toholding becompanies, ~~“undercapitalized.” A savings association~~ that ~~has~~are ano ~~total risk-based capital ratio of~~ less ~~than 6%~~stringent, aboth ~~Tier 1~~quantitatively ~~capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be “significantly undercapitalized”~~ and ain ~~savings~~terms ~~association~~of ~~that~~components ~~has~~of ~~a tangible~~ capital, ~~to assets ratio equal to or less~~ than 2%those isapplicable ~~deemed~~ to beinstitutions ~~“critically undercapitalized~~themselves.~~” Subject~~ toOn aAugust ~~narrow~~30, ~~exception~~2012, the ~~OCC~~federal isbanking ~~required~~agencies toissued ~~appoint~~proposed arules ~~receiver~~that orwould ~~conservator~~implement ~~within~~the ~~specified time frames for an institution that is~~ “~~critically~~Basel ~~undercapitalized.~~III” ~~The~~ ~~regulation~~regulatory ~~also provides that a~~ capital ~~restoration~~reforms ~~plan~~and ~~must~~changes berequired ~~filed~~by ~~with~~ the ~~OCC~~Dodd-Frank ~~within~~Act. ~~45 days of the date a savings association is deemed to have received notice that it is~~ “~~undercapitalized,”~~Basel ~~“significantly undercapitalized~~III” orrefers ~~“critically~~to ~~undercapitalized.” Compliance~~two ~~with~~consultative ~~the~~documents ~~plan~~released ~~must be guaranteed~~ by ~~any parent holding company up to~~ the ~~lesser~~Basel ofCommittee 5%on ofBanking ~~the~~Supervision ~~savings~~in ~~association’s~~December ~~total~~2009, ~~assets when it was deemed to be undercapitalized or~~ the ~~amount~~rules ~~necessary~~text toreleased ~~achieve~~in ~~compliance~~December ~~with applicable capital requirements. In addition~~2010, ~~numerous~~and ~~mandatory~~loss ~~supervisory~~absorbency ~~actions~~rules ~~become~~issued ~~immediately~~in ~~applicable~~January ~~to an undercapitalized institution~~2011, ~~including,~~which ~~but~~include ~~not~~significant ~~limited~~changes to, ~~increased~~bank ~~monitoring by regulators and restrictions on growth,~~ capital ~~distributions and expansion. The OCC could also take any one of a number of discretionary supervisory actions~~, ~~including~~leverage ~~the issuance of a capital directive~~ and ~~the~~liquidity ~~replacement of senior executive officers and directors~~requirements. ~~Significantly~~ ~~and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.~~

~~Insurance~~The ofproposed ~~Deposit~~rules ~~Accounts. Delanco~~include ~~Federal’s~~new ~~deposits~~risk-based ~~are~~capital ~~insured~~and upleverage ratios, which would be phased in from 2013 to ~~applicable~~2019, ~~limits~~and bywould revise the ~~Deposit~~definition ~~Insurance~~of ~~Fund~~what constitutes “capital” for purposes of ~~the~~calculating those ratios. The proposed new minimum capital level requirements applicable to Delanco Bancorp and Delanco Federal ~~Deposit~~under ~~Insurance~~the ~~Corporation~~proposals would be: (i) a new common equity Tier 1 capital ratio of 4. ~~Under~~5%; ~~the~~(ii) ~~Federal~~a ~~Deposit~~Tier ~~Insurance~~1 ~~Corporation’s~~capital ~~existing~~ratio ~~risk-based~~of ~~assessment~~6% ~~system,~~(increased ~~insured~~from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. ~~are~~The ~~assigned~~proposed torules ~~one~~would eliminate the inclusion of ~~four~~certain ~~risk~~instruments, ~~categories~~such ~~based~~as ontrust ~~supervisory~~preferred ~~evaluations~~securities, ~~regulatory~~from Tier 1 capital. ~~levels~~Instruments ~~and~~issued ~~certain~~prior ~~other~~to ~~factors~~May 19, 2010 will be grandfathered for companies with ~~less~~consolidated ~~risky~~assets ~~institutions~~of ~~paying~~$15 ~~lower~~billion ~~assessments. An~~or ~~institution’s~~less ~~assessment~~and ~~rate~~phased ~~depends~~out ~~upon~~over ~~the~~a ~~category~~period toof ~~which~~10 ityears isending ~~assigned~~in 2022. ~~Effective~~ ~~April 1,~~The ~~2009,~~proposed ~~assessment~~rules ~~rates~~would ~~ranged~~also ~~from~~establish ~~seven~~a to“capital 77conservation buffer” of 2.5 ~~basis~~% ~~points. On~~above ~~February 7,~~the ~~2011,~~new ~~the~~regulatory ~~Federal~~minimum ~~Deposit~~capital ~~Insurance~~requirements, ~~Corporation~~which ~~issued~~must ~~final~~consist ~~rules,~~entirely ~~effective~~of ~~April~~ common equity Tier 1, ~~2011,~~capital ~~implementing~~and ~~changes~~would toresult in the ~~assessment~~following ~~rules~~minimum ~~resulting~~ratios: ~~from~~(i) ~~the~~a ~~Dodd-Frank~~common ~~Act~~equity Tier 1 capital ratio of 7. ~~Initially~~0%, ~~the~~(ii) ~~base~~a ~~assessment~~Tier ~~rates~~1 ~~will~~capital ~~range~~ratio ~~from~~of ~~two~~8.5%, and ~~one~~(iii) ~~half~~a tototal 45capital ~~basis~~ratio ~~points~~of 10. 5%. The ~~rate~~new ~~schedules~~capital ~~will~~conservation ~~automatically~~buffer ~~adjust~~requirement would be phased in ~~the~~beginning ~~future~~in ~~when~~January ~~the~~2016 ~~Deposit~~at ~~Insurance~~0.625% ~~Fund~~of ~~reaches~~risk-weighted ~~certain~~assets ~~milestones~~and would increase by that amount each year until fully implemented in January 2019. No An institution ~~may~~would ~~pay~~be asubject ~~dividend~~to iflimitations on paying dividends, engaging in ~~default~~share ofrepurchases, and paying discretionary bonuses if its capital level falls below the ~~federal~~buffer ~~deposit~~amount. ~~insurance~~These ~~assessment~~limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

~~The~~Prompt ~~FDIC~~Corrective ~~imposed~~Regulatory onAction. ~~all~~Prompt ~~insured~~corrective ~~institutions~~action aregulations ~~special~~provide ~~emergency assessment of~~ five ~~basis~~classifications: ~~points~~well ofcapitalized, ~~total~~adequately ~~assets minus Tier 1 capital~~capitalized, ~~as of June 30~~undercapitalized, ~~2009~~significantly ~~(capped~~undercapitalized atand ~~ten~~critically ~~basis~~undercapitalized, ~~points~~although ofthese anterms ~~institution’s~~are ~~deposit~~not ~~assessment~~used ~~base), in order~~ to ~~cover~~represent ~~losses~~overall tofinancial ~~the~~condition. ~~Deposit~~If ~~Insurance~~adequately ~~Fund. That~~capitalized, ~~special~~regulatory ~~assessment~~approval ~~was~~is ~~collected~~required onto ~~September~~accept ~~30,~~broker ~~2009~~deposits. The ~~FDIC~~OCC ~~provided~~is ~~for~~required ~~similar~~to ~~assessments~~take ~~during~~certain ~~the~~supervisory ~~final~~actions ~~two~~against ~~quarters~~undercapitalized ~~of 2009~~institutions, ifthe ~~deemed~~severity ~~necessary. In lieu~~ of ~~further~~which ~~special~~depends ~~assessments,~~upon ~~however,~~ the ~~FDIC~~institution’s ~~required~~degree ~~insured~~of ~~institutions~~undercapitalization. toIn ~~prepay~~addition, ~~estimated~~numerous ~~quarterly~~mandatory ~~risk-based~~supervisory ~~assessments~~actions ~~for~~become ~~the~~immediately ~~fourth~~applicable ~~quarter~~to ofan ~~2009~~undercapitalized ~~through~~institution, ~~the~~including, ~~fourth~~but ~~quarter~~not oflimited ~~2012. That pre-payment~~to, ~~which~~increased ~~included~~monitoring anby ~~assumed~~regulators ~~assessment~~and ~~base~~restrictions ~~increase~~on ~~of 5%~~growth, ~~was~~capital ~~due~~distributions ~~December 30,~~and ~~2009~~expansion. The ~~pre-payment~~OCC ~~was~~could ~~recorded~~also astake aany ~~prepaid~~one ~~expense~~of ~~asset~~a asnumber of ~~December 30~~discretionary supervisory actions, ~~2009.~~including Asthe issuance of ~~December 31,~~a ~~2009~~capital directive and ~~each~~the ~~quarter~~replacement ~~thereafter,~~of asenior ~~charge~~executive toofficers ~~earnings~~and isdirectors. ~~recorded~~Significantly ~~for~~and ~~each~~critically ~~regular~~undercapitalized ~~assessment~~institutions ~~with~~are ansubject ~~offsetting~~to ~~credit~~additional tomandatory ~~the~~and ~~prepaid~~discretionary ~~asset~~measures.

~~Due~~Insurance of Deposit Accounts. Delanco Federal’s deposits are insured up to ~~difficult~~applicable ~~economic~~limits ~~conditions,~~by ~~deposit~~the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner ~~was~~is ~~recently~~currently ~~raised to~~ $250,000. ~~That~~ ~~change~~Under ~~was~~the ~~made~~FDIC’s ~~permanent~~risk-based byassessment ~~the~~system, ~~Dodd-Frank~~insured ~~Act. In~~institutions ~~addition,~~are ~~the~~assigned ~~Federal~~a ~~Deposit~~risk ~~Insurance~~category ~~Corporation~~based ~~adopted~~on ansupervisory ~~optional~~evaluations, ~~Temporary~~regulatory ~~Liquidity~~capital ~~Guarantee~~levels ~~Program~~and bycertain ~~which,~~other ~~for~~factors. aAn ~~fee,~~institution’s ~~non-interest~~assessment ~~bearing~~rate ~~transaction~~depends ~~accounts~~upon ~~would~~the ~~receive~~category ~~unlimited~~to ~~insurance~~which ~~coverage~~it ~~until~~is ~~December 31~~assigned, ~~2010~~ and certain ~~senior~~adjustments ~~unsecured~~specified ~~debt~~by ~~issued~~FDIC byregulations. ~~institutions~~Institutions ~~and~~deemed ~~their~~less ~~holding~~risky ~~companies~~pay ~~between~~lower ~~October 13,~~assessments. ~~2008~~The ~~and~~FDIC ~~June 30~~may adjust the scale uniformly, ~~2010~~except ~~would~~that beno ~~guaranteed~~adjustment bycan ~~the~~deviate ~~Federal~~more ~~Deposit~~than ~~Insurance~~two ~~Corporation~~basis ~~through~~points ~~June 30,~~from ~~2012,~~the orbase inscale ~~some~~without ~~cases,~~notice ~~December 31,~~and ~~2012~~comment. ~~Delanco~~ ~~Federal~~No ~~does~~institution ~~not~~may ~~participate~~pay ina ~~the~~dividend ~~unlimited~~if ~~coverage~~in ~~for~~default ~~noninterest~~of ~~bearing~~the ~~transaction~~federal ~~accounts~~deposit ~~program~~insurance assessment.

The Dodd-Frank Act ~~increased~~required the ~~minimum~~FDIC ~~target~~to ~~Deposit~~revise ~~Insurance~~its ~~Fund~~procedures ~~ratio~~to ~~from~~base ~~1.15%~~its ofassessments ~~estimated~~upon each insured ~~deposits~~institution’s tototal ~~1.35%~~assets ofless ~~estimated~~tangible ~~insured~~equity instead of deposits. The ~~Federal~~FDIC ~~Deposit~~finalized ~~Insurance~~a ~~Corporation~~rule, ~~must~~effective ~~seek~~April ~~to achieve the~~ 1~~.35%~~, ~~ratio by September 30~~2011, ~~2020. Insured~~that ~~institutions~~set ~~with assets of $10 billion or more are supposed to fund~~ the ~~increase. The~~assessment ~~Dodd-Frank~~range ~~Act~~at ~~eliminated the 1~~2.5% ~~maximum fund ratio, instead leaving it~~ to ~~the~~45 ~~discretion~~basis points of ~~the~~total ~~Federal~~assets ~~Deposit~~less ~~Insurance~~tangible ~~Corporation~~equity.

The ~~Federal~~FDIC ~~Deposit Insurance Corporation~~ has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Delanco Federal. Management cannot predict what insurance assessment rates will be in the future. Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation or the OCC. The management of Delanco Federal does not know of any practice, condition or violation that might lead to termination of deposit insurance.

Loans to One Borrower. Federal law provides that savings associations are generally subject to the limits on loans to one borrower applicable to national banks. Generally, subject to certain exceptions, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral.

Qualified Thrift Lender Test. Federal law requires savings associations to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a “domestic building and loan association” under the Internal Revenue Code or maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including certain mortgage-backed securities but also including education, credit card and small business loans) in at least nine months out of each 12-month period.

A savings association that fails the qualified thrift lender test is subject to certain operating restrictions and the Dodd-Frank Act also specifies that failing the qualified thrift lender test is a violation of law that could result in an enforcement action and dividend limitations. As of March 31, ~~2012~~2013, Delanco Federal maintained 87.6 % of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test.

