form10q-89332_wayn.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q
 
(Mark One)

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
  
 
OF THE SECURITIES EXCHANGE ACT OF 1934
  
     
For the quarterly period ended
December 31, 2007
  
     
 
OR
  
     
o
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  ý
No o 

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 o
Accelerated filer o
Non-accelerated filer  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 4, 2008, the latest practicable date, 3,125,006 shares of the registrant’s common stock, $.10 par value, were issued and outstanding.

1

Wayne Savings Bancshares, Inc.
 
Index

   
Page
     
 
     
3
 
4
 
5
 
6
 
8
     
12
     
23
     
23
     
     
 
     
24
     
24
     
24
     
24
     
24
     
25
     
25
     
26


2
Wayne Savings Bancshares, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 


 
   
December 31, 2007
  
March 31, 2007
  
   
(Unaudited)
        
ASSETS
            
Cash and due from banks
   $ 2,390     $ 2,194  
Federal funds sold
     ––       9,000  
Interest-earning deposits in other financial institutions
     6,015       6,021  
Cash and cash equivalents
     8,405       17,215  
Investment securities available for sale - at fair value
     35,787       54,128  
Investment securities held to maturity - at amortized cost, approximate fair value of $494 and $573 at December 31, 2007 and March 31, 2007, respectively
     489       565  
Mortgage-backed securities available for sale - at fair value
     82,949       67,856  
Mortgage-backed securities held to maturity - at amortized cost, approximate fair value of $916 and $1,219 at December 31, 2007 and March 31, 2007, respectively
     912       1,209  
Loans receivable - net of allowance for loan losses of $1,735 and $1,523 at
December 31, 2007 and March 31, 2007, respectively
     248,389       240,049  
Office premises and equipment - net
     8,025       8,179  
Real estate acquired through foreclosure
     48       ––  
Federal Home Loan Bank stock - at cost
     4,829       4,829  
Cash surrender value of life insurance
     6,209       6,034  
Accrued interest receivable on loans
     1,101       1,100  
Accrued interest receivable on mortgage-backed securities
     375       314  
Accrued interest receivable on investments and interest-bearing deposits
     304       667  
Prepaid expenses and other assets
     794       1,065  
Goodwill and other intangible assets
     2,322       2,402  
Prepaid federal income taxes
     22       125  
Total assets
   $ 400,960     $ 405,737  
                 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Deposits
   $ 323,919     $ 333,540  
Advances from the Federal Home Loan Bank
     38,500       34,500  
Advances by borrowers for taxes and insurance
     1,050       616  
Accrued interest payable
     348       383  
Accounts payable on mortgage loans serviced for others
     283       197  
Other liabilities
     1,115       1,071  
Deferred federal income taxes
     1,094       997  
Total liabilities
     366,309       371,304  
                 
Commitments
     ––       ––  
                 
Stockholders’ equity
                
Preferred stock (500,000 shares of $.10 par value authorized; no shares issued)
     ––       ––  
Common stock (9,000,000 shares of $.10 par value authorized; 3,978,731 shares issued)
     398       398  
Additional paid-in capital
     36,136       36,106  
Retained earnings - substantially restricted
     12,363       11,982  
Less required contributions for shares acquired by Employee Stock Ownership Plan
     (1,097 )     (1,158 )
Less 853,725 and 784,622 shares of treasury stock at December 31, 2007 and March 31, 2007, respectively - at cost
     (13,273 )     (12,419 )
Accumulated comprehensive income (loss), net of tax effects
     124       (476 )
Total stockholders’ equity
     34,651       34,433  
Total liabilities and stockholders’ equity
   $ 400,960     $ 405,737  


See accompanying notes to consolidated financial statements. 
3
Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
 


   
Nine months ended
December 31,
    
Three months ended
December 31,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Interest income
                        
Loans
   $ 12,518     $ 11,924     $ 4,204     $ 4,048  
Mortgage-backed securities
     2,969       2,327       1,062       846  
Investment securities
     1,457       2,082       452       627  
Interest-bearing deposits and other
     374       360       108       158  
Total interest income
     17,318       16,693       5,826       5,679  
                                 
Interest expense
                                
Deposits
     7,624       7,194       2,555       2,545  
Borrowings
     1,298       1,038       475       410  
Total interest expense
     8,922       8,232       3,030       2,955  
                                 
Net interest income
     8,396       8,461       2,796       2,724  
Provision for losses on loans
     195       70       140       10  
Net interest income after provision for losses on loans
     8,201       8,391       2,656       2,714  
Other income
                                
Increase in cash surrender value of life insurance
     175       167       59       57  
Trust income
     141       88       45       35  
Gain on disposal of real estate acquired through foreclosure
     31       –       –       –  
Service fees, charges and other operating
     1,028       1,035       354       341  
Total other income
     1,375       1,290       458       433  
                                 
General, administrative and other expense
                                
Employee compensation and benefits
     4,177       4,179       1,394       1,332  
Occupancy and equipment
     1,483       1,438       500       503  
Federal deposit insurance premiums
     28       31       9       11  
Franchise taxes
     291       177       97       (21 )
Amortization of intangible assets
     80       80       27       27  
Other operating
     1,508       1,475       516       503  
Total general, administrative and other expense
     7,567       7,380       2,543       2,355  
Income before income taxes
     2,009       2,301       571       792  
Federal incomes taxes
                                
