Edgar Filing: WAYNE SAVINGS BANCSHARES INC /DE/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2012

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 Offices)	Zip Code

(330) 264-5767

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $.10 per share	The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES ý NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files YES ý NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 and large accelerated filer” 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 shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

As of March 11, 2013, the latest practicable date, there were 2,961,346 issued and outstanding shares of the Registrant’s Common Stock. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last closing price on June 30, 2012, as reported on the Nasdaq Global Market, was approximately $22.7 million.

Wayne Savings Bancshares, Inc.

Form 10-K

For the Year Ended December 31, 2012

PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	31
Item 1B.	Unresolved Staff Comments	35
Item 2.	Properties	36
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	37

PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	37
Item 6.	Selected Financial Data	39
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 8.	Financial Statements and Supplementary Data	52
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	109
Item 9A.	Controls and Procedures	109
Item 9B.	Other Information	110

PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	110
Item 11.	Executive Compensation	110
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	110
Item 13.	Certain Relationships and Related Transactions, and Director Independence	110
Item 14.	Principal Accountant Fees and Services	110

PART IV.
Item 15.	Exhibits and Financial Statement Schedules	111

Table of Contents

PART I

ITEM 1. Business

General

Wayne Savings Bancshares, Inc.

Wayne Savings Bancshares, Inc. (the “Company”), is a unitary thrift holding company for Wayne Savings Community Bank (the “Bank”). The only significant asset of the Company is its investment in the Bank. The Bank conducts its business from eleven full-service locations. The Company’s principal office is located at 151 North Market Street, Wooster, Ohio, and its telephone number at that address is (330) 264-5767. At December 31, 2012, the Company had total assets of $402.1 million, total deposits of $327.7 million, and stockholders’ equity of $39.8 million, or 9.9% of total assets.

Wayne Savings Community Bank

The Bank is an Ohio-chartered stock savings and loan association headquartered in Wooster, Ohio. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank has been a member of the Federal Home Loan Bank (“FHLB”) System since 1937.

The Bank is a community-oriented institution offering a full range of consumer and business financial services to the local community. The Bank’s primary lending and deposit gathering area includes Wayne, Holmes, Ashland, Medina and Stark counties, where it operates eleven full-service offices. This contiguous five-county area is located in northeast Ohio, and is an active manufacturing and agricultural market. The Bank’s principal business activities consist of originating one-to-four family residential real estate loans, multi-family residential, commercial and non-residential real estate loans. The Bank also originates consumer loans, and to a lesser extent, construction loans. The Bank also invests in mortgage-backed securities, obligations issued by state and political subdivisions and a small position of private-label collateralized mortgage obligations and other liquid investments, such as United States Government securities, federal funds, and deposits in other financial institutions.

In 2005, the Company began a strategic initiative to diversify the composition of its balance sheet by placing an increased emphasis on commercial lending. The primary objective was to reallocate financial resources away from long duration residential mortgage loans and low yielding mortgage securities while maintaining a relatively low risk profile with a sustainable income stream. Mortgage refinancings caused by the low interest rate environment and the growth of commercial business loans collateralized by residential properties caused a $1.6 million increase in one-to-four family residential mortgage loans from $159.3 million, or 61.3% of the total loan portfolio at March 31, 2009, to $160.9 million, or 63.3% of the total loan portfolio, at December 31, 2012. Over the previous five fiscal periods, commercial lending collateralized by one-to-four family properties increased $6.4 million. Nonresidential real estate loans and commercial loans generally carry higher yields and shorter terms than one-to-four family loans. The increased emphasis on commercial lending has diversified the loan portfolio, expanded the Company’s product offerings and broadened the Company’s customer base and its corresponding ability to cross-sell its varied product offerings. This change in emphasis has also resulted in increased staffing expense and, in the current economic environment, increased provisions for loan losses due to the higher inherent risk associated with commercial lending activities. Loan demand increased during the current year due to the low interest rate environment and increased sales efforts in the commercial lending division resulting in an increase in the loan portfolio funded by a decrease in cash and cash equivalents and cash flows from the available-for-sale securities portfolio.

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Market Area/Local Economy

The Bank, headquartered in Wooster, Ohio, operates in Wayne, Ashland, Medina, Holmes and Stark Counties in northeast Ohio. Wooster is located in Wayne County and is approximately midway between Cleveland and Columbus, Ohio.

Wayne County is characterized by a diverse economic base, which is not dependent on any particular industry. It is one of the leading agricultural counties in the state. Since 1892, Wooster has been the headquarters of the Ohio Agricultural Research and Development Center, the agricultural research arm of The Ohio State University. In addition, Wayne County is also the home base of several nationally known companies including The J.M. Smucker Company, and the Wooster Brush Company. It is also the home of many industrial plants, including LuK GmbH & Co. KG, International Paper Company, Morton Salt and Frito-Lay, Inc. The City of Wooster is a developing regional medical center, with a successful city-owned hospital and significant commitment by the world renowned Cleveland Clinic through new state of the art medical facilities. Wayne County is also known for its excellence in education. The College of Wooster was founded in 1866 and serves 2,000 students during the school season. Other quality educational opportunities are offered by the Agricultural Technical Institute of The Ohio State University, and Wayne College, a branch of The University of Akron. In Wayne County, the Bank operates four full-service offices in Wooster, one stand-alone drive-thru facility and one full-service office in both Rittman and Creston.

Ashland County, which is located due west of Wayne County, also has a diverse economic base. In addition to its agricultural segment, Ashland County has manufacturing plants producing rubber and plastics, machinery, transportation equipment, chemicals, apparel, and other items. Ashland is also the home of Ashland University, which was founded in 1878 and serves 6,000 students. The City of Ashland is the county seat and the location of two of the Bank’s branch offices.

Medina County, located just north of Wayne County, is the center of a fertile agricultural region. While farming remains the largest industry in the county in terms of dollar value of goods produced, over 100 small manufacturing firms also operate in the county. The City of Medina is located in the center of the Cleveland-Akron-Lorain Standard Consolidated Statistical Marketing Area. Medina is located approximately 30 miles south of Cleveland and 15 miles west of Akron. Due to its proximity to Akron and Cleveland, a majority of Medina County’s labor force is employed in these two cities. The Bank operates one full-service office in Medina County, which is located in the Village of Lodi.

Holmes County, located directly south of Wayne County, has a mostly rural economy. The local economy depends mostly upon agriculture, light manufacturing, fabrics, and wood products. Because of the scenic beauty and a large Amish community, revenues from tourism are becoming increasingly significant. The county is also noted for its many fine cheese-making operations. A large number of Holmes County residents are employed in Wayne County. The City of Millersburg is the county seat and the location of one of the Bank’s branch offices.

Stark County, located directly east of Wayne County, is characterized by a diverse economy and over 1,500 different products are manufactured in the county. Stark County also has a strong agricultural base, and ranks fourth in Ohio in the production of dairy products. The major employers in North Canton are Diebold Incorporated (a major manufacturer of bank security products and automated teller machines) and the Timken Company (a world-wide manufacturer of tapered roller bearings and specialty steels). Jackson Township is the home to the Westfield Belden Village Shopping Center, while Plain Township is a residential and agricultural area with a few widely scattered light industries. North Canton is the location of one of the Bank’s branches.

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Lending Activities

General. Historically, the principal lending activity of the Company has been the origination of fixed and adjustable rate mortgage (“ARM”) loans collateralized by one-to-four family residential properties located in its market area. The Company originates ARM loans for retention in its portfolio, and fixed rate loans that are eligible for resale in the secondary mortgage market. The Company also originates loans collateralized by non-residential and multi-family residential real estate, as well as commercial business loans. In addition, the Company also originates consumer loans to broaden services offered to customers.

The Company has sought to make its interest-earning assets more interest rate sensitive by originating adjustable rate loans, such as ARM loans, home equity loans, and medium-term consumer loans. The Company also purchases mortgage-backed securities generally with estimated remaining average lives of five years or less. At December 31, 2012, approximately $103.1 million, or 30.2%, of the Company’s total loans and mortgage-backed securities consisted of loans or securities with adjustable interest rates.

The Company continues to actively originate fixed rate mortgage loans, generally with 15 to 30 year terms to maturity, collateralized by one-to-four family residential properties. One-to-four family fixed rate residential mortgage loans generally are originated and underwritten according to standards that allow the Company to sell such loans in the secondary mortgage market for purposes of managing interest rate risk and liquidity. From November 2005 until January 2009, the Company decided to retain all one-to-four family, fixed rate residential mortgage loan originations with terms of 15 and 30 years to manage the size of the portfolio and to provide higher yields as compared to alternative investments. In accordance with a policy adopted by the Bank’s Asset/Liability Committee (“ALCO”) that permits limited loan sales to address interest rate risk and liquidity concerns, during the twelve months ended December 31, 2012 and nine months ended December 31, 2011, the Company sold $6.1 million and $2.5 million, respectively, of fixed rate residential mortgage loans into the secondary market to limit the buildup of interest rate risk and to provide pipeline funding during a period where a large number of originations were occurring due to refinancing activity by consumers. The Company retains servicing on its sold mortgage loans. The Company also originates interim construction loans on one-to-four family residential properties.

The Company has continued to develop the commercial business loan program in order to increase the Company’s interest rate sensitive assets, increase interest income and diversify both the loan portfolio and the Company’s customer base. The Company has four experienced commercial lenders to manage this portfolio. The Company targets small local businesses with loan amounts in the $50,000 - $1.0 million range with a majority of loans under $500,000. Overall, commercial business loans increased to $14.2 million at December 31, 2012, as compared to $9.5 million at March 31, 2009, nonresidential real estate and land loans decreased from $75.5 million, or 29.1%, of the total loan portfolio at March 31, 2009, to $65.8 million, or 25.9%, of the total loan portfolio at December 31, 2012.

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Analysis of Loan Portfolio. Set forth below is certain information relating to the composition of the Company’s loan portfolio, by type of loan as of the dates indicated.

	December 31,										At March 31,
	2012					2011					2011					2010					2009
	$		%			$		%			$		%			$		%			$		%
	(Dollars in thousands)
Mortgage loans:
One-to-four family residential⁽¹⁾	$	160,910		63.25	%	$	153,064		64,30	%	$	162,435		66.57	%	$	159,140		62.96	%	$	159,257		61.32	%
Residential construction loans		2,170		0.85			753		0.32			160		0.07			2,098		0.83			1,587		0.61
Multi-family residential		9,790		3.85			8,589		3.61			8,308		3.40			9,011		3.56			8,970		3.45
Non-residential real estate/land⁽²⁾		65,761		25.85			62,864		26,40			62,508		25.61			70,167		27.76			75,521		29.08
Total mortgage loans		238,631		93.80			225,270		94.63			233,411		95.65			240,416		95.11			245,335		94.46
Other loans:
Consumer loans⁽³⁾		1,517		0.60			2,257		0.95			2,414		0.99			3,402		1.35			4,912		1.89
Commercial business loans		14,245		5.60			10,526		4.42			8,204		3.36			8,942		3.54			9,469		3.65
Total other loans		15,762		6.20			12,783		5.37			10,618		4.35			12,344		4.89			14,381		5.54
Total loans before net items		254,393		100.00	%		238,053		100.00	%		244,029		100.00	%		252,760		100.00	%		259,716		100.00	%
Less:
Loans in process		2,647					1,691					413					2,507					2,506
Deferred loan origination fees		569					409					420					421					400
Allowance for loan losses		3,328					3,854					3,203					2,826					2,484
Total loans receivable, net	$	247,849				$	232,099				$	239,993				$	247,006				$	254,326

⁽¹⁾

Includes equity loans collateralized by second mortgages in the aggregate amount of $14.8 million, $15.9 million, $15.8 million, $16.5 million and $16.9 million, as of December 31, 2012 and 2011, March 31, 2011, 2010 and 2009, respectively. Such loans have been underwritten on substantially the same basis as the Company’s first mortgage loans.

⁽²⁾

Includes land loans of $2.3 million, $2.7 million, $2.8 million, $2.7 million and $1.7 million as of December 31, 2012 and 2011, March 31, 2011, 2010 and 2009, respectively.

