Wayne Savings Bancshares (WAYN) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

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

For the transition period from ____________ to _______________

Commission File No. 0-23433

WAYNE SAVINGS BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Delaware	31-1557791
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
151 North Market Street
Wooster, Ohio	44691
(Address of principal	(Zip Code)
executive office)

Registrant’s telephone number, including area code: (330) 264-5767

Indicate by check market 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer ___    Accelerated filer ___    Non-accelerated filer  ___  Smaller Reporting Company   X  

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

Yes ___                No   X  

As of November 7, 2008, the latest practicable date, 3,004,113 shares of the registrant’s common stock, $.10 par value, were issued and outstanding.

Wayne Savings Bancshares, Inc.

Index

		Page
PART I - FINANCIAL INFORMATION
Item 1	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4T	Controls and Procedures	25
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	26
Item 1A	Risk Factors	26
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3	Defaults Upon Senior Securities	26
Item 4	Submission of Matters to a Vote of Security Holders	26
Item 5	Other Information	27
Item 6	Exhibits	27
SIGNATURES		28

Wayne Savings Bancshares, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	September 30, 2008			March 31, 2008
	(Unaudited)
ASSETS
Cash and due from banks	$	1,621		$	1,901
Federal funds sold		–			6,000
Interest-bearing demand deposits		5,705			5,162
Cash and cash equivalents		7,326			13,063
Available-for-sale securities		112,164			120,170
Held-to-maturity securities		1,065			1,240
Loans receivable – net of allowance for loan losses of $1,937 and $1,777 at September 30, 2008 and March 31, 2008, respectively		251,349			242,255
Premises and equipment		7,782			8,012
Federal Home Loan Bank stock		5,025			4,892
Foreclosed assets held for sale  -  net		125			93
Accrued interest receivable		1,719			1,753
Bank-owned life insurance		6,388			6,268
Goodwill		1,719			1,719
Other intangible assets		523			577
Other assets		1,125			1,360
Prepaid federal income taxes		–			182
Total assets	$	396,310		$	401,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand	$	52,416		$	50,884
Savings and money market		81,664			83,811
Time		175,631			183,036
Total deposits		309,711			317,731
Other short term borrowings		9,535			7,287
Federal Home Loan Bank advances		41,000			38,500
Accrued interest payable and other liabilities		2,753			2,511
Accrued federal income taxes		72			–
Deferred federal income taxes		611			1,451
Total liabilities		363,682			367,480
Commitments and Contingencies		–			–
Stockholders’ Equity
Preferred stock, 500,000 shares of $.10 par value authorized; no shares issued		–			–
Common stock, $.10 par value; authorized 9,000,000 shares;      3,978,731 shares issued		398			398
Additional paid-in capital		36,148			36,127
Retained earnings		12,413			12,450
Shares acquired by ESOP		(1,097	)		(1,097	)
Accumulated other comprehensive income (loss), net of tax effects		(704	)		707
Treasury stock, at cost
Common: September 30, 2008 - 974,618 shares, March 31, 2008 – 969,627 shares		(14,530	)		(14,481	)
Total stockholders’ equity		32,628			34,104
Total liabilities and stockholders’ equity	$	396,310		$	401,584

See accompanying notes to condensed consolidated financial statements. 

2

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Income

For the six and three months ended September 30, 2008 and 2007

(In thousands, except per share amounts)

(Unaudited)

	Six months				Three months
	ended				ended
	September 30,				September 30,
	2008		2007		2008		2007
Interest and Dividend Income
Loans	$	7,681	$	8,314	$	3,867	$	4,224
Securities		3,012		2,912		1,493		1,458
Dividends on Federal Home Loan Bank stock and other		171		266		72		111
Total interest and dividend income		10,864		11,492		5,432		5,793
Interest Expense
Deposits		3,990		4,952		1,894		2,479
Other short term borrowings		44		117		23		59
Federal Home Loan Bank advances		935		823		465		437
Total interest expense		4,969		5,892		2,382		2,975
Net Interest Income		5,895		5,600		3,050		2,818
Provision for Loan Losses		161		55		100		25
Net Interest Income After Provision for Loan Losses		5,734		5,545		2,950		2,793
Noninterest Income
Gain on disposal of real estate acquired through foreclosure		10		31		10		31
Trust income		91		96		45		40
Earnings on bank-owned life insurance		112		116		57		58
Service fees, charges and other operating		676		674		348		340
Total noninterest income		889		917		460		469
Noninterest  Expense
Salary and employee benefits		2,778		2,783		1,396		1,400
Net occupancy and equipment expense		1,023		983		522		497
Federal deposit insurance premiums		22		19		13		9
Franchise taxes		221		194		119		98
Amortization of intangible assets		53		53		26		26
Other		1,003		992		509		500
Total noninterest expense		5,100		5,024		2,585		2,530
Income Before Federal Income Taxes		1,523		1,438		825		732
Provision for Federal Income Taxes		391		368		224		185
Net Income	$	1,132	$	1,070	$	601	$	547
Basic Earnings Per Share	$	.39	$	.35	$	.21	$	.18
Diluted Earnings Per Share	$	.39	$	.35	$	.21	$	.18
Dividends Per Share	$	.24	$	.24	$	.12	$	.12

See accompanying notes to condensed consolidated financial statements. 