Current
     706       608       247       310  
Deferred
     (213 )     53       (122 )     (81 )
Total federal income taxes
     493       661       125       229  
NET INCOME
   $ 1,516     $ 1,640     $ 446     $ 563  
EARNINGS PER SHARE
                                
Basic
   $ 0.49     $ 0.51     $ 0.14     $ 0.18  
Diluted
   $ 0.49     $ 0.51     $ 0.14     $ 0.18  
DIVIDENDS PER SHARE
   $ 0.36     $ 0.36     $ 0.12     $ 0.12  


See accompanying notes to consolidated financial statements. 
4
WAYNE SAVINGS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 



   
Nine Months Ended
December 31,
    
Three Months Ended
December 31,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Net income
   $ 1,516     $ 1,640     $ 446     $ 563  
Other comprehensive income:
                                
Unrealized holding gains on securities, net of related taxes of $309, $307, $326 and $83 during the respective periods
     600       598       632       162  
                                 
Comprehensive income
   $ 2,116     $ 2,238     $ 1,078     $ 725  
                                 
Accumulated comprehensive income (loss)
   $ 124     $ (413 )   $ 124     $ (413 )
                                 
                                 


See accompanying notes to consolidated financial statements. 
5
Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended December 31,
(In thousands)
(Unaudited)
 



   
2007
    
2006
  
             
Cash flows from operating activities:
            
Net income for the period
   $ 1,516     $ 1,640  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Amortization of discounts and premiums on loans,  investments and mortgage-backed securities – net
     (64 )     (66 )
Amortization of deferred loan origination fees
     (39 )     (39 )
Depreciation and amortization
     488       528  
Amortization of expense related to ESOP
     91       109  
Provision for losses on loans
     195       70  
Gain on disposal of real estate acquired through foreclosure
     (31 )     –  
Federal Home Loan Bank stock dividends
     –       (206 )
Increase in cash surrender value of life insurance
     (175 )     (167 )
Increase (decrease) in cash due to changes in:
                
Accrued interest receivable on loans
     (1 )     (109 )
Accrued interest receivable on mortgage-backed securities
     (61 )     (38 )
Accrued interest receivable on investments and interest-bearing deposits
     363       236  
Prepaid expenses and other assets
     272       374  
Amortization of expense related to intangibles
     80       80  
Accrued interest payable
     (35 )     91  
Accounts payable on mortgage loans serviced for others
     86       66  
Other liabilities
     44       (36 )
Federal income taxes
                
Current
     103       (279 )
Deferred
     (213 )     53  
Net cash provided by operating activities
     2,619       2,307  
                 
Cash flows provided by (used in) investing activities:
                
Purchase of investment securities designated as available for sale
     (6,569 )     (1,101 )
Proceeds from maturity of investment securities designated as held to maturity
     76       2,708  
Proceeds from sale of investment securities designated as held to maturity
     –       2,512  
Proceeds from maturity of investment securities designated as available for sale
     25,223       11,091  
Purchase of mortgage-backed securities designated as available for sale
     (29,644 )     (15,584 )
Principal repayments on mortgage-backed securities designated as held to maturity
     294       500  
Principal repayments and sales of mortgage-backed securities designated as available for sale
     15,215       7,380  
Loan principal repayments
     28,831       38,643  
Loan disbursements
     (37,453 )     (44,114 )
Purchase of office premises and equipment - net
     (334 )     (234 )
Proceeds from sale of real estate acquired through foreclosure
     108       156  
Net cash provided by (used in) investing activities
     (4,253 )     1,957  
                 
Net cash provided by (used in) operating and investing activities (balance carried forward)
     (1,634 )     4,264  


See accompanying notes to consolidated financial statements. 
6
Wayne Savings Bancshares, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended December 31,
(In thousands)
(Unaudited)
 



   
2007
    
2006
  
       
Net cash provided by (used in) operating and investing activities
            
  (balance brought forward)
   $ (1,634 )   $ 4,264  
                 
Cash flows provided by (used in) financing activities:
                
Net increase (decrease)  in deposit accounts
     (9,621 )     2,855  
Proceeds from Federal Home Loan Bank advances
     44,450       78,400  
Repayments of Federal Home Loan Bank advances
     (40,450 )     (76,650 )
Advances by borrowers for taxes and insurance
     434       479  
Dividends paid on common stock
     (1,135 )     (1,190 )
Proceeds from exercise of stock options
     –       602  
Purchase of treasury shares
     (854 )     (1,993 )
Net cash provided by (used in) financing activities
     (7,176 )     2,503  
                 
Net increase (decrease) in cash and cash equivalents
     (8,810 )     6,767  
                 
Cash and cash equivalents at beginning of period
     17,215       14,123  
                 
Cash and cash equivalents at end of period
   $ 8,405     $ 20,890  
                 
Supplemental disclosure of cash flow information:
                
Cash paid during the period for:
                
Federal income taxes
   $ 710     $ 830  
                 
Interest on deposits and borrowings
   $ 8,957     $ 8,141  
                 
Supplemental disclosure of noncash investing activities:
                
Transfers from loans to real estate acquired through foreclosure
   $ 149     $ –  
                 
Unrealized gains on securities designated as available for sale,
                
    net of related tax effects
   $ 600     $ 598  
                 
Dividends payable
   $ 375     $ 390  



See accompanying notes to consolidated financial statements. 
7
Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
For the nine and three month periods ended December 31, 2007 and 2006
 


Note 1:
Basis of Presentation
 
The accompanying unaudited consolidated financial statements for the nine and three months ended December 31, 2007 and 2006 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, 2007.
 