⁽³⁾

Includes second mortgage loans of $683,000, $1.2 million, $988,000, $1.1 million and $1.3 million as of December 31, 2012 and 2011, March 31, 2011, 2010 and 2009, respectively.

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Loan Maturity and Repricing Schedule. The following table sets forth certain information as of December 31, 2012, regarding the dollar amount of loans maturing in the Company’s portfolio based on their contractual terms to maturity. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Adjustable and floating rate loans are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they mature, and fixed-rate loans are included in the period in which the final contractual repayment is due.

			One		Three		Five		Ten		Beyond
	Within		Through		Through		Through		Through		Twenty
	One Year		Three Years		Five Years		Ten Years		Twenty Years		Years		Total
	(In Thousands)
Mortgage loans:
One-to-four family residential
Adjustable	$	29,341	$	8,017	$	2,245	$	—	$	—	$	—	$	39,603
Fixed		794		945		1,857		10,438		74,643		32,630		121,307
Construction:
Adjustable		—		—		—		—		—		—		—
Fixed		—		—		—		—		—		2,170		2,170
Multi-family residential, nonresidential and land:
Adjustable		14,830		19,229		17,348		—		—		—		51,407
Fixed		3,316		257		4,072		962		9,150		6,387		24,144
Other Loans:
Commercial business loans		9,771		1,967		2,220		90		197		—		14,245
Consumer		398		320		454		345		—		—		1,517

Total loans	$	58,450	$	30,735	$	28,196	$	11,835	$	83,990	$	41,187	$	254,393

The following table sets forth at December 31, 2012, the dollar amount of all fixed-rate and adjustable rate loans maturing or repricing after December 31, 2013.

	Fixed		Adjustable
	(In Thousands)
Mortgage loans:
One-to-four family residential	$	120,513	$	10,262
Construction		2,170		—
Multi-family residential, non-residential and land		20,828		36,577
Consumer		1,119		—
Commercial business		2,002		2,472
Total loans	$	146,632	$	49,311

One-to-four family Residential Real Estate Loans. The Company’s primary lending activity consists of the origination of one-to-four family, owner-occupied, residential mortgage loans on properties located in the Company’s market area. The Company also originates loans to commercial customers secured by one-to-four family non-owner occupied properties. The Company generally does not originate one-to-four family residential loans secured by properties outside of its market area. At December 31, 2012, the Company had $160.9 million, or 63.3%, of its total loan portfolio invested in loans secured by one-to-four family residential mortgage properties.

The Company’s fixed rate loans generally are originated and underwritten according to standards that permit resale in the secondary mortgage market. Whether the Company can or will sell fixed rate loans into the secondary market, however, depends on a number of factors including the Company’s portfolio mix, interest rate risk and liquidity positions, and market conditions. The Company’s fixed rate mortgage loans are amortized on a monthly basis with principal and interest due each month. One-to-four family residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The Company’s one-to-four family residential portfolio has increased $7.8 million or 5.1%, from December 31, 2011, to December 31, 2012. Sales into the secondary market were $6.1 million and $2.5 million for the periods ended December 31, 2012 and 2011, respectively. Such sales generally constituted current period originations. There were no loans identified as held-for-sale at December 31, 2012 and 2011 or in any of the last three fiscal years ended as of March 31.

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The Company currently offers one-to-four family residential mortgage loans with terms typically ranging from 15 to 30 years, and with adjustable or fixed interest rates. Originations of fixed rate mortgage loans versus ARM loans are monitored on an ongoing basis and are affected significantly by the level of market interest rates, customer preference, the Company’s interest rate risk gap position, and loan products offered by the Company’s competitors. The low interest rate environment over the last few years has resulted in customer preference for fixed rate mortgage loans. During the period ended December 31, 2012, the Company’s commercial lending division was able to increase originations of ARM loans secured by one-to-four family residential property causing an increase to our ARM portfolio of $102,000.

The Company offers one ARM loan product. The Treasury ARM loan adjusts annually with interest rate adjustment limitations of 2% per year and with a cap of 3% or 5% on total rate increases or decreases over the life of the loan. The index on the Treasury ARM loan is the weekly average yield on U.S. Treasury securities, adjusted to a constant maturity of one year plus a margin. However, these loans are underwritten at the fully-indexed interest rate. All loans require monthly principal and interest payments and negative amortization is not permitted. One-to-four family residential ARM loans totaled $39.6 million, or 15.6% of the Company’s total loan portfolio at December 31, 2012.

The primary purpose of offering ARM loans is to make the Company’s loan portfolio more interest rate sensitive. However, as the interest income earned on ARM loans varies with prevailing interest rates, such loans do not offer the Company as predictable cash flows compared to long-term, fixed rate loans. ARM loans carry increased credit risk associated with potentially higher monthly payments by borrowers as general market interest rates increase. It is possible, therefore, that during periods of rising interest rates, the risk of default on ARM loans may increase due to the upward adjustment of interest costs to the borrower. Management believes that the Company’s credit risk associated with its ARM loans is reduced because the Company has either a 3% or 5% cap on interest rate increases during the life of its ARM loans.

The Company also offers home equity loans and equity lines of credit collateralized by a second mortgage on the borrower’s principal residence. In underwriting these home equity loans, the Company requires that the maximum loan-to-value ratios, including the principal balances of both the first and second mortgage loans, not exceed 85%. The home equity loan portfolio consists of adjustable rate loans which use the prime rate as published in The Wall Street Journal as the interest rate index. Home equity loans include fixed term adjustable rate loans, as well as lines of credit. As of December 31, 2012, the Company’s home equity loan portfolio totaled $14.8 million, or 9.2%, of its one-to-four family mortgage loan portfolio.

The Company’s one-to-four family residential first mortgage loans customarily include due-on-sale clauses, which are provisions giving the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells or otherwise disposes of the underlying real property serving as security for the loan. Due-on-sale clauses are an important means of adjusting the rates on the Company’s fixed rate mortgage loan portfolio.

Regulations limit the amount that a savings association may lend relative to the appraised value of the real estate securing the loan, as determined by an appraisal at the time of loan origination. The Company’s lending policies limit the maximum loan-to-value ratio on both fixed rate and ARM loans without private mortgage insurance to 80% of the lesser of the appraised value or the purchase price of the property to serve as collateral for the loan. However, the Company makes one-to-four family real estate loans with loan-to-value ratios in excess of 80%. For 15 year fixed rate and ARM loans with loan-to-value ratios of 80.01% to 85%, 85.01% to 90%, 90.01% to 95%, and 95.01% to 97%, the Company requires the first 6%, 12%, 25% and 30%, respectively, of the loan to be covered by private mortgage insurance. For 30 year fixed rate loans with loan-to-value ratios of 80.01% to 85%, 85.01% to 90%, and 90.01% to 97%, the Company requires the first 12%, 25%, and 30%, respectively, of the loan to be covered by private mortgage insurance. The Company requires fire and casualty insurance, as well as title insurance on all properties securing real estate loans made by the Company and flood insurance, where applicable.

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Multi-Family Residential Real Estate Loans. Loans secured by multi-family real estate constituted approximately $9.8 million, or 3.9%, of the Company’s total loan portfolio at December 31, 2012. The Company’s multi-family real estate loans are secured by multi-family residences, such as apartment buildings. At December 31, 2012, most of the Company’s multi-family loans were secured by properties located within the Company’s market area with an average balance of $426,000. At December 31, 2012, the Company’s largest multi-family real estate loan had a principal balance of $3.1 million. Multi-family real estate loans currently are offered with adjustable interest rates or short term balloon maturities, although in the past the Company originated fixed rate long-term multi-family real estate loans. The terms of each multi-family loan are negotiated on a case by case basis, although such loans typically have adjustable interest rates tied to a market index, and amortize over 15 to 25 years. The Company currently does not have any multi-family real estate construction loans.

Loans secured by multi-family real estate generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Non-Residential Real Estate and Land Loans. Loans secured by non-residential real estate constituted approximately $63.4 million, or 24.9%, of the Company’s total loan portfolio at December 31, 2012 compared to $60.1 million or 25.3% of the total loan portfolio at December 31, 2011. The Company has continued its strategy to diversify the loan portfolio and has experienced growth in loan demand over the past year. The Company’s non-residential real estate loans are secured by improved property such as offices, small business facilities, and other non-residential buildings. At December 31, 2012, approximately $49.6 million, or 79.5%, of these loans are borrower occupied. At December 31, 2012, most of the Company’s non-residential real estate loans were secured by properties located within the Company’s market area. The Company’s largest non-residential real estate loan at December 31, 2012 had a principal balance of $3.9 million and the average balance of such loans was $380,000. The terms of each non-residential real estate loan are negotiated on a case by case basis. Non-residential real estate loans are currently offered with adjustable interest rates or short term balloon maturities, although in the past the Company has originated fixed rate, long-term, non-residential real estate loans. Non-residential real estate loans originated by the Company generally amortize over 15 to 25 years. The Company currently does not emphasize non-residential real estate construction loans. Included in the loan tables above are non-residential construction loans totaling $1.1 million which were undisbursed at December 31, 2012.

Loans secured by non-residential real estate generally involve a greater degree of risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by non-residential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

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The Company also originates a limited number of land loans secured by individual improved and unimproved lots for future residential construction. In addition, the Company originates loans to commercial customers with land held as the collateral. Also included in this total were developed building lots of approximately $736,000. Land loans totaled $2.3 million at December 31, 2012.

Residential Construction Loans. To a lesser extent, the Company originates loans to finance the construction of one-to-four family residential property. At December 31, 2012, the Company had $2.2 million of its total loan portfolio invested in construction loans. The Company makes construction loans to private individuals and to builders. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction loans are typically structured as permanent one-to-four family loans originated by the Company with a 12-month construction phase. Accordingly, upon completion of the construction phase, there is no change in interest rate or term to maturity of the original construction loan, nor is a new permanent loan originated.

Commercial Business Loans. Commercial business loans totaled $14.2 million, or 5.6% of the Company’s total loan portfolio at December 31, 2012. The Company has four experienced commercial lenders and plans to pursue commercial lending growth as part of the Company’s strategic plan to diversify the loan portfolio.

Commercial loans carry a higher degree of risk than one-to-four family residential loans. Such lending typically involves large loan balances concentrated in a single borrower or groups of related borrowers for rental or business properties. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Company originates commercial loans generally in the $50,000 to $1.0 million range with the majority of these loans being under $500,000. Commercial loans are generally underwritten based on the borrower’s ability to pay and assets such as buildings, land and equipment are taken as additional loan collateral. Each loan is evaluated for a level of risk and assigned a rating from “1” (the highest quality rating) to “7” (the lowest quality rating).

Consumer Loans. Ohio savings associations are authorized to invest in secured and unsecured consumer loans in an aggregate amount which, when combined with investments in commercial paper and corporate debt securities, does not exceed 20% of an association’s assets. In addition, an Ohio savings association is permitted to invest up to 5% of its assets in loans for educational purposes.

As of December 31, 2012, consumer loans totaled $1.5 million, or 0.6%, of the Company’s total loan portfolio. The principal types of consumer loans offered by the Company are second mortgage loans, fixed rate auto and truck loans, unsecured personal loans, and loans secured by deposit accounts. Consumer loans are offered primarily on a fixed rate basis with maturities generally less than ten years.

The Company’s second mortgage consumer loans are secured by the borrower’s principal residence with a maximum loan-to-value ratio, including the principal balances of both the first and second mortgage loans, of 85% or less. Such loans are offered on a fixed rate basis with terms of up to ten years. At December 31, 2012, second mortgage loans totaled $683,000, or 0.4%, of one-to-four family mortgage loans.

The underwriting standards employed by the Company for consumer loans include a determination of the applicant’s credit history and an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan. The quality and stability of the applicant’s monthly income are determined by analyzing the gross monthly income from primary employment, and additionally from any verifiable secondary income. Creditworthiness of the applicant is of primary consideration. However, where applicable, the underwriting process also includes a comparison of the value of the collateral in relation to the proposed loan amount.