3

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the six and three months ended September 30, 2008 and 2007

(In thousands)

(Unaudited)

	Six months						Three months
	ended						ended
	September 30,						September 30,
	2008			2007			2008			2007
Net income	$	1,132		$	1,070		$	601		$	547
Other comprehensive Income (loss):
Unrealized holding gains (losses) on securities,  net of related
taxes (benefits) of $(727), $(16), $(60) and $416 during the
respective periods		(1,411	)		(32	)		(117	)		807
Comprehensive income (loss)	$	(279	)	$	1,038		$	484		$	1,354
Accumulated comprehensive loss	$	(704	)	$	(508	)	$	(704	)	$	(508	)

See accompanying notes to condensed consolidated financial statements. 

4

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

For the six months ended September 30, 2008 and 2007

(In thousands)

(Unaudited)

	2008			2007
Operating Activities
Net Income	$	1,132		$	1,070
Items not requiring (providing) cash
Depreciation and amortization		334			321
Provision for loan losses		161			55
Amortization of premiums and discounts on securities		(54	)		(33	)
Amortization of mortgage servicing rights		15			16
Amortization of deferred loan origination fees		(22	)		(26	)
Amortization of intangible assets		53			53
Federal Home Loan Bank stock dividends		(133	)		–
Increase in value of bank owned life insurance		(112	)		(116	)
Changes in
Accrued interest receivable		34			151
Other assets		402			19
Interest payable and other liabilities		(60	)		56
Deferred income taxes		(113	)		(91	)
Net cash provided by operating activities		1,637			1,475
Investing Activities
Purchase of  available-for-sale securities		(13,309	)		(23,020	)
Proceeds from maturities of available-for-sale securities		19,232			27,411
Proceeds from maturities of held-to-maturity securities		174			305
Net change in loans		(9,427	)		(5,446	)
Purchase of premises and equipment		(104	)		(255	)
Proceeds from the sale of foreclosed assets		154			–
Net cash used in investing activities		(3,280	)		(1,005	)

See accompanying notes to condensed consolidated financial statements. 

5

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

For the six months ended September 30, 2008 and 2007

(In thousands)

(Unaudited)

	2008			2007
Financing Activities
Net change in deposits	$	(8,020	)	$	(11,360	)
Net change in other short-term borrowings		2,248			451
Proceeds from Federal Home Loan Bank advances		33,035			27,000
Repayments of Federal Home Loan Bank advances		(30,535	)		(22,500	)
Advances by borrowers for taxes and insurance		(74	)		40
Cash dividends paid		(699	)		(760	)
Treasury stock purchases		(49	)		(643	)
Net cash used in financing activities		(4,094	)		(7,772	)
Decrease in Cash and Cash Equivalents		(5,737	)		(7,302	)
Cash and Cash equivalents, Beginning of period		13,063			17,215
Cash and Cash equivalents, End of period	$	7,326		$	9,913
Supplemental Cash Flows Information       Cash Paid For:
Interest on deposits and borrowings	$	5,003		$	5,804
Federal income taxes	$	250		$	535
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale	$	187		$	113
Unrealized losses on securities designated as available for sale,
net of related tax effects	$	(1,411	)	$	(32	)
Dividends payable	$	360		$	377

See accompanying notes to condensed consolidated financial statements. 

6

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1:   Basis of Presentation

The accompanying unaudited consolidated financial statements as of and for the six and three months ended September 30, 2008 and for the six and three months ended September 30, 2007 were prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America.  Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Wayne Savings Bancshares, Inc. (the “Company”) included in the Annual Report on Form 10-K for the year ended March 31, 2008.  Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K. Except for the adoption of EITF 06-4, as described in "Recent Accounting Pronouncements," the Company has consistently followed these policies in preparing this Form 10-Q.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the unaudited financial statements have been included.  The results of operations for the six and three month periods ended September 30, 2008 are not necessarily indicative of the results which may be expected for the entire fiscal year.  The condensed consolidated balance sheet of the Company as of March 31, 2008 has been derived from the consolidated balance sheet of the Company as of that date.

Critical Accounting Policy – The Company’s critical accounting policy relates to the allowance for loan losses.  The Company has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish a sufficient allowance for loan losses.  The allowance for loan losses is based on management’s current judgments about the credit quality of individual loans and segments of the loan portfolio.  The allowance for loan losses is established through a provision, and considers all known internal and external factors that affect loan collectibility as of the reporting date.  Such evaluation, which included a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s knowledge of inherent risks in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance.  Management has discussed the development and selection of this critical accounting policy with the audit committee of the Board of Directors.

Use of Estimates– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Note 2:   Principles of Consolidation

The accompanying condensed consolidated financial statements include Wayne Savings Bancshares, Inc. and the Company’s wholly-owned subsidiary, Wayne Savings Community Bank (“Wayne Savings” or the “Bank”).

Wayne Savings has eleven full-service offices in Wayne, Holmes, Ashland, Medina and Stark counties.  All significant intercompany transactions and balances have been eliminated in the consolidation.

7

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

Note 3:   Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period, less shares in the Company’s Employee Stock Ownership Plan (“ESOP”) that are unallocated and not committed to be released.  Diluted earnings per common share include the dilutive effect of all additional potential common shares issuable under the Company’s stock option plan.  The computations are as follows:

	For the six months ended				For the three months ended
	September 30,				September 30,
	2008		2007		2008		2007
Weighted-average common shares
outstanding (basic)		2,904,166		3,078,585		2,902,421		3,071,966
Dilutive effect of assumed exercise
of stock options		-		82		-		-
Weighted-average common shares
outstanding (diluted)		2,904,166		3,078,667		2,902,421		3,071,966

None of the outstanding options were included in the diluted earnings per share calculation for the six or three month periods ended September 30, 2008 and the three months ended September 30, 2007, as the average fair value of the shares was less than the option exercise prices.