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, 2007 are not necessarily indicative of the results which may be expected for the entire fiscal year.
 
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 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 banking locations in Wayne, Holmes, Ashland, Medina and Stark counties.  All significant intercompany transactions and balances have been eliminated in the consolidation.
 

8
Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
For the nine and three month periods ended December 31, 2007 and 2006
 


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,
  
   
2007
    
2006
    
2007
    
2006
  
                         
Weighted-average common shares outstanding (basic)
     3,061,671       3,209,885       3,027,848       3,239,078  
                                 
Dilutive effect of assumed exercise of stock options
     –       7,315       –       5,010  
                                 
Weighted-average common shares outstanding (diluted)
     3,061,671       3,217,200       3,027,848       3,244,088  

None of the outstanding options were included in the diluted earnings per share calculation for the nine or three month periods ended December 31, 2007 as the average fair value of the shares was less than the option exercise prices.  All of  the outstanding options were included in the diluted earnings per share calculation for the three and nine month periods ended in  December 31, 2006.
 

Note 4:
Stock Option Plan
 
The Company maintains a 1993 incentive Stock Option Plan that provided for the issuance of 196,390 shares of authorized common stock, as adjusted, with no options outstanding at December 31, 2007.  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, 2007, 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 each of the nine and three months ended December 31, 2007 and 2006.  There was no compensation expense recognized for the stock option plan during the nine month periods ended December 31, 2007 and 2006, as all options were fully vested prior to these periods.
 

9
Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
For the nine and three month periods ended December 31, 2007 and 2006
 


A summary of the status of the Company’s stock option plans as of and for the nine months ended December 31, 2007 and for the years ended March 31, 2007 and 2006, is presented below:
 

   
Nine months ended
December 31,
    
Year ended
March 31,
  
   
2007
    
2007
    
2006
  
   
Shares
    
Weighted
Average
exercise
price
    
Shares
    
Weighted
 Average
exercise
price
    
Shares
    
Weighted
Average
exercise
price
  
Outstanding at beginning of period
     114,224     $ 13.95       179,148     $ 13.92       214,204     $ 13.84  
Granted
     ––       ––       ––       ––       ––       ––  
Exercised
     ––       ––       (60,924 )     13.86       (27,556 )     13.32  
Forfeited
     ––       ––       (4,000 )     13.95       (7,500 )     13.95  
                                                 
Outstanding at end of period
     114,224     $ 13.95       114,224     $ 13.95       179,148     $ 13.92  
                                                 
Options exercisable at period-end
     114,224     $ 13.95       114,224     $ 13.95       179,148     $ 13.92  


 
The following information applies to options outstanding at December 31, 2007:
 
Number outstanding
     114,224  
Exercise price on all remaining options outstanding
   $ 13.95  
Weighted-average remaining contractual life
  
6.25 years
  

Note 5:
Recent Accounting Developments
 
In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 156, “Accounting for Servicing of Financial Assets – an amendment of SFAS No. 140,” to simplify the accounting for separately recognized servicing assets and servicing liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an entity to take the following steps:
 
 
●
Separately recognize financial assets as servicing assets or servicing liabilities, each time it undertakes an obligation to service a financial asset by entering into certain kinds of servicing contracts;
 
●
Initially measure all separately recognized servicing assets and liabilities at fair value, if practicable; and
 
●
Separately present servicing assets and liabilities subsequently measured at fair value in the statement of financial condition and additional disclosures for all separately recognized servicing assets and servicing liabilities.

10
Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
For the nine and three month periods ended December 31, 2007 and 2006
 


Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 also permits a servicer that uses derivative financial instruments to offset risks on servicing to use fair value measurement when reporting both the derivative financial instrument and related servicing asset or liability.
 
SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, or April 1, 2007 as to the Company.  Management adopted SFAS No. 156 effective April 1, 2007, as required, without material effect on the Company’s consolidated statements of financial condition or results of operations.
 
In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes.”  The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”  Specifically, FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax provision taken or expected to be taken on a tax return.  FIN 48 also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure, and transition of uncertain tax positions.  FIN 48 is effective for fiscal years beginning after December 15, 2006, or April 1, 2007 as to the Company.  Management adopted FIN 48 effective April 1, 2007, as required, without material effect on the Company’s consolidated statements of financial position or results of operations.
 
In September 2006, the FASB issued 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 adoption of this Statement is not expected to have a material adverse effect on the Company’s financial position or results of operations.
 
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 is currently evaluating the impact the adoption of SFAS No. 159 will have on the financial statements.
 