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Consumer loans entail greater credit risk than one-to-four family residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the current level of demand for used automobiles. The Company adds a general provision on a regular basis to its consumer loan loss allowance, based on, among other factors, general economic conditions and prior loss experience. See “—Delinquencies and Classified Assets—Non-Performing and Impaired Assets,” and “—Classification of Assets” for information regarding the Company’s loan loss experience and reserve policy.

Loan Originations, Solicitation, Processing and Commitments. Loan originations are derived from a number of sources such as real estate agent referrals, existing customers, borrowers, builders, attorneys and walk-in customers. The Company has also entered into a number of participation loans with high quality lead lenders. The participations are outside the Company’s normal lending area and diversify the loan portfolio. Upon receiving a loan application, the Company obtains a credit report and employment verification to verify specific information relating to the applicant’s employment, income, and credit standing. In the case of a real estate loan, an appraiser approved by the Company appraises the real estate intended to secure the proposed loan. An underwriter in the Company’s loan department checks the loan application file for accuracy and completeness, and verifies the information provided. Conventional mortgage loans up to $240,000 can be approved by the manager of the mortgage loan department. The mortgage department manager can also approve loans that meet all requirements to be sold on the secondary market and comply with Freddie Mac underwriting of up to $417,000. All loans up to $300,000 can be approved by the Commercial Lending Vice President while the Chief Operating Officer can approve only commercial loans up to $300,000. Any loans between $300,000 and $500,000 must be approved by the Senior Vice President/Senior Loan Officer or the Chief Executive Officer. The Loan Committee must approve loans from $500,000 to $1.0 million and loans in excess of $1.0 million must be approved by the Board of Directors. The Loan Committee meets once a week to review and verify that loan officer approvals of loans are made within the scope of management’s authority. All approvals are subsequently ratified monthly by the full Board of Directors. Fire and casualty insurance is required at the time the loan is made and throughout the term of the loan. After the loan is approved, a loan commitment letter is promptly issued to the borrower. At December 31, 2012, the Company had commitments to originate $3.9 million of loans.

The commitment letter specifies the terms and conditions of the proposed loan including the amount of the loan, interest rate, amortization term, a brief description of the required collateral, and required insurance coverage. The borrower must provide proof of fire and casualty insurance on the property serving as collateral, which insurance must be maintained during the full term of the loan. A title search of the property is required on all loans secured by real property.

Origination, Purchase and Sale of Loans. The table below shows the Company’s loan origination, purchase and sales activity for the periods indicated.

	December 31,						March 31,
	2012			2011			2011
	(In Thousands)

Total loans receivable, net at beginning of period	$	232,099		$	239,993		$	247,006
Loans originated:
One-to-four family residential⁽¹⁾⁽²⁾		57,436			25,006			33,739
Multi-family residential		1,590			—			3,279
Non-residential real estate/land⁽²⁾		7,532			7,493			9,641
Consumer loans		566			611			3,222
Commercial loans		2,741			2,464			776
Total loans originated		60,257			35,574			50,657
Loans sold:
Whole loans		(6,147	)		(2,503	)		(4,014	)
Total loans sold		(6,147	)		(2,503	)		(4,014	)

Mortgage loans transferred to REO		(302	)		(511	)		(1,187	)
Loan repayments		(47,666	)		(40,454	)		(52,469	)
Total loans receivable, net at end of period	$	247,849		$	232,099		$	239,993

⁽¹⁾

Includes loans to finance the construction of one-to-four family residential properties and loans originated for sale in the secondary market.

⁽²⁾

Includes loans to finance the sale of real estate acquired through foreclosure.

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Loan Origination Fees and Other Income. In addition to interest earned on loans, the Company generally receives loan origination fees. The Company accounts for loan origination fees in accordance with FASB ASC 310-20. To the extent that loans are originated or acquired for the Company’s portfolio, FASB ASC SC 310-20 requires that the Company defer loan origination fees and costs and amortize such amounts as an adjustment of yield over the life of the loan by use of the level yield method. FASB ASC 310-20 reduces the amount of revenue recognized by many financial institutions at the time such loans are originated or acquired. Fees deferred under FASB ASC 310-20 are recognized into income immediately upon prepayment or the sale of the related loan. At December 31, 2012, the Company had $569,000 deferred loan origination fees. Loan origination fees are volatile sources of income. Such fees vary with the volume and type of loans and commitments made and purchased, principal repayments, and competitive conditions in the mortgage markets, which in turn respond to the demand for and availability of money.

The Company receives other fees, service charges, and other income that consist primarily of deposit transaction account service charges, late charges and income from REO operations. The Company recognized fees and service charges of $1.1 million for the year ended December 31, 2012, $962,000 for the nine month period ended December 31, 2011 and $1.2 million for the year ended March 31, 2011, respectively.

Loans to One Borrower. Savings associations are subject to the same limits as those applicable to national banks, which under current regulations restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and unimpaired surplus if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate). At December 31, 2012, the Company’s largest concentration of loans to one borrower totaled $5.2 million. All of the loans in this concentration were current in accordance with their original terms at December 31, 2012. The Company had no loans at December 31, 2012, which exceeded the loans to one borrower regulations.

Delinquencies and Classified Assets

Delinquencies. The Company’s collection procedures provide that when a loan is 15 days past due, a computer-generated late charge notice is sent to the borrower requesting payment, plus a late charge. This notice is followed with a letter again requesting payment when the payment becomes 20 days past due. If delinquency continues, at 30 days another collection letter is sent and personal contact efforts are attempted, either in person or by telephone, to strengthen the collection process and obtain reasons for the delinquency. Also, a repayment plan is established. If a loan becomes 60 days past due, the loan becomes subject to possible legal action if suitable arrangements to repay have not been made. In addition, the borrower is given information which provides access to consumer counseling services, to the extent required by HUD regulations. When a loan continues in a delinquent status for 90 days or more, and a repayment schedule has not been established or adhered to by the borrower, a notice of intent to foreclose is sent to the borrower, giving 30 days to cure the delinquency. If not cured, foreclosure proceedings are initiated.

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NonPerforming and Impaired Assets. Loans are reviewed on a regular basis and are placed on a non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. Mortgage loans are placed on non-accrual status generally when either principal or interest is 90 days or more past due and management considers the interest uncollectible. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.

Under the provisions of FASB ASC 310-10, a loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. In applying the provisions of FASB ASC 310-10, the Bank considers one-to-four family residential loans and consumer installment loans to be homogeneous and therefore excluded from separate identification for evaluation of impairment. The exception to this rule is a Troubled Debt Restructured loan or “TDR”. A loan is considered a TDR when the Bank concedes to terms normally not extended to a borrower experiencing a financial hardship. With respect to the Bank’s multi-family, commercial and nonresidential loans, and the evaluation of impairment thereof, such loans are collateral dependent and, as a result, are carried at the lower of cost or fair value. At December 31, 2012, the Company had $12.9 million of impaired loans, of which $9.2 million were performing in accordance with their terms at such date.

At December 31, 2012, the Company had nonperforming loans totaling $5.3 million composed of $2.1 million in residential mortgage loans, other mortgage loans of $3.1 million and commercial loans totaling $32,000. The ratio of nonperforming and impaired loans to loans receivable was 5.8% at December 31, 2012. At December 31, 2012, the largest nonperforming nonresidential real estate loan totaled $928,000. In the opinion of management, as of December 31, 2012, no significant unreserved loss is anticipated on any non-performing loan. At December 31, 2011, the Company had non-performing loans of $5.8 million and a ratio of non-performing and impaired loans to loans receivable of 4.7%. Of the nonperforming loans at December 31, 2011, $2.4 million were one-to-four family residential mortgage loans, nonresidential real estate loans totaled $3.3 million and commercial loans totaling $92,000. The Company has historically realized limited losses on such loans primarily because these loans are underwritten with a maximum 85% loan-to-value ratio.

Real estate acquired by the Company as a result of foreclosure or by deed in lieu of foreclosure (“REO”) is deemed REO until such time as it is sold. When REO is acquired, it is recorded at the fair value, less estimated selling expenses. Valuations are periodically performed by management, and any subsequent decline in fair value is charged to operations.

The following table sets forth information regarding our non-accrual and impaired loans and real estate acquired through foreclosure at the dates indicated. For all the dates indicated, the Company did not have any material loans which had been restructured pursuant to FASB ASC 310-40.

	December 31,						March 31,
	2012			2011			2011			2010			2009
Non-accrual loans:	(Dollars In Thousands)
Mortgage loans:
One-to-four family residential	$	2,097		$	2,433		$	2,739		$	2,072		$	1,356
All other mortgage loans		—			—			70			152			53
Nonresidential real estate loans		3,123			3,271			2,292			1,320			3,027
Non-mortgage loans:
Commercial business loans		32			92			33			772			558
Consumer		4			12			23			3			4
Total non-accrual loans		5,256			5,808			5,157			4,319			4,998
Accruing loans 90 days or more delinquent		—			—			—			—			—
Total nonperforming loans (1)		5,256			5,808			5,157			4,319			4,998
Loans deemed impaired (2)		9,225			5,145			5,827			2,185			180
Total nonperforming and impaired loans		14,481			10,953			10,984			6,504			5,178
Total real estate owned (3)		318			1,283			2,214			2,888			594
Total nonperforming and impaired assets	$	14,799		$	12,236		$	13,198		$	9,392		$	5,772

Total nonperforming and impaired loans to net loans receivable		5.84	%		4.72	%		4.58	%		2.63	%		2.04	%
Total nonperforming and impaired loans to total assets		3.60	%		2.67	%		2.69	%		1.60	%		1.28	%
Total nonperforming and impaired assets to total assets		3.68	%		2.98	%		3.24	%		2.31	%		1.43	%

(1)

Includes $3.7 million of impaired loans at December 31, 2012.

(2)

Includes loans deemed impaired of $9.2 million at December 31, 2012 that were performing, as of such date.

(3)

Represents the net book value of property acquired by the Company through foreclosure or deed in lieu of foreclosure.

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During the twelve months ended December 31, 2012 and the nine months ended December 31, 2011, gross interest income of $159,000 and $170,000 would have been recorded on loans that were accounted for on a non-accrual basis if the loans had been current throughout the period. Interest income recognized on non-accrual loans totaled $16,000 and $9,000 for the twelve month periods ended December 31, 2012 and the nine month period ended December 31, 2011, respectively. The Company recognized interest income on impaired loans for the twelve months ended December 31, 2012 and the nine months ended December 31, 2011 of $300,000 and $177,000, respectively.

The following table sets forth information with respect to loans past due 60-89 days and 90 days or more in our portfolio at the dates indicated.

	December 31,				March 31,
	2012		2011		2011		2010		2009
	(In Thousands)
Loans past due 60-89 days	$	341	$	289	$	203	$	1,095	$	83
Loans past due 90 days or more		2,501		2,784		3,188		3,804		4,998
Total past due 60 days or more	$	2,842	$	3,073	$	3,391	$	4,899	$	5,081

Classification of Assets. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the FDIC to be of lesser quality as “substandard,” “doubtful,” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the savings institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated “special mention” by management.

When a savings institution classifies problem assets as either substandard or doubtful, it is required to establish general allowances for loan losses in an amount deemed prudent by management. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When a savings institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of the amount of the assets so classified, or to charge off such amount. A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the FDIC, which can order the establishment of additional general or specific loss allowances. The Company regularly reviews the problem loans in its portfolio to determine whether any loans require classification in accordance with applicable regulations.

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The following table sets forth the aggregate amount of the Company’s classified assets at the dates indicated.

	December 31,				At March 31,
	2012		2011		2011		2010		2009
	(In Thousands)
Substandard assets⁽¹⁾	$	14,798	$	13,354	$	13,129	$	8,571	$	5,900
Doubtful assets		—		—		—		—		—
Loss assets		—		—		—		—		—
Total classified assets	$	14,798	$	13,354	$	13,129	$	8,571	$	5,900

⁽¹⁾	Includes REO.

Allowance for Loan Losses. In determining the amount of the allowance for loan losses at any point in time, management and the Board of Directors apply a systematic process focusing on the risk of loss in the loan portfolio. First, delinquent non-residential, multi-family and commercial loans are evaluated individually for potential impairment in their carrying value. Second, management applies historic loss experience to the individual loan types in the portfolio. In addition to the historic loss percentage, management employs an additional risk percentage tailored to the perception of overall risk in the economy. However, the analysis of the allowance for loan losses requires an element of judgment and is subject to the possibility that the allowance may need to be increased, with the corresponding reduction in earnings.