Note 4:   Stock Option Plan

In fiscal 2004, the Company adopted a new Stock Option Plan that provided for the issuance of 142,857 incentive options and 61,224 non-incentive options with respect to authorized common stock.  As of September 30, 2008, all options under the 2004 Plan have been granted and (excluding forfeited options), are subject to exercise at the discretion of the grantees, and will expire in fiscal 2014 unless otherwise exercised or forfeited.

The Company accounts for the stock plan in accordance with the provisions of SFAS No. 123(R), “Share Based Payment.”  SFAS No. 123(R) requires the recognition of compensation expense related to stock option awards based on the fair value of the option award at the grant date.  Compensation cost is then recognized over the vesting period.  There were no options granted during the three or six months ended September 30, 2008 and 2007.  There was no compensation expense recognized for the stock option plan during the three or six month periods ended September 30, 2008 and 2007, as all options were fully vested prior to these periods.

8

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

A summary of the status of the Company’s stock option plan as of and for the six months ended September 30, 2008 and for the years ended March 31, 2008 and 2007, is presented below:

	Six months ended September 30,				Year ended March 31,
	2008				2008				2007
	Shares		Weighted Average exercise price		Shares		Weighted Average exercise price		Shares			Weighted Average exercise price
Outstanding at beginning of period		104,224	$	13.95		114,224	$	13.95		179,148		$	13.92
Granted		––		––		––		––		––			––
Exercised		––		––		––		––		(60,924	)		13.86
Forfeited		––	­­­­­­ ––			10,000		13.95		(4,000	)		13.95
Outstanding at end of period		104,224	$	13.95		104,224	$	13.95		114,224		$	13.95
Options exercisable at period-end		104,224	$	13.95		104,224	$	13.95		114,224		$	13.95

The following information applies to options outstanding at September 30, 2008:

Number outstanding		104,224
Exercise price on all remaining options outstanding	$	13.95
Weighted-average remaining contractual life	5.5 years

Note 5:   Recent Accounting Developments

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”  This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  This Statement emphasizes that fair value is a market-based measurement and should be determined based on assumptions that a market participant would use when pricing an asset or liability.  This Statement clarifies that market participant assumptions should include assumptions about risk as well as the effect of a restriction on the sale or use of an asset.  Additionally, this Statement establishes a fair value hierarchy that provides the highest priority to quoted prices in active markets and the lowest priority to unobservable data.  This Statement is effective for fiscal years beginning after November 15, 2007, or April 1, 2008 as to the Company, and interim periods within that fiscal year.  The Company adopted this Statement effective April 1, 2008, as required, without material effect on the Company’s financial position or results of operations.

9

Wayne Savings Bancshares, Inc.

Notes to Consolidated Financial Statements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.”  This Statement allows companies the choice to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments.  This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or April 1, 2008 as to the Company, and interim periods within that fiscal year.  The Company adopted SFAS No. 159 effective April 1, 2008, as required, without material effect on the Company’s financial position or results of operations.

In September 2006, the FASB ratified the Emerging Issues Task Force’s (EITF) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” which required the Company to recognize a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee extending to postretirement periods.  The liability of $448,000 was recognized based on the substantive agreement with the employee. The Issue was adopted as a change in accounting principle through a cumulative-effect adjustment to retained earnings as of April 1, 2008, as required.

Note 6:   Fair Value Measurements

Effective April 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  SFAS No. 157 has been applied prospectively as of the beginning of the period.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

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

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

10

Wayne Savings Bancshares, Inc.

Notes to Consolidated Financial Statements

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.  Level 2 securities include U.S. Government agencies, mortgage-backed securities, equity securities, certain collateralized mortgage obligations and certain municipal securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include other less liquid securities.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the SFAS No. 157 fair value hierarchy in which the fair value measurements fall at September 30, 2008:

			Fair Value Measurements Using (in thousands)
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities	$	112,164	$	––	$	110,621	$	1,543

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements using significant unobservable (Level 3) inputs:

Available-for-sale securities-Fair Value
Beginning balance	$	-
Total realized and unrealized gains and losses
Included in net income		-
Included in other comprehensive income		3
Purchases, issuances and settlements		-
Transfers into Level 3		1,540
Ending balance	$	1,543

Impaired Loans

At September 30, 2008, impaired loans consisted primarily of loans secured by multi-family residential real estate, nonresidential and commercial real estate.  Management has determined fair value measurements on impaired loans primarily through evaluation of appraisals performed.

11

The following table presents the fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis and the level within the SFAS No. 157 fair value hierarchy in which the fair value measurements fall at September 30, 2008.

			Fair Value Measurements Using (in thousands)
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	953	$	––	$	––	$	953

12

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Discussion of Financial Condition Changes from March 31, 2008 to September 30, 2008

At September 30, 2008, the Company had total assets of $396.3 million, a decrease of $5.3 million, or 1.3%, from March 31, 2008 levels.

Liquid assets, consisting of cash, federal funds sold, interest-bearing demand deposits and available for sale securities, decreased by $13.7 million, or 10.3%, to $119.5 million at September 30, 2008, due primarily to a reduction of $8.0 million, or 6.7%,  in available for sale securities, coupled with a decrease in federal funds sold of $6.0 million. These decreases were partially offset by an increase in interest-bearing demand deposits of $543,000, or 10.5%.  The decrease in federal funds sold was directly related to the reduction in deposit balances, as management chose to limit its competition for retail certificate of deposit offerings above alternate funding sources with a lower cost of funds.