Limitation on Capital Distributions. Federal regulations impose limitations upon all capital distributions by a savings association, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and the prior approval of the OCC is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under OCC regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OCC. If an application is not required, the institution must still provide 30 days prior written notice to the Board of Governors of the Federal Reserve System of the capital distribution if, like Delanco Federal, it is a subsidiary of a holding company, as well as an informational notice filing to the OCC. If Delanco Federal’s capital ever fell below its regulatory requirements or the OCC notified it that it was in need of increased supervision, its ability to make capital distributions could be restricted. In addition, the OCC could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the OCC determines that such distribution would constitute an unsafe or unsound practice. 8

~~Standards~~Limitation ~~for~~on ~~Safety~~Capital ~~and Soundness~~Distributions. ~~The~~ ~~federal~~Federal ~~banking~~regulations ~~agencies~~impose ~~have~~limitations ~~adopted~~upon ~~Interagency~~all ~~Guidelines~~capital ~~prescribing~~distributions ~~Standards~~by ~~for~~a ~~Safety~~savings association, including cash dividends, payments to repurchase its shares and ~~Soundness~~payments to shareholders of another institution in ~~various~~a ~~areas~~cash-out ~~such~~merger. asUnder ~~internal~~the ~~controls~~regulations, an application to and ~~information~~the ~~systems,~~prior ~~internal~~approval ~~audit~~of the OCC is required before any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under OCC regulations (i.e., ~~loan~~generally, ~~documentation~~examination and ~~credit~~Community ~~underwriting,~~Reinvestment ~~interest~~Act ~~rate~~ratings ~~exposure~~in the two top categories), ~~asset~~the ~~growth~~total ~~and~~capital ~~quality~~distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, ~~earnings~~the ~~and~~institution ~~compensation~~would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, ~~fees~~regulation ~~and~~or ~~benefits~~agreement with the OCC. ~~The~~ ~~guidelines~~If ~~set~~an ~~forth~~application is not required, the ~~safety~~institution must still provide 30 days prior written notice to, and ~~soundness~~receive ~~standards~~the ~~that~~nonobjection of, the ~~federal~~Federal ~~banking~~Reserve Board ~~agencies~~of ~~use~~the tocapital ~~identify~~distribution ~~and~~if, ~~address~~like ~~problems~~Delanco atFederal, ~~insured~~it ~~depository~~is ~~institutions~~a ~~before~~subsidiary ~~capital~~of ~~becomes~~a ~~impaired~~holding company, as well as an informational notice filing to the OCC. If Delanco Federal’s capital ever fell below its regulatory requirements or the OCC ~~determines~~notified it that ait ~~savings~~was ~~association~~in ~~fails~~need of increased supervision, its ability to ~~meet~~make ~~any~~capital ~~standard~~distributions ~~prescribed~~could bybe ~~the~~restricted. ~~guidelines~~In addition, the OCC ~~may~~could ~~require~~prohibit ~~the~~a proposed capital distribution by any institution, towhich ~~submit~~would anotherwise ~~acceptable~~be ~~plan~~permitted toby ~~achieve~~the ~~compliance~~regulation, ~~with~~if the ~~standard~~OCC determines that such distribution would constitute an unsafe or unsound practice.

Community Reinvestment Act. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to satisfactorily comply with the provisions of the Community Reinvestment Act could result in denials of regulatory applications. Responsibility for administering the Community Reinvestment Act, unlike other fair lending laws, is not being transferred to the Consumer Financial Protection Bureau. Delanco Federal received an “outstanding” Community Reinvestment Act rating in its most recently completed examination.

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

The Sarbanes-Oxley Act of 2002 generally prohibits loans by Delanco Bancorp to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Delanco Federal’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The laws limit both the individual and aggregate amount of loans that Delanco Federal may make to insiders based, in part, on Delanco Federal’s capital level and requires that certain board approval procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional limitations based on the type of loan involved.

Enforcement. The OCC currently has primary enforcement responsibility over savings associations and has authority to bring actions against the institution and all institution-affiliated parties, including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 ~~thousand~~ per day, or even $1.0 million per day in especially egregious cases. The ~~Federal~~FDIC ~~Deposit Insurance Corporation~~ has the authority to recommend to the OCC that enforcement action be taken with respect to a particular savings association. If action is not taken by the OCC, the ~~Federal~~FDIC ~~Deposit Insurance Corporation~~ has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations.

Assessments. Savings associations were previously required to pay assessments to the Office of Thrift Supervision to fund the agency’s operations. The general assessments, paid on a semi-annual basis, were computed based upon the savings association’s (including consolidated subsidiaries) total assets, condition and complexity of portfolio. The OCC, which succeeded the Office of Thrift Supervision, is similarly funded through assessments imposed on regulated institutions. The combined assessment paid to the Office of Thrift Supervision and the OCC for the fiscal year ended March 31, 2012 totaled $75 thousand. 9

Federal Home Loan Bank System. Delanco Federal is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Delanco Federal, as a member of the Federal Home Loan Bank of New York, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Delanco Federal was in compliance with this requirement with an investment in Federal Home Loan Bank stock at March 31, ~~2012~~2013 of $~~219~~203 thousand.

Federal Reserve Board System. The Federal Reserve Board regulations require savings associations to maintain non-interest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (NOW) and regular checking accounts). ~~The~~ ~~regulations~~For ~~generally~~2013, ~~provide~~the regulations provided that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $5871.80 million; a 10% reserve ratio is applied above $5871.80 million. The first $1011.75 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted annually and, for ~~2012~~2013, require a 3% ratio for up to $7179.0 5 million and an exemption of $1112.54 million. Delanco Federal complies with the foregoing requirements. In October 2008, the Federal Reserve Board began paying interest on certain reserve balances.

Other Regulations

Delanco Federal’s operations are also subject to federal laws applicable to credit transactions, including the:

•

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

•

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

•

Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

•

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and

•

rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of Delanco Federal also are subject to laws such as the:

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

•

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

•

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check.

Holding Company Regulation

General. As a savings and loan holding company, Delanco Bancorp is subject to Federal Reserve Board regulations, examinations, supervision, reporting requirements and regulations regarding its activities. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to Delanco Federal.

Pursuant to federal law and regulations and policy, a savings and loan holding company such as Delanco Bancorp may generally engage in the activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act and certain other activities that have been authorized for savings and loan holding companies by regulation.

Federal law prohibits a savings and loan holding company from, directly or indirectly or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or savings and loan holding company thereof, without prior written approval of the Federal Reserve Board or from acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating applications by holding companies to acquire savings associations, the Federal Reserve Board must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings association in another state if the laws of the state of the target savings association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Capital. Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, requires the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. That will eliminate the inclusion of certain instruments, such as trust preferred securities, from tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. There is a five year transition period from the July 21, 2010 date of enactment of the Dodd-Frank Act before the capital requirements will apply to savings and loan holding companies.

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must promulgate regulations implementing the “source of strength” policy that holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

~~Delanco~~Dividends. The Federal ~~must~~Reserve ~~notify~~Board has the ~~Federal~~power ~~Reserve~~to ~~Board~~prohibit ~~prior~~dividends toby ~~paying~~savings aand ~~dividend~~loan toholding ~~Delanco~~companies ~~Bancorp~~if their actions constitute unsafe or unsound practices. The Federal Reserve Board ~~may~~has ~~disapprove~~issued a ~~dividend~~policy ~~if,~~statement ~~among~~on ~~other~~the ~~things~~payment of cash dividends by bank holding companies, which also applies to savings and loan holding companies and which expresses the Federal Reserve Board’s ~~determines~~view that a holding company should pay cash dividends only to the ~~federal~~extent ~~savings~~that ~~bank~~the company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality and overall financial condition. The Federal Reserve Board also indicated that it would be ~~undercapitalized~~inappropriate onfor a ~~pro~~holding ~~forma~~company ~~basis~~experiencing orserious ~~the~~financial ~~dividend~~problems isto ~~determined~~borrow funds to ~~raise~~pay ~~safety~~dividends. orUnder ~~soundness~~the ~~concerns~~prompt corrective action regulations, the Federal Reserve Board may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.”

Acquisition of Delanco Bancorp. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company.

~~Cease and Desist Order~~11

OnRegulatory 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. On July 21, 2011 the OTS was eliminated and merged into the OCC. As the Bank’s primary regulator, the Order is now enforced by the OCC.Agreement

Delanco Federal is a party to a formal written agreement with the OCC dated November 21, 2012. The ~~Order~~written ~~requires~~agreement supersedes and terminates the ~~Bank~~Order to ~~take~~Cease and Desist issued by the ~~following~~Office ~~actions:~~of Thrift Supervision on March 17, 2010.

·The ~~maintain~~written ~~(i)~~agreement arequires ~~tier~~Delanco 1Federal ~~(core) capital~~ to ~~adjusted~~take ~~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~~following ~~of an adequate allowance for loan and lease losses;~~actions:

·● ~~If the Bank fails to meet these capital ratio requirements at any time, within 15 days thereafter~~ prepare a ~~written~~three-year ~~contingency~~strategic plan ~~detailing~~that ~~actions~~establishes toobjectives befor ~~taken,~~Delanco ~~with~~Federal’s ~~specific~~overall ~~time~~risk ~~frames~~profile, ~~providing~~earnings ~~for~~performance, ~~(i)~~growth, abalance ~~merger~~sheet ~~with~~mix, ~~another~~liability ~~federally~~structure, ~~insured~~reduction ~~depository~~in ~~institution~~the orvolume ~~holding~~of ~~company~~nonperforming ~~thereof~~assets, orand ~~(ii)~~product ~~voluntary~~line ~~liquidation~~development;

·● prepare a ~~problem~~capital ~~asset~~ plan that ~~will~~includes ~~include~~specific ~~strategies~~proposals related to the maintenance of adequate capital, ~~targets~~identifies strategies to strengthen capital if necessary and ~~timeframes~~includes detailed quarterly financial projections. If the OCC determines that Delanco Federal has failed to ~~reduce~~submit an acceptable capital plan or fails to implement or adhere to its capital plan, then the ~~Bank~~OCC may require Delanco Federal to develop a contingency capital plan detailing Delanco Federal’s ~~level~~proposal ofto ~~criticized~~sell, ~~assets~~merge ~~and~~or ~~nonperforming~~liquidate ~~loans~~Delanco Federal;

●

prepare a criticized asset plan that will include strategies, targets and timeframes to reduce Delanco Federal’s level of criticized assets;

●

implement a plan to improve Delanco Federal’s credit risk management and credit administration practices;

●

implement programs and policies related to Delanco Federal’s allowance for loan and lease losses, liquidity risk management, independent loan review and other real estate owned;

●

review the capabilities of Delanco Federal’s management to perform present and anticipated duties and to recommend and implement any changes based on such assessment;

●

not pay any dividends or make any other capital distributions without the prior written approval of the OCC;

●

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 written agreement will remain in effect until terminated, modified, or suspended in writing by the OCC.

We have submitted strategic and capital plans to the OCC and have developed the other plans and policies required by the written agreement. The written agreement will remain in effect until terminated, modified, or suspended in writing by the OCC.

The written agreement does not require Delanco Federal to maintain any specific minimum regulatory capital ratios. However, by letter dated January 2, 2013, the OCC established higher individual minimum capital requirements for Delanco Federal. Specifically, Delanco Federal must maintain Tier 1 capital at least equal to 8% of adjusted total assets, Tier 1 capital at least equal to 12% of risk-weighted assets, and total capital at least equal to 13% of risk-weighted assets. At March 31, 2013, Delanco Federal’s Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio and total risk based-capital ratio were 7.79%, 13.41% and 14.67%, respectively.

· within 30 days after the end of each quarter, 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 OCC;

· refrain from making, investing in or purchasing any new commercial loans without the prior non-objection of the OCC (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 Bank continues to work with its borrowers where possible and is pursuing legal action where the ability to work with the borrower does not exist. As of March 31, 2012, the Bank has entered into formal forbearance agreements with four relationships totaling $1.5 million that require current payments while the borrowers restructure their finances.

At March 31, 2012, the Bank’s tier 1 (core) capital to adjusted total assets ratio was 7.93% and its total risk-based capital to risk-weighted assets ratio was 14.13%. At March 31, 2012, 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.

ITEM 1A.

RISK FACTORS

We have experienced net losses in each of the last two fiscal years and we may not return to profitability in the near future.

We have experienced net losses of $324 thousand and $494 thousand for the years ended March 31, 2013 and 2012, respectively. Our profitability has suffered due to lower net interest income resulting from the prolonged low interest rate environment, as well as heightened provisions for loan losses, expenses for and losses on the sale of real estate owned and other problem loan expenses. For the year ended March 31, 2013, we incurred provision expenses of $640 thousand, real estate owned expenses and losses of $340 thousand, and other problem loan expenses of $448 thousand. For the year ended March 31, 2012, we incurred provision expenses of $1.6 million, real estate owned expenses and losses of $197 thousand, and other problem loan expenses of $203 thousand. At March 31, 2013, non-performing assets and troubled debt restructurings totaled $8.8 million, or 6.8% of total assets. As we work through our problem assets, we may incur additional expenses and losses on real estate owned and other problem loan expenses, while continued high levels of problem assets may result in additional provisions for loan losses, all of which would impede our return to profitability. In addition, our earnings have been adversely affected by a shrinking net interest margin caused by the protracted low interest rate environment and its impact on earning asset yields. Our net interest margin was 3.35% for the year ended March 31, 2013, as compared to 3.60% for the year ended March 31, 2012. Our average yield on earning assets declined to 4.22% for the year ended March 31, 2013, from 4.76% for the year ended March 31, 2012 as higher yielding loans were paid off or refinanced at lower market rates and higher yielding securities were called by the issuer and replaced with lower yielding investments. Continued low market interest rates could cause further declines in our net interest margin, as our ability to reduce our cost of funds to offset further reductions in asset yields is limited.