During the year ended December 31, 2012, the nine month fiscal period ended December 31, 2011 and fiscal year ended March 31, 2011, the Company added $773,000, $806,000 and $552,000, respectively, to the provision for loan losses. The Company’s allowance for loan losses totaled $3.3 million, $3.9 million and $3.2 million at December 31, 2012, 2011 and March 31, 2011, respectively. The provision for loan losses in the fiscal periods ended December 31, 2012, 2011 and March 31, 2011 was based on the level of nonperforming loans and charge-offs, as well as the size and risk profile of the loan portfolio. While management believes that the Company’s current allowance for loan losses is adequate, there can be no assurance that the allowance for loan losses will be adequate to cover losses that may in fact be realized in the future or that additional provisions for loan losses will not be required. To the best of management’s knowledge, all known losses as of December 31, 2012, have been recorded.

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Analysis of the Allowance For Loan Losses. The following table sets forth the analysis of the allowance for loan losses for the periods indicated.

	For the Period Ended December 31,
	( 12 months)			(9 months)			For the Year Ended March 31,
	2012			2011			2011			2010			2009
	(Dollars in Thousands)

Loans receivable, gross	$	251,177		$	235,953		$	243,196		$	249,832		$	256,810
Average loans receivable, net		235,894			233,374			241,396			252,020			250,220
Allowance balance (at beginning of period)		3,854			3,203			2,826			2,484			1,777
Provision for losses		773			806			552			1,643			1,068
Charge-offs:
Mortgage loans:
One-to-four family		(146	)		(157	)		(112	)		(267	)		(49	)
Residential construction		—			—			—			—			—
Multi-family residential					—			—			—			—
Non-residential real estate and land		(1,199	)		—			(5	)		(784	)		(245	)
Other loans:
Consumer		(11	)					(1	)		—			(3	)
Commercial		(1	)		—			(81	)		(279	)		(74	)
Gross charge-offs		(1,357	)		(157	)		(199	)		(1,330	)		(371	)
Recoveries:
Mortgage loans:
One-to-four family		42			—			8			28			—
Residential construction		—			—			—			—			—
Multi-family residential		—			—			—			—			—
Non-residential real estate and land		—			—			15			—			—
Other loans:
Consumer		1			2			1			1			10
Commercial		15			—			—			—			—
Gross recoveries		58			2			24			29			10
Net (charge-offs) recoveries		(1,299	)		(155	)		(175	)		(1,301	)		(361	)

Allowance for loan losses balance (at end of period)	$	3,328		$	3,854		$	3,203		$	2,826		$	2,484
Allowance for loan losses as a percent of loans receivable, gross at end of period		1.32	%		1.63	%		1.32	%		1.13	%		0.97	%
Net loan charge-offs (recoveries) as a percent of average loans receivable, net		0.55	%		0.07	%		0.07	%		0.52	%		0.14	%
Ratio of allowance for loan losses to total non-performing assets at end of period		59.71	%		54.35	%		43.45	%		39.22	%		43.04	%
Ratio of allowance for loan losses to non-performing loans at end of period		63.31	%		66.36	%		62.11	%		65.43	%		49.70	%

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Allocation of Allowance for Loan Losses. The following table sets forth the allocation of allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance by category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

	December 31										March 31,
	2012					2011					2011					2010					2009
	Amount		% of Loans in Each Category to Total Loans			Amount		% of Loans in Each Category to Total Loans			Amount		% of Loans in Each Category to Total Loans			Amount		% of Loans in Each Category to Total Loans			Amount		% of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Mortgage loans:
One-to-four family	$	1,122		63.2	%	$	1,129		64.3	%	$	1,073		66.5	%	$	1,175		62.9	%	$	829		61.2	%
Residential construction		—		0.8			—		0.3			—		0.1			—		0.8			—		0.6
Multi-family residential		249		3.9			77		3.6			231		3.4			123		3.6			6		3.5
Non-residential real estate and land		1,676		25.9			2,470		26.4			1,736		25.6			1,325		27.8			1,479		29.1
Other loans:
Consumer		6		0.6			9		1.0			5		1.0			40		1.4			27		1.9
Commercial		275		5.6			169		4.4			158		3.4			163		3.5			143		3.7
Total allowance for loan losses	$	3,328		100.0	%	$	3,854		100.0	%	$	3,203		100.0	%	$	2,826		100.0	%	$	2,484		100.0	%

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Investment Activities

The Company’s investment portfolio is comprised of investment securities, and state and local obligations. The carrying value of the Company’s investment securities totaled $26.8 million at December 31, 2012, compared to $27.7 million at December 31, 2011. The Company’s cash and cash equivalents, consisting of cash and due from banks and interest bearing deposits due from other financial institutions with original maturities of three months or less, totaled $12.1 million at December 31, 2012, compared to $19.8 million at December 31, 2011, a decrease of $7.7 million.

Liquidity levels may be increased or decreased depending upon the yields on investment alternatives and upon management’s judgment as to the attractiveness of the yields then available in relation to other opportunities and its expectation of the level of yield that will be available in the future, as well as management’s projections as to the short term demand for funds to be used in the Company’s loan origination and other activities.

The Company also invests in mortgage-backed securities generally issued or guaranteed by the United States Government or agencies thereof or meeting investment grade credit quality standards in accordance with the Board approved investment policy and regulatory guidance that is intended to increase earnings over lower yielding cash equivalents, reduce interest rate risk relative to longer duration whole loan alternatives and to provide liquidity to the institution primarily through monthly cash flows while limiting credit risk. Investments in mortgage-backed securities are made either directly or by exchanging mortgage loans in the Company’s portfolio for such securities. These securities consist primarily of adjustable rate or shorter duration mortgage-backed securities issued or guaranteed by the Federal National Mortgage Association (“FNMA”), Federal Home Loan Mortgage Corporation (“FHLMC”), and the Government National Mortgage Association (“GNMA”). Total mortgage-backed securities, including those designated as available-for-sale, decreased to $88.5 million at December 31, 2012 from $104.6 million at December 31, 2011, primarily due to principal reductions used to fund loan growth and deposit withdrawals during the year.

The Company’s holdings of private-label collateralized mortgage obligations totaled $1.1 million at December 31, 2012 compared to $1.7 million at December 31, 2011. As noted above, all such securities were rated AAA at the time of purchase and the remaining four holdings continue to be rated AAA. The four positions contain collateral that was originated during 2003 or earlier. In addition, management reviews a monthly analysis of actual and projected cashflows for the four securities to determine whether or not any other-than-temporary impairment (“OTTI”) exists. At December 31, 2012 and December 31, 2011, no OTTI was identified with respect to these securities.

The Company’s objectives in investing in mortgage-backed securities vary from time to time depending upon market interest rates, local mortgage loan demand, and the Company’s level of liquidity. Mortgage-backed securities are more liquid than whole loans, can be readily sold in response to market conditions and changes in interest rates and provide monthly principal and interest cash flows that can be used to fund loan demand or reinvested in the securities portfolio. Mortgage-backed securities purchased by the Company also have lower credit risk because principal and interest are either insured or guaranteed by the United States Government or agencies thereof.

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Investment Portfolio. The following table sets forth the carrying value of the Company’s investment securities portfolio, short-term investments and FHLB stock, at the dates indicated.

	At December 31,								March 31,
	2012				2011				2011
	Amortized		Market		Amortized		Market		Amortized		Market
	Cost		Value		Cost		Value		Cost		Value
	(In Thousands)
Investment portfolio:

U.S. Government and agency obligations	$	285	$	286	$	1,704	$	1,729	$	2,091	$	2,160
Municipal obligations		24,991		26,522		24,701		25,991		25,351		25,374
Mortgage-backed securities of government
sponsored entities		85,425		87,344		100,343		102,871		100,196		102,687
Private-label collateralized mortgage obligations		1,067		1,106		1,693		1,741		2,282		2,338
Federal Home Loan Bank stock		5,025		5,025		5,025		5,025		5,025		5,025
Total investments	$	116,793	$	120,283	$	133,466	$	137,357	$	134,945	$	137,584

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Investment Portfolio Maturities. The following table sets forth the scheduled final maturities, carrying values, market values and average yields for the Company’s investment securities at December 31, 2012. At such date, the Company did not hold any investment securities with maturities in excess of 30 years.

	At December 31, 2012
	Less than one year					One to Five Years					Five to Ten Years					More than Ten Years
	Amortized		Average			Amortized		Average			Amortized		Average			Amortized		Average
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield
	(Dollars in Thousands)

Investment Portfolio:
U.S. Government and agency obligations	$	—		—	%	$	—		—	%	$	—		—	%	$	285		0.83	%
Municipal obligations (tax equivalent yields)		—		—			2,772		5.80			5,610		5.63			16,609		5.57
Mortgage-backed securities of government-
sponsored entities		23		4.13			1,548		5.34			17,106		2.56			66,748		1.59
Private-label collateralized mortgage obligations		—		—			—		—			—		—			1,067		5.46
Total investment securities	$	23		4.13	%	$	4,320		5.64	%	$	22,716		3.33	%	$	84,709		2.43	%

	At December 31, 2012
	Total Investment
	Securities
	Average						Weighted
	Life		Amortized		Market		Average
	In Years		Cost		Value		Yield
	(Dollars in Thousands)

Investment Portfolio:
U.S. Government and agency obligations		12.92	$	285	$	286		0.83	%
Municipal obligations (tax equivalent yields)		11.86		24,991		26,522		5.61
Mortgage-backed securities of government-
sponsored entities		14.98		85,425		87,344		1.86
Private-label collateralized mortgage obligations		18.78		1,067		1,106		5.46
Total investment securities		14.31	$	111,768	$	115,258		2.74	%

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Sources of Funds

General. The Holding Company receives cash for the annual ESOP loan payment and upstream dividends from the Bank for any excess operating expenses, dividends paid and stock repurchases.

Deposits are the major source of the Bank’s funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from the amortization, prepayment or sale of loans and mortgage-backed securities, the sale or maturity of investment securities, operations and, if needed, advances from the FHLB, the Federal Reserve discount window, brokered CD’s and Certificate of Deposit Account Registry Service “CDARS”. Scheduled loan principal repayments are a relatively stable source of funds, while deposit inflows and outflows and loan and mortgage-backed security prepayments are influenced significantly by general interest rates and market conditions. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources or on a longer term basis for general business purposes, particularly the management of interest rate risk.

Deposits. Consumer and commercial deposits are attracted principally from within the Bank’s market area through the offering of a broad selection of deposit instruments including checking accounts, savings accounts, money market accounts, term certificate of deposit accounts and individual retirement accounts. The Bank accepts deposits of $100,000 or more and offers negotiated interest rates on such deposits. Deposit account terms vary according to the minimum balance required, the period of time during which the funds must remain on deposit and the interest rate, among other factors. The Bank regularly evaluates its internal cost of funds, surveys rates offered by competing institutions, reviews the Bank’s cash flow requirements for lending and liquidity, and executes rate changes when deemed appropriate.

Deposit Portfolio. Savings and other deposits in the Company as of December 31, 2012, were comprised of the following:

Weighted									Percentage
Average					Minimum				of Total
Interest Rate			Minimum Term	Checking and Savings Deposits	Amount		Balances		Deposits
					(In Thousands)

	0.03	%	None	Checking accounts	$	100	$	80,668		24.62	%
	0.10		None	Savings accounts		25		65,615		20.02
	0.15		None	Money market accounts		2,500		46,614		14.22


				Certificates of Deposit

	0.19		12 months or less	Fixed term, fixed rate		500		25,646		7.83
	0.54		12 to 24 months	Fixed term, fixed rate		500		27,112		8.27
	1.04		25 to 36 months	Fixed term, fixed rate		500		14,759		4.50
	2.41		36 months or more	Fixed term, fixed rate		500		50,660		15.46
	0.44		Negotiable	Jumbo certificates		100,000		16,663		5.08
							$	327,737		100.00	%

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The following table sets forth the change in dollar amount of deposits in the various types of accounts offered by the Company at the dates indicated.