Total securities decreased by $8.2 million, or 6.74%, during the six months ended September 30, 2008.  This decrease was primarily due to principal repayments of $19.4 million, and an aggregate decrease in the market value of available for sale securities of $2.1 million.  This was partially offset by purchases of $13.3 million.  Purchases were funded by principal repayments on loans, proceeds from maturities of investment securities and from the reduction of the federal funds sold balance.

At September 30, 2008, net loans receivable increased by $9.1 million, or 3.8%, compared to March 31, 2008, as theBank originated and retained $34.3 million of loans and received payments of $24.3 million.The lending division has focused on the origination of shorter-term and adjustable-rate commercial and commercial real estate loans.  The Company believes that investing in shorter-term and adjustable-rate commercial loans positions the Company more favorably from an interest rate risk management perspective, compared to the origination of long term fixed-rate residential mortgages.  The composition of the loan portfolio has changed during the six months ended September 30, 2008, mainly due to a net increase of $10.0 million in non-residential loans.

	September 30, 2008				March 31, 2008
	(Dollars in thousands)
Mortgage loans:
One- to four-family residential(1)	$	141,347	54.99	%	$	142,010	57.49	%
Residential construction loans		2,219	.86			1,636	.66
Multi-family residential		9,079	3.53			8,929	3.61
Non-residential real estate/land(2)		71,359	27.76			61,407	24.86
Total mortgage loans		224,004	87.14			213,982	86.62
Other loans:
Consumer loans(3)		5,402	2.10			6,183	2.50
Commercial business loans		27,665	10.76			26,873	10.88
Total other loans		33,067	12.86			33,056	13.38
Total loans before net items		257,071	100.00	%		247,038	100.00	%
Less:
Loans in process		3,388				2,616
Deferred loan origination fees		397				390
Allowance for loan losses		1,937				1,777
Total loans receivable, net	$	251,349			$	242,255
Mortgage-backed securities, net(4)	$	86,511			$	85,879

_______________________________________

(1) Includes equity loans collateralized by second mortgages in the aggregate amount of $16.8 million and $17.0 million as of  September 30, 2008 and March 31, 2008, respectively.  Such loans have been underwritten on substantially the same basis as the Company’s first mortgage loans.

(2) Includes land loans of $204,000 and $175,000 as of September 30, 2008 and March 31, 2008, respectively.

(3) Includes second mortgage loans of $1.4 million and $1.7 million as of September 30, 2008 and March 31, 2008, respectively.

(4) Includes mortgage-backed securities designated as available for sale.

13

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Non-performing loans amounted to $2.6 million and $1.9 million at September 30, 2008 and March 31, 2008, respectively.  At September 30, 2008, non-performing loans consisted primarily of residential mortgage loans of approximately $1.2 million, two commercial real estate loans with a combined balance of $1.1 million, $181,000 in home equity lines of credit and two commercial loans totaling $120,000.  At March 31, 2008, non-performing loans were comprised of $588,000 in residential loans, $1.0 million in commercial real estate loans, $120,000 in home equity lines of credit and two commercial loans of $123,000, of which $42,000 was paid off in June 2008.  During the quarter ended September 30, 2008, the Company evaluated the two commercial real estate loans and elected to record an additional provision for loan losses based on updated appraisals and evaluation of these loans.  Management is actively engaged with the two borrowers to bring the loans current or liquidate the collateral to protect the Bank’s interests.  The Company generally has not realized significant losses on non-performing loans secured by residential mortgages.  The following table sets forth information regarding our past due, nonaccrual and impaired loans and real estate acquired through foreclosure as of September 30, 2008 and March 31, 2008.

	September 30, 2008			March 31, 2008
	(Dollars in thousands)
Past due loans 30-89 days:
Mortgage loans:
One- to four-family residential	$	1,166		$	812
Nonresidential		38			–
Land		–			–
Non-mortgage loans:
Commercial business loans		–			–
Consumer loans		28			7
	$	1,232		$	819
Non-performing loans:
Mortgage loans:
One- to four-family residential	$	1,427		$	790
All other mortgage loans		1,051			1,038
Non-mortgage loans:
Commercial business loans		120			42
Consumer		1			1
Total non-performing loans		2,599			1,871
Total real estate acquired through foreclosure		125			93
Total non-performing assets	$	2,724		$	1,964
Total non-performing loans to net loans receivable		1.03	%		0.77	%
Total non-performing loans to total assets		0.66	%		0.47	%
Total non-performing assets to total assets		0.69	%		0.49	%

14

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following table sets forth the analysis of the allowance for loan losses for the periods indicated.

	For the six months ended September 30, 2008			For the year ended March 31, 2008
	(Dollars in thousands)
Loans receivable, net	$	251,349		$	242,255
Average loans receivable, net	$	245,039		$	244,800
Allowance balance (at beginning of period)	$	1,777		$	1,523
Provision for losses		161			234
Charge-offs:
Mortgage loans:
One- to four-family		(2	)		(15	)
Residential construction		––			––
Multi-family residential		––			––
Non-residential real estate and land		––			––
Other loans:
Consumer		(3	)		(1	)
Commercial		––			––
Gross charge-offs		(5	)		(16	)
Recoveries:
Mortgage loans:
One- to four-family		––			13
Residential construction		––			––
Multi-family residential		––			––
Non-residential real estate and land		––			––
Other loans:
Consumer		4			23
Commercial		––			––
Gross recoveries		4			36
Net (charge-offs) recoveries		(1	)		20
Allowance for loan losses balance (at end of period)	$	1,937		$	1,777
Allowance for loan losses as a percent of loans receivable, net at end of period		0.77	%		0.73	%
Net loans charged off as a percent of average loans receivable, net		0.00	%		(0.01	)%
Ratio of allowance for loan losses to non-
performing loans at end of period		74.53	%		94.98	%