We are a party to a formal written agreement with the OCC and our failure to comply with that agreement may result in further regulatory enforcement actions, including restrictions on our operations.

Delanco Federal is a party to a formal written agreement with the OCC dated November 21, 2012. The written agreement supersedes and terminates the Order to Cease and Desist issued by the Office of Thrift Supervision on March 17, 2010. The written agreement requires Delanco Federal to take certain actions and implement certain policies and procedures aimed at improving Delanco Federal’s capital, earnings and asset quality. The written agreement does not require Delanco Federal to maintain any specific minimum regulatory capital ratios. However, by letter dated January 2, 2013, the OCC established higher individual minimum capital requirements for Delanco Federal. Specifically, Delanco Federal must maintain Tier 1 capital at least equal to 8% of adjusted total assets, Tier 1 capital at least equal to 12% of risk-weighted assets, and total capital at least equal to 13% of risk-weighted assets. At March 31, 2013, Delanco Federal’s Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio and total risk based-capital ratio were 7.79%, 13.41% and 14.67%, respectively.

The written agreement will remain in effect until terminated, modified, or suspended in writing by the OCC. A failure to comply with the written agreement could result in the initiation of further enforcement actions by the OCC, including the imposition of civil monetary penalties. The written agreement has resulted in additional regulatory compliance expense for the Company. A detailed description of the written agreement can be found at “Regulation and Supervision—Regulatory Agreement.”

A return of recessionary conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.

~~Following~~Although athe ~~national~~U.S. ~~home~~economy ~~price~~has ~~peak~~emerged from the severe recession that occurred in ~~mid-2006~~2008 and 2009, ~~falling~~economic ~~home~~growth ~~prices~~has been slow and ~~sharply~~uneven, ~~reduced~~and ~~sales~~unemployment ~~volumes,~~levels ~~along~~remain ~~with~~high. ~~the~~Recovery ~~collapse~~by ofmany ~~the~~businesses ~~United~~has ~~States’~~been ~~subprime~~impaired ~~mortgage~~by ~~industry~~lower inconsumer ~~early~~spending. ~~2007,~~A return to prolonged deteriorating economic conditions could significantly ~~contributed~~affect tothe amarkets ~~recession~~in ~~that~~which ~~officially~~we ~~lasted~~do ~~until~~business, ~~June~~the ~~2009~~value of our loans and investments, ~~although~~and ~~the~~our ~~effects~~ongoing ~~continued~~operations, ~~thereafter~~costs and profitability. ~~Dramatic~~ Further declines in real estate values and ~~high~~sales ~~levels~~volumes ofand ~~foreclosures~~continued ~~resulted~~elevated inunemployment ~~significant~~levels ~~asset~~may ~~write-downs~~result byin ~~financial~~higher ~~institutions~~than expected loan delinquencies, ~~which~~increases ~~have~~in ~~caused~~our ~~many~~non-performing ~~financial~~and ~~institutions~~criticized toclassified ~~seek~~assets ~~additional~~and ~~capital,~~a todecline ~~merge~~in ~~with~~demand ~~other~~for ~~institutions~~our products and, inservices. ~~some~~These ~~cases,~~events may cause us to ~~fail. Concerns~~incur ~~over~~losses ~~the~~and ~~United~~may ~~States’~~adversely ~~credit~~affect ~~rating~~our ~~(which~~financial incondition ~~2011~~and ~~was~~results ~~downgraded~~of byoperations. ~~Standard &~~As ~~Poor’s),~~a ~~the~~result ~~European~~of ~~sovereign~~the ~~debt~~economic ~~crisis~~downturn, ~~and~~our ~~continued~~non-performing ~~high~~assets ~~unemployment~~and introubled ~~the~~debt ~~United~~restructurings ~~States,~~jumped ~~among~~from ~~other~~$1.8 ~~economic~~million ~~indicators,~~at ~~have~~March ~~contributed~~31, 2008 to ~~increased~~$9.0 ~~volatility~~million inat ~~the~~March ~~capital~~31, ~~markets~~2009 and ~~diminished~~then ~~expectations~~to ~~for the economy~~$10. A3 ~~return~~million ofat ~~recessionary~~March ~~conditions~~31, ~~and/or~~2010. ~~continued~~Since ~~negative~~that ~~developments~~time, in the ~~domestic~~amount ~~and~~of ~~international~~non-performing ~~credit~~assets ~~markets~~and ~~may~~troubled ~~significantly~~debt ~~affect~~restructurings ~~the~~has ~~markets~~declined into ~~which~~$8.8 wemillion doat ~~business~~March 31, ~~the~~2013. ~~value~~Reduction ofin ~~our~~problem ~~loans~~assets ~~and~~has ~~investments~~been slow, and ~~our~~the ~~ongoing~~process ~~operations,~~has ~~costs~~been ~~and~~exacerbated ~~profitability. Further~~by ~~declines~~the incondition ~~real~~of ~~estate~~some ~~values~~of ~~and~~the ~~sales~~properties ~~volumes~~securing ~~and~~non-performing ~~continued~~loans, ~~high~~the ~~unemployment~~lengthy ~~levels~~foreclosure ~~may~~process ~~result~~ in ~~higher~~New ~~than~~Jersey, ~~expected~~and ~~loan~~extended ~~delinquencies~~workout ~~and~~plans awith ~~decline~~certain inborrowers. ~~demand~~As ~~for~~we ~~our~~work ~~products~~through ~~and~~the ~~services. These~~resolution ~~negative~~of ~~events~~these ~~may~~assets, ~~cause~~the uscontinued toeconomic ~~incur~~problems ~~losses~~that ~~and~~exist ~~may~~in ~~adversely~~the ~~affect~~financial ~~our~~markets ~~capital,~~could ~~liquidity,~~have ~~and~~a ~~financial~~negative ~~condition~~impact on the Company.

~~While~~A wereturn ~~have~~of ~~made~~recessionary ~~progress~~conditions inand/or ~~reducing~~continued ~~our~~negative ~~non-performing~~developments ~~loans~~in the domestic and international credit markets may significantly affect the ~~number~~markets ofin ~~restructured~~which ~~debts~~we do business, wethe ~~continue~~value toof ~~have~~our anloans ~~elevated~~and ~~level~~investments, ofand ~~classified~~our ~~assets~~ongoing operations, costs and profitability. As weFurther ~~work~~declines ~~through~~in ~~the~~real ~~resolution~~estate ofvalues ~~these~~and ~~assets,~~sales ~~the~~volumes and continued ~~economic~~high ~~problems~~unemployment ~~that~~levels ~~exist~~may result in ~~the~~higher ~~financial~~than ~~markets~~expected ~~could~~loan ~~have~~delinquencies and a decline in demand for our products and services. These negative ~~impact~~events onmay ~~the~~cause ~~Company~~us to incur losses and may adversely affect our capital, liquidity, and financial condition.

WeAdverse ~~are~~conditions ain ~~party to a Cease and Desist with~~ the ~~OCC~~local ~~and~~economy ~~our~~or ~~failure~~real toestate ~~comply~~market ~~with~~could ~~that~~hurt ~~Order may result in further regulatory enforcement actions, including restrictions on~~ our ~~operations~~profits.

OnOur ~~March~~success ~~17,~~depends ~~2010,~~to ~~Delanco~~a ~~Federal~~large ~~Savings~~degree ~~Bank~~on ~~consented~~the togeneral ~~the~~economic ~~issuance~~conditions ofin aBurlington ~~Cease~~County, New Jersey and ~~Desist~~the ~~Order~~surrounding ~~promulgated~~areas bythat ~~the~~comprise ~~OTS~~our market. On ~~July~~Our ~~21,~~market ~~2011~~has ~~the~~experienced ~~OTS~~a ~~was~~significant ~~eliminated~~downturn ~~and~~in ~~merged~~which ~~into~~we ~~the~~have ~~OCC. As~~seen ~~the~~falling ~~Bank’s~~home ~~primary regulator~~prices, ~~the~~rising ~~Order~~foreclosures isand ~~now~~an ~~enforced~~increased bylevel ~~the~~of ~~OCC. The~~commercial ~~Order~~and ~~was~~consumer ~~based~~delinquencies. onAt ~~the~~March ~~Bank’s~~31, ~~2009~~2013, ~~report~~56.7% of ~~examination~~our inloan ~~which~~portfolio ~~the~~consisted ~~OTS~~of ~~concluded~~loans ~~that~~secured ~~grounds~~by ~~existed~~real ~~for~~estate ~~the~~in ~~initiation~~Burlington ofCounty. ~~administrative~~We ~~proceedings~~have ~~against~~relatively ~~the~~few ~~Bank. Without~~loans ~~admitting~~outside orof ~~denying~~our ~~that~~market ~~such~~area, ~~grounds~~and, ~~existed~~as a result, ~~the~~we ~~Bank~~have ~~determined~~a togreater ~~enter~~risk ~~into~~of ~~the~~loan ~~Order~~defaults toand ~~cooperate~~losses ~~with~~in the ~~OTS~~event ~~and~~of asa ~~evidence~~further ofeconomic ~~the~~downturn ~~Bank’s~~in ~~intent~~our tomarket ~~comply~~area, ~~with~~as ~~all~~adverse ~~applicable~~economic ~~laws~~conditions ~~and~~may ~~regulations~~have ~~and~~a ~~engage~~negative ineffect ~~safe~~on ~~and~~the ~~sound~~ability ~~practices. The~~of ~~Order~~our ~~imposes~~borrowers ~~certain~~to ~~minimum~~make ~~capital~~timely ~~ratio~~payments ~~requirements~~of astheir ~~well~~loans. asFurther ~~certain~~significant ~~restrictions~~decline onin ~~the~~real ~~operations~~estate ofvalues ~~the~~in ~~Bank,~~our ~~including~~market ~~limiting~~would mean that the ~~Bank’s~~collateral ~~ability~~for tomany ~~engage~~of inour ~~commercial~~loans ~~lending~~would ~~without~~provide ~~prior~~less ~~written~~security. ~~approval~~As ~~from~~a ~~the~~result, ~~OCC~~we ~~and~~would ~~the~~be ~~Bank’s~~more ~~ability~~likely to ~~grow~~suffer ~~its~~losses ~~assets. The~~on ~~Order~~defaulted ~~will~~loans ~~remain~~because inour ~~effect~~ability ~~until~~to ~~terminated,~~fully ~~modified,~~recover oron ~~suspended~~defaulted inloans ~~writing~~ by selling the ~~OCC~~real estate collateral would be diminished.

AOur ~~failure~~local toeconomy ~~comply~~may ~~with~~affect ~~the~~our ~~Order~~future ~~could~~growth ~~result~~possibilities and operations in ~~the~~our ~~initiation~~primary ofmarket ~~further~~area. ~~enforcement~~Our ~~actions~~future bygrowth ~~the~~opportunities ~~OCC,~~depend ~~including~~on the ~~imposition~~growth and stability of ~~civil~~our ~~monetary~~regional ~~penalties~~economy and our ability to expand in our market area. ~~The~~ ~~Order~~Continued ~~has~~adverse ~~resulted~~conditions in ~~additional~~our ~~regulatory~~local ~~compliance~~economy ~~expense~~may limit funds available for ~~the~~deposit ~~Company. A~~and ~~detailed~~may ~~description~~negatively ofaffect ~~the~~demand ~~Order~~for ~~can~~loans, ~~found~~both atof ~~“Regulation~~which ~~and~~could ~~Supervision—Cease~~have ~~and~~an ~~Desist~~impact ~~Order~~on our profitability.”

IfAn weinability doto ~~not~~maintain ~~rent~~our ~~the~~regulatory ~~excess~~capital ~~office~~position ~~space~~could inrequire ~~our~~us ~~Cinnaminson~~to ~~branch~~raise ~~building~~additional capital, itwhich ~~will~~may ~~negatively~~not ~~impact~~be ~~earnings~~available on favorable terms or at all.

~~Our~~At ~~Cinnaminson~~March ~~branch~~31, 2013, Delanco Federal’s Tier 1 leverage ratio was ~~designed~~7.79%, ~~and~~which ~~built~~was tonot ~~have~~in ~~rental~~compliance ~~units~~with ~~for~~the ~~third~~individual ~~party~~minimum ~~tenants. Our~~capital ~~inability~~requirement imposed by the OCC that requires Delanco Federal to ~~rent~~maintain ~~all~~a Tier 1 leverage ratio of ~~those~~ ~~units~~at ~~will~~least ~~necessitate~~8%. ~~that~~If ~~the~~we ~~Bank~~are ~~cover~~unable ~~some~~to ~~or all~~remain ofin compliance with the ~~operating~~individual ~~expenses~~minimum ~~for~~capital ~~the~~requirement ~~building~~imposed ~~without~~by the ~~rental~~OCC, ~~income~~we may be required to ~~offset~~raise ~~those~~additional ~~expenses,~~capital. ~~thus~~The ~~having~~need ato ~~negative~~raise ~~impact~~substantial onadditional funds may force our ~~earnings~~management to spend more time in managerial and financing related activities than in operational activities. ~~Currently,~~ ~~two~~We ofmay not be able to secure the ~~three~~required ~~rental~~funding ~~units~~or ~~are~~it ~~occupied~~may bynot ~~third~~be ~~party~~available ~~tenants~~on favorable terms. ~~The~~ ~~third~~Additional ~~office~~offerings ~~suite~~of isour ~~currently~~common ~~occupied~~stock bywill dilute the ownership interest and possibly the book value per share of our ~~employees~~current shareholders.

Our ~~previous~~allowance ~~emphasis~~for onloan ~~commercial~~losses ~~lending~~ may ~~expose~~be usinadequate, towhich ~~increased~~could ~~lending~~hurt ~~risks~~our earnings.