11
Wayne Savings Bancshares, Inc.
ITEM 2    Management’s Discussion and Analysis of Financial            
Condition and Results of Operations
 



Average Balance Sheet
 
The following tables set 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,
  
   
2007
    
2006
  
   
Average
Balance
    
Interest
    
Average
Rate
    
Average
Balance
    
Interest
    
Average
Rate
  
   
(Dollars in thousands)
  
Interest-earning assets:
                                    
Loans receivable, net1
   $ 244,546     $ 12,518       6.83 %   $ 236,917     $ 11,924       6.71 %
Mortgage-backed securities2
     74,785       2,969       5.29       62,637       2,327       4.95  
Investment securities
     45,281       1,457       4.29       66,724       2,082       4.16  
Interest-bearing deposits3
     11,148       374       4.47       11,705       360       4.10  
Total interest-earning assets
     375,760       17,318       6.15       377,983       16,693       5.89  
Non-interest-earning assets
     21,768                       22,781                  
                                                 
Total assets
   $ 397,528                     $ 400,764                  
                                                 
Interest-bearing liabilities:
                                                
Deposits
   $ 324,018       7,624       3.14     $ 331,637       7,194       2.89  
Borrowings
     35,530       1,298       4.87       30,247       1,038       4.58  
Total interest-bearing liabilities
     359,548       8,922       3.31       361,884       8,232       3.03  
                                                 
Non-interest bearing  liabilities
     3,651                       3,221                  
Total liabilities
     363,199                       365,105                  
Stockholders’ equity
     34,329                       35,659                  
Total liabilities and stockholders’ equity
   $ 397,528                     $ 400,764                  
Net interest income
           $ 8,396                     $ 8,461          
Interest rate spread4
                     2.84 %                     2.86 %
Net yield on interest- earning assets5
                     2.98 %                     2.98 %
Ratio of average interest- earning assets to average  interest-bearing liabilities
                     104.51 %                     104.45 %

________________________________________________
1  Includes non-accrual loan balances.
2  Includes mortgage-backed securities designated as available for sale.
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.

12
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 



   
For the three months ended December 31,
  
   
2007
    
2006
  
   
Average
Balance
    
Interest
    
Average
 Rate
    
Average
Balance
    
Interest
    
Average
Rate
  
   
(Dollars in thousands)
  
Interest-earning assets:
                                    
Loans receivable, net1
   $ 247,985     $ 4,204       6.78 %   $ 238,683     $ 4,048       6.78 %
Mortgage-backed securities2
     79,520       1,062       5.34       66,485       846       5.09  
Investment securities
     41,846       452       4.32       61,419       627       4.08  
Interest-bearing deposits3
     9,931       108       4.35       14,261       158       4.43  
Total interest-earning assets
     379,282       5,826       6.14       380,848       5,679       5.96  
                                                 
Non-interest-earning assets
     21,650                       22,782                  
Total assets
   $ 400,932                     $ 403,630                  
Interest-bearing liabilities:
                                                
Deposits
   $ 323,925       2,555       3.16     $ 329,691       2,545       3.09  
Borrowings
     38,426       475       4.94       34,586       410       4.74  
Total interest-bearing liabilities
     362,351       3,030       3.34       364,277       2,955       3.24  
                                                 
Non-interest bearing liabilities
     3,864                       3,838                  
Total liabilities
     366,215                       368,115                  
Stockholders’ equity
     34,717                       35,515                  
Total liabilities and stockholders’ equity
   $ 400,932                     $ 403,630                  
Net interest income
           $ 2,796                     $ 2,724          
Interest rate spread4
                     2.80 %                     2.72 %
                                                 
Net yield on interest-earning assets5
                     2.95 %                     2.86 %
Ratio of average interest-earning assets to average interest-bearing liabilities
                     104.67 %                     104.55 %

__________________________________________
1  Includes non-accrual loan balances.
2  Includes mortgage-backed securities designated as available for sale.
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.

13
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


Discussion of Financial Condition Changes from March 31, 2007 to December 31, 2007
 
At December 31, 2007, the Company had total assets of $401.0 million, a decrease  of $4.8 million, or 1.2%, from March 31, 2007 levels.
 
Liquid assets, consisting of cash, federal funds sold, interest-bearing deposits and investment securities, decreased by $27.2 million, or 37.9%, to $44.7 million at December 31, 2007, due primarily to maturities of investment securities totaling $25.3 million, partially offset by purchases of $6.6 million, and a reduction of federal funds sold by $9.0 million.  The decrease in federal funds sold is directly related to the reduction in deposit balances, as management chose to limit its competition with retail certificate of deposit offerings above alternate cost of funds.
 
Mortgage-backed securities increased by $14.8 million, or 21.4%, during the nine months ended December 31, 2007.  This increase was primarily due to purchases of $29.6 million and market value increases on available for sale securities of $687,000 during the period, partially offset by $15.5 million in principal repayments.  Purchases were funded by principal repayments on loans and proceeds from maturities of investment securities.
 
At December 31, 2007, loans receivable increased by $8.3 million, or 3.5%, compared to March 31, 2007, as the Bank originated and retained $37.5 million of loans and received payments of $28.8 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, 2007, due to a net increase of $5.2 million in non-residential real estate loans, a decrease in the loans in process of $4.1 million, as the commercial lending department was able to disburse payments to previously committed loans, an increase of $400,000 in commercial loans and an increase of $637,000 in consumer loans.  These increases were offset by a decrease in one- to four-family mortgage loans of $1.8 million as principal repayments exceeded the origination of new loans.
 