15

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Deposits totaled $309.7 million at September 30, 2008, a decrease of $8.0 million, or 2.5%, from $317.7 million at March 31, 2008.  Certificates of deposit decreased by $7.4 million and savings and money market accounts decreased by $2.1 million, which were partially offset by an increase in NOW accounts of $1.5 million.  The Company continues to experience a shift in depositor preference from low cost liquid deposit accounts to higher cost money market accounts.  Management exercised discipline during the period with regard to the pricing of retail certificates.  In general, management attempts to benchmark retail certificate of deposit pricing to the cost of alternate sources of funds, including Federal Home Loan Bank advances and brokered deposits.  Exceptions are made to defend customer relationships with significant value to the Bank while allowing rate sensitive certificate of deposit shoppers to move to other alternatives.  The local deposit market has been negatively affected by national and online competitors offering higher rates to address liquidity concerns in national markets.

Other short-term borrowings totaled $9.5 million at September 30, 2008, an increase of $2.2 million, or 30.9%, as compared with $7.3 million at March 31, 2008.  The interest rate paid on these borrowings is 1% below the Federal Funds Rate, which over the past year has declined 275 basis points as the Federal Reserve lowered rates.

Advances from the Federal Home Loan Bank of Cincinnati totaled $41.0 million at September 30, 2008, an increase of $2.5 million, or 6.5%, compared with $38.5 million at March 31, 2008.  The Company increased its borrowings to compensate for the loss of higher cost retail certificates of deposit as discussed above.

Stockholders’ equity decreased by $1.5 million, or 4.3%, during the six months ended September 30, 2008, due primarily to a decrease in unrealized gains on available for sale securities of $1.4 million, dividends declared of $761,000, a $448,000 reduction due to the adoption of EITF Issue 06-4, which required the Company to record a liability for the postretirement cost of the split dollar life insurance agreements related to bank owned life insurance, and a stock repurchase of $48,000.   These decreases were partially offset by net income of $1.1 million.

Comparison of Operating Results for the Six Month Periods Ended September 30, 2008 and 2007

General

Net income for the six months ended September 30, 2008 increased $62,000, or 5.8%, compared to net income for the six months ended September 30, 2007.  The increase in net income was primarily attributable to an increase in net interest income of $295,000, or 5.3%, offset by an increase in the provision for loan losses of $106,000, an increase in total non-interest expenses of $76,000, a decrease in non-interest income of $28,000 and an increase in the provision for federal income taxes of  $23,000.

16

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Average Balance Sheet

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid.  Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

	For the six months ended September 30,
	2008							2007
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net1	$	245,039	$	7,681		6.27	%	$	242,817	$	8,314		6.85	%
Investment securities2		121,449		3,012		4.96			119,414		2,912		4.88
Interest-earning deposits3		11,952		171		2.86			11,759		266		4.52
Total interest-earning assets		378,440		10,864		5.74			373,990		11,492		6.15
Non-interest-earning assets		21,545							21,827
Total assets	$	399,985						$	395,817
Interest-bearing liabilities:
Deposits	$	313,920		3,990		2.54		$	318,448		4,952		3.11
Other short-term borrowings		8,577		44		1.03			5,616		117		4.17
Borrowings		40,365		935		4.63			34,074		823		4.83
Total interest-bearing liabilities		362,862		4,969		2.74			358,138		5,892		3.29
Non-interest bearing  liabilities		4,173							3,544
Total liabilities		367,035							361,682
Stockholders’ equity		32,950							34,135
Total liabilities and stockholders’ equity	$	399,985						$	395,817
Net interest income			$	5,895						$	5,600
Interest rate spread4						3.00	%						2.86	%
Net yield on interest- earning assets5						3.12	%						2.99	%
Ratio of average interest- earning assets to average  interest-bearing liabilities						104.29	%						104.43	%

_______________________________________________

1  Includes non-accrual loan balances.

2  Includes mortgage-backed securities both designated as available for sale and held to maturity.

3  Includes federal funds sold and interest-bearing deposits in other financial institutions.

4  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

5  Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

17

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Interest Income

Interest income decreased by $628,000 or 5.5%, to $10.9 million for the six months ended September 30, 2008, compared to the same period in 2007.  This decrease was mainly due to a decrease in the weighted-average yield on interest-earning assets to 5.74% in the 2008 period from 6.15% for the six month period ended September 30, 2007.The yield decrease was primarily due to the Federal Reserve’s interest rate cuts  of 275 basis points from the quarter ended September 30, 2007 to the current quarter ended September 30, 2008.

Interest income on loans decreased by $633,000, or 7.6%, for the six months ended September 30, 2008, compared to the same period in 2007, due primarily to a reduction in weighted-average rate on loans of 58 basis points from 6.85% for the period ended September 30, 2007 to 6.27% for the September 30, 2008 period.  As discussed earlier, this was mainly due to a decrease in rates of 275 basis points implemented by the Federal Reserve over the past year.   This decrease was partially offset by an increase in the average balance of loans outstanding period to period of $2.2 million, or .9%, to $245.0 million for the 2008 period.