AtWhen ~~March~~borrowers ~~31,~~default ~~2012,~~and ~~$18.6 million,~~do ornot ~~18.4%,~~repay ofthe ~~our~~loans ~~loan~~that ~~portfolio~~we ~~consisted~~make ofto ~~commercial~~them, ~~and~~we ~~multi-family~~may ~~real~~lose ~~estate~~money. ~~loans~~The ~~and~~allowance ~~commercial~~for ~~business~~loan ~~loans,~~losses ~~down~~is ~~from~~the ~~$23.6~~amount ~~million~~estimated atby ~~March~~management ~~31,~~as ~~2011. These~~necessary ~~types~~to ofcover ~~loans~~probable ~~generally~~losses ~~expose~~in athe ~~lender~~loan toportfolio ~~greater~~at ~~risk~~the statement of ~~non-payment~~financial ~~and~~condition ~~loss~~date. ~~than~~The ~~one-~~allowance tois ~~four-family~~established ~~residential~~through ~~mortgage~~the ~~loans~~provision ~~because~~for ~~repayment~~loan oflosses, ~~the~~which ~~loans~~is ~~often~~charged ~~depends~~to onincome. Determining the ~~successful~~amount ~~operation~~ of the ~~property~~allowance orfor aloan ~~business. These~~losses ~~types~~necessarily ofinvolves ~~loans~~a ~~typically~~high ~~involve~~degree ~~larger~~of ~~loan~~judgment. ~~balances~~Among tothe ~~single~~material ~~borrowers~~estimates orrequired ~~groups~~to ofestablish ~~related~~the ~~borrowers~~allowance ~~compared~~are: toloss ~~one-~~exposure toat ~~four-family~~default; ~~residential~~the ~~mortgage~~amount ~~loans. Commercial~~and ~~business~~timing ~~loans~~of ~~expose~~future uscash toflows ~~additional~~on ~~risks~~impacted ~~since~~loans; ~~they~~value ~~typically~~of ~~are~~collateral; ~~made~~and ondetermination ~~the basis~~ of ~~the~~loss ~~borrower’s~~factors ~~ability~~ to ~~make~~be ~~repayments~~applied ~~from~~to the ~~cash~~various ~~flow~~elements of the ~~borrower’s~~portfolio. ~~business~~If ~~and~~our ~~are~~estimates ~~secured~~and byjudgments ~~non-real~~regarding ~~estate~~such ~~collateral~~matters ~~that~~prove ~~may~~to ~~depreciate~~be ~~over time. In addition~~incorrect, ~~since~~our ~~such~~allowance ~~loans~~for ~~generally~~loan ~~entail~~losses ~~greater~~might ~~risk~~not ~~than~~be ~~one-~~sufficient, toand ~~four-family~~additional ~~residential~~loan ~~mortgage~~loss ~~loans,~~provisions wemight ~~may~~ need to ~~increase~~be ~~our~~made. ~~allowance~~Depending ~~for~~on ~~loan losses in~~ the ~~future~~amount toof ~~account~~such ~~for~~loan ~~potential~~loss ~~losses. While~~provisions, the ~~Bank~~adverse ~~has~~impact ~~been~~on ~~restricted~~our ~~from~~earnings ~~making new~~could ~~commercial~~be ~~loans~~material. inWe ~~the~~might ~~past~~increase ~~year,~~ the ~~existing~~allowance ~~commercial~~because ~~loan~~of ~~portfolio~~changing ~~contains~~economic ~~potential risks~~conditions. ~~Even~~ ~~though~~For ~~the~~example, ~~Bank~~in ~~has~~a ~~been~~rising ~~working~~interest onrate ~~collecting~~environment, ~~the~~borrowers ~~money~~with ~~owed on non~~adjustable-~~performing~~rate loans bycould ~~either~~see ~~collection~~their ~~efforts~~payments orincrease. ~~the~~There ~~repossession~~may ofbe ~~collateral~~a ~~and/or~~significant ~~foreclosure~~increase ofin ~~real~~the ~~estate,~~number ~~there~~of isborrowers nowho ~~guaranty~~are ~~that~~unable ~~the~~or ~~Bank~~unwilling ~~will~~to ~~receive~~repay ~~the~~their ~~full~~loans, ~~amount~~resulting ~~due~~in ~~and~~our ~~that~~charging ~~the~~off ~~existing~~more ~~loan~~loans ~~loss~~and increasing our allowance. ~~will~~In beaddition, ~~sufficient~~when toreal ~~cover~~estate values decline, the ~~losses. See~~potential ~~“Regulation~~severity ~~and~~of ~~Supervision—Cease~~loss ~~and~~on ~~Desist~~a ~~Order”~~real ~~for~~estate-secured ~~further~~loan ~~information~~can onincrease ~~certain~~significantly, ~~restrictions~~especially ~~regarding~~in ~~our~~the ~~ability~~case toof ~~engage~~loans inwith ~~commercial~~high ~~lending~~combined loan-to-value ratios.

The economic downturn that began in 2007 has required us to make significant additions to our allowance for loan losses. For the year ended March 31, 2008 through the year ended March 31, 2013, provisions for loan losses totaled $6.4 million. During this same period, we had net charge-offs of $5.9 million. For our most recent fiscal year ended March 31, 2013, provisions for loan losses totaled $640 thousand and net charge-offs totaled $768 thousand. At March 31, 2013, the allowance for loan losses was $1.0 million, which represented 1.2% of total loans and 16.3% of non-performing loans. A large loss could deplete the allowance and require substantial provisions to replenish the allowance, which would negatively affect earnings.

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

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

At March 31, 2013, $13.6 million, or 15.2%, of our loan portfolio consisted of commercial and multi-family real estate loans and commercial business loans, down from $18.6 million at March 31, 2012 and $32.2 million at March 31, 2008. Of these loans, $3.3 million were non-performing at March 31, 2013. These types of loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property or a business. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Commercial business loans expose us to additional risks since they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by non-real estate collateral that may depreciate over time. In addition, since such loans generally entail greater risk than one- to four-family residential mortgage loans, we may need to increase our allowance for loan losses in the future to account for potential losses. We were restricted from making new commercial loans under the cease and desist order issued by the Office of Thrift Supervision on March 17, 2010. The written agreement with the OCC dated November 21, 2012 eliminated this lending restriction.

If our foreclosed real estate is not properly valued or if our reserves are insufficient, our earnings could be reduced.

We obtain updated valuations in the form of appraisals and broker price opinions when a loan has been foreclosed and the property taken in as foreclosed real estate and at certain other times during the holding period of the asset. Our net book value in the loan at the time of foreclosure and thereafter is compared to the updated fair value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s net book value over its fair value less estimated selling costs. If our valuation process is incorrect, or if property values decline, the fair value of our foreclosed real estate may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. In addition, bank regulators periodically review our foreclosed real estate and may require us to recognize further charge-offs. Significant charge-offs to our foreclosed real estate could have a material adverse effect on our financial condition and results of operations.

Historically low interest rates may adversely affect our net interest income and profitability.

In recent years it has been the policy of the Federal Reserve Board to maintain interest rates at historically low levels through its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, market rates on the loans we have originated and the yields on securities we have purchased have been at lower levels than available prior to 2008. This has been a significant factor in the decrease in the amount of our net interest income to $4.0 million for the year ended March 31, 2013 from $4.5 million for the year ended March 31, 2012 and $4.8 million for the year ended March 31, 2011. Our ability to lower our interest expense to offset declines in asset yields is limited at current interest rate levels. The Federal Reserve Board has indicated its intention to maintain low interest rates in the near future. Accordingly, our net interest income (the difference between interest income earned on assets and interest expense paid on liabilities) may continue to decrease, which would have an adverse effect on our profitability.

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

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

~~Financial~~If ~~reform~~we ~~legislation~~conclude ~~recently~~that ~~enacted~~the bydecline ~~Congress~~in ~~will,~~value ~~among~~of ~~other~~any ~~things,~~of ~~tighten~~our ~~capital~~investment ~~standards,~~securities ~~create~~is aother ~~new~~than ~~Consumer~~temporary, ~~Financial~~we ~~Protection~~are ~~Bureau~~required ~~and~~to ~~result~~write indown ~~new~~the ~~laws~~value ~~and~~of ~~regulations~~ that ~~are~~security ~~expected~~through toa ~~increase~~charge ~~our~~to ~~costs of operations~~earnings.

~~The~~We ~~Dodd-Frank~~review ~~Wall~~our ~~Street~~investment ~~Reform~~securities ~~and~~portfolio ~~Consumer~~at ~~Protection~~each ~~Act~~quarter-end ~~has~~reporting ~~and~~period ~~will continue~~ to ~~change~~determine whether the ~~current~~fair ~~bank~~value ~~regulatory~~is ~~structure~~below ~~and affect~~ the ~~lending,~~current ~~investment,~~carrying ~~trading~~value. ~~and~~When ~~operating~~the ~~activities~~fair value of ~~financial~~any ~~institutions~~of ~~and~~our ~~their~~investment ~~holding~~securities ~~companies. The~~has ~~Dodd-Frank~~declined ~~Act~~below ~~requires~~its ~~the~~carrying ~~Federal~~value, ~~Reserve~~we ~~Board~~are required to ~~set~~assess ~~minimum~~whether ~~capital~~the ~~levels~~decline ~~for~~is ~~bank~~other ~~holding~~than ~~companies~~temporary. If we conclude that ~~are~~the asdecline ~~stringent~~is asother ~~those~~than ~~required~~temporary, ~~for~~we ~~insured~~are ~~depository~~required ~~institutions,~~to ~~and~~write down the ~~components~~value of ~~Tier~~that 1security ~~capital~~through ~~would~~a becharge ~~restricted~~ to ~~capital~~earnings. ~~instruments~~As ~~that~~of ~~are~~March ~~currently~~31, ~~considered~~2013, toour beinvestment ~~Tier~~portfolio 1included ~~capital~~securities ~~for~~with ~~insured~~an ~~depository~~amortized ~~institutions. The~~cost ~~legislation~~of ~~also~~$22.4 ~~establishes~~million aand ~~floor~~an ~~for~~estimated ~~capital~~fair value of ~~insured~~$22.5 ~~depository~~million. ~~institutions~~Changes ~~that~~in ~~cannot~~the beexpected ~~lower~~cash ~~than~~flows ~~the~~of ~~standards~~these insecurities ~~effect~~and/or ~~today,~~prolonged ~~and~~price ~~directs~~declines ~~the~~may ~~federal~~result ~~banking~~in ~~regulators~~our toconcluding ~~implement~~in ~~new~~future ~~leverage~~periods ~~and~~that ~~capital~~the ~~requirements~~impairment ~~within~~of 18these ~~months~~securities ofis ~~the~~other ~~date~~than oftemporary, ~~enactment~~which ofwould ~~the~~require ~~Dodd-Frank~~a ~~Act~~charge ~~that~~to ~~take~~earnings ~~into~~to ~~account~~write ~~off-balance~~down ~~sheet~~these ~~activities~~securities ~~and~~to their fair value. Any charges for other-than-temporary ~~risks,~~impairment ~~including~~would ~~risks~~not ~~relating~~impact tocash ~~securitized~~flow, ~~products~~tangible ~~and~~capital ~~derivatives~~or liquidity.

~~The~~Impairment Dodd-Frank Act also created a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of ~~consumer~~our ~~protection~~deferred ~~laws~~tax ~~that~~assets ~~apply~~could torequire ~~all~~charges ~~banks and savings institutions such as Delanco Federal, including the authority~~ to ~~prohibit “unfair~~earnings, ~~deceptive~~which orcould ~~abusive”~~result ~~acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10.0 billion~~ in ~~assets. Banks~~a ~~and~~negative ~~savings~~impact ~~institutions~~on ~~with~~our ~~$10.0~~results ~~billion~~of ~~or less in assets will be examined by their applicable bank regulators~~operations.

InAs ~~addition,~~a ~~the~~result ~~Dodd-Frank~~of ~~Act~~losses ~~increased~~in ~~stockholder~~prior ~~influence~~years, ~~over~~we ~~boards~~maintain ofa ~~directors~~deferred bytax ~~requiring~~asset ~~certain~~(that ~~public~~is ~~companies~~an asset recognized to ~~give~~reflect ~~stockholders~~an aexpected ~~nonbinding~~benefit ~~vote~~to onbe ~~executive~~realized ~~compensation~~in ~~and~~the ~~so-called~~future) ~~“golden~~that ~~parachute”~~may ~~payments,~~be ~~and~~used byto ~~authorizing~~reduce the ~~Securities~~amount ~~and~~of ~~Exchange~~tax ~~Commission~~that we would otherwise be required to ~~promulgate~~pay ~~rules~~in ~~that~~future ~~would~~periods. ~~allow~~Deferred ~~stockholders~~tax toassets ~~nominate~~are ~~and~~only ~~solicit~~recognized ~~votes~~to ~~for~~the ~~their~~extent ~~own~~it ~~candidates~~is ~~using~~more alikely ~~company’s~~than ~~proxy~~not ~~materials~~they will be realized. ~~Many~~ ~~aspects~~Should ofour ~~the~~management ~~Dodd-Frank~~determine ~~Act~~it ~~are~~is ~~subject~~not tomore ~~rulemaking~~likely ~~and~~than not that the deferred tax assets will ~~take~~be ~~effect~~realized, ~~over~~a ~~several~~valuation ~~years. While~~allowance itwith isa ~~difficult~~charge to ~~anticipate~~earnings ~~the~~would ~~overall~~be ~~impact~~reflected ofin the ~~Dodd-Frank~~period. ~~Act~~At onMarch us31, ~~and~~2013, ~~the~~our ~~financial~~net ~~service~~deferred ~~industry~~tax asset was $1.2 million, itwhich isdoes ~~expected~~not ~~that~~include ata valuation allowance, and of which $1.1 million was disallowed for regulatory capital purposes. If we are required in the future to take a ~~minimum~~valuation itallowance ~~will~~with ~~increase~~respect to our ~~operating~~deferred ~~costs~~tax asset, our financial condition and results of operations would be negatively affected.