   
December 31, 2007
    
March 31, 2007
  
   
(Dollars in thousands)
  
Mortgage loans:
                        
One- to four-family residential(1)
   $ 142,507       56.17 %   $ 144,311       57.87 %
Residential construction loans
     1,973       .78       2,019       .81  
Multi-family residential
     8,994       3.54       8,938       3.59  
Non-residential real estate/land(2)
     67,046       26.42       61,873       24.82  
Total mortgage loans
     220,520       86.91       217,141       87.09  
Other loans:
                                
Consumer loans(3)
     6,097       2.40       5,460       2.19  
Commercial business loans
     27,130       10.69       26,730       10.72  
Total other loans
     33,227       13.09       32,190       12.91  
Total loans before net items
     253,747       100.00 %     249,331       100.00 %
Less:
                                
Loans in process
     3,214               7,334          
Deferred loan origination fees
     409               425          
Allowance for loan losses
     1,735               1,523          
Total loans receivable, net
   $ 248,389             $ 240,049          
Mortgage-backed securities, net(4)
   $ 83,438             $ 69,065          
_________________________________
 
(1)
Includes equity loans collateralized by second mortgages in the aggregate amount of $17.9 million and $19.2 million as of December 31, 2007 and March 31, 2007, respectively. Such loans have been underwritten on substantially the same basis as the Company’s first mortgage loans.
(2)
Includes land loans of $196,000 and $204,000 as of December 31, 2007 and March 31, 2007, respectively.
(3)
Includes second mortgage loans of $1.3 million and $605,000 as of December 31, 2007 and March 31, 2007, respectively.
(4)
Includes mortgage-backed securities designated as available for sale.

14
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 $950,000 at December 31, 2007 and March 31, 2007, respectively.  At December 31, 2007 non-performing loans consisted of residential mortgage loans of $882,000, two commercial real estate loans with a combined balance of $1.0 million and a $91,000 commercial loan.  At March 31, 2007, non-performing loans were comprised of $683,000 in residential loans and a $267,000 commercial real estate loan.  During the quarter ended December 31, 2007, the Company evaluated the three commercial 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 three 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 December 31, 2007 and March 31, 2007.
 

   
December 3,
2007
    
March 31,
2007
  
   
(Dollars in thousands)
  
Past due loans 30-89 days:
            
Mortgage loans:
            
One- to four-family residential
   $ 1,014     $ 270  
Nonresidential
     ––       ––  
Land
     ––       ––  
Non-mortgage loans:
                
Commercial business loans
     47       ––  
Consumer loans
     4       11  
    $ 1,065     $ 281  
                 
Non-performing loans:
                
Mortgage loans:
                
One- to four-family residential
   $ 743     $ 683  
All other mortgage loans
     139       ––  
Non-mortgage loans:
                
Commercial business loans
     1,142       267  
Consumer
     2       ––  
Total non-performing loans
     2,026       950  
Total real estate acquired through foreclosure
     48       ––  
Total non-performing assets
   $ 2,074     $ 950  
                 
                 
Total non-performing loans to net loans receivable
     0.82 %     0.40 %
Total non-performing loans to total assets
     0.51 %     0.23 %
Total non-performing assets to total assets
     0.52 %     0.23 %



15
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, 2007
    
For the
year ended
March 31, 2007
  
   
(Dollars in thousands)
  
             
Loans receivable, net
   $ 248,389     $ 240,049  
Average loans receivable, net
   $ 244,546     $ 237,429  
Allowance balance (at beginning of period)
   $ 1,523     $ 1,484  
Charge-offs:
                
Mortgage loans:
                
One- to four-family
     (15 )     (31 )
Residential construction
     ––       ––  
Multi-family residential
     ––       ––  
Non-residential real estate and land
     ––       (31 )
Other loans:
                
Consumer
     (2 )     (21 )
Commercial
     ––       ––  
Gross charge-offs
     (17 )     (83 )
Recoveries:
                
Mortgage loans:
                
One- to four-family
     13       1  
Residential construction
     ––       ––  
Multi-family residential
     ––       ––  
Non-residential real estate and land
     ––       ––  
Other loans:
                
Consumer
     21       21  
Commercial
     ––       ––  
Gross recoveries
     34       22  
Net (charge-offs) recoveries
     17       (61 )
Provision charged to operations
     195       100  
Allowance for loans losses balance (at end of period)
   $ 1,735     $ 1,523  
Allowance for loan losses as a percent of loans receivable, net at end of period
     0.70 %     0.63 %
Net loans charged off as a percent of average loans receivable, net
     0.00 %     0.03 %
Ratio of allowance for loan losses to non-
                
  performing loans at end of period
     85.64 %     160.32 %



16
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


Deposits totaled $323.9 million at December 31, 2007, a decrease of $9.6 million, or 2.9%, from $333.5 million at March 31, 2007.  Certificates of deposit decreased by $10.1 million, savings accounts decreased by $7.5 million and NOW accounts decreased by $934,000.  These decreases were partially offset by an increase in money market deposits of $6.7 million and an increase in commercial repurchase agreements of $2.2 million.  The Company continues to experience a shift in depositor preference from low cost liquid deposit accounts to higher cost money market and retail certificate 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.
 