	Balance at								Balance at								Balance at
	December 31,		Percent of			Increase			December 31,		Percent of			Increase			March 31,		Percent of
	2012		Deposits			(Decrease)			2011		Deposits			(Decrease)			2011		Deposits
	(Dollars in Thousands)

Checking accounts	$	80,668		24.62	%	$	3,918		$	76,750		22.99	%	$	13,542		$	63,208		19.74	%
Savings accounts		65,615		20.02			5,917			59,698		17.88			1,135			58,563		18.30
Money market accounts		46,614		14.22			(2,622	)		49,236		14.75			2,713			46,523		14.54
Certificates of deposit⁽¹⁾
Original maturities of:
12 months or less		25,646		7.83			(1,103	)		26,749		8.01			2,170			24,579		7.68
12 to 24 months		27,112		8.27			1,560			25,552		7.65			506			25,046		7.83
25 to 36 months		14,759		4.50			(8,509	)		23,268		6.97			(5,783	)		29,051		9.08
36 months or more		50,660		15.46			(6,015	)		56,675		16.98			(5,563	)		62,238		19.44
Negotiated jumbo		16,663		5.08			743			15,920		4.77			5,056			10,864		3.39
Total	$	327,737		100.00	%	$	(6,111	)	$	333,848		100.00	%	$	13,776		$	320,072		100.00	%

(1)

Certain Individual Retirement Accounts (“IRAs”) are included in the respective certificate balances. IRAs totaled $31.1 million, $32.9 million and $34.9 million, as of December 31, 2012 and 2011 and March 31, 2011, respectively.

The following table sets forth the average dollar amount and weighted average rate of deposits in the various types of accounts offered by the Company for the periods indicated.

	Year Ended December 31,								Nine Months Ended December 31,								Year Ended March 31,
	2012								2011								2011
			Percent			Weighted					Percent			Weighted					Percent			Weighted
	Average		of			Average			Average		of			Average			Average		of			Average
	Balance		Deposits			Rate			Balance		Deposits			Rate			Balance		Deposits			Rate
	(Dollars in Thousands)

Noninterest-bearing demand deposits	$	29,566		9.03	%		0.00	%	$	27,548		8.41	%		0.00	%	$	24,952		7.86	%		0.00	%
Checking accounts		45,947		14.03			0.05			42,422		12.94			0.08			35,787		11.27			0.12
Savings accounts		63,218		19.31			0.10			59,608		18.19			0.09			53,845		16.96			0.22
Money market accounts		48,033		14.67			0.15			46,656		14.24			0.17			44,962		14.16			0.46
Certificates of deposit		140,651		42.96			1.39			151,486		46.22			1.36			157,931		49.75			2.12
Total deposits	$	327,415		100.00	%		0.65	%	$	327,720		100.00	%		0.68	%	$	317,477		100.00	%		1.17	%

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The following table sets forth the certificates of deposit in the Company classified by rates as of the dates indicated.

	At December 31,				March 31,
	2012		2011		2011
	(In Thousands)
Rate
0.00- 2.00%	$	102,216	$	103,350	$	93,121
2.01- 4.00%		32,570		36,068		41,347
4.01- 5.01%		54		8,746		17,310
Total	$	134,840	$	148,164	$	151,778

The following table sets forth the amount and maturities of certificates of deposit at December 31, 2012.

	Amount Due
	Less Than		1-2		2-3		After
	One Year		Years		Years		3 Years		Total
Rate	(In Thousands)
0.00- 2.00%	$	61,009	$	17,446	$	12,424	$	11,337	$	102,216
2.01- 4.00%		8,172		7,559		10,301		6,538		32,570
4.01- 5.01%		6		—		—		48		54
Total	$	69,187	$	25,005	$	22,725	$	17,923	$	134,840

The following table indicates the amount of the Company’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2012.

Maturity Period	Certificates of Deposit
	(In Thousands)

Three months or less		$	6,072
Over three months through six months			4,873
Over six months through twelve months			17,952
Over twelve months			23,291
Total		$	52,188

Borrowings

Deposits are the primary source of funds for the Company’s lending and investment activities and for its general business purposes. The Bank may rely upon advances from the FHLB and the Federal Reserve Bank discount window to supplement its supply of lendable funds, to meet deposit withdrawal requirements and to extend liability duration for interest rate risk management purposes. Advances from the FHLB typically are collateralized by stock in the FHLB and a portion of first mortgage loans held by the Bank. At December 31, 2012, the Company had $21.5 million in advances outstanding offset with $283,000 in deferred prepayment penalties.

The FHLB functions as a central reserve bank providing credit for member savings associations and financial institutions. Members of the FHLB are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain home mortgages and other assets (principally, securities that are obligations of, or guaranteed by, the United States) provided certain standards related to creditworthiness have been met. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based on a fixed percentage of a member institution’s net worth, the FHLB’s assessment of the institution’s creditworthiness, or the amount of collateral available to secure additional borrowings.

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Other short-term borrowings consist of repurchase agreements executed with customers as part of a commercial account sweep program. A portion of the Bank’s securities portfolio is used to support this program.

	December 31,						March 31,
	2012			2011			2011
	Year			Nine			Year
	Ended			Months			Ended
	(Dollars in thousands)

Federal Home Loan Bank advances:
Maximum month-end balance	$	26,627		$	37,027		$	45,500
Balance at end of period		21,217			26,597			39,507
Average balance		24,134			32,619			42,071

Weighted average interest rate on:
Balance at end of period		2.85	%		2.67	%		3.15	%
Average balance for period		2.78			3.05			3.48

	December 31,						March 31,
	2012			2011			2011
	Year			Nine			Year
	Ended			Months			Ended
	(Dollars in thousands)

Other short term borrowings:
Maximum month-end balance	$	8,317		$	6,221		$	8,362
Balance at end of period		7,077			5,278			6,373
Average balance		6,767			5,541			7,302

Weighted average interest rate on:
Balance at end of period		0.15	%		0.15	%		0.30	%
Average balance for period		0.15			0.24			0.37

Competition

The Company encounters strong competition both in attracting deposits and in originating real estate and other loans. Its most direct competition for deposits has come historically from commercial banks, brokerage houses, other savings associations, and credit unions in its market area, and the Company expects continued strong competition from such financial institutions in the foreseeable future. The Company’s market area includes branches of several commercial banks that are substantially larger than the Company in terms of state-wide deposits. The Company competes for savings by offering depositors a high level of personal service and expertise together with a wide range of financial services.

The competition for real estate and other loans comes principally from commercial banks, mortgage banking companies, and other savings associations. This competition for loans has increased substantially in recent years as a result of the large number of institutions competing in the Company’s market area as well as the increased efforts by commercial banks to expand mortgage loan originations.

The Company competes for loans primarily through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers, real estate brokers, and builders. Factors that affect competition include general and local economic conditions, current interest rate levels and volatility of the mortgage markets.

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Subsidiaries

At December 31, 2012, the Company did not have any direct unconsolidated subsidiaries.

Total Employees

The Company had 93 full-time employees and 24 part-time employees at December 31, 2012. None of these employees are represented by a collective bargaining agent, and the Company believes that it enjoys good relations with its personnel.

Regulation

The regulatory environment for both the Company and the Bank changed significantly on July 21, 2011 in accordance with provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). On July 21, 2011, the regulatory responsibilities of the Office of Thrift Supervision (the “OTS”), formerly the primary federal regulator of both the Company and the Bank were transferred to other regulatory agencies. As a Savings and Loan Holding Company, the Company became subject to examination, supervision and extensive regulation by the Federal Reserve Bank of Cleveland (the “FRB”). With respect to the Bank, the federal examination responsibilities formerly held by the OTS were transferred to the FDIC. In addition, savings and loan associations are subject to regulations and rules as promulgated by the Office of the Comptroller of the Currency (the “OCC”). As part of the regulatory transition from the OTS to the FDIC, the Bank was required to transition from the OTS Thrift Financial Report to the Call Report used by the FDIC effective with the March 31, 2012 quarterly filing.

As a state-chartered, FDIC-insured institution, the Bank is subject to examination, supervision and extensive regulation by the Ohio Department of Commerce, Division of Financial Institutions (“ODFI”), and the FDIC. The Bank is a member of, and owns stock in, the FHLB of Cincinnati, which is one of the twelve regional banks in the Federal Home Loan Bank System. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The FDIC and ODFI regularly examine the Bank and prepare reports of examination addressed to the Company’s Board of Directors regarding any deficiencies that they may find in the Company’s operations. The FDIC also may examine the Bank in its role as the administrator of the Deposit Insurance Fund (“DIF”). The Bank’s relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws especially in such matters as the ownership of savings accounts and the form and content of the Bank’s mortgage documents. Any change in such regulation, whether by the FDIC, ODFI, or Congress, could have a material adverse impact on the Company, the Bank and their operations.

Federal Regulation of Savings and Loan Holding Companies

In accordance with the provisions of the Dodd-Frank Act, the OTS was abolished on July 21, 2011. The supervisory responsibilities formerly assigned to the OTS with respect to the Company were transferred to the FRB. As a unitary thrift holding company, the Company is deemed to be “non-complex” by the FRB. As a non-complex holding company, the supervision of the Company is largely determined by the examination ratings given to the Bank by the FDIC. As part of the regulatory transition from the OTS to the FRB, the Company has transitioned from the OTS reporting formats to the FRB reporting format over the past year.

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Federal Regulation of Savings Institutions

Business Activities. The activities of savings associations are governed by the Home Owners’ Loan Act, as amended (the “HOLA”) and, in certain respects, the Federal Deposit Insurance Act (the “FDI Act”). These federal statutes, among other things, (1) limit the types of loans a savings association may make, (2) prohibit the acquisition of any corporate debt security that is not rated in one of the four highest rating categories, and (3) restrict the aggregate amount of loans secured by non-residential real estate property to 400% of capital. The description of statutory provisions and regulations applicable to savings associations set forth herein does not purport to be a complete description of such statutes and regulations and their effect on the Company or the Bank.

Loans to One Borrower. Under the HOLA, savings institutions are generally subject to the national bank limits on loans to one borrower. Generally, savings institutions may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the institution’s unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by readily-marketable collateral, which is defined to include certain securities and bullion, but generally does not include real estate. See “—Lending Activities—Loans to One Borrower.”

Qualified Thrift Lender Test. The HOLA requires savings associations to meet a qualified thrift lender (“QTL”) test. Under the QTL test, a savings association is required to maintain at least 65% of its “portfolio assets” (total assets less (i) specified liquid assets up to 20% of total assets, (ii) intangibles, including goodwill, and (iii) the value of property used to conduct business) in certain “qualified thrift investments,” primarily residential mortgages and related investments, including certain mortgage-backed and related securities on a monthly basis in 9 out of every 12 months.

A savings association that fails the QTL test must either convert to a bank charter or operate under certain restrictions. As of December 31, 2012, the Company maintained 76.5% of its portfolio assets in qualified thrift investments and, therefore, met the QTL test.

Limitation on Capital Distributions. Regulations impose limitations upon all capital distributions by savings institutions, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to stockholders of another institution in a cash-out merger and other distributions charged against capital. A “well-capitalized” institution can, after prior notice and non-objection by the regulatory authorities, make capital distributions during a calendar year in an amount up to 100% of its net income during the calendar year, plus its retained net income for the preceding two years. As of December 31, 2012, the Bank was a “well-capitalized” institution.

Community Reinvestment. Under the Community Reinvestment Act (the “CRA”), as implemented by federal regulations, a savings institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of a savings institution, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Company received a “satisfactory” CRA rating under the current CRA regulations in its most recent federal examination by the FDIC.

Transactions with Related Parties. The Company’s authority to engage in transactions with related parties or “affiliates” (i.e., any company that controls or is under common control with an institution, including the Bank and any non-savings institution subsidiaries) or to make loans to certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act (“FRA”). Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution’s capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings institutions are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.

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Enforcement. Under the FDI Act, the FDIC has primary enforcement responsibility over state-chartered savings institutions and has the authority to bring enforcement action against all “institution-related parties,” including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease-and-desist order to removal of officers and/or directors of the institutions, receivership, conservatorship or the termination of deposit insurance. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. Criminal penalties for most financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years.