Interest income on securities increased by $100,000, or 3.4%, during the six months ended September 30, 2008, compared to the same period in 2007.  This increase was primarily due to an increase in the weighted-average yield to 4.96% coupled with an increase in the average balance of $2.0 million or 1.7%.   The increase in the average yield was due to  a change in the composition of the investment portfolio, as the average balance of agency bonds decreased by $16.7 million, while the average balance of mortgage-backed securities increased by $12.0 million from the September 30, 2007 period to the  September 30, 2008 period.  The agency bonds which matured were generally a lower yielding investment as compared to the mortgage-backed securities.

Dividendson Federal Home Loan Bank stock and other income decreased by $95,000, or 35.7%, for the six months ended September 30, 2008, compared to the same period in 2007, due primarily to a decrease in the weighted-average yield of166basis points resulting from reductions in short term market interest rates, to 2.86% for the 2008 period from 4.52% for the six months ended September 30, 2007.

Interest Expense

Interest expense totaled $5.0 million for the six months ended September 30, 2008, a decrease of $923,000, or 15.7%, compared to the six months ended September 30, 2007.  The decrease resulted from a 55 basis point decrease in the weighted-average cost of funds to 2.74% for the 2008 period, partially offset by an increase of $4.7 million in the average balance of deposits and borrowings outstanding, from $358.1 million to $362.9 million for the six month period ended September 30, 2008.

Interest expense on deposits totaled $4.0 million for the six months ended September 30, 2008, a decrease of $962,000, or 19.4%, compared to the six months ended September 30, 2007, as a result of a 57 basis point decrease in the weighted-average cost of deposits to 2.54% for the 2008 period coupled with a decrease in the average balance outstanding of $4.5 million, or 1.4%, to $313.9 million for the 2008 period.

Interest expense on other short-term borrowings totaled $44,000 for the six months ended September 30, 2008, a decrease of $73,000, from the 2007 period, primarily due to a decrease in the weighted-average cost of 314 basis points, to 1.03% for the six months ended September 30, 2008 due to the Federal Reserve

18

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

rate decreases.  This was partially offset by an increase in the average balance of short-term borrowings of $3.0 million.

Interest expense on Federal Home Loan Bank advances totaled $935,000 for the six months ended September 30, 2008, an increase of $112,000, over the 2007 period, primarily due to an increase in the average balance of $6.3 million, or 18.5%, as the Company replaced the loss of higher cost retail certificates of deposit with lower cost Federal Home Loan Bank advances.

Net Interest Income

Net interest income totaled $5.9 million for the six months ended September 30, 2008, an increase of $295,000, or 5.3%, compared to the six month period ended September 30, 2007.  The average interest rate spread increased to 3.00% for the six months ended September 30, 2008 from 2.86% for the six months ended September 30, 2007, due to management’s strategy not to compete with national and online competitors offering higher rates in the national markets.  The increase in the average interest rate spread was also due to a shift in asset composition from lower yielding investment securities and deposits to higher yielding loans and mortgage-backed securities and a shift in composition of liabilities from higher cost retail certificate of deposits to lower cost Federal Home Loan Bank advances.  The net interest margin increased to 3.12% for the six months ended September 30, 2008 from 2.99% for the six months ended September 30, 2007.

Provision for Loan Losses

Management recorded a $161,000 provision for loan losses for the six month period ended September 30, 2008, an increase of $106,000 compared to the provision for the same period in 2007, primarily due to the increase in non-performing loans.  To the best of management’s knowledge, all known and inherent losses that are probable and which can be reasonably estimated have been recorded as of  September 30, 2008.

Non-interest Income

Other income, consisting primarily of the earnings on bank-owned life insurance, trust income, service fees and charges on deposit accounts, decreased by $28,000, or 3.1%, for the six months ended September 30, 2008, compared to the six months ended September 30, 2007.  The decrease was primarily due to a decrease in gain on disposal of foreclosed assets of $21,000, or 67.7%, in the six months ended September 30, 2008  compared to the same period ended September 30, 2007.

Non-interest Expense

Non-interest expense increased by $76,000, or 1.5%, to $5.1 million for the six months ended September 30, 2008, compared to the six months ended September 30, 2007.  The increase was mainly due to an increase in occupancy and equipment expense of $40,000, or 4.1%, mainly due to an increase in real estate tax expense and additional maintenance costs.   Franchise tax increased $27,000, or 13.9%, to $221,000 for the six months ended September 30, 2008, compared to the six months ended September 30, 2007.  The increase was due primarily to refund claims relating to a reduction in prior years amended returns.  Compensation expense decreased by $5,000 during the 2008 period, as full time equivalent staff decreased from 115 at September 30, 2007 to 111 at September 30, 2008, offsetting the annual merit increases implemented during the 2008  first fiscal quarter.

19

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Federal Income Taxes

Federal income tax expense was $391,000 for the six months ended September 30, 2008, an increase of $23,000, or 6.3%, compared to the same period in 2007. The increase was primarily due to the increase in income before taxes of $85,000, or 5.9%, compared to the same period in 2007.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2008 and 2007

General

Net income totaled $601,000 for the three months ended September 30, 2008, an increase of $54,000, or 9.9%, compared to net income of $547,000 for the three months ended September 30, 2007.  The increase in net income was primarily attributable to an increase in net interest income of $232,000, or 8.2%, offset by an increase in the provision for loan losses of $75,000, an increase in total non-interest expenses of $55,000, an increase in the provision for federal income taxes of $39,000 and a decrease in non-interest income of $9,000.