Borrowings totaled $38.5 million at December 31, 2007, an increase of $4.0 million, or 11.6%, as compared with $34.5 million at March 31, 2007.  The Company increased its borrowings to compensate for the loss of  higher cost retail certificates of deposit and low cost passbook savings accounts as discussed above.
 
Stockholders’ equity increased by $218,000, or 0.6%, during the nine months ended December 31, 2007, due primarily to net income of $1,516,000 and an increase in unrealized gains on available for sale securities of $600,000, which were partially offset by purchases of treasury stock of $854,000 and dividend payments of $1.1 million.
 

Comparison of Operating Results for the Nine Month Periods Ended December 31, 2007 and 2006
 
General
 
Net income totaled $1,516,000 for the nine months ended December 31, 2007, a decrease of $124,000, or 7.6%, compared to net income of $1,640,000 for the nine months ended December 31, 2006.  The decrease in net income was primarily attributable to an increase in the provision for loan losses of $125,000, a decrease in net interest income of $65,000 or 0.8%, and an increase in other operating expenses of $187,000, or 2.5%, partially offset by an increase in other income of $85,000 and a decrease in federal income taxes of $168,000, or 25.4%.
 

Interest Income
 
Interest income increased by $625,000, or 3.7%, to $17.3 million for the nine months ended December 31, 2007, compared to the same period in 2006.  This increase was due to an increase in the weighted-average yield on interest-earning assets to 6.15% in the 2007 period from 5.89% for the nine month period ended December 31, 2006.  The average balance of interest-earning assets decreased by $2.2 million to $375.8 million for the nine months ended December 31, 2007, from $378.0 million for the comparable period ended December 31, 2006. The yield increase was primarily due to a change in the composition of loans, mainly due to the increase in higher rate nonresidential real estate, commercial, and land loans.
 

17
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


Interest income on loans increased by $594,000, or 5.0%, for the nine months ended December 31, 2007, compared to the same period in 2006, due primarily an increase in the average balance of loans outstanding period to period of $7.6 million, or 3.2%, to $244.5 million for the 2007 period, coupled with an increase in the weighted-average yield of 12 basis points to 6.83% for the nine months ended December 31, 2007.
 
Interest income on mortgage-backed securities increased by $642,000, or 27.6%, during the nine months ended December 31, 2007, compared to the same period in 2006.  This was primarily due to an increase of $12.1 million, or 19.4%, in the average balance outstanding and a 34 basis point increase in the weighted-average yield to 5.29%.
 
Interest income on investment securities decreased by $625,000, or 30.0%, during the nine months ended December 31, 2007, compared to the same period in 2006, reflecting a decrease in the average balance outstanding of $21.4 million, or 32.1%, to $45.3 million for the 2007 period from $66.7 million during the comparable 2006 period, partially offset by an increase in the weighted-average yield to 4.29% from 4.16% for the nine month period in 2006.
 
Interest income on interest-bearing deposits increased by $14,000, or 3.9%, for the nine months ended December 31, 2007, compared to the same period in 2006, due primarily to an increase in the weighted-average yield of 37 basis points, to 4.47% for the 2007 period from 4.10% for the nine months ended December 31, 2006, offset by a decrease in the average balance outstanding of $557,000,  or 4.8%.

Interest Expense
 
Interest expense totaled $8.9 million for the nine months ended December 31, 2007, an increase of $690,000, or 8.4%, over the nine months ended December 31, 2006.  The increase resulted from a 28 basis point increase in the weighted-average cost of funds to 3.31% for the 2007 period, partially offset by a decrease in the average balance of deposits and borrowings outstanding of $2.3 million to $359.5 million for the nine month period ended December 31, 2007.
 
Interest expense on deposits totaled $7.6 million for the nine months ended December 31, 2007, an increase of $430,000, or 6.0%, compared to the nine months ended December 31, 2006, as a result of a 25 basis point increase in the weighted-average cost of deposits to 3.14% for the 2007 period, which was partially offset by a decrease in the average balance outstanding of $7.6 million, or 2.3%, to $324.0 million for the 2007 period.
 
Interest expense on borrowings totaled $1.3 million for the nine months ended December 31, 2007, an increase of $260,000, or 25.0%, over the 2006 period, primarily due to an increase in the average balance outstanding of $5.3 million, or 17.5%, coupled with an increase in the weighted-average yield of 29 basis points, to 4.87% for the nine months ended December 31, 2007.
 

Net Interest Income
 
Net interest income totaled $8.4 million for the nine months ended December 31, 2007, a decrease of $65,000, or 0.8%, compared to the nine month period ended December 31, 2006.  The average interest rate spread decreased to 2.84% for the nine months ended December 31, 2007 from 2.86% for the nine months ended December 31, 2006.  The net interest margin remained at 2.98% for the nine months ended December 31, 2007.  The average interest rate spread decreased mainly due to the cost of deposits increasing at a higher rate than the yield on loans, as maturing certificates of deposit renewed from older, lower rates into higher current rates.  Management has allowed runoff in the retail certificate of deposit portfolio, through a limited response to competitive pricing pressure, to limit the increase in the cost of deposits.
 