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

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

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

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

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

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

We face intense competition in making loans, attracting deposits and hiring and retaining experienced employees. This competition has made it more difficult for us to make new loans and attract deposits. Price competition for loans and deposits sometimes results in us charging lower interest rates on our loans and paying higher interest rates on our deposits, which reduces our net interest income. Competition also makes it more difficult and costly to attract and retain qualified employees. At June 30, ~~2011~~2012, which is the most recent date for which data is available from the FDIC, we held 1.5344% of the deposits in Burlington County, New Jersey. Many of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area.

We ~~operate~~are independent aupon ~~highly~~the ~~regulated~~services ~~environment~~of key executives and we ~~may~~could be ~~adversely~~harmed ~~affected~~ by ~~changes~~the inloss ~~laws~~of ~~and~~their ~~regulations~~services.

We ~~are~~rely ~~subject~~heavily toon ~~extensive~~our ~~regulation,~~President ~~supervision~~ and ~~examination~~Chief byExecutive ~~the~~Officer, ~~Federal~~James ~~Reserve~~E. ~~Board~~Igo, and ~~the~~on ~~OCC,~~ our ~~primary~~Chief ~~federal~~Financial ~~regulators~~Officer, ~~and~~Eva byModi. ~~the~~The ~~Federal~~loss ~~Deposit Insurance Corporation, as insurer~~ of ~~our deposits~~Mr. ~~Such~~ ~~regulation~~Igo ~~and~~or ~~supervision~~Ms. ~~governs~~Modi ~~the~~could ~~activities~~have ina ~~which~~material anadverse ~~institution~~impact ~~and~~on ~~its~~our ~~holding~~operations ~~company~~because, ~~may~~as ~~engage~~a ~~and~~small ~~are~~company, ~~intended~~we ~~primarily~~have ~~for~~fewer ~~the~~management-level ~~protection~~personnel ofthat ~~the~~have ~~insurance fund and~~ the ~~depositors~~experience and ~~borrowers~~expertise ofto ~~Delanco~~readily ~~Federal~~replace ~~Savings~~these ~~Bank~~individuals. ~~rather~~Changes ~~than~~in ~~for~~key ~~holders~~personnel ofand ~~Delanco~~their ~~Bancorp~~responsibilities ~~common~~may ~~stock. Regulatory~~be ~~authorities~~disruptive ~~have~~to ~~extensive~~our ~~discretion~~business ~~in their supervisory~~ and ~~enforcement~~could ~~activities,~~have ~~including~~a ~~the~~material ~~imposition~~adverse ofeffect ~~restrictions~~ on our ~~operations~~business, ~~the~~financial ~~classification~~condition, ~~of our assets~~ and ~~determination~~results of ~~the level of our allowance for loan losses~~operations. ~~Any~~ ~~change~~We indo ~~such~~not ~~regulation~~have ~~and~~employment ~~oversight,~~agreements ~~whether~~with inour ~~the~~executive ~~form~~officers. ofSee ~~regulatory policy~~“Directors, ~~regulations,~~Executive ~~legislation~~Officers orand ~~supervisory~~Corporate ~~action, may have a material impact on our operations~~Governance.”

~~Delanco~~If ~~MHC’s~~we ~~majority~~do ~~control~~not ofrent ~~our~~the ~~common~~excess ~~stock~~office ~~will~~space ~~enable~~in itour toCinnaminson ~~exercise~~branch ~~voting~~building, ~~control~~it ~~over most matters put to a vote of stockholders and~~ will ~~prevent~~negatively ~~stockholders~~impact ~~from forcing a sale or a second-step conversion transaction you may find advantageous~~earnings.

~~Delanco~~Our ~~MHC~~Cinnaminson ~~owns~~branch awas ~~majority~~designed ~~of Delanco Bancorp’s common stock~~ and, ~~through~~built ~~its board of directors, is able~~ to ~~exercise~~have ~~voting~~rental ~~control~~units ~~over~~for ~~most~~third ~~matters~~party ~~put to a vote of stockholders~~tenants. ~~For~~ ~~example,~~Our ~~Delanco~~inability ~~MHC may exercise its voting control~~ to ~~prevent~~rent aall ~~sale or merger transaction or to defeat a stockholder nominee for election to the board~~ of ~~directors~~those ofunits ~~Delanco~~will ~~Bancorp. The~~necessitate same directors and officers who manage Delanco Bancorp and Delanco Federal Savings Bank also manage Delanco MHC. As a federally chartered mutual holding company, the board of directors of Delanco MHC must ensure that ~~the interests of depositors of~~ Delanco Federal ~~Savings~~cover ~~Bank~~some ~~are~~or ~~represented~~all ~~and considered in matters put to a vote~~ of ~~stockholders of Delanco Bancorp. Therefore,~~ the ~~votes~~operating ~~cast~~expenses ~~by Delanco MHC may not be in your personal best interests as a stockholder. For example, Delanco MHC may exercise its voting control to defeat a stockholder nominee~~ for ~~election to~~ the ~~board~~building ofwithout ~~directors of Delanco Bancorp. Delanco MHC’s ability to control~~ the ~~outcome~~rental ofincome ~~the election of the board of directors of Delanco Bancorp restricts the ability of minority stockholders~~ to ~~effect~~offset athose ~~change of management. In addition~~expenses, ~~stockholders~~thus ~~will~~having ~~not be able to force~~ a ~~merger~~negative orimpact ~~second-step~~on ~~conversion~~our ~~transaction~~earnings. ~~without the consent of Delanco MHC~~Currently, ~~as such transactions require the approval of at least~~ two~~-thirds~~ of ~~all~~the ~~outstanding~~three ~~voting~~rental ~~stock,~~units ~~which~~are ~~can~~occupied ~~only~~by bethird ~~achieved~~party ~~if Delanco MHC voted to approve such transactions~~tenants. ~~Some~~ ~~stockholders~~The ~~may~~third ~~desire~~office asuite ~~sale~~was orformerly ~~merger~~occupied ~~transaction,~~by ~~since~~our ~~stockholders~~employees ~~typically~~and ~~receive~~is acurrently ~~premium~~available for ~~their shares, or a second-step conversion transaction, since fully converted institutions tend to trade at higher multiples than mutual holding companies~~rent.

~~Our~~Regulation ~~mutual~~of ~~holding~~the ~~company~~financial ~~structure~~services ~~limits~~industry is undergoing major changes, and future legislation could increase our ~~ability~~cost toof ~~raise~~doing ~~additional~~business ~~equity~~or ~~capital~~harm our competitive position.

~~Our~~In ~~mutual~~2010 ~~holding~~and ~~company~~2011, ~~structure~~in ~~limits~~response ~~our ability~~ to ~~raise~~the ~~additional~~financial ~~equity~~crisis ~~capital~~and ~~without~~recession ~~undertaking~~that abegan ~~second-step~~in ~~conversion~~2008, ~~transaction~~significant ~~because~~regulatory weand ~~cannot~~legislative ~~issue~~changes ~~stock~~resulted in anbroad ~~amount~~reform ~~that~~and ~~would~~increased ~~cause~~regulation ~~Delanco~~impacting ~~MHC~~financial toinstitutions. ~~own~~The ~~less~~Dodd-Frank ~~than~~Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has created a ~~majority~~significant ofshift ~~our~~in ~~outstanding~~the ~~shares~~way financial institutions operate. ~~Currently~~ The Dodd-Frank Act restructured the regulation of depository institutions by merging the Office of Thrift Supervision, which previously regulated Delanco ~~MHC~~Federal, ~~owns~~into ~~55%~~the OCC, and assigning the regulation of ~~our~~savings ~~outstanding~~and ~~shares~~loan holding companies, including Delanco Bancorp, to the Federal Reserve Board. In ~~addition~~The Dodd-Frank Act also created the Consumer Financial Protection Bureau to administer consumer protection and fair lending laws, ~~any~~a ~~stock~~function ~~issuance~~that was formerly performed by usthe ~~must~~depository beinstitution ~~approved~~regulators. As required by the ~~Federal~~Dodd-Frank ~~Reserve~~Act, ~~Board~~the federal banking regulators have proposed new consolidated capital requirements that will limit our ability to borrow at the holding company level and ~~must~~invest bethe ~~structured~~proceeds from such borrowings as capital in aDelanco ~~manner~~Federal ~~similar~~that could be leveraged to asupport ~~mutual~~additional growth. The Dodd-Frank Act contains various other provisions designed to ~~stock~~enhance ~~conversion,~~the ~~including~~regulation of depository institutions and prevent the ~~stock~~recurrence ~~purchase~~of ~~priorities~~a ~~accorded~~financial tocrisis ~~members~~such as occurred in 2008-2009. The full impact of the ~~mutual~~Dodd-Frank ~~holding~~Act ~~company,~~on ~~unless~~our ~~otherwise~~business ~~approved~~and byoperations will not be known for years until regulations implementing the ~~Federal~~statute ~~Reserve~~are ~~Board~~written and adopted. ~~These~~ ~~requirements~~The ~~limit~~Dodd-Frank Act may have a material impact on our ~~ability~~operations, toparticularly ~~control~~through ~~the~~increased ~~timing~~regulatory burden and ~~structure~~compliance ofcosts. Any future legislative changes could have a ~~stock~~material ~~offering~~impact on our profitability, the value of assets held for investment or collateral for loans. Future legislative changes could require changes to business practices or force us to discontinue businesses and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.

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

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

Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot assure you that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

We conduct our business through our main office in Delanco, New Jersey and our branch office in Cinnaminson, New Jersey, both of which we own. The net book value of our land, buildings, furniture, fixtures and equipment was $76.19 million as of March 31, ~~2012~~2013.

ITEM 3.

LEGAL PROCEEDINGS

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

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

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

The common stock of Delanco Bancorp is quoted on the OTC Bulletin Board under the symbol “DLNO.” The following table sets forth the high and low sales prices of the common stock, as reported by the OTC Bulletin Board, during each quarter of fiscal 2013 and 2012. As of June 1, 2013 there were approximately 290 holders of record of the Company’s common stock.

For the Year Ended March 31, 2013	High		Low

First Quarter	$	5.00	$	4.12
Second Quarter		4.50		3.60
Third Quarter		4.00		3.25
Fourth Quarter		5.50		3.10

For the Year Ended March 31, 2012	High		Low

First Quarter	$	6.30	$	5.05
Second Quarter		6.25		4.96
Third Quarter		5.75		4.77
Fourth Quarter		5.00		4.77

For the Year Ended March 31, 2011	High		Low
First Quarter	$	2.10	$	1.25
Second Quarter		3.50		1.30
Third Quarter		4.00		2.50
Fourth Quarter		5.99		3.99

~~Pursuant~~Delanco toBancorp ~~Federal~~has ~~Reserve~~never ~~Board~~declared ~~regulations,~~or ~~Delanco~~paid ~~Bancorp~~a ~~will~~cash ~~not~~dividend beon ~~required~~its tocommon ~~obtain~~stock. ~~prior~~We ~~Federal~~currently ~~Reserve~~intend ~~Board~~to ~~approval~~retain toany ~~pay~~future aearnings ~~dividend~~for ~~unless~~use in the ~~declaration~~operation ~~and~~of ~~payment~~our ofbusiness aand ~~dividend~~do ~~could~~not ~~raise~~intend ~~supervisory~~to ~~concerns~~declare ~~about~~or ~~the~~pay ~~safe~~any ~~and~~cash ~~sound~~dividends ~~operation~~in ofthe ~~Delanco~~forseeable ~~Bancorp~~future. ~~and~~Any ~~Delanco~~determination ~~Federal,~~to ~~where~~pay ~~the~~dividends ~~dividend~~on ~~declared~~our ~~for~~common astock ~~period~~will isdepend ~~not~~on ~~supported~~our byfinancial ~~earnings~~condition, ~~for~~results ~~that~~of ~~period~~operations, orcapital ~~where~~requirements, wegeneral ~~plan~~business toconditions, ~~declare~~and aother ~~material~~factors ~~increase~~that in our ~~common~~board ~~stock~~of ~~dividend~~directors considers relevant.

~~Our~~The Company’s ability to pay dividends ~~to shareholders~~ may depend, in part, ~~upon~~on ~~capital~~its ~~distributions~~receipt weof ~~receive~~dividends from Delanco Federal,. ~~earnings,~~The ~~if any, from our lending and investment portfolios and other assets and earnings from the investment of the net proceeds from the offering that we retain.~~ OCC and Federal Reserve Board regulations limit dividends and other distributions from Delanco Federal to us. No insured depository institution may make a capital distribution if, after making the distribution, the institution would be undercapitalized or if the proposed distribution raises safety and soundness concerns. In addition, any payment of dividends by Delanco Federal to Delanco Bancorp that would be deemed to be drawn out of Delanco Federal’s bad debt reserves would require the payment of federal income taxes by Delanco Federal at the then current income tax rate on the amount deemed distributed. See note 14 of the notes to consolidated financial statements included herein. Delanco Bancorp does not contemplate any distribution by Delanco Federal that would result in this type of tax liability.