Average Balance Sheet

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated and the average yields earned and rates paid.  Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

20

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

	For the three months ended September 30,
	2008							2007
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net1	$	247,184	$	3,867		6.26	%	$	245,545	$	4,224		6.88	%
Investment securities2		119,054		1,493		5.02			117,292		1,458		4.97
Interest-earning deposits3		9,227		72		3.12			10,090		111		4.40
Total interest-earning assets		375,465		5,432		5.79			372,927		5,793		6.21
Non-interest-earning assets		21,424							21,727
Total assets	$	396,889						$	394,654
Interest-bearing liabilities:
Deposits	$	310,999		1,894		2.44		$	315,983		2,479		3.14
Other short-term borrowings		9,195		23		1.00			5,703		59		4.14
Borrowings		40,724		465		4.57			35,914		437		4.87
Total interest-bearing liabilities		360,918		2,382		2.64			357,600		2,975		3.33
Non-interest bearing  liabilities		3,392							3,065
Total liabilities		364,310							360,665
Stockholders’ equity		32,579							33,989
Total liabilities and stockholders’ equity	$	396,889						$	394,654
Net interest income			$	3,050						$	2,818
Interest rate spread4						3.15	%						2.88	%
Net yield on interest- earning assets5						3.25	%						3.02	%
Ratio of average interest- earning assets to average  interest-bearing liabilities						104.03	%						104.29	%

__________________________________________________________

1  Includes non-accrual loan balances.

2  Includes mortgage-backed securities both designated as available for sale and held to maturity.

3  Includes federal funds sold and interest-bearing deposits in other financial institutions.

4  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

5  Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

21

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Interest Income

Interest income decreased by $361,000 or 6.2%, to $5.4 million for the three months ended September 30, 2008, compared to the same period in 2007.  This decrease was due to a decrease in the weighted-average yield on interest-earning assets to 5.79% in the 2008 period from 6.21% for the three month period ended September 30, 2007.  There was an increase of $2.5 million in the average balance of interest-earning assets outstanding to $375.5 million for the three months ended September 30, 2008, from $372.9 million for the comparable period ended September 30, 2007.The yield decrease was primarily due to the Federal Reserve’s interest rate cuts from the quarter ended September 30, 2007 to the current quarter ended September 30, 2008.

Interest income on loans decreased by $357,000, or 8.5%, for the three months ended September 30, 2008, compared to the same period in 2007, due primarily to a reduction in weighted-average rate on loans from 6.88% for the quarter ending September 30, 2007 to 6.26% for the September 30, 2008 quarter.  As discussed earlier, this was mainly due toa decrease in rates of 275 basis points implemented by the Federal Reserve over the past year.   This decrease was partially offset with an increase in the average balance of loans outstanding period to period of $1.6 million, or ..7%, to $247.2 million for the 2008 period.

Interest income on securities increased by $35,000, or 2.4%, during the three months ended September 30, 2008, compared to the same period in 2007.  This increase was primarily due to an increase in the weighted-average yield to 5.02%.  The increase in the average yield was due to  a change in the composition of the investment portfolio as the average balance of agency bonds decreased by $15.4 million while the average balance of mortgage-backed securities increased by $8.0 million from the September 30, 2007 quarter to the September 30, 2008 quarter.  The agency bonds which matured were generally a lower yielding investment as compared to the mortgage-backed securities.

Dividends on Federal Home Loan Bank stock and other income decreased by $39,000, or 35.1%, for the three months ended September 30, 2008, compared to the same period in 2007, due primarily to a decrease in the weighted-average yield of 128 basis points resulting from reductions in short term market interest rates, to 3.12% for the 2008 period from 4.40% for the three months ended September 30, 2007 combined with a decrease in the average balance of $863,000, or 8.6%.

Interest Expense

Interest expense totaled $2.4 million for the three months ended September 30, 2008, a decrease of $593,000, or 19.9%, compared to the three months ended September 30, 2007.  The decrease resulted from a 69 basis point decrease in the weighted-average cost of funds to 2.64% for the 2008 period, partially offset by an increase of $3.3 million in the average balance of deposits and borrowings outstanding from $357.6 million to $360.9 million for the three month period ended September 30, 2008.

Interest expense on deposits totaled $1.9 million for the three months ended September 30, 2008, a decrease of $585,000, or 23.6%, compared to the three months ended September 30, 2007, as a result of a 70 basis point decrease in the weighted-average cost of deposits to 2.44% for the 2008 period coupled with a decrease in the average balance outstanding of $5.0 million, or 1.6%, to $311.0 million for the 2008 period.

Interest expense on other short-term borrowings totaled $23,000 for the three months ended September 30, 2008, a decrease of $36,000, from the 2007 period, primarily due to a decrease in the weighted-average cost of 314 basis points, to 1.00% for the three months ended September 30, 2008, due to the Federal

22

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Reserve rate decreases.  This was partially offset by an increase in the average balance of short-term borrowings of $3.5 million.

Interest expense on Federal Home Loan Bank advances totaled $465,000 for the three months ended September 30, 2008, an increase of $28,000, over the 2007 period, primarily due to an increase in the average balance of $4.8 million, or 13.4%, as the Company replaced the loss of higher cost retail certificates of deposit with lower cost Federal Home Loan Bank advances.