Standards for Safety and Soundness. The federal banking agencies have adopted a final regulation and Interagency Guidelines Prescribing Standards for Safety and Soundness (“Guidelines”) to implement the safety and soundness standards required under the FDI Act. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The standards set forth in the Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; and compensation, fees and benefits. The agencies also adopted a proposed rule which proposes asset quality and earnings standards which, if adopted, would be added to the Guidelines. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the FDI Act. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Capital Requirements. Banking regulations have established minimum capital guidelines requiring savings institutions to maintain certain capital ratios: a 4.0% Tier I capital ratio (core) to both total risk-weighted and average assets (leverage ratio) and an 8.0% Total Capital (risk-based) to risk-weighted assets ratio. Total Capital (risk-based) capital is defined as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain qualifying supervisory goodwill and certain mortgage servicing rights. The regulations also require that, in meeting the core, leverage and risk-based capital ratios, institutions must deduct investments in and loans to subsidiaries engaged in activities not permissible for a national bank.

The risk-based capital guidelines for savings institutions requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital plus Tier 2 capital) to risk-weighted assets of 4.0% and 8.0%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by the capital regulations based on the risks which are inherent in the type of asset. The components of Tier 1 (core) capital are equivalent to those discussed earlier under the 4.0% leverage ratio. The components of Tier 2 capital currently include qualifying subordinated debt and redeemable preferred stock, cumulative perpetual preferred stock, allowance for loan and lease losses, and unrealized gains on available-for-sale equity securities. Allowance for loan and lease losses includable in Tier 2 capital is limited to a maximum of 1.25% of total risk-weighted assets. Overall, the amount of Tier 2 capital included as part of total capital cannot exceed 100% of core capital.

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Prompt Corrective Regulatory Action

Under the regulatory framework for prompt corrective action regulations, the FDIC is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of capitalization. Generally, a savings institution that has total risk-based capital of less than 8.0% or a Tier 1 core capital ratio that is less than 4.0% is considered to be undercapitalized. At December 31, 2012 the Bank satisfied all requirements for inclusion in the “well capitalized” category.

Insurance of Accounts and Regulation by the FDIC

The Bank is a member of the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the U.S. Government. As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC. Currently, FDIC deposit insurance rates generally range from 2.5 basis points to 45 basis points, depending on the assessment risk classification assigned to the depository institution.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is aware of no existing circumstances which would result in termination of the deposit insurance of the Bank.

During the first quarter of fiscal 2010, the Board of the FDIC adopted a rule imposing a 5 basis point special assessment on insured institutions that was paid on September 30, 2009. Additionally, the FDIC imposed a prepaid risk-based assessment of premiums on all banks for the 2010 through 2012 calendar years in order to rebuild its insurance fund. The Bank paid $1.9 million in December 2009 and has a remaining prepaid balance of $596,000 as of December 31, 2012.

The Bank and the Company were participants in the FDIC Temporary Liquidity Guarantee Program (“TLGP”), adopted by the FDIC on November 21, 2008. The program has two components, the Debt Guarantee Program (“Debt Program”) which extended through June 2012 and the Transaction Account Guarantee Program (“TAG Program”) that expired in December 2012. Neither the Bank nor the Company have issued any debt guaranteed by the Debt Program.

Federal Home Loan Bank System

The Bank is a member of the FHLB System, which consists of 12 regional FHLBs. The FHLB provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in that FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB, whichever is greater. The Bank was in compliance with this requirement with an investment in FHLB-Cincinnati stock, at December 31, 2012, of $5.0 million. The FHLBs are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLBs pay to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. FHLB dividends were 4.4% for the year ended December 31, 2012. In the event that dividends are reduced, or interest on future FHLB-Cincinnati advances is increased, the Bank’s net interest income will decline.

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Ohio Regulation

As a savings and loan association organized under the laws of the State of Ohio, the Bank is subject to regulation by the ODFI. Regulation by the ODFI affects the Bank’s internal organization as well as its savings, mortgage lending, and other investment activities. Periodic examinations by the ODFI are usually conducted on a joint basis with the FDIC but may also be conducted on an alternating basis. The Bank’s most recent examination during the quarter ending March 31, 2013 was conducted by the ODFI. Ohio law requires that the Bank maintain federal deposit insurance as a condition of doing business.

Under Ohio law, an Ohio association may buy any obligation representing a loan that would be a legal loan if originated by the Bank, subject to various requirements including: loans secured by liens on income-producing real estate may not exceed 20% of an association’s assets; consumer loans, commercial paper, and corporate debt securities may not exceed 20% of an association’s assets; loans for commercial, corporate, business, or agricultural purposes may not exceed 30% of an association’s assets, provided that an association’s required reserve must increase proportionately; certain other types of loans may be made for lesser percentages of the association’s assets; and, with certain limitations and exceptions, certain additional loans may be made if not in excess of 3% of the association’s total assets. In addition, no association may make real estate acquisition and development loans for primarily residential use to one borrower in excess of 2% of assets. The total investments in commercial paper or corporate debt of any issuer cannot exceed 1% of an association’s assets, with certain exceptions.

Ohio law authorizes Ohio-chartered savings associations to, among other things: (i) invest up to 15% of assets in the capital stock, obligations, and other securities of service corporations organized under the laws of Ohio, and an additional 20% of net worth may be invested in loans to majority-owned service corporations; (ii) invest up to 10% of assets in corporate equity securities, bonds, debentures, notes, or other evidence of indebtedness; (iii) exceed limits otherwise applicable to certain types of investments (other than investments in service corporations) by and between 3% and 10% of assets, depending upon the level of the institution’s permanent stock, general reserves, surplus, and undivided profits; and (iv) invest up to 15% of assets in any loans or investments not otherwise specifically authorized or prohibited, subject to authorization by the institution’s board of directors.

An Ohio association may invest in such real property or interests therein as its board of directors deems necessary or convenient for the conduct of the business of the association, but the amount so invested may not exceed the net worth of the association at the time the investment is made. Additionally, an association may invest an amount equal to 10% of its assets in any other real estate. This limitation does not apply, however, to real estate acquired by foreclosure, conveyance in lieu of foreclosure, or other legal proceedings in relation to loan security interests.

Notwithstanding the above powers authorized under Ohio law and regulation, a state-chartered savings association, such as the Bank, is subject to certain limitations on its permitted activities and investments under federal law, which may restrict the ability of an Ohio-chartered association to engage in activities and make investments otherwise authorized under Ohio law.

Ohio has adopted statutory limitations on the acquisition of control of an Ohio savings and loan association by requiring the written approval of the ODFI prior to the acquisition by any person or company, as defined under the Ohio Revised Code, of a controlling interest in an Ohio association. Control exists, for purposes of Ohio law, when any person or company, either directly, indirectly, or acting in concert with one or more other persons or companies (a) acquires 15% of any class of voting stock, irrevocable proxies, or any combination thereof, (b) directs the election of a majority of directors, (c) becomes the general partner of the savings and loan association, (d) has influence over the management and policies of the savings and loan association, (e) has the ability to direct shareholder votes, or (f) anything else deemed to be control by the ODFI. The ODFI’s written permission is required when the total amount of control held by the acquiror was less than or equal to 25% control before the acquisition and more than 25% control after the acquisition, or when the total amount of control held by the acquiror was less than 50% before the acquisition and more than 50% after the acquisition. Ohio law also prescribes other situations in which the ODFI must be notified of the acquisition even though prior approval is not required. Any person or company, which would include a director, will not be deemed to be in control by virtue of an annual solicitation of proxies voted as directed by a majority of the board of directors.

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Under certain circumstances, interstate mergers and acquisitions involving associations incorporated under Ohio law are permitted by Ohio law. A savings and loan association or savings and loan holding company with its principal place of business in another state may acquire a savings and loan association or savings and loan holding company incorporated under Ohio law if the laws of such other state permit an Ohio savings and loan association or an Ohio holding company reciprocal rights. Additionally, recently enacted legislation permits interstate branching by savings and loan associations incorporated under Ohio law.

Ohio law requires prior written approval of the Ohio Superintendent of Savings and Loans of a merger of an Ohio association with another savings and loan association or a holding company affiliate.

Holding Company Regulation

Holding Company Acquisitions. The Company is a registered savings and loan holding company within the meaning of Section 10 of the HOLA, and is subject to FRB examination and supervision as well as certain reporting requirements. Federal law generally prohibits a savings and loan holding company, without prior FRB approval, from acquiring the ownership or control of any other savings institution or savings and loan holding company, or all, or substantially all, of the assets or more than 5% of the voting shares thereof. These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the FRB.

Holding Company Activities. The Company operates as a unitary savings and loan holding company. The activities of the Company and its non-savings institution subsidiaries are restricted to activities traditionally permitted to multiple savings and loan holding companies and to financial holding companies under provisions of the Bank Holding Company Act. Multiple savings and loan holding companies may:

furnish or perform management services for a savings association subsidiary of a savings and loan holding company;

hold, manage or liquidate assets owned or acquired from a savings association subsidiary of a savings and loan holding company;

hold or manage properties used or occupied by a savings association subsidiary of a savings and loan holding company;

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engage in activities determined by the Federal Reserve to be closely related to banking and a proper incident thereto; and

engage in services and activities previously determined by the Federal Home Loan Bank Board by regulation to be permissible for a multiple savings and loan holding company as of March 5, 1987.

The activities financial holding companies may engage in include:

lending, exchanging, transferring or investing for others, or safeguarding money or securities;

insuring, guaranteeing or indemnifying others, issuing annuities, and acting as principal, agent or broker for purposes of the foregoing;

providing financial, investment or economic advisory services, including advising an investment company;

issuing or selling interests in pooled assets that a bank could hold directly;

underwriting, dealing in or making a market in securities; and

merchant banking activities.

If the regulator determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, the regulator may impose such restrictions as deemed necessary to address such risk. These restrictions include limiting the following:

the payment of dividends by the savings institution;

transactions between the savings institution and its affiliates; and

any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution.

Federal Securities Laws. The Company registered its common stock with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The Company is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Exchange Act.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) implemented legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of an accounting oversight board which enforces auditing, quality control and independence standards, the Sarbanes-Oxley Act restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client requires pre-approval by the company’s audit committee members. In addition, the audit partners must be rotated. The Sarbanes-Oxley Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under the Sarbanes-Oxley Act, counsel are required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

Longer prison terms now apply to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan “blackout” periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Sarbanes-Oxley Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution (“FAIR”) provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

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The Sarbanes-Oxley Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s “registered public accounting firm.” Audit Committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is a “financial expert,” as such term is defined by the SEC, and if not, why not. Under the Sarbanes-Oxley Act, a registered public accounting firm is prohibited from performing statutorily mandated audit services for a company if such company’s chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Sarbanes-Oxley Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company’s financial statements for the purpose of rendering the financial statement’s materially misleading. The Sarbanes-Oxley Act also required the SEC to prescribe rules requiring inclusion of an internal control report and assessment by management in the annual report to stockholders. The Sarbanes-Oxley Act requires the registered public accounting firm that issues the audit report to attest to and report on management’s assessment of the company’s internal controls. In addition, the Sarbanes-Oxley Act requires that each financial report required to be prepared in accordance with, or reconciled to, generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a registered public accounting firm in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

Federal and State Taxation

Federal Taxation. Income taxes are accounted for under the asset and liability method which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Federal tax bad debt reserve method available to thrift institutions was repealed in 1996 for tax years beginning after 1995. As a result, the Company was required to change from the reserve method to the specific charge-off method to compute its bad debt deduction. The recapture amount resulting from the change in a thrift’s method of accounting for its bad debt reserves was taken into taxable income ratably (on a straight-line basis) over a six-year period.

Retained earnings as of December 31, 2012 include approximately $2.7 million for which no provision for Federal income tax has been made. This reserve (base year and supplemental) is frozen/not forgiven as certain events could trigger a recapture such as stock redemption or distributions to shareholders in excess of current or accumulated earnings and profits.

The Company’s federal income tax returns through March 31, 2009 have been closed by statute or examination.

