Wayne Savings Bancshares (WAYN) 10-Q 2008 Q4 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              December 31, 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 executive office)	(Zip Code)

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   ý                 No o 

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

Large accelerated filer o   Accelerated filer o   Non-accelerated filer  o  Smaller Reporting Company ý

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

Yes o                   No   ý

As of February 10, 2009, 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	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	26
Item 6	Exhibits	27
SIGNATURES		28

Wayne Savings Bancshares, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	December 31, 2008			March 31, 2008
	(Unaudited)
ASSETS
Cash and due from banks	$	3,486		$	1,901
Federal funds sold		––			6,000
Interest-bearing demand deposits		7,211			5,162
Cash and cash equivalents		10,697			13,063
Available-for-sale securities		114,135			120,170
Held-to-maturity securities		991			1,240
Loans receivable – net of allowance for loan losses of $1,801 and $1,777 at December 31, 2008 and March 31, 2008, respectively		255,121			242,255
Premises and equipment		7,680			8,012
Federal Home Loan Bank stock		5,025			4,892
Foreclosed assets held for sale  -  net		735			93
Accrued interest receivable		1,595			1,753
Bank-owned life insurance		6,449			6,268
Goodwill		1,719			1,719
Other intangible assets		497			577
Other assets		687			1,360
Prepaid federal income taxes		39			182
Total assets	$	405,370		$	401,584
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand	$	51,409		$	50,884
Savings and money market		82,287			83,811
Time		177,115			183,036
Total deposits		310,811			317,731
Other short term borrowings		11,592			7,287
Federal Home Loan Bank advances		44,500			38,500
Accrued interest payable and other liabilities		3,146			2,511
Deferred federal income taxes		1,234			1,451
Total liabilities		371,283			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		36,166			36,127
Retained earnings		12,637			12,450
Shares acquired by ESOP		(1,015	)		(1,097	)
Accumulated other comprehensive income, net of tax effects		431			707
Treasury stock, at cost
Common: December 31, 2008 - 974,618 shares, March 31, 2008 – 969,627 shares		(14,530	)		(14,481	)
Total stockholders’ equity		34,087			34,104
Total liabilities and stockholders’ equity	$	405,370		$	401,584

See accompanying notes to condensed consolidated financial statements. 

2

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Income

For the nine and three months ended December 31, 2008 and 2007

(In thousands, except per share amounts)

(Unaudited)

	Nine months				Three months
	ended				ended
	December 31,				December 31,
	2008		2007		2008		2007
Interest and Dividend Income
Loans	$	11,608	$	12,518	$	3,927	$	4,204
Securities		4,428		4,426		1,416		1,514
Dividends on Federal Home Loan Bank stock and other		236		374		65		108
Total interest and dividend income		16,272		17,318		5,408		5,826
Interest Expense
Deposits		5,788		7,445		1,798		2,493
Other short term borrowings		57		179		13		62
Federal Home Loan Bank advances		1,414		1,298		479		475
Total interest expense		7,259		8,922		2,290		3,030
Net Interest Income		9,013		8,396		3,118		2,796
Provision for Loan Losses		346		195		185		140
Net Interest Income After Provision for Loan Losses		8,667		8,201		2,933		2,656
Noninterest Income
Gain on disposal of real estate acquired through foreclosure		10		31		-		-
Trust income		137		141		46		45
Earnings on bank-owned life insurance		167		175		55		59
Service fees, charges and other operating		996		1,028		320		354
Total noninterest income		1,310		1,375		421		458
Noninterest  Expense
Salaries and employee benefits		4,208		4,177		1,430		1,394
Net occupancy and equipment expense		1,528		1,483		505		500
Federal deposit insurance premiums		35		28		13		9
Franchise taxes		349		291		128		97
Amortization of intangible assets		80		80		27		27
Other		1,468		1,508		465		516
Total noninterest expense		7,668		7,567		2,568		2,543
Income Before Federal Income Taxes		2,309		2,009		786		571
Provision for Federal Income Taxes		593		493		202		125
Net Income	$	1,716	$	1,516	$	584	$	446
Basic Earnings Per Share	$	.59	$	.49	$	.20	$	.14
Diluted Earnings Per Share	$	.59	$	.49	$	.20	$	.14
Dividends Per Share	$	.36	$	.36	$	.12	$	.12

See accompanying notes to condensed consolidated financial statements. 