AsUnder OCC regulations, an application to and the prior approval of ~~March~~the ~~31,~~OCC ~~2012~~is required prior to any capital distribution if the institution does not meet the criteria for “expedited treatment” of applications under applicable regulations (i.e., ~~Delanco~~generally ~~Bancorp~~examination ~~satisfied~~ratings ~~all~~in ~~prescribed~~the top two categories), the total capital ~~requirements. Future~~distributions ~~dividend~~for ~~payments~~the ~~will~~calendar ~~depend~~year onexceed net income for that year plus the ~~Company’s~~amount ~~profitability~~of retained net income for the preceding two years, ~~approval~~the byinstitution ~~its~~would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the OCC. If an application is not required, an institution must still provide prior notice to the Federal Reserve Board of ~~Directors~~the ~~and~~capital ~~prevailing~~contribution ~~regulations~~if it is a subsidiary of a holding company. To ~~date~~In such circumstances, wenotice ~~have~~must also be provided to the OCC. Under the terms of its written agreement with the OCC, Delanco Federal is not ~~declared~~permitted to pay dividends without prior regulatory approval. In addition, at the request of the Federal Reserve Board, Delanco Bancorp has adopted resolutions that prohibit it from declaring or paying any ~~cash~~dividends or taking any dividends or other distributions that would reduce the capital of Delanco Federal without the prior written consent of the Federal Reserve Board.

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

ITEM 6. SELECTED FINANCIAL DATA

	Years Ended March 31,
(Dollars in thousands, except per share data)	2012			2011		2010
Financial Condition Data:
Total assets	$	134,308		$	136,172	$	139,922
Investment securities		17,699			15,944		16,618
Loans receivable, net		99,432			103,867		107,204
Deposits		121,589			120,842		127,164
Borrowings	─				2,100	─
Total stockholders’ equity		11,743			12,213		11,735
Operating Data:
Interest income		5,891			6,693		6,973
Interest expense		1,431			1,890		2,640
Net interest income		4,460			4,803		4,333
Provision for loan losses		1,602			440		1,140
Net interest income after provision for loan losses		2,858			4,363		3,193
Noninterest income		150			134		174
Noninterest expenses		3,751			3,740		3,666
Income before taxes		(743	)		757		(299	)
Income tax benefit		(249	)		289		(482	)
Net income	$	(494	)	$	468	$	183
Per Share Data:
Earnings per share, basic	$	(0.31	)	$	0.30	$	0.12
Earnings per share, diluted		(0.31	)		0.30		0.12
Weighted average shares – basic		1,586,664			1,583,460		1,580,256
Weighted average shares – diluted		1,586,664			1,583,460		1,580,256

	Years Ended March 31,
	2012		2011		2010
Performance Ratios:
Return on average assets		(0.37)%		0.34%		0.13%
Return on average equity		(4.04)		3.89		1.59
Interest rate spread (1)		3.53		3.75		3.33
Net interest margin (2)		3.60		3.82		3.43
Noninterest expense to average assets		2.79		2.73		2.67
Efficiency ratio (3)		81.37		75.75		81.34
Average interest-earning assets to average interest-bearing liabilities		106.57		104.80		104.88
Average equity to average assets		9.10		8.76		8.39
Capital Ratios (4):
Tangible capital		7.93		8.67		7.76
Core capital		7.93		8.67		7.76
Total risk-based capital		14.13		14.52		12.62
Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		1.15		1.22		0.92
Allowance for loan losses as a percent of nonperforming oans		16.13		23.80		16.47
Net charge-offs (recoveries) to average outstanding loans during the period		1.68		0.15		1.57
Non-performing loans as a percent of total loans		8.57		5.14		5.60

ITEM 6.

SELECTED FINANCIAL DATA

	Years Ended March 31,
(Dollars in thousands, except per share data)	2013			2012			2011

Financial Condition Data:
Total assets	$	129,415		$	134,308		$	136,172
Investment securities		22,345			17,699			15,944
Loans receivable, net		88,419			99,432			103,867
Deposits		117,034			121,589			120,842
Borrowings		-			-			2,100
Total stockholders’ equity		11,395			11,743			12,213


Operating Data:
Interest income		5,101			5,891			6,693
Interest expense		1,057			1,431			1,890
Net interest income		4,044			4,460			4,803
Provision for loan losses		640			1,602			440
Net interest income after provision for loan losses		3,404			2,858			4,363
Noninterest income		49			150			134
Noninterest expenses		3,987			3,751			3,740
Income before taxes		(534	)		(743	)		757
Income tax benefit		(210	)		(249	)		289
Net income (loss)	$	(324	)	$	(494	)	$	468

Per Share Data:
Earnings (loss) per share, basic	$	(0.20	)	$	(0.31	)	$	0.30
Earnings (loss) per share, diluted		(0.20	)		(0.31	)		0.30
Weighted average shares – basic		1,589,868			1,586,664			1,583,460
Weighted average shares – diluted		1,589,868			1,586,664			1,583,460

	Years Ended March 31,
	2013			2012			2011
Performance Ratios:
Return on average assets		(0.25	)%		(0.37	)%		0.34	%
Return on average equity		(2.80	)		(4.04	)		3.89
Interest rate spread (1)		3.30			3.53			3.75
Net interest margin (2)		3.35			3.60			3.82
Noninterest expense to average assets		3.02			2.79			2.73
Efficiency ratio (3)		97.41			81.37			75.75
Average interest-earning assets to average interest-bearing liabilities		105.56			106.57			104.80
Average equity to average assets		8.77			9.10			8.76
Equity to assets at period end		8.80			8.74			8.97

Capital Ratios (4):
Tangible capital		7.79			7.93			8.67
Core capital		7.79			7.93			8.67
Total risk-based capital		14.67			14.13			14.52

Asset Quality Ratios:
Allowance for loan losses as a percent of total loans		1.15			1.15			1.22
Allowance for loan losses as a percent of nonperforming loans		16.28			16.13			23.80
Net charge-offs to average outstanding loans during the period		0.81			1.68			0.15
Non-performing loans as a percent of total loans		7.08			8.57			5.14
Non-performing assets to total assets		6.81			7.06			6.33

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

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

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

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

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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

Overview

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

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

Our earnings have been adversely affected by a shrinking net interest margin caused by the protracted low interest rate environment and its impact on earning asset yields. Our net interest margin was 3.35% for the year ended March 31, 2013, as compared to 3.60% for the year ended March 31, 2012. Our average yield on earning assets declined to 4.22% for the year ended March 31, 2013, from 4.76% for the year ended March 31, 2012 as higher yielding loans were paid off or refinanced at lower market rates and higher yielding securities were called by the issuer and replaced with lower yielding investments.

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

Allowance for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

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

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

Occupancy expenses, which are the fixed and variable costs of buildings and equipment, consist primarily of depreciation charges, furniture and equipment expenses, maintenance, real estate taxes and costs of utilities.

Critical Accounting Policies

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

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

Allowance for Loan Losses. We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least quarterly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the ~~collectibility~~collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the OCC, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings. See note 2 of the notes to the financial statements included in this report.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change.

21The 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’s Tier I capital. As a result of this variance, our Tier I regulatory capital ratio is lower than our GAAP capital ratio by 77 basis points.

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 81 basis points.

Balance Sheet Analysis

Overview. Total assets at March 31, ~~2012~~2013 were $~~134~~129.34 million, a decrease of $14.9 million, or 13.46%, from total assets of $~~136~~134.23 million at March 31, ~~2011~~2012. The change in the asset composition primarily reflected adecreases ~~decrease~~ in ~~net~~outstanding loans ~~of $4.4 million, partially~~ offset by an increase in ~~cash and cash equivalents of $987 thousand and an in increase investment securities of $1~~investments.7 ~~million.~~ Total liabilities were $~~122~~118.60 million, a decrease of $1.4.6 million, or 13.18%, from total liabilities of $~~124~~122.06 million at March 31, ~~2011~~2012. The change in liabilities primarily reflected ana ~~increase~~decrease in ~~total~~higher ~~deposits~~yielding certificates of ~~$700~~deposit ~~thousand,~~as ~~offset~~we byconcentrated aon ~~decrease~~increasing inour ~~borrowed~~core ~~funds~~deposits and chose not to match competitors’ rates on certificates of $2deposit.1 ~~million.~~ Total stockholders’ equity decreased by $~~470~~349 thousand, reflecting the net loss for the year.

Loans. At March 31, 2012, total loans, net, were $99.4 million, or 74.0% of total assets. During the year ended March 31, 2012, loans decreased by $4.4 million due primarily to refinances in the residential and commercial real estate portfolios, partially offset by an increase in construction lending. Commercial and multi-family real estate loans decreased by $4.7 million, commercial loans decreased by $256 thousand and residential loans decreased by $43 thousand.

Table 1: Loan Portfolio Analysis

	2012						2011						2010
March 31, (Dollars in thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Real estate loans:
Residential	$	80,179			79.3	%	$	80,222			76.2	%	$	79,637			73.5	%
Commercial and multi-family		17,130			16.9			21,866			20.8			23,998			22.2
Construction		1,289			1.3			374			0.4			395			0.4
Total real estate loans		98,598			97.5			102,462			97.4			104,030			96.1
Commercial loans		1,480			1.5			1,736			1.6			2,821			2.6
Consumer loans		1,047			1.0			1,026			1.0			1,419			1.3
Total loans		101,125			100	%		105,224			100.0	%		108,270			100.0	%
Loans in process		(450	)				─						─
Net deferred loan fees		(82	)					(71	)					(67	)
Allowance for losses		(1,161	)					(1,286	)					(999	)
Loans, net	$	99,432					$	103,867					$	107,204

The following table sets forth certain information at March 31, 2012 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.The amounts shown below exclude applicable loans in process, unearned interest in consumer loans and net deferred loan costs. Our adjustable-rate mortgage loans generally do not provide for downward adjustments below the initial discounted contract rate. When market interest rates rise, the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.

Table 2: Contractual Maturities and Interest Rate Sensitivity

March 31, 2012 (Dollars in thousands)	Real Estate Loans		Commercial Loans		Consumer Loans		Total Loans
Amounts due in:
One year or less		17,666		1,392		22		19,080
More than one to five years		9,042		88		335		9,465
More than five years		71,890	─			690		72,580
Total		98,598		1,480		1,047		101,125
Interest rate terms on amounts due after one year:
Fixed-rate loans		70,362		88		646		71,096
Adjustable-rate loans		10,570	─			379		10,949
Total		80,932		88		1,025		82,045

Securities. The investment securities portfolio was $17.7 million, or 13.2% of total assets, at March 31, 2012. At that date, 16.5% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily in U.S. Government agency and other debt securities. The portfolio increase was due to the purchases of debt securities.

Table 3: Investment Securities

	2012				2011				2010
March 31, (Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
Mutual funds	$	237	$	242	$	249	$	248	$	256	$	258
Total available for sale		237		242		249		248		256		258
Securities held to maturity:
Government sponsored enterprise securities		14,545		14,505		8,890		8,650		6,997		7,013
Mortgage-backed securities		2,912		3,101		6,806		7,031		9,363		9,793
Total held to maturity		17,457		17,606		15,696		15,681		16,360		16,806
Total	$	17,694	$	17,848	$	15,945	$	15,929	$	16,616	$	17,064

The following table sets forth the stated maturities and weighted average yields of our mortgage-backed securities at March 31, 2012. Certain mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These re-pricing schedules are not reflected in the table below. Approximately $844,000 of the mortgage-backed securities listed has adjustable interest rates.

Table 4: Investment Maturities Schedule

	One Year or Less					More than One Year to Five Years					More than Five Years to Ten Years					More than Ten Years					Total
March 31, 2012 (Dollars in thousands)	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
Securities available-for-sale:
Mutual funds	$	─		─	%	$	─		─	%	$	─		─	%	$	─		─	%	$	242		─	%
Total available for sale
Securities held to maturity:
Government sponsored enterprise securities		104		1.60			500		2.00			3,444		2.72			10,499		2.93			14,547		2.82
Mortgage-backed securities		─		─			10		8.57			─		─			2,900		3.97			2,910		3.99
Total held to maturity		104		1.60			510		2.13			3,444		2.72			13,399		3.16			17,457		3.11
Total	$	104		1.60	%	$	510		2.13			3,444		2.72			13,399		3.16			17,699		─

~~Deposits~~Loans. ~~Our~~At ~~deposit~~March ~~base~~31, is2013, ~~comprised~~total ofloans, ~~demand~~net, ~~deposits~~were $88.4 million, ~~money~~or ~~market~~68.3% ~~and~~of ~~passbook~~total ~~accounts~~assets. ~~and~~During ~~time~~the ~~deposits~~year ended March 31, 2013, loans decreased by $11.0 Wemillion ~~consider~~due ~~demand~~primarily ~~deposits~~to payoffs of residential and ~~money~~commercial ~~market~~real estate loans and ~~passbook~~the ~~accounts~~transfer of loan assets to beother ~~core~~real ~~deposits~~estate owned. AtCommercial ~~March~~and ~~31,~~multi-family ~~2012,~~real ~~core~~estate ~~deposits~~loans ~~were~~decreased ~~47.~~by $4%.7 ofmillion, ~~total~~commercial ~~deposits.~~loans Wedecreased doby ~~not~~$314 ~~have~~thousand ~~any~~and ~~brokered~~residential ~~deposits~~loans decreased by $3.6 ~~Overall~~million. ~~deposits~~Net ~~increased~~loans byhave decreased $~~747~~18.8 million since March 31,~~000~~ 2010 as ~~the~~we ~~Bank~~have ~~attracted~~curtailed ~~core~~our ~~deposits~~lending activities to focus on working out our problem assets and ~~reduced~~managing ~~higher~~our ~~costing~~asset ~~deposits.~~size in order to maintain our capital ratios.