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Ohio Taxation. The Bank files Ohio franchise tax returns. For Ohio franchise tax purposes, savings institutions are currently taxed at a rate equal to 1.3% of taxable net worth. The Bank is not currently under audit with respect to its Ohio franchise tax returns.

Delaware Taxation. As a Delaware holding company not earning income in Delaware, the Company is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. The tax is imposed as a percentage of the capital base of the Company with an annual maximum of $165,000. The Company paid Delaware franchise taxes of $34,000 for the year ended December 31, 2012.

ITEM 1A. Risk Factors

Except for the historical information contained herein, the matters discussed in this Form 10-K include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding the intent, belief and expectations of the Company and its management, such as statements concerning the Company's future profitability. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, factors detailed from time to time in the Company's filings with the SEC. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate, and in light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. The Company encounters a number of risks in the conduct of its business. A discussion of such risks follows.

The Company is subject to a number of general categories of risks that may adversely affect its financial condition or results of operations, many of which are outside of management’s direct control, though efforts are made to manage those risks while optimizing returns. Among the types of risks assumed are: (1) credit risk, which the risk of loss due to loan customers or other counterparties not being able to meet their financial obligations under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads, (3) liquidity risk, which is the risk of loss due to the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor and customer perception of financial strength, and events unrelated to the Company such as war, terrorism, or financial institution market specific issues, and (4) operational risk, which is the risk of loss due to human error, inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities, disasters, and security risks.

If one or more of the factors affecting our forward looking statements proves inaccurate, then our actual results, performance or achievements could differ materially from those contemplated, expressed or implied by forward looking statements contained herein. Therefore, we caution you not to place undue reliance on our forward looking statements. Except as required by applicable law or regulation, we will not update our forward looking statements to reflect actual results, performance or achievements.

In addition to the other information included or incorporated by reference into this report, readers should carefully consider that the following important factors, among others, could materially impact the Company’s business, future results of operations, and future cash flows.

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The Company’s results of operations are significantly dependent on economic conditions and related uncertainties. Commercial banking is affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number of other adverse effects on our operations, as discussed in the immediately succeeding risk factor. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in Northeast Ohio because we derive substantially all of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in national or local economies. The current economic climate, with associated legislative and regulatory initiatives, may materially adversely affect the Company’s operations. One example of this effect is the increase in FDIC insurance premiums and special assessments due to bank failures.

Changes in interest rates could have a material adverse effect on our operations. The operations of financial institutions such as the Bank are dependent to a large extent on net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and investment securities and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect our ability to originate loans; the value of our interest earning assets; our ability to obtain and retain deposits in competition with other available investment alternatives; and the ability of our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we believe that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities (which involves various estimates as to how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

The strength and stability of other financial institutions may adversely affect our business. The actions and commercial soundness of other financial institutions could affect the Company’s ability to engage in routine funding transactions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. The Company has exposure to different industries and counterparties, and executes transactions with various counterparties in the financial industry, including brokers and dealers, commercial banks, mutual funds and other institutional clients. Rumors or questions about one or more financial services institutions or the financial services industry in general have led to marketwide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of its counterparty or client. In addition, our credit risk may increase when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan. Any such losses could materially and adversely affect our results of operations.

There are increased risks involved with commercial real estate, commercial business and consumer lending activities. Our lending activities include loans secured by existing commercial real estate. Commercial real estate lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion or operation of the project for repayment, the difficulties in estimating loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. Our lending activities also include commercial business loans to small- to medium-sized businesses, which generally are secured by various equipment, machinery and other corporate assets, and a wide variety of consumer loans, including home equity and second mortgage loans, automobile loans, deposit account secured loans and unsecured loans. Although commercial business loans and consumer loans generally have shorter terms and higher interest rates than mortgage loans, they generally involve more risk than mortgage loans because of the nature of, or in certain cases the absence of, the collateral which secures such loans.

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Our allowance for loan losses may not be adequate to cover probable losses. We have established an allowance for loan losses which we believe is adequate to offset probable losses on our existing loans. There can be no assurance that any future declines in real estate market conditions, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan losses, which would adversely affect our results of operations and, possibly, our financial condition.

We may not be able to successfully manage continued growth. The Company has pursued and continues to pursue a strategy of organic growth. The success of the Company's growth strategy will depend largely upon its ability to manage its credit risk and control its costs while providing competitive products and services. This growth strategy may present special risks, such as the risk that the Company will not efficiently handle growth with its present operations, the risk of dilution of book value and earnings per share as a result of an acquisition, the risk that earnings will be adversely affected by the start-up costs associated with establishing new products and services, the risk that the Company will not be able to attract and retain qualified personnel needed for expanded operations, and the risk that its internal monitoring and control systems may prove inadequate.

Anti-Takeover Provisions could negatively impact the Company’s shareholders. In addition to Ohio and federal laws and regulations governing changes in control of insured depository institutions, the Company's Articles of Incorporation and Code of Regulations contain certain provisions that may delay or make more difficult an acquisition of control of the Company. For example, the Company's Articles of Incorporation do not exempt the Company from the provisions of Ohio's "control share acquisition" and "merger moratorium" statutes. Assuming that the principal stockholders continue to retain the number of the outstanding voting shares of the Company that they presently own and the law of Delaware requires, as it presently does, at least two-thirds majority vote of the outstanding shares to approve a merger or other consolidation, unless the articles of incorporation of the constituent companies provide for a lower approval percentage for the transaction, which the Company's articles do not provide, such ownership position could be expected to deter any prospective acquirer from seeking to acquire ownership or control of the Company, and the principal stockholders would be able to defeat any acquisition proposal that requires approval of the Company's stockholders, if the principal stockholders chose to do so. In addition, the principal stockholders may make a private sale of shares of common stock of the Company that they own, including to a person seeking to acquire ownership or control of the Company. Further, the Company has 500,000 shares of authorized but unissued preferred stock, par value $0.10 per share, which may be issued in the future with such rights, privileges and preferences as are determined by the Board of Directors of the Company.

The Company’s common stock trading volume may not provide adequate liquidity for investors. The Company’s common stock is traded on the Nasdaq Global Market under the symbol "WAYN." During the year ended December 31, 2012, the average weekly trading volume in the Company’s common stock was approximately 9,418 shares per week. There can be no assurance given as to the liquidity of the market for the common stock or the price at which any sales may occur, which price will depend upon, among other things, the number of holders thereof, the interest of securities dealers in maintaining a market in the common stock and other factors beyond the control of the Company.

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The market price of the Company’s common stock can be volatile, which may make it more difficult to resell Company common stock at a desired time and price. The market price for the common stock could be subject to significant fluctuations in response to variations in quarterly and yearly operating results, general trends in the banking industry and other factors. In addition, the stock market can experience price and volume fluctuations that may be unrelated or disproportionate to the operating performance of affected companies. These broad fluctuations may make it more difficult for a shareholder to resell the Company common stock when a shareholder wants to and at prices a shareholder finds attractive or at all.

The loss of key personnel may adversely impact our financial stability. The Company's success depends to a great extent on its senior management, including its President and Chief Executive Officer, Rod C. Steiger and Chief Operating Officer and Chief Risk Officer, H. Stewart Fitz Gibbon III. The loss of their individual services could have a material adverse impact on the Company's financial stability and its operations. In addition, the Company's future performance depends on its ability to attract and retain key personnel and skilled employees, particularly at the senior management level. The Company's financial stability and its operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in the Company's management.

We may not be able to successfully compete with others for business. Banking institutions operate in a highly competitive environment. The Company competes with other commercial banks, credit unions, savings institutions, finance companies, mortgage companies, mutual funds, and other financial institutions, many of which have substantially greater financial resources than the Company. Certain of these competitors offer products and services that are not offered by the Company and certain competitors are not subject to the same extensive laws and regulations as the Company. Additionally, consolidation of the financial services industry in Ohio and in the Midwest in recent years has increased the level of competition. Recent and proposed regulatory changes may further intensify competition in the Company's market area.

Our ability to pay dividends may be limited. The Company is a savings and loan holding company, which is substantially dependent on the profitability of its subsidiary and the upstream payment of dividends from the Bank to the Company. Under state and federal banking law, the payment of dividends by the Bank to the Company is subject to capital adequacy requirements. The inability of the Bank to generate profits and pay such dividends to the Company, or regulator restrictions on the payment of such dividends to the Company even if earned, would have an adverse effect on the financial condition and results of operations of the Company and the Company's ability to pay dividends to its shareholders.

Goodwill Impairment may adversely impact our results of operations. Impairment of goodwill or other intangible assets could require charges to earnings, which could result in a negative impact on our results of operations. Under current accounting standards, goodwill and certain other intangible assets with indeterminate lives are no longer amortized but, instead, are evaluated for impairment periodically or when impairment indicators are present. Evaluation of goodwill and such other intangible assets could result in circumstances where the applicable intangible asset is deemed to be impaired for accounting purposes. Under such circumstances, the intangible asset’s impairment would be reflected as a charge to earnings in the period during which such impairment is identified.

Material breaches in security of bank systems may have a significant effect on the Company business. The Company’s subsidiary bank collects, processes and stores sensitive consumer data by utilizing computer systems and telecommunications networks operated by the Bank and third party service providers. The Bank has security, backup and recovery systems in place, as well as a business continuity plan to ensure the Bank’s systems will not be inoperable. The Company’s subsidiary bank also has security to prevent unauthorized access to the system. In addition, the Bank requires third party service providers to maintain similar controls. However, the Bank cannot be certain that these measures will be successful. A security breach in the system and loss of confidential information could result in losing customers’ confidence and thus the loss of their business as well as additional significant costs for privacy monitoring activities.

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The Bank’s necessary dependence upon automated systems to record and process the Bank’s transaction volumes poses the risk that technical system flaws or employee errors, tampering or manipulation of those systems will result in losses and may be difficult to detect. The Company’s subsidiary bank may also be subject to disruptions of the operating system arising from events that are beyond the Bank’s control (for example, computer viruses or electrical or telecommunications outages). The Bank is further exposed to the risk that the third party service providers may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors as the Bank). These disruptions may interfere with service to the Bank’s customers and result in a financial loss or liability.

ITEM 1B. Unresolved Staff Comments

Not applicable.

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ITEM 2. Properties

The Company conducts its business through its main banking office located in Wooster, Ohio, and its ten additional full-service branch offices located in its market area. The following table sets forth information about its offices as of December 31, 2012.

Location	Leased or Owned	Original Year Leased or Acquired	Year of Lease Expiration

North Market Street Office 151 N. Market Street Wooster, Ohio	Owned	1902	N/A
Cleveland Point Financial Center 1908 Cleveland Road Wooster, Ohio	Owned	1978	N/A
Madison South Office 2024 Millersburg Road Wooster, Ohio	Owned	1999	N/A
Northside Office 543 Riffel Road Wooster, Ohio	Leased	1999	2019
Millersburg Office 90 N. Clay Street Millersburg, Ohio	Owned	1964	N/A
Claremont Avenue Office 233 Claremont Avenue Ashland, Ohio	Owned	1968	N/A
Buehler’s-Sugarbush Office 1055 Sugarbush Drive Ashland, Ohio	Leased	2001	2021
Rittman Office 237 North Main Street Rittman, Ohio	Owned	1972	N/A
Lodi Office 303 Highland Drive Lodi, Ohio	Owned	1980	N/A
North Canton Office 1265 S. Main Street North Canton, Ohio	Owned	1998	N/A
Creston Office 121 N. Main Street Creston, Ohio	Owned	2005	N/A

The Company’s accounting and recordkeeping activities are maintained through an in-house data processing system.

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ITEM 3. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which are believed by management to be immaterial to the financial condition and operations of the Company.

ITEM 4. Mine Safety Disclosures

Not applicable

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ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock trades on the Nasdaq Global Market using the symbol “WAYN.” The following table sets forth the high and low trading prices of the Company’s common stock during the two most recent calendar years, together with the cash dividends declared.