Net Interest Income

Net interest income totaled $3.1 million for the three months ended September 30, 2008, an increase of $232,000, or 8.2%, compared to the three month period ended September 30, 2007.  The average interest rate spread increased to 3.15% for the three months ended September 30, 2008 from 2.88% for the three months ended September 30, 2007.  The net interest margin increased to 3.25% for the three months ended September 30, 2008 from 3.02% for the three months ended September 30, 2007.  The increase in the average interest rate spread was due to a shift in asset composition from lower yielding investment securities and deposits to higher yielding loans and mortgage-backed securities and a shift in composition of liabilities from higher cost retail certificate of deposits to lower cost Federal Home Loan Bank advances.

Provision for Loan Losses

Management recorded a $100,000 provision for loan losses for the three month period ended September 30, 2008, an increase of $75,000 compared to the provision for the same period in 2007, primarily due to the increase in non-performing loans.  To the best of management’s knowledge, all known and inherent losses that are probable and which can be reasonably estimated have been recorded as of September 30, 2008.

Noninterest Income

Other income, consisting primarily of the earnings on bank-owned life insurance, trust income, service fees and charges on deposit accounts, decreased by $9,000, or 1.9%, for the three months ended September 30, 2008, compared to the three months ended September 30, 2007.  The decrease was primarily due to a decrease in gain on disposal of foreclosed assets of $21,000, or 67.7%, in the three months ended September 30, 2008  compared to the same period ended September 30, 2007.  This was offset by an increase in service fees of $8,000 and trust income of $5,000 in the three months ended September 30, 2008 compared to the same period in 2007.

Non-interest Expense

Non-interest expense increased by $55,000, or 2.2%, to $2.6 million for the three months ended September 30, 2008, compared to the three months ended September 30, 2007.  The increase was mainly due to an increase in occupancy and equipment expense of $25,000, or 5.0%, mainly due to an increase in real estate tax expense and additional maintenance costs.   Franchise tax increased $21,000, or 21.4%, to $119,000 for the three months ended September 30, 2008, compared to the three months ended September 30, 2007, mainly due to refund claims relating to a reduction in prior years amended returns.  Compensation expense decreased by $4,000 during the quarter, as full time equivalent staff decreased from 115 at September 30, 2007 to 111 at September 30, 2008, offsetting the annual merit increases implemented during the 2008 first quarter.

23

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Federal Income Taxes

Federal income tax expense was $224,000 for the three months ended September 30, 2008, an increase of $39,000, or 21.1%, compared to the same period in 2007.  The increase was primarily due to the increase in income before taxes of $93,000, or 12.7%, compared to the same period in 2007.  The difference in the effective tax rate from the 34% statutory rate was mainly due to the beneficial effects of income from the cash surrender value on life insurance and other tax-exempt obligations.

24

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Forward-Looking Statements

This document contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and similar expressions.  These forward-looking statements include:  statements of goals, intentions and expectations, statements regarding prospects and business strategy, statements regarding asset quality and market risk, and estimates of future costs, benefits and results.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following:  (1) general economic conditions, (2) competitive pressure among financial services companies, (3) changes in interest rates, (4) deposit flows, (5) loan demand, (6) changes in legislation or regulation, (7) changes in accounting principles, policies and guidelines, (8) litigation liabilities, including costs, expenses, settlements and judgments, and (9) other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.  We have no obligation to update or revise any forward-looking statements to reflect any changed assumptions, any unanticipated events or any changes in the future.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no material change in the Company’s market risk since the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended March 31, 2008.

ITEM 4T Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in timely alerting them to the material information relating to the Company (or our consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

(b) Changes in internal controls.

There has been no change made in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

25

Wayne Savings Bancshares, Inc.

PART II

ITEM 1.	Legal Proceedings
	Not applicable
ITEM 1A.	Risk Factors
	There have been no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended March 31, 2008.
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	(a)	Not applicable
	(b)	Not applicable
	(c)	Not applicable
ITEM 3.	Defaults Upon Senior Securities
	Not applicable
ITEM 4.	Submission of Matters to a Vote of Security Holders
	On July 24, 2008, the Annual Meeting of the Company’s Stockholders was held.  Two directors were elected to terms expiring in fiscal 2011 by the following votes:
	Daniel R. Buehler                   For:  2,081,731               Withheld:   31,069
	Phillip E. Becker                     For:  2,066,907                Withheld:   45,893
	One other matter was submitted to the stockholders for ratification, for which the following votes were cast:
	Ratification of the appointment of  BKD LLP as independent auditors of the Company for the fiscal year ended March 31, 2009.
	For:  2,092,812                        Against: 13,513              Abstain: 6,475

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Wayne Savings Bancshares, Inc.

PART II

ITEM 5.	Other Information
	The Troubled Asset Relief Program (TARP) was approved by the United States Congress in October 2008 and is being implemented by the Department of the Treasury (Treasury) in the form of a Capital Purchase Program (CPP) with an application deadline of November 14, 2008.   Management of the Company has conducted an analysis of the potential uses of capital offered by the Treasury through the CPP and has determined that the Company’s current capital levels are adequate given the Company’s financial condition and current conditions in the Company’s market area.  In addition, management considered the dilution of existing shareholders of the Company and the potential for unforeseen negative effects associated with the TARP in its analysis.  As a result of the foregoing factors, the Company has determined not to participate in the TARP at this time.
ITEM 6.	Exhibits
	EX-31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
	EX-31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
	EX-32	Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	November 10, 2008	By:	/s/Phillip E. Becker
			Phillip E. Becker
			President and Chief Executive Officer
Date:	November 10, 2008	By:	/s/H. Stewart Fitz Gibbon III
			H. Stewart Fitz Gibbon III
			Executive Vice President and
			Chief Financial Officer

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