3

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Comprehensive Income

For the nine and three months ended December 31, 2008 and 2007

(In thousands)

(Unaudited)

	Nine months					Three months
	ended					ended
	December 31,					December 31,
	2008			2007		2008		2007
Net income	$	1,716		$	1,516	$	584	$	446
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities,  net of related
taxes (benefits) of $(142), $309, $585 and $326 during the
respective periods		(276	)		600		1,135		632
Comprehensive income	$	1,440		$	2,116	$	1,719	$	1,078
Accumulated other comprehensive income	$	431		$	124	$	431	$	124

See accompanying notes to condensed consolidated financial statements. 

4

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended December 31, 2008 and 2007

(In thousands)

(Unaudited)

	2008			2007
Operating Activities
Net income	$	1,716		$	1,516
Items not requiring (providing) cash
Depreciation and amortization		500			488
Provision for loan losses		346			195
Amortization of premiums and discounts on securities		(76	)		(64	)
Amortization of mortgage servicing rights		19			21
Amortization of deferred loan origination fees		(29	)		(39	)
Amortization of intangible assets		80			80
Federal Home Loan Bank stock dividends		(133	)		––
Increase in value of bank owned life insurance		(181	)		(175	)
Changes in
Accrued interest receivable		158			301
Other assets		797			323
Amortization of expense related to ESOP		86			91
Interest payable and other liabilities		(73	)		95
Deferred income taxes		(75	)		(213	)
Net cash provided by operating activities		3,135			2,619
Investing Activities
Purchase of  available-for-sale securities		(18,466	)		(36,213	)
Proceeds from maturities of available-for-sale securities		24,161			40,438
Proceeds from maturities of held-to-maturity securities		247			370
Net change in loans		(13,980	)		(8,622	)
Purchase of premises and equipment		(168	)		(334	)
Proceeds from the sale of foreclosed assets		154			108
Net cash used in investing activities		(8,052	)		(4,253	)

See accompanying notes to condensed consolidated financial statements. 

5

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

For the nine months ended December 31, 2008 and 2007

(In thousands)

(Unaudited)

	2008			2007
Financing Activities
Net change in deposits	$	(6,920	)	$	(11,822	)
Net change in other short-term borrowings		4,305			2,201
Proceeds from Federal Home Loan Bank advances		59,310			44,450
Repayments of Federal Home Loan Bank advances		(53,310	)		(40,450	)
Advances by borrowers for taxes and insurance		261			434
Cash dividends paid		(1,046	)		(1,135	)
Treasury stock purchases		(49	)		(854	)
Net cash provided by (used in) financing activities		2,551			(7,176	)
Decrease in Cash and Cash Equivalents		(2,366	)		(8,810	)
Cash and Cash equivalents, Beginning of period		13,063			17,215
Cash and Cash equivalents, End of period	$	10,697		$	8,405
Supplemental Cash Flows Information       Cash Paid For:
Interest on deposits and borrowings	$	7,374		$	8,957
Federal income taxes	$	525		$	710
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale	$	797		$	149
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects	$	(276	)	$	600
Dividends payable	$	360		$	375

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 nine and three months ended December 31, 2008 and for the nine and three months ended December 31, 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 nine and three month periods ended December 31, 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 nine months ended				For the three months ended
	December 31,				December 31,
	2008		2007		2008		2007
Weighted-average common shares
outstanding (basic)		2,903,599		3,061,671		2,902,525		3,027,848
Dilutive effect of assumed exercise
of stock options		-		-		-		-
Weighted-average common shares
outstanding (diluted)		2,903,599		3,061,671		2,902,525		3,027,848