Table 5: Deposits

Table 1: Loan Portfolio Analysis
	2013						2012						2011
March 31, (Dollars in thousands)	Amount			Percent			Amount			Percent			Amount			Percent

Real estate loans:
Residential	$	66,597			74.4	%	$	70,192			69.7	%	$	70,310			66.8	%
Commercial and multi-family		12,403			13.8			17,130			17.0			21,866			20.8
Construction		83			0.1			839			0.8			374			0.4
Total real estate loans		79,083			88.3			88,611			87.6			92,550			88.0
Commercial loans		1,166			1.3			1,480			1.5			1,736			1.6
Consumer loans:
Home equity		8,361			9.3			9,987			9.9			9,912			9.4
Other		960			1.1			1,047			1.1			1,026			1.0
Total consumer loans		9,321			10.4			11,034			11.0			10,938			10.4
Total loans		89,570			100.0	%		100,675			100.0	%		105,224			100.0	%
Net deferred loan fees		(118	)					(82	)					(71	)
Allowance for losses		(1,033	)					(1,161	)					(1,286	)
Loans, net	$	88,419					$	99,432					$	103,867

	2012					2011					2010
March 31, (Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Noninterest-bearing demand deposits	$	4,673		3.8	%	$	4,161		3.4	%	$	3,941		3.1	%
Interest-bearing demand deposits		13,086		10.8			13,136		10.9			9,922		7.8
Savings and money market accounts		39,877		32.8			39,550		32.7			42,510		33.4
Certificates of deposit		63,953		52.6			63,995		53.0			70,791		55.7
Total	$	121,589		100.0	%	$	120,842		100.0	%	$	127,164		100.0	%

The following table sets forth certain information at March 31, 2013 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less. The amounts shown below exclude applicable loans in process, unearned interest in consumer loans and net deferred loan costs. Our adjustable-rate mortgage loans generally do not provide for downward adjustments below the initial discounted contract rate. When market interest rates rise, the interest rates on these loans may increase based on the contract rate (the index plus the margin) exceeding the initial interest rate floor.

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

Table 2: Contractual Maturities and Interest Rate Sensitivity
March 31, 2013 (Dollars in thousands)	Real Estate Loans		Commercial Loans		Consumer Loans		Total Loans

Amounts due in:
One year or less	$	7,999	$	1,112	$	2,456	$	11,567
More than one to five years		3,812		54		3,959		7,825
More than five years		67,179		-		3,041		70,220
Total	$	78,990	$	1,166	$	9,456	$	89,612

Interest rate terms on amounts due after one year:
Fixed-rate loans	$	68,567	$	54	$	2,407	$	71,028
Adjustable-rate loans		2,424		-		4,593		7,017
Total	$	70,991	$	54	$	7,000	$	78,045

March 31, 2012 (Dollars in thousands)	Certificates of Deposit
Maturity Period
Three months or less	$	3,025
Over three through six months		2,999
Over six through twelve months		4,093
Over twelve months		9,055
Total	$	19,172

Securities. The investment securities portfolio was $22.3 million, or 17.3% of total assets, at March 31, 2013. At that date, 9.1% of the investment portfolio was invested in mortgage-backed securities, while the remainder was invested primarily in U.S. Government agency and other debt securities. The portfolio increased $4.6 million in the year ended March 31, 2013 due to the purchase of U.S. Government agency securities.

Borrowings. For recent periods, we have occasionally used short-term FHLB and Atlantic Central Banker’s Bank advances as an additional source of liquidity. At March 31, 2012, we had no advances outstanding.

Table 7: Borrowings

March 31, (Dollars in thousands)	2012			2011			2010
Maximum amount outstanding at any month end during the period:
Advances	$	2,500		$	2,100		$	3,000
Average amount outstanding during the period (1):
Advances		458			175			917
Weighted average interest rate during the period (1):
Advances		0.33	%		0.89	%		1.89	%
Balance outstanding at end of period:
Advances	─				2,100		─
Weighted average interest rate at end of period:
Advances	─				0.89	%	─

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

Results of Operations for the Years Ended March 31, 2012 and 2011

Financial Highlights. Net loss for the year ended March 31, 2012 was $494,000 compared to net income of $468,000 for the year ended March 31, 2011. The decrease in net income was primarily the result of the increased provision for loan losses.

Table 8: Summary Income Statements

Table 3: Investment Securities
	2013				2012				2011
March 31, (Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value

Securities available for sale:
Government sponsored enterprise securities	$	2,000	$	1,985		-		-		-		-
Mutual funds		217		222	$	237	$	242	$	249	$	248
Total available for sale		2,217		2,207		237		242		249		248

Securities held to maturity:
Government sponsored enterprise securities		18,035		18,044		14,441		14,401		8,746		8,506
Municipal securities		64		64		104		104		144		144
Mortgage-backed securities		2,039		2,178		2,912		3,101		6,806		7,031
Total held to maturity		20,138		20,286		17,457		17,606		15,696		15,681
Total	$	22,355	$	22,493	$	17,694	$	17,848	$	15,945	$	15,929

Year Ended March 31, (Dollars in thousands)	2012			2011			2012 v. 2011		% Change
Net interest income	$	4,460		$	4,803		(343	)		7.1	%
Provision for loan losses		1,602			440		1,162			264.1
Noninterest income		150			134		16			11.9
Noninterest expenses		3,751			3,740		11			0.3
Net income		(494	)		468		(962	)		(205.5	)
Return on average equity		(4.04	)%		3.89	%
Return on average assets		(0.37	)		0.34

The following table sets forth the stated maturities and weighted average yields of our investment securities at March 31, 2013. Approximately $703 thousand of mortgage-backed securities have adjustable interest rates and will reprice annually within the various maturity ranges. These re-pricing schedules are not reflected in the table below.

~~Net~~ Table ~~Interest~~4: ~~Income.~~Investment ~~Net~~Maturities ~~interest~~Schedule One ~~income~~Year ~~decreased~~or ~~$343~~Less More ~~thousand~~than toOne ~~$4.5~~Year ~~million~~to ~~for~~Five ~~the~~Years More ~~year~~than ~~ended~~Five ~~March~~Years ~~31,~~to ~~2012~~Ten ~~from~~Years More ~~$4.8~~than ~~million~~Ten ~~for the year ended~~ Years Total March 31, ~~2011~~2013 (Dollars ~~driven by a decrease~~ in ~~interest~~thousands) Carrying ~~income~~Value Weighted Average Yield Carrying ~~earned~~Value Weighted Average Yield Carrying onValue Weighted Average Yield Carrying ~~loans~~Value Weighted Average Yield Carrying ~~and~~Value Weighted Average Yield Securities ~~investments,~~available-for-sale: Government ~~partially~~sponsored ~~offset~~enterprise ~~by a decline in the interest paid on deposits~~securities - - - - - - $ 1,985 2.3 % $ 1,985 2.3 ~~Both~~ % Mutual ~~the~~funds - - - - - - - - 222 - Total 22available ~~basis~~for ~~point decrease in our interest rate spread and the 22 basis point decrease in our net interest margin reflect the impact of lower interest yields on interest earning assets~~sale - - - - - - 1,985 2.3 2,207 - Securities ~~The~~held ~~rates~~to ~~earned~~maturity: Government onsponsored ~~assets~~enterprise ~~declined~~securities - - $ 1,000 1.3 % $ 6,422 1.9 % 10,613 2.7 18,035 2.3 Municipal ~~resulting in a 12~~securities $ 64 2.5 % - - - - - - 64 2.5 Mortgage-backed ~~decrease~~securities - - 5 10.4 - - 2,034 3.8 2,039 3.9 Total inheld ~~total interest income as compared~~ to ~~a 24~~maturity 64 2.5 1,005 1.3 6,422 1.9 12,647 2.8 20,138 2.5 Total $ 64 2.5 % ~~decrease in total interest expense~~ $ 1,005 1.3 % $ 6,422 1.9 % $ 14,632 2.8 % $ 22,345 -

~~Average~~Deposits. ~~loans~~Our deposit base is comprised of demand deposits, money market and passbook accounts and time deposits. We consider demand deposits and money market and passbook accounts to be core deposits. At March 31, 2013, core deposits were 53.3% of total deposits, up from 47.4% at March 31, 2012. We do not have any brokered deposits. Total deposits decreased by $4.6 million in the year ended March 31, ~~2012~~2013 ~~decreased~~as core deposits increased by $24.87 million orand 2certificates of deposit decreased by $9.~~7%,~~3 ~~compared~~million. ~~with~~During ~~2011~~the year ended March 31, ~~driven~~2013, bywe ~~loan~~chose ~~pay~~not ~~offs~~to match the highest time deposit rates in our market in an effort to reduce our funding costs.

Average investment securities in the year ended March 31, 2012 increased $896,000, or 5.7%, compared to 2011. 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 4.76% for the year ended March 31, 2012, compared with 5.32% for 2011.

Average interest-bearing deposits in the year ended March 31, 2012 decreased $3.8 million, compared with 2011.

Table 9: Analysis of Net Interest Income

Year Ended March 31, (Dollars in thousands)	2012			2011				2012 v. 2011		% Change
Components of net interest income
Loans	$	5,338		$	6,061		$	(723	)		(11.9	)%
Investment securities		553			632			(79	)		(12.5	)
Total interest income		5,891			6,693			(802	)		(12.0	)
Deposits		1,431			1,890			(459	)		(24.3	)
Borrowings		─			─
Total interest expense		1,431			1,890			(459	)		(24.3	)
Net interest income		4,460			4,803			(343	)		(7.1	)
Average yields and rates paid
Interest-earning assets		4.76	%		5.32	%		(56	)bp
Interest-bearing liabilities		1.23			1.57			(34	)
Interest rate spread		3.53			3.75			(22	)
Net interest margin		3.60			3.82			(22	)
Average balances
Loans	$	102,606		$	105,400		$	(2,794	)		(2.7	)
Investment securities		16,717			15,821			896			5.7
Earning assets		123,850			125,823			(1,973	)		(1.6	)
Interest-bearing deposits		116,218			120,054			(3,836	)		(3.2	)

Provision for Loan Losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. Provisions for loan losses were $1,602,000 in the year ended March 31, 2012 compared to $440,000 in the year ended March 31, 2011. The provision for loan losses was primarily attributable to management’s systematic evaluation of risk associated with the loan portfolio. We had $1,753,000 in charge-offs in the year ended March 31, 2012, compared to $206,000 in charge-offs in the year ended March 31, 2011.

The allowance for loan losses was $1.2 million, or 1.15% of total loans outstanding as of March 31, 2012 as compared with $1.3 million, or 1.22% as of March 31, 2011. An analysis of the changes in the allowance for loan losses is presented under “Risk Management – Analysis and Determination of the Allowance for Loan Losses.”

Table 5: Deposits
	2013					2012					2011
March 31, (Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent

Noninterest-bearing demand deposits	$	6,873		5.9	%	$	4,673		3.8	%	$	4,161		3.4	%
Interest-bearing demand deposits		14,882		12.7			13,086		10.8			13,136		10.9
Savings and money market accounts		40,596		34.7			39,877		32.8			39,550		32.7
Certificates of deposit		54,683		46.7			63,953		52.6			63,995		53.0
Total	$	117,034		100.0	%	$	121,589		100.0	%	$	120,842		100.0	%

Noninterest Income. Noninterest income increased in year ended March 31, 2012 compared to the same period in the prior year due to an increase in service charges and increased rental income as rental income was received on two rental units in our Cinnaminson branch, partially offset by losses on the sale of real estate owned.

Table 6: Time Deposit Maturities of $100,000 or more
March 31, 2013 (Dollars in thousands)	Certificates of Deposit

Maturity Period
Three months or less	$	2,700
Over three through six months		2,003
Over six through twelve months		4,690
Over twelve months		6,920
Total	$	16,313

Table 10: Noninterest Income Summary

Table 7: Time deposits by rate
	At March 31,
(Dollars in thousands)	2013		2012		2011
0.00 – 0.99%	$	25,623	$	16,314	$	5,360
1.00 – 1.99%		19,220		33,312		34,758
2.00 – 2.99%		8,035		9,821		13,226
3.00 – 3.99%		1,560		1,899		10,646
4.00 – 4.99%		245		2,607		5
Total	$	54,683	$	63,953	$	63,995

Year Ended March 31, (Dollars in thousands)	2012			2011			$ Change			% Change
Service charges	$	145		$	135			10			7.4
Loss on sale of real estate owned		(37	)		(27	)		(10	)		(37.0	)
Rental income		22			6			16			266.7
Income from bank owned life insurance		6			6		─			─
Other		14			14		─			─
Total		150			134			16			11.9

Table 8: Time deposits by rate and maturity
	Amount Due
(Dollars in thousands)	Less Than One Year		More Than One Year to Two Years		More Than Two Years to Three Years		More Than Three Years to Four Years		More Than Four Years		Total at March 31, 2013		Percent of Total Certificate Accounts
0.00 – 0.99%	$	21,860	$	3,487	$	276	$	-	$	-	$	25,623		46.9	%
1.00 – 1.99%		9,554		4,838		1,044		1,040		2,744		19,220		35.1
2.00 – 2.99%		1,355		1,991		2,076		2,613		-		8,035		14.7
3.00 – 3.99%		1,390		170		-		-		-		1,560		2.9
4.00 – 4.99%		243		-		-		-		2		245		0.4
Total	$	34,402	$	10,486	$	3,396	$	3,653	$	2,746	$	54,683		100.0	%

~~Noninterest Expenses~~Borrowings. ~~Noninterest~~We ~~expenses~~have ~~increased~~borrowing inarrangements with the ~~year~~FHLB ~~ended~~and ~~March~~Atlantic ~~31,~~Central ~~2012~~Banker’s byBank ~~$11 thousand over the prior year primarily due~~ to ~~the~~provide ~~increase~~an ofadditional ~~loan~~source ~~expenses related to the collection~~ of ~~delinquent~~liquidity. ~~loans~~At ~~and~~March ~~loans~~31, ~~in foreclosure~~2013, ~~partially~~we ~~offset~~had byno ~~the~~borrowings ~~decrease in the federal deposit insurance premium expense and the occupancy expense~~outstanding.