18
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


Provision for Losses on Loans
 
Management recorded a $195,000 provision for losses on loans for the nine month period ended December 31, 2007, an increase of $125,000 over the $70,000 recorded for the nine months ended December 31, 2006, primarily due to the increase in non-performing loans as discussed above in the changes in financial condition.  Management evaluated three non-performing commercial loans and elected to charge an additional $140,000 through the provision for loan losses based on updated appraisals and the evaluations of these loans.  The Company generally has not recognized significant losses on non-performing loans secured by residential mortgages. 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, 2007.
 

Other Income
 
Other income, consisting primarily of the cash surrender value of life insurance, trust income, service fees and charges on deposit accounts, increased by $85,000, or 6.6%, for the nine months ended December 31, 2007,  compared to the nine months ended December 31, 2006.  The increase was primarily due to an increase in trust income of $53,000 and a $31,000 gain on disposal of real estate acquired through foreclosure.  The increase in trust income included a $14,000 one-time estate administration fee for the nine months ended December 31, 2007.

General, Administrative and Other Expense
 
General, administrative and other expense increased $187,000, or 2.5% for the nine months ended December 31, 2007, compared to the nine months ended December 31, 2006.  The two areas of significant increase were occupancy and equipment expense of $45,000 and franchise tax expense of $114,000.
 
The increase in occupancy and equipment expense was due primarily to an increase in furniture and equipment expense of $25,000, an increase of $20,000 in branch maintenance costs, an increase of $20,000 in ATM expenses and $13,000 of increased travel expense.  These increases were offset by a $39,000 decrease in depreciation expense.
 
The increase in franchise tax expense was mainly due to the effects of an amendment filed in December 2006 causing a reduction in expense of $97,000 related to prior year tax returns, offset by a reduction in taxes due to the effects of treasury stock repurchases.
 

Federal Income Taxes
 
Federal income tax expense was $493,000 for the nine months ended December 31, 2007, a decrease of $168,000, or 25.4%, compared to the same period in 2006, primarily due to the $292,000, or 12.7%, decrease in pre-tax income.  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.
 


19
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 



Comparison of Operating Results for the three Month Periods Ended December 31, 2007 and 2006
 
General
 
Net income totaled $446,000 for the three months ended December 31, 2007, a decrease of $117,000, or 20.8%, compared to net income of $563,000 for the three months ended December 31, 2006.  The decrease in net income was primarily attributable to an increase in the provision for losses on loans of $130,000 and an increase in total general, administrative and other expenses of $188,000 or 8.0%, offset by an increase in net interest income of $72,000, or 2.6%, a decrease in tax expense of $104,000 or 45.4%, and an increase in other  income of $25,000, or 5.8%.
 

Interest Income
 
Interest income increased by $147,000, or 2.6%, to $5.8 million for the three months ended December 31, 2007, compared to the same period in 2006.  This increase was due to an increase in the weighted-average yield on interest-earning assets to 6.14% in the 2007 period from 5.96% for the three month period ended December 31, 2006.  This increase was offset by a $1.6 million decrease in the average balance of interest-earning assets outstanding to $379.3 million for the three months ended December 31, 2007, from $380.8 million for the comparable period ended December 31, 2006. The yield increase was primarily due to a change in the composition of loans, mainly due to the increase in higher rate nonresidential real estate and land loans.
 
Interest income on loans increased by $156,000, or 3.9%, for the three months ended December 31, 2007, compared to the same period in 2006, due primarily to an increase in the average balance of loans outstanding period to period of $9.3 million, or 3.9%, to $248.0 million for the 2007 period.  The weighted-average rate on loans remained unchanged from the quarter ending December 31, 2006 to December 31, 2007.
 
Interest income on mortgage-backed securities increased by $216,000, or 25.5%, during the three months ended December 31, 2007, compared to the same period in 2006.  This increase was primarily due to an increase of $13.0 million, or 19.6%, in the average balance outstanding and a 25 basis point increase in the weighted-average yield to 5.34%.
 
Interest income on investment securities decreased by $175,000, or 27.9%, during the three-months ended December 31, 2007, compared to the same period in 2006, reflecting a decrease in the average balance outstanding of $19.6 million, or 31.9%, to $41.8 million for the 2007 period from $61.4 million during the comparable 2006 period, partially offset by an increase in the weighted-average yield to 4.32% from 4.08% for the three month period in 2006.
 
Interest income on interest-bearing deposits decreased by $50,000, or 31.4%, for the three months ended December 31, 2007, compared to the same period in 2006, due primarily to a decrease in the weighted-average balance of $4.3 million, or 30.4%, coupled with a decrease in the weighted-average yield of eight basis points, to 4.35% for the 2007 period from 4.43% for the three months ended December 31, 2006.
 


20
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


Interest Expense
 
Interest expense totaled $3.0 million for the three months ended December 31, 2007, an increase of $75,000, or 2.5%, over the three months ended December 31, 2006.  The increase resulted from a 10 basis point increase in the weighted-average cost of funds to 3.34% for the 2007 period, partially offset by a decrease in the average balance of deposits and borrowings outstanding of $1.9 million to $362.4 million for the three month period ended December 31, 2007.
 
Interest expense on deposits totaled $2.6 million for the three months ended December 31, 2007, an increase of $10,000, or 0.4%, compared to the three months ended December 31, 2006, as a result of a seven basis point increase in the weighted-average cost of deposits to 3.16% for the 2007 period, which was partially offset by a decrease in the average balance outstanding of $5.8 million, or 1.7%, to $323.9 million for the 2007 period.
 