None of the outstanding options were included in the diluted earnings per share calculation for the nine or three month periods ended December 31, 2008 and December 31, 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 December 31, 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 nine months ended December 31, 2008 and 2007.  There was no compensation expense recognized for the stock option plan during the three or nine month periods ended December 31, 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 nine months ended December 31, 2008 and for the years ended March 31, 2008 and 2007, is presented below:

	Nine months ended December 31,				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 December 31, 2008:

Number outstanding	104,224
Exercise price on all remaining options outstanding	$13.95
Weighted-average remaining contractual life	5.25 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 December 31, 2008:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Available-for-sale securities	$	114,135	$	––	$	114,135	$	––

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	$	1,540
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		-
Transfers out of Level 3		(1,543)
Ending balance	$	-

11

Wayne Savings Bancshares, Inc.

Notes to Consolidated Financial Statements

Impaired Loans

At December 31, 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.

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 December 31, 2008.

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Impaired loans	$	427	$	––	$	––	$	427

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 December 31, 2008

At December 31, 2008, the Company had total assets of $405.4 million, an increase of $3.8 million, or .9%, from  total assets at March 31, 2008.

Liquid assets, consisting of cash, federal funds sold, interest-bearing demand deposits and available for sale securities, decreased by $8.4 million, or 6.3%, to $124.8 million at December 31, 2008, due primarily to a reduction of $6.0 million, or 5.0%,  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 $2.0 million, or 39.7% and an increase in cash of $1.6 million, or 83.4%.  The decrease in liquid assets was principally used to fund growth in the Company’s loan portfolio as described below.

Total securities decreased by $6.0 million, or 5.0%, during the nine months ended December 31, 2008.  This decrease was primarily due to principal repayments of $24.2 million, and an aggregate decrease in the market value of available for sale securities of $.4 million.  This was partially offset by purchases of $18.5 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 December 31, 2008, net loans receivable increased by $12.9 million, or 5.3%, compared to March 31, 2008, as theBank originated and retained $29.0 million of loans and received payments of $15.1 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 nine months ended December 31, 2008, mainly due to a net increase of $9.6 million in non-residential loans and an increase of $5.8 million in commercial business loans.

	December 31, 2008				March 31, 2008
	(Dollars in thousands)
Mortgage loans:
One- to four-family residential(1)	$	141,038	54.17	%	$	142,010	57.49	%
Residential construction loans		1,801	.69			1,636	.66
Multi-family residential		8,664	3.33			8,929	3.61
Non-residential real estate/land(2)		70,992	27.26			61,407	24.86
Total mortgage loans		222,495	85.45			213,982	86.62
Other loans:
Consumer loans(3)		5,210	2.00			6,183	2.50
Commercial business loans		32,679	12.55			26,873	10.88
Total other loans		37,889	14.55			33,056	13.38
Total loans before net items		260,384	100.00	%		247,038	100.00	%
Less:
Loans in process		3,065				2,616
Deferred loan origination fees		397				390
Allowance for loan losses		1,801	��			1,777
Total loans receivable, net	$	255,121			$	242,255
Mortgage-backed securities, net(4)	$	87,781			$	85,879

_______________________________

(1) Includes equity loans collateralized by second mortgages in the aggregate amount of $16.8 million and $17.0 million as of  December 31, 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 $215,000 and $175,000 as of December 31, 2008 and March 31, 2008, respectively.