Table 11: Noninterest Expense Summary

Year Ended March 31, (Dollars in thousands)	2012		2011			$ Change			% Change
Salaries and employee benefits	$	1,583	$	1,579			4			0.3
Advertising		25		25			─			─
Office supplies, telephone and postage		98		91			7			7.7
Loan expenses		203		(10	)		213			2130.0
Occupancy expense		649		719			(70	)		(9.7	)
Federal deposit insurance premiums		283		381			(98	)		(25.7	)
Real estate owned loss reserve		104		88			16			18.2
Data processing expenses		215		196			19			9.7
ATM expenses		25		22			3			13.6
Bank charges and fees		77		90			(13	)		(14.4	)
Insurance and surety bond premiums		80		71			9			12.7
Dues and subscriptions		26		27			(1	)		(3.7	)
Professional fees		208		245			(37	)		(15.1	)
Real estate owned expense		56		66			(10	)		(15.2	)
Other		119		150			(31	)		(20.7	)
Total	$	3,751	$	3,740			11			0.3

Income Tax Expense (Benefit). The benefit for income taxes was $249,000 for 2012, compared to an expense of $289,000 for 2011.

Table 9: Borrowings
March 31, (Dollars in thousands)	2013		2012			2011

Maximum amount outstanding at any month end during the period:
Advances		-	$	2,500		$	2,100
Average amount outstanding during the period (1):
Advances		-		458			175
Weighted average interest rate during the period (1):
Advances		-		0.33	%		0.89	%
Balance outstanding at end of period:
Advances		-		-			2,100
Weighted average interest rate at end of period:
Advances		-		-			0.89	%

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

Results of Operations for the Years Ended March 31, 2013 and 2012

Financial Highlights. Net loss for the year ended March 31, 2013 was $324 thousand compared to net loss of $494 thousand for the year ended March 31, 2012. Our profitability has suffered due to heightened provisions for loan losses, expenses for real estate owned and other problem loan expenses. In addition, our earnings have been adversely affected by a shrinking net interest margin caused by the protracted low interest rate environment and its impact on earning asset yields. Our net interest margin was 3.35% for the year ended March 31, 2013, as compared to 3.60% for the year ended March 31, 2012. Our average yield on earning assets declined to 4.22% for the year ended March 31, 2013, from 4.76% for the year ended March 31, 2012 as higher yielding loans were paid off or refinanced at lower market rates and higher yielding securities were called by the issuer and replaced with lower yielding investments.

Table 10: Summary Income Statements
Year Ended March 31, (Dollars in thousands)	2013			2012			2013 v. 2012			% Change

Net interest income	$	4,045		$	4,460		$	(415	)		(9.3	)
Provision for loan losses		640			1,602			(962	)		(60.0	)
Noninterest income		49			150			(101	)		(67.3	)
Noninterest expenses		3,987			3,751			236			6.3
Net income (loss)		(324	)		(494	)		170			34.4

Return on average equity		(2.8	)%		(4.04	)%
Return on average assets		(0.25	)		(0.37	)

Net Interest Income. Net interest income for the year ended March 31, 2013 was $4.0 million compared to $4.5 million for the year ended March 31, 2012, a decrease of 9.3%. The net interest margin decreased 25 basis points to 3.35% for the year ended March 31, 2013, as average interest-earning assets decreased $3.1 million while average interest-bearing liabilities decreased $2.2 million. Also contributing to the decrease in the net interest margin was a 54 basis point decrease in the average yield on interest-earning assets, which exceeded the 31 basis point decrease in the average cost of interest-bearing liabilities.

For the year ended March 31, 2013, interest income declined 13.41% compared to the prior year. Interest income on loans decreased $855 thousand as the average balance declined $97 million and the average yield declined 37 basis points. Partially offsetting lower interest income on loans, interest income on investment securities increased $65 thousand, as growth of the investment portfolio exceeded the impact of lower yields.

For the year ended March 31, 2013, interest expense declined 26.1% compared to the prior year, as the average balance of deposits decreased $1.8 million and the average rate paid decreased 31 basis points. The decrease in deposits was driven by a decrease 31 basis points. The decrease in deposits was driven by a decrease of $3.6 million in certificates of deposit, which was partially offset by increases in demand deposits and savings and money market accounts.

Table 11: Analysis of Net Interest Income
Year Ended March 31, (Dollars in thousands)	2013			2012			2013 v. 2012			% Change

Components of net interest income
Loans	$	4,483		$	5,338		$	(855	)		(16.0	)%
Investment securities		618			553			65			11.8
Total interest income		5,101			5,891			(790	)		(13.4	)
Deposits		1,057			1,431			(374	)		(26.1	)
Borrowings		-			-			-			-
Total interest expense		1,057			1,431			(374	)		(26.1	)
Net interest income		4,044			4,460			(416	)		(9.3	)
Average yields and rates paid
Interest-earning assets		4.22	%		4.76	%	(54		)bp
Interest-bearing liabilities		0.92			1.23			(31	)
Interest rate spread		3.30			3.53			(23	)
Net interest margin		3.35			3.60			(25	)
Average balances
Loans	$	92,900		$	102,606		$	(9,706	)		(9.5	)%
Investment securities		22,392			16,717			5,675			33.9
Earning assets		120,754			123,850			(3,096	)		(2.5	)
Interest-bearing deposits		114,389			116,218			(1,829	)		(1.6	)

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 $640 thousand in the year ended March 31, 2013 compared to $1.6 million in the year ended March 31, 2012. The provision for loan losses was primarily attributable to management’s systematic evaluation of risk associated with the loan portfolio. We had $808 thousand in charge-offs in the year ended March 31, 2013, compared to $1.8 million in charge-offs in the year ended March 31, 2012.

The allowance for loan losses was $1.0 million, or 1.15% of total loans outstanding as of March 31, 2013 as compared with $1.2 million, or 1.15% as of March 31, 2012. An analysis of the changes in the allowance for loan losses is presented under “Risk Management – Analysis and Determination of the Allowance for Loan Losses.”

Noninterest Income. Noninterest income was $49 thousand for the year ended March 31, 2013 compared to $150 thousand for the prior year. The decrease in noninterest income from the prior year was primarily due to an increase in the loss on sale of foreclosed real estate.

Table 12: Noninterest Income Summary
Year Ended March 31, (Dollars in thousands)	2013			2012			$ Change			% Change

Service charges	$	133		$	145		$	(12	)		(8.3	)%
Loss on sale of real estate owned		(152	)		(37	)		(115	)		(310.8	)
Rental income		29			22			7			31.8
Income from bank owned life insurance		6			6			-			-
Other		33			14			19			135.7
Total	$	49		$	150		$	(101	)		(67.3	)%

Noninterest Expense. Noninterest expense was $4.0 million for the year ended March 31, 2013 compared to $3.8 million for the prior year. The increase in noninterest expense over the prior year was primarily due to increased loan and real estate owned expenses partially offset by a decrease in FDIC insurance premiums and lower write downs of real estate owned.

Table 13: Noninterest Expense Summary
Year Ended March 31, (Dollars in thousands)	2013		2012		$ Change			% Change

Salaries and employee benefits	$	1,565	$	1,583	$	(18	)		(1.1	)%
Advertising		22		25		(3	)		(12.0	)
Office supplies, telephone and postage		100		98		2			2.0
Loan expenses		448		203		245			120.7
Occupancy expense		654		649		5			0.8
Federal deposit insurance premiums		216		283		(67	)		(23.7	)
Real estate owned impairment losses		56		104		(48	)		(46.2	)
Data processing expenses		217		215		2			0.9
ATM expenses		28		25		3			12.0
Bank charges and fees		70		77		(7	)		(9.1	)
Insurance and surety bond premiums		80		80		-			-
Dues and subscriptions		23		26		(3	)		(11.5	)
Professional fees		248		208		40			19.2
Real estate owned expense		131		56		75			133.9
Other		129		119		10			8.4
Total	$	3,987	$	3,751	$	236			6.3	%

Income Tax Expense (Benefit). The benefit for income taxes was $209,000 for 2013, compared to a benefit of $249,000 for 2012.

Average Balance Sheets and Related Yields and Rates

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using month-end balances, and nonaccrual loans are included in average balances only. Management does not believe that use of month-end balances instead of daily average balances has caused any material differences in the information presented. Loan fees are included in interest income on loans and are insignificant.

Table 12: Average Balance Tables

Table 14: Average Balance Tables
	2013								2012
Year Ended March 31, (Dollars in thousands)	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost

Assets:
Interest-earning assets:
Loans	$	92,900		$	4,483		4.83	%	$	102,606		$	5,338		5.20	%
Investment securities		22,392			605		2.70			16,717			542		3.24
Other interest-earning assets		5,462			13		0.24			4,527			11		0.24
Total interest-earning assets		120,754			5,101		4.22			123,850			5,891		4.76

Noninterest-earning assets		11,356								10,575
Total assets	$	132,110							$	134,425

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	13,532			36		0.27	%	$	12,342		$	54		0.44	%
Savings and money market accounts		41,080			186		0.45			40,516			270		0.67
Certificates of deposit		59,777			835		1.40			63,360			1,108		1.75
Total interest-bearing deposits		114,389			1,057		0.92			116,218			1,432		1.23

FHLB advances		-			-		-			335			-		-
Total interest-bearing liabilities		114,389			1,057		0.92			116,553			1,432		1.23

Noninterest-bearing demand deposits		5								4
Other noninterest-bearing liabilities		6,127								5,636
Total liabilities		120,521								122,193

Retained earnings		11,589								12,232
Total liabilities and retained earnings	$	132,110							$	134,425

Net interest income				$	4,044							$	4,459
Interest rate spread							3.30								3.53
Net interest margin							3.35								3.60
Average interest-earning assets to average interest-bearing liabilities		105.56	%							106.26	%

	2012								2011
Year Ended March 31, (Dollars in thousands)	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
Assets:
Interest-earning assets:
Loans	$	102,606		$	5,338		5.20	%	$	105,400		$	6,061		5.75	%
Investment securities		16,717			542		3.24			15,821			624		3.94
Other interest-earning assets		4,527			11		0.24			4,602			8		0.17
Total interest-earning assets		123,850			5,891		4.76			125,823			6,693		5.32
Noninterest-earning assets		10,575								11,366
Total assets	$	134,425							$	137,189
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	12,342		$	54		0.44	%	$	13,049			84		0.64
Savings and money market accounts		40,516			270		0.67			40,538			342		0.84
Certificates of deposit		63,360			1,108		1.75			66,467			1,464		2.20
Total interest-bearing deposits		116,218			1,432		1.23			120,054			1,890		1.57
FHLB advances		335		─		─				6		─		─
Total interest-bearing liabilities		116,553			1,432		1.23			120,060			1,890		1.57
Noninterest-bearing demand deposits		4								4,143
Other noninterest-bearing liabilities		5,636								968
Total liabilities		122,193								125,171
Retained earnings		12,232								12,018
Total liabilities and retained earnings	$	134,425							$	137,189
Net interest income				$	4,459							$	4,803
Interest rate spread							3.53								3.75
Net interest margin							3.60								3.82
Average interest-earning assets to average interest-bearing liabilities		106.26	%							104.80	%

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

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

Table 15: Net Interest Income – Changes Due to Rate and Volume
2013 Compared to 2012 (Dollars in thousands)	Volume			Rate			Net

Interest income:
Loans receivable		(511	)		(344	)		(855	)
Investment securities		184			(121	)		63
Other interest-earning assets		2			-			2
Total		(325	)		(465	)		(790	)
Interest expense:
Deposits		(23	)		(352	)		(375	)
FHLB advances		-			-			-
Total		(23	)		(352	)		(375	)
Increase (decrease) in net interest income		(302	)		(113	)		(415	)

2012 Compared to 2011 (Dollars in thousands)	Volume			Rate			Net
Interest income:
Loans receivable		(160	)		(563	)		(723	)
Investment securities		35			(117	)		(82	)
Other interest-earning assets	─				3			3
Total		(125	)		(677	)		(802	)
Interest expense:
Deposits		(61	)		(397	)		(458	)
FHLB advances	─			─			─
Total		(61	)		(397	)		(458	)
Increase (decrease) in net interest income		(64	)		(280	)		(344	)

Risk Management

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

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. In January 2013, we engaged an independent third party to conduct periodic loan portfolio reviews. See “Regulation and Supervision—~~Cease~~Regulatory ~~and Desist Order~~Agreement” for further information on certain regulatory directives applicable to our credit functions.

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

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

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

2831

Table 14: Nonperforming Assets

Table 16: Nonperforming Assets
March 31, (Dollars in thousands)	2013		2012		2011

Nonaccrual loans:
Residential real estate		1,543	$	2,989	$	2,784
Commercial and multi-family real estate		2,303		4,255		2,374
Construction		-		-		-
Commercial		235		-		46
Home equity		287		-		189
Consumer		-		-		11
Total		4,368		7,244		5,404

Accruing loans past due 90 days or more:
Residential real estate		-		-		-
Commercial and multi-family real estate		-		-		-
Construction		-		-		-
Commercial		-		-		-
Consumer		-		-		-
Total		-		-		-
Real estate owned		2,469		846		771
Total nonperforming assets		6,837		8,090		6,175
Troubled debt restructurings		1,978		1,387		2,438
Troubled debt restructurings and total nonperforming assets	$	8,815	$	9,477	$	8,613

Total nonperforming loans to total loans

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