Interest expense on borrowings totaled $475,000 for the three months ended December 31, 2007, an increase of $65,000, or 15.9%, over the 2006 period, primarily due to an increase in the average balance outstanding of $3.8 million, or 11.1%, coupled with an increase in the weighted-average yield of 20 basis points, to 4.94% for the three months ended December 31, 2007.
 
Net Interest Income
 
Net interest income totaled $2.8 million for the three months ended December 31, 2007, an increase of $72,000, or 2.6%, compared to the three month period ended December 31, 2006.  The average interest rate spread increased to 2.80% for the three months ended December 31, 2007 from 2.72% for the three months ended December 31, 2006.  The net interest margin increased to 2.95% for the three months ended December 31, 2007 from 2.86% for the three months ended December 31, 2006.  The slight 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.  This was offset by the increase in the cost of borrowings coupled with the cost of deposits increasing at a higher rate than the yield on loans, as maturing certificates of deposit renewed from older, lower rates into higher current rates.  Management has allowed runoff in the retail certificate of deposit portfolio, through a limited response to competitive pricing pressure, to limit the increase in the cost of deposits.

Provision for Losses on Loans
 
Management recorded a $140,000 provision for losses on loans for the three month period ended December 31, 2007, an increase of $130,000 compared to the provision for the same period in 2006, primarily due to the increase in non-performing loans as discussed above in the changes in financial condition section.  The Company evaluated three non-performing commercial loans and charged an additional $140,000 through the provision for loan losses based upon updated appraisals and evaluation of these 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 December 31, 2007.

Other Income
 
Other income, consisting primarily of the cash surrender value of life insurance, trust income, service fees and charges on deposit accounts, increased by $25,000, or 5.8%, for the three months ended December 31, 2007, compared to the three months ended December 31, 2006.  The increase was primarily due to an increase in trust income of $10,000, or 28.6%, mainly due to the growth in the trust department, and an increase of $13,000, or 3.8%, in service fees and charges on deposit accounts.
 

21
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


General, Administrative and Other Expense
 
General, administrative and other expense increased by $188,000, or 8.0%, to $2.5 million for the three months ended December 31, 2007, compared to the three months ended December 31, 2006.  The increase of $62,000, or 4.6%, in employee compensation expense was mainly due to normal merit increases from year to year combined with management's decision to fill certain vacant positions that existed at December 31, 2006 during 2007 to maintain customer service and internal operations.  The franchise tax expense increase of $118,000 was mainly due to the effects of an amendment filed in December 2006 causing a reduction in expense of $97,000 for the quarter ended December 31, 2006.
 

Federal Income Taxes
 
Federal income tax expense was $125,000 for the three months ended December 31, 2007, a decrease of $104,000, or 45.4%, compared to the same period in 2006, primarily due to the $221,000, or 27.9%, decrease in pretax income.  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.
 

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.
 



22
Wayne Savings Bancshares, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 


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, 2007.
 


ITEM 4                  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.
 

23
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, 2007.

ITEM 2.                  Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)           Not applicable
(b)           Not applicable
 
(c)
The following table sets forth certain information regarding repurchases by the Company for the quarter ended December 31, 2007.

 
   
Total
    
Average
    
Total # of
shares purchased
    
Maximum # of shares
which may still be
  
   
# of shares
    
price paid
    
as part of the
    
purchased as part
  
Period
  
purchased
    
per share
    
announced plan
    
of the announced plan
  
                         
October 1-31, 2007
     -     $ -       -       62,180  
November  1-30, 2007
     -     $ -       -       62,180  
December 1-31, 2007
     18,316     $ 11.55       118,360       120,893  

Notes to the Table:

On December 28, 2006, the Company announced the near completion of the repurchase program announced June 6, 2005 and the authorization by the Board of Directors of a new program for the repurchase of 162,165 shares, or 5% of the Company’s outstanding shares.

On December 21, 2007, the Company announced the authorization by the Board of Directors of a new program for the repurchase of 77,029 shares, or 2.5% of the Company’s outstanding shares.

ITEM 3.                   Defaults Upon Senior Securities
 
 Not applicable

ITEM 4                   Submission of Matters to a Vote of Security Holders
 
 Not applicable

24
Wayne Savings Bancshares, Inc.
PART II
 


ITEM 5.                 Other Information
 
Not applicable

ITEM 6.                 Exhibits
 
   
Certification of Chief Executive Officer pursuant
  
     
  to Section 302 of the Sarbanes-Oxley Act of
  
     
  2002, 18 U.S.C. Section 1350
  
         
   
Certification of Chief Financial Officer pursuant
  
     
  to Section 302 of the Sarbanes-Oxley Act of
  
     
  2002, 18 U.S.C. Section 1350
  
         
   
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
  


25


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 5, 2008
  
By:
/s/Phillip E. Becker
       
Phillip E. Becker
       
President and Chief  Executive Officer
         
         
         
Date:
  February 5, 2008
  
By:
/s/H. Stewart Fitz Gibbon III
       
H. Stewart Fitz Gibbon III
       
Executive Vice President and
       
Chief Financial Officer
 
 
 
 
26