(3) Includes second mortgage loans of $1.4 million and $1.7 million as of December 31, 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 $2.0 million and $1.9 million at December 31, 2008 and March 31, 2008, respectively.  At December 31, 2008, non-performing loans consisted primarily of residential mortgage loans of approximately $1.4 million, two commercial real estate loans with a combined balance of $327,000, $89,000 in home equity lines of credit and two commercial loans totaling $189,000.  At March 31, 2008, non-performing loans were comprised of $670,000 in residential loans, $1.0 million in commercial real estate loans, $120,000 in home equity lines of credit and one commercial loan of $42,000, which was paid off in June 2008.  Real estate owned amounted to $735,000 at December 31, 2008 compared to $93,000 at March 31, 2008.  The increase was due to the transfer of a $610,000 non-residential property from a non-performing loan status to real estate acquired through foreclosure.  Total non-performing assets amounted to $2.8 million at December 31, 2008 compared to $2.0 million at March 31, 2008.  The increase was mainly due to an increase in non-performing residentialmortgage loans.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 December 31, 2008 and March 31, 2008.

	December 31, 2008			March 31, 2008
	(Dollars in thousands)
Past due loans 30-89 days:
Mortgage loans:
One- to four-family residential	$	996		$	812
Nonresidential		3,697			––
Non-mortgage loans:
Commercial business loans		160			––
Consumer loans		12			7
	$	4,865		$	819
Non-performing loans:
Mortgage loans:
One- to four-family residential	$	1,517		$	790
All other mortgage loans		327			1,038
Non-mortgage loans:
Commercial business loans		189			42
Consumer		-			1
Total non-performing loans		2,033			1,871
Total real estate acquired through foreclosure		735			93
Total non-performing assets	$	2,768		$	1,964
Total non-performing loans to net loans receivable		0.80	%		0.77	%
Total non-performing loans to total assets		0.50	%		0.47	%
Total non-performing assets to total assets		0.68	%		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 nine months ended December 31, 2008			For the year ended March 31, 2008
	(Dollars in thousands)
Loans receivable, net	$	255,121		$	242,255
Average loans receivable, net	$	248,842		$	244,800
Allowance balance (at beginning of period)	$	1,777		$	1,523
Provision for losses		346			234
Charge-offs:
Mortgage loans:
One- to four-family		(24	)		(15	)
Non-residential real estate and land (1)		(229	)		––
Other loans:
Consumer		(4	)		(1	)
Commercial		(74	)		––
Gross charge-offs		(331	)		(16	)
Recoveries:
Mortgage loans:
One- to four-family		––			13
Other loans:
Consumer		9			23
Gross recoveries		9			36
Net (charge-offs) recoveries		(322	)		20
Allowance for loan losses balance (at end of period)	$	1,801		$	1,777
Allowance for loan losses as a percent of loans receivable, net at end of period		0.71	%		0.73	%
Net loans charged off (recovered) as a percent of average loans receivable, net		0.13	%		(0.01	)%
Ratio of allowance for loan losses to non-
performing loans at end of period		88.59	%		94.98	%

_______________________

(1)The $229,000 charge off was related to a single non-residential property that was transferred into real estate acquired through foreclosure.

15

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Deposits totaled $310.8 million at December 31, 2008, a decrease of $6.9 million, or 2.2%, from $317.7 million at March 31, 2008.  Certificates of deposit decreased by $5.9 million and savings and money market accounts decreased by $1.6 million, which were partially offset by an increase in NOW accounts of $2.6 million.  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 $11.6 million at December 31, 2008, an increase of $4.3 million, or 58.9%, as compared with $7.3 million at March 31, 2008.  The interest rate paid on these borrowings is .40%, which over the past year has declined 280 basis points as the Federal Reserve lowered rates.

Advances from the Federal Home Loan Bank of Cincinnati totaled $44.5 million at December 31, 2008, an increase of $6.0 million, or 15.6%, 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 and to extend liability duration for interest rate risk management purposes.

Stockholders’ equity decreased by $17,000, or .1%, during the nine months ended December 31, 2008, due primarily to a decrease in unrealized gains on available for sale securities of $276,000, dividends declared of $1.1 million, 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 $49,000.   These decreases were partially offset by net income of $1.7 million and a reduction in unallocated ESOP shares of $86,000 through the annual allocation process.

Comparison of Operating Results for the Nine Month Periods Ended December 31, 2008 and 2007

General

Net income for the nine months ended December 31, 2008 totaled $1.7 million, an increase of $200,000, or 13.2%, compared to net income for the nine months ended December 31, 2007.  The increase in net income was primarily attributable to an increase in net interest income of $617,000, or 7.4%, partially offset by an increase in the provision for loan losses of $151,000, an increase in total non-interest expenses of $101,000, a decrease in non-interest income of $65,000 and an increase in the provision for federal income taxes of $100,000.

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 nine months ended December 31,
	2008							2007
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net1	$	248,842	$	11,608		6.22	%	$	244,546	$	12,518		6.83	%
Investment securities2		118,256		4,428		4.99			120,066		4,426		4.92
Interest-earning deposits3		11,343		236		2.77			11,148		374		4.47
Total interest-earning assets		378,441		16,272		5.73			375,760		17,318		6.15
Non-interest-earning assets		21,570							21,768
Total assets	$	400,011						$	397,528
Interest-bearing liabilities:
Deposits	$	313,050		5,788		2.47		$	317,997		7,445		3.12
Other short-term borrowings		8,895		57		.85			6,021		179		5.95
Borrowings		41,115		1,414		4.59			35,530		1,298		4.87
Total interest-bearing liabilities		363,060		7,259		2.67			359,548		8,922		3.31
Non-interest bearing  liabilities		3,909							3,651
Total liabilities		366,969							363,199
Stockholders’ equity		33,042							34,329
Total liabilities and stockholders’ equity	$	400,011						$	397,528
Net interest income			$	9,013						$	8,396
Interest rate spread4						3.06	%						2.84	%
Net yield on interest- earning assets5						3.18	%						2.98	%
Ratio of average interest- earning assets to average  interest-bearing liabilities						104.24	%						104.51	%

_________________________________________

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 $1.0 million or 6.0%, to $16.3 million for the nine months ended December 31, 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 5.73% in the 2008 period from 6.15% for the nine month period ended December 31, 2007.The yield decrease was primarily due to the Federal Reserve’s interest rate cuts of 400 basis points from December 31, 2007 to December 31, 2008.

Interest income on loans decreased by $910,000, or 7.3%, for the nine months ended December 31, 2008, compared to the same period in 2007, due primarily to a reduction in weighted-average rate on loans of 61 basis points from 6.83% for the period ended December 31, 2007 to 6.22% for the December 31, 2008 period.As discussed earlier, this was mainly due to a decrease in rates of 400 basis points implemented by the Federal Reserve over the past year and the corresponding impact on adjustable rate loans and new originations.   This decrease was partially offset by an increase in the average balance of loans outstanding period to period of $4.3 million, or 1.8%, to $248.8 million for the 2008 period.

Interest income on securities increased by $2,000, or 0.1%, during the nine months ended December 31, 2008, compared to the same period in 2007.  This increase was primarily due to an increase in the weighted-average yield to 4.99%  for the period ended December 31, 2008 from 4.92% for the period ended December 31, 2007.

Dividendson Federal Home Loan Bank stock and other income decreased by $138,000, or 36.9%, for the nine months ended December 31, 2008, compared to the same period in 2007, due primarily to a decrease in the weighted-average yield of 170 basis points resulting from reductions in short term market interest rates, to 2.77% for the 2008 period from 4.47% for the nine months ended December 31, 2007.

Interest Expense

Interest expense totaled $7.3 million for the nine months ended December 31, 2008, a decrease of $1.7 million, or 18.6%, compared to the nine months ended December 31, 2007.  The decrease resulted from a 64 basis point decrease in the weighted-average cost of funds to 2.67% for the 2008 period, partially offset by an increase of $3.5 million in the average balance of deposits and borrowings outstanding, from $359.5 million to $363.1 million for the nine month period ended December 31, 2008.

Interest expense on deposits totaled $5.8 million for the nine months ended December 31, 2008, a decrease of $1.7 million, or 22.3%, compared to the nine months ended December 31, 2007, as a result of a 65 basis point decrease in the weighted-average cost of deposits to 2.47% for the 2008 period coupled with a decrease in the average balance outstanding of $4.9 million, or 1.6%, to $313.1 million for the 2008 period.  The decrease in the rate was due to the Federal Reserve rate decreases discussed above.

Interest expense on other short-term borrowings totaled $57,000 for the nine months ended December 31, 2008, a decrease of $122,000, from the 2007 period, primarily due to a decrease in the weighted-average cost of 510 basis points, to .85% for the nine months ended December 31, 2008 due to the Federal Reserve rate decreases.  This was partially offset by an increase in the average balance of short-term borrowings of $2.9 million.

18

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Interest expense on Federal Home Loan Bank advances totaled $1.4 million for the nine months ended December 31, 2008, an increase of $116,000, over the 2007 period, primarily due to an increase in the average balance of $5.6 million, or 15.7%, 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 $9.0 million for the nine months ended December 31, 2008, an increase of $617,000, or 7.4%, compared to the nine month period ended December 31, 2007.  The average interest rate spread increased to 3.07% for the nine months ended December 31, 2008 from 2.84% for the nine months ended December 31, 2007, due to management’s strategy not to compete with national and online competitors offering higher rates on deposits 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 certificates of deposit to lower cost Federal Home Loan Bank advances.  The net interest margin increased to 3.18% for the nine months ended December 31, 2008 from 2.98% for the nine months ended December 31, 2007.

Provision for Loan Losses

Management recorded a $346,000 provision for loan losses for the nine month period ended December 31, 2008, an increase of $151,000 compared to the provision for the same period in 2007, primarily due to the increase in non-performing loans and charge-offs during the period.  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  December 31, 2008.

Non-interest Income

Non-interest income, consisting primarily of the earnings on bank-owned life insurance, trust income, service fees and charges on deposit accounts, decreased by $65,000, or 4.7%, for the nine months ended December 31, 2008, compared to the nine months ended December 31, 2007.  The decrease was primarily due to a decrease in service fees, charges and other operating income of $32,000, or 3.1% coupled with a decrease in gain on disposal of foreclosed assets of $21,000, or 67.7%, in the nine months ended December 31, 2008  compared to the same period ended December 31, 2007.

Non-interest Expense

Non-interest expense increased by $101,000, or 1.3%, to $7.7 million for the nine months ended December 31, 2008, compared to the nine months ended December 31, 2007.  The increase was mainly due to an increase in franchise tax of $58,000, or 19.9%, to $349,000 for the nine months ended December 31, 2008, compared to the nine months ended December 31, 2007.  The increase was due primarily to refund claims filed in the 2007 period relating to prior years amended returns.  Occupancy and equipment expense increased $45,000, or 3.0%, mainly due to an increase in real estate tax expense and additional maintenance costs.   Compensation expense increased by $31,000, or 0.7%, during the 2008 period due primarily to an increase in accrued compensation year to year.

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 $593,000 for the nine months ended December 31, 2008, an increase of $100,000, or 20.3%, compared to the same period in 2007. The increase was primarily due to the increase in income before taxes of $300,000, or 14.9%, compared to the same period in 2007.  The effective tax rates were 25.7% and 24.5% for the nine month periods ended December 31, 2008 and 2007, respectively.

Comparison of Operating Results for the Three Month Periods Ended December 31, 2008 and 2007

General

Net income totaled $584,000 for the three months ended December 31, 2008, an increase of $138,000, or 30.9%, compared to net income of $446,000 for the three months ended December 31, 2007.  The increase in net income was primarily attributable to an increase in net interest income of $322,000, or 11.5%, offset by an increase in the provision for loan losses of $45,000, an increase in total non-interest expenses of $25,000, an increase in the provision for federal income taxes of $77,000 and a decrease in non-interest income of $37,000.

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 December 31,
	2008							2007
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net1	$	256,409	$	3,927		6.13	%	$	247,985	$	4,204		6.78	%
Investment securities2		111,905		1,416		5.06			121,366		1,514		4.99
Interest-earning deposits3		10,130		65		2.57			9,931		108		4.35
Total interest-earning assets		378,444		5,408		5.72			379,282		5,826		6.14
Non-interest-earning assets		21,619							21,650
Total assets	$	400,063						$	400,932
Interest-bearing liabilities:
Deposits	$	311,315		1,798		2.31		$	316,761		2,493		3.15
Other short-term borrowings		9,531		13		.55			7,164		62		3.46
Borrowings		42,609		479		4.50			38,426		475		4.94
Total interest-bearing liabilities		363,455		2,290		2.52			362,351		3,030		3.34
Non-interest bearing  liabilities		3,382							3,864
Total liabilities		366,837							366,215
Stockholders’ equity		33,226							34,717
Total liabilities and stockholders’ equity	$	400,063						$	400,932
Net interest income			$	3,118						$	2,796
Interest rate spread4						3.20	%						2.80	%
Net yield on interest- earning assets5						3.30	%						2.95	%
Ratio of average interest- earning assets to average  interest-bearing liabilities						104.12	%						104.67	%

____________________________________________

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 $418,000 or 7.2%, to $5.4 million for the three months ended December 31, 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 5.72% in the 2008 period from 6.14% for the three month period ended December 31, 2007 and a decrease of $838,000 in the average balance of interest-earning assets outstanding to $378.4 million for the three months ended December 31, 2008, from $379.3 million for the comparable period ended December 31, 2007.The yield decrease was primarily due to the Federal Reserve’s interest rate cuts from December 31, 2007 to December 31, 2008.

Interest income on loans decreased by $277,000, or 6.6%, for the three months ended December 31, 2008, compared to the same period in 2007, due primarily to a reduction in weighted-average rate on loans from 6.78% for the quarter ending December 31, 2007 to 6.13% for the December 31, 2008 quarter.  As discussed earlier, this was mainly due to a decrease in rates of 400 basis points implemented by the Federal Reserve over the past year and the corresponding impact on adjustable rate loans and new originations.   This decrease was partially offset by an increase in the average balance of loans outstanding period to period of $8.4 million, or 3.4%, to $256.4 million for the 2008 period.

Interest income on securities decreased by $98,000, or 6.5%, during the three months ended December 31, 2008, compared to the same period in 2007.  This decrease was primarily due to a $9.5 million, or 7.8%, reduction in the average balance of securities, slightly offset by an increase in the weighted average rate to 5.06% for the three months ended December 31, 2008 compared to 4.99% for the same period ended December 31, 2007.

Dividends on Federal Home Loan Bank stock and other income decreased by $43,000, or 39.8%, for the three months ended December 31, 2008, compared to the same period in 2007, due primarily to a decrease in the weighted-average yield of 178 basis points resulting from reductions in short term market interest rates, to 2.57% for the 2008 quarter from 4.35% for the period ended December 31, 2007.

Interest Expense

Interest expense totaled $2.3 million for the three months ended December 31, 2008, a decrease of $740,000, or 24.4%, compared to the three months ended December 31, 2007.  The decrease resulted from an 82 basis point decrease in the weighted-average cost of funds to 2.52% for the 2008 period, partially offset by an increase of $1.1 million in the average balance of deposits and borrowings outstanding from $362.4 million to $363.5 million for the three month period ended December 31, 2008.

Interest expense on deposits totaled $1.8 million for the three months ended December 31, 2008, a decrease of $695,000, or 27.9%, compared to the three months ended December 31, 2007, as a result of an 84 basis point decrease in the weighted-average cost of deposits to 2.31% for the 2008 period coupled with a decrease in the average balance outstanding of $5.4 million, or 1.7%, to $311.3 million for the 2008 period.  The decrease in the rate was due to the Federal Reserve rate decreases discussed above.

Interest expense on other short-term borrowings totaled $13,000 for the three months ended December 31, 2008, a decrease of $49,000, from the 2007 period, primarily due to a decrease in the weighted-average cost of 291 basis points, to .55% for the three months ended December 31, 2008, due to the Federal Reserve rate decreases.  This was partially offset by an increase in the average balance of short-term borrowings of $2.4 million.

22

Wayne Savings Bancshares, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Interest expense on Federal Home Loan Bank advances totaled $479,000 for the three months ended December 31, 2008, an increase of $4,000, over the 2007 period, primarily due to an increase in the average balance of $4.1 million, or 10.9%, as the Company replaced the loss of higher cost retail certificates of deposit with lower cost Federal Home Loan Bank advances. This was offset by a decrease of 44 basis points in the weighted-average cost of Federal Home Loan Bank advances to 4.50% for the 2008 period.

Net Interest Income

Net interest income totaled $3.1 million for the three months ended December 31, 2008, an increase of $322,000, or 11.5%, compared to the three month period ended December 31, 2007.  The average interest rate spread increased to 3.20% for the three months ended December 31, 2008 from 2.80% for the three months ended December 31, 2007.  The net interest margin increased to 3.30% for the three months ended December 31, 2008 from 2.95% for the three months ended December 31, 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 certificates of deposit to lower cost Federal Home Loan Bank advances.

Provision for Loan Losses

Management recorded a $185,000 provision for loan losses for the three month period ended December 31, 2008, an increase of $45,000 compared to the provision for the same period in 2007, primarily due to the increase in non-performing loans  and charge-offs during the period.  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 December 31, 2008.

Noninterest Income

Non-interest income, consisting primarily of the earnings on bank-owned life insurance, trust income, service fees and charges on deposit accounts, decreased by $37,000, or 8.1%, for the three months ended December 31, 2008, compared to the three months ended December 31, 2007.  The decrease was primarily due to a decrease in service fees, charges and other operating income of $34,000, or 9.6%, coupled with a $4,000, or 6.8% decrease in earnings on bank-owned life insurance in the three months ended December 31, 2008 compared to the same period ended December 31, 2007.

Non-interest Expense

Non-interest expense increased by $25,000, or 1.0%, to $2.6 million for the three months ended December 31, 2008, compared to the three months ended December 31, 2007.  The increase was mainly due to an increase in salaries and employee benefits of $36,000, or 2.6%, related to an increase in accrued compensation period to period.  Franchise tax expense increased $31,000, or 32.0%, to $128,000 for the three months ended December 31, 2008, compared to the three months ended December 31, 2007, mainly due to refund claims filed in the 2007 period relating to prior years amended returns.

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 $202,000 for the three months ended December 31, 2008, an increase of $77,000, or 61.6%, compared to the same period in 2007.  The increase was primarily due to an increase in income before taxes of $215,000, or 37.7%, compared to the same period in 2007.    The effective tax rates were 25.7% and 21.9% for the three month periods ended December 31, 2008 and 2007, respectively.

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

Not applicable.

ITEM 5.                 Other Information

Media reports during January 2009 suggest a risk of impairment in Federal Home Loan Bank stock.  The Company’s subsidiary, Wayne Savings Community Bank, holds $5.0 million of stock in the Federal Home Loan Bank of Cincinnati (“FHLB”) as part of its membership and to support advance activity as required by the FHLB. Management has reviewed the rating agency report underlying the media reports, and along with regular review of the FHLB of Cincinnati’s filings with the SEC, has concluded that the investment is not impaired at this time.

26

Wayne Savings Bancshares, Inc.

PART II

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:  February 12, 2009	By:	/s/Phillip E. Becker
		Phillip E. Becker
		President and Chief Executive Officer
Date:  February 12, 2009	By:	/s/H. Stewart Fitz Gibbon III
		H. Stewart Fitz Gibbon III
		Executive Vice President and
		Chief Financial Officer

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