					Cash
					Dividend
December 31, 2012	High		Low		Declared

First quarter	$	9.48	$	7.70	$	0.06
Second quarter	$	9.47	$	8.20	$	0.07
Third quarter	$	9.10	$	8.10	$	0.07
Fourth quarter	$	9.45	$	8.78	$	0.07

					Cash
					Dividend
December 31, 2011	High		Low		Declared

First quarter	$	9.92	$	8.19	$	0.06
Second quarter	$	8.87	$	8.10	$	0.06
Third quarter	$	9.23	$	8.09	$	0.06
Fourth Quarter	$	9.45	$	7.11	$	0.06

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As of February 1, 2013, the Company had 1,170 shareholders of record and 2,961,346 shares of common stock outstanding. This does not reflect the number of persons whose stock is in nominee or “street name” accounts through brokers.

Payment of dividends on the Company’s common stock is subject to determination and declaration by the Board of Directors and depends upon a number of factors, including capital requirements, regulatory limitations on the payment of dividends, the Company’s results of operations and financial condition, tax considerations, and general economic conditions. No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends, once declared, will continue.

The Company’s primary source of funds with which to pay dividends is cash and cash equivalents held at the holding company level and dividends from the Bank. The Bank’s ability to pay dividends to the Company is limited by regulations, and the Bank is required to notify and receive non-objection from the Federal Reserve Bank of the payment of dividends to the Company.

In addition to the foregoing, earnings of the Company appropriated to bad debt reserves and deducted for federal income tax purposes are not available for payment of cash dividends or other distributions to stockholders without payment of taxes at the then-current tax rate by the Company on the amount of earnings removed from the reserves for such distributions. The Company intends to make full use of this favorable tax treatment and does not contemplate any distribution that would create federal tax liability.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2012 with respect to compensation plans under which equity securities of the Company are authorized for issuance.

	Number of Shares Remaining
Plan Category	Number of shares to be issued upon the exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options		Available for future issuance (excluding shares reflected in the first column)
Equity Compensation Plans Approved by Security Holders		58,908	$	13.95		—
Equity Compensation Plans Not Approved by Security Holders		—		—		—
		58,908	$	13.95		—

The following table sets forth information with respect to purchases made on or on behalf of the Company shares of common stock of the Company during the indicated periods.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1-31, 2012		—		—		—		114,939
November 1-30, 2012		15,000	$	9.25		15,000		99,939
December 1-31, 2012		17,500	$	9.32		17,500		82,439
Total		32,500	$	9.29		32,500		82,439

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ITEM 6. Selected Financial Data

The following tables set forth certain consolidated financial and other data of Wayne Savings Bancshares, Inc., at the dates and for the years indicated. For additional information about the Company, reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of the Company.

	December 31,				At March 31,
	2012		2011		2011		2010		2009
	(In thousands)
Selected Financial Condition Data:
Total assets	$	402,117	$	410,097	$	407,738	$	406,032	$	404,421
Loans receivable, net		247,849		232,099		239,993		247,006		254,326
Mortgage-backed securities ⁽¹⁾		88,405		104,596		105,013		96,901		88,788
Investment securities		26,861		27,720		27,534		23,660		29,897
Cash and cash equivalents ⁽²⁾		12,055		19,816		8,271		9,875		6,790
Deposits		327,737		333,848		320,072		311,934		309,534
Stockholders’ equity		39,785		39,715		38,279		36,995		34,413

⁽¹⁾	Includes mortgage-backed securities available-for-sale and private-label collateralized mortgage obligations.

⁽²⁾	Includes cash and due from banks, interest-bearing deposits in other financial institutions and federal funds sold.

	December 31,				For the Year Ended March 31,
	2012		2011		2011		2010		2009
	Year		Nine Months
	Ended		Ended
	(In thousands, except per share amounts)
Selected Operating Data:
Interest income	$	15,303	$	12,608	$	17,985	$	19,940	$	21,472
Interest expense		2,798		2,979		5,214		6,645		9,321
Net interest income		12,505		9,629		12,771		13,295		12,151
Provision for losses on loans		773		806		552		1,643		1,068
Net interest income after provision for losses		11,732		8,823		12,219		11,652		11,083
Noninterest income		1,938		1,490		1,831		2,027		1,733
Noninterest expense		11,570		8,745		11,267		10,836		10,407
Income before income taxes		2,100		1,568		2,783		2,843		2,409
Federal income taxes		378		234		585		606		546

NET INCOME	$	1,722	$	1,334	$	2,198	$	2,237	$	1,863

Basic earnings per share	$	0.59	$	0.46	$	0.75	$	0.77	$	0.64
Diluted earnings per share	$	0.59	$	0.46	$	0.75	$	0.77	$	0.64
Cash dividends declared
per common share	$	0.27	$	0.18	$	0.24	$	0.21	$	0.41

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	At December 31,						At or for the year ended March 31
	2012			2011			2011			2010			2009
	Year			Nine Months
	Ended			Ended
Key Operating Ratios and Other Data:
Return on average assets (net income divided
by average total assets)⁽¹⁾		0.43	%		0.43	%		0.54	%		0.55	%		0.46	%

Return on average equity (net income
divided by average equity)⁽¹⁾		4.28			4.49			5.75			6.16			5.56

Average equity to average assets		9.99			9.68			9.34			9.00			8.35

Equity to assets at year end		9.89			9.68			9.39			9.11			8.51

Interest rate spread (difference between average
yield on interest-earning assets and average
cost of interest-bearing liabilities)		3.31			3.26			3.26			3.41			3.12

Net interest margin (net interest income
as a percentage of average interest-
earning assets)⁽¹⁾		3.34			3.32			3.32			3.50			3.21

Noninterest expense to average assets ⁽¹⁾⁽²⁾		2.87			2.85			2.75			2.69			2.59

Nonperforming and impaired loans
to loans receivable, net		5.84			4.72			4.58			2.63			2.04

Nonperforming and impaired assets
to total assets		3.68			2.98			3.24			2.31			1.44

Average interest-earning assets to average
interest-bearing liabilities		104.43			105.32			104.77			104.82			103.85

Allowance for loan losses to nonperforming
and impaired loans		22.98			35.19			23.48			43.45			47.97

Allowance for loan losses to nonperforming
and impaired assets		22.49			31.50			19.04			30.09			43.04

Net interest income after provision for losses
on loans, to noninterest expense ⁽²⁾		101.40			100.89			108.45			107.29			106.50

Number of full-service offices		11			11			11			11			11

Dividend payout ratio		45.76	%		39.51	%		31.94	%		28.21	%		63.50	%

⁽¹⁾

December 31, 2011 is a nine month period requiring these ratios to be annualized.

⁽²⁾

In calculating this ratio, noninterest expense does not include provisions for losses or gains on the sale of real estate acquired through foreclosure.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The consolidated financial statements include Wayne Savings Bancshares, Inc. and its wholly owned subsidiary, Wayne Savings Community Bank. Intercompany transactions and balances are eliminated in the consolidated financial statements.

The Company’s net income is primarily dependent on its net interest income, which is the difference between interest income earned on its loans, mortgage-backed securities and investments, and its cost of funds consisting of interest paid on deposits and borrowings. The Company’s net income also is affected by its provision for loan losses, as well as the amount of noninterest income, including deposit service charges and gain on the sale of loans into the secondary market, and noninterest expense, such as salaries and employee benefits, federal deposit insurance premiums, occupancy and equipment costs, and income taxes. Earnings of the Company also are affected significantly by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities as more fully described under “Risk Factors” above.

Business Strategy

The Company’s current business strategy is to operate a well-capitalized, profitable and community-oriented Bank dedicated to providing quality service and products to its customers. The Company has sought to implement this strategy in recent years by: (1) closely monitoring the needs of customers and providing personal, quality customer service; (2) continuing the origination of a wide array of loan products in the Company’s market area; (3) managing interest rate risk exposure by better matching asset and liability maturities and rates; (4) increasing fee income, including participation in the secondary mortgage market; (5) managing asset quality; (6) maintaining a strong retail deposit base; (7) maintaining capital in excess of regulatory minimum requirements; and (8) emphasizing the commercial loan program to add high quality, higher yielding and shorter duration assets to the Company’s loan portfolio.

Strategic Initiatives

As part of the aforementioned business strategy, the Company pursues an ongoing strategic planning process, which includes annual plan updates and regular progress reviews by the Board of Directors. The Company is engaged in several initiatives to improve the returns to shareholders over a foreseeable time horizon. These continuing initiatives include the development of a comprehensive marketing and sales program to increase top line revenue of the Company through loans and fee income generating activities, an ongoing review of the branch facilities and staff to identify opportunities for cost effective reductions to improve operational efficiency, and evaluation of information technology solutions to improve internal efficiency and customer service.

In addition, the Board of Directors has established the position of Chief Risk Officer, with responsibility for the development of a comprehensive Enterprise Risk Management (ERM) program to ensure that the earnings generated through existing and contemplated activities are commensurate with the risks assumed in those activities and consistent with legal requirements, regulatory requirements and general economic conditions.

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Forward Looking Statements

In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Economic circumstances, the Company’s operations, and actual results could differ significantly from those discussed in forward-looking statements. Some of the factors that could cause or contribute to such differences are discussed herein but also include changes in the economy and interest rates in the nation and the Company’s general market area. The forward-looking statements contained herein include, but are not limited to, those with respect to the following matters: (1) management’s determination of the amount and adequacy of the allowance for loan losses; (2) the effect of changes in interest rates; (3) management’s opinion as to the effects of recent accounting pronouncements on the Company’s consolidated financial statements; and (4) management’s opinion as to the Bank’s ability to maintain regulatory capital at current levels.

Critical Accounting Policies

Allowance for Loan Losses The Company considers the allowance for loan losses and related loss provision to be a critical accounting policy. 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 collectability as of the reporting date. Such evaluation, which includes a review of all loans on which full collectability 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.

Goodwill The Company recorded all assets and liabilities acquired in prior purchase acquisitions, including goodwill and other intangibles, at fair value as required. Goodwill is subject, at a minimum, to annual tests for impairment. Other intangible assets are amortized over their estimated useful lives using the straight-line method, and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying amount. The initial goodwill and other intangibles recorded and subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired asset will perform in the future. Events and factors that may significantly affect the estimates include, among others, customer attrition, changes in revenue growth trends, specific industry conditions and changes in competition.

Management has discussed the development and selection of these critical accounting policies with the audit committee of the Board of Directors.

Discussion of Financial Condition Changes December 31, 2012 from December 31, 2011

At December 31, 2012, total assets decreased to $402.1 million from the $410.1 million at December 31, 2011 mainly due to a decrease in cash and cash equivalents of $7.8 million, and a $17.1 million, or 12.9%, decrease in securities, partially offset by an increase in loans of $15.8 million, or 6.8%, and a $1.5 million increase in bank-owned life insurance. During the year ended December 31, 2012, the Bank originated and retained $54.1 million of loans, received payments of $47.7 million and transferred $302,000 to foreclosed assets held for sale. As loan volume increased during the period ended December 31, 2012, management used the cash flow from securities to fund this growth. The Bank also used cash to pay down $5.5 million of FHLB borrowings as they matured.

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At December 31, 2012 and December 31, 2011, the allowance for loan losses totaled $3.3 million, or 1.33% of gross loans and $3.9 million, or 1.63%, of gross loans, respectively. In determining the amount of the loan loss allowance at any point of time, management systematically determines the risk of loss in the portfolio. First, delinquent nonresidential, multi-family and commercial loans are evaluated for potential impairment in carrying value. At December 31, 2012, all delinquent and classified residential, nonresidential, multi-family and commercial loans were analyzed, with $1.4 million of the reserve being allocated to these categories of loans. The largest loan in this category consisted of a commercial real estate loan amounting to $931,000 at December 31, 2012. The Company took several partial chargeoffs which reduced this figure from December 2011 of $2.3 million as management evaluated the probability of the repayment of principal. Also assisting this reduction were several relationships which were refinanced in which the Bank received additional collateral or repayment. The second step in determining the allowance for loan losses entails the application of historic loss experience to individual loan types in the portfolio. In addition to the historic loss percentage, management employs an additional risk percentage tailored to the perception of the overall risk in the economy. Finally, to provide additional assurance regarding the validity of the commercial loan risk rating system, management engages a third party loan reviewer who provides independent validation of the Bank’s loan grading process. Management recorded a $773,000 provision for losses on loans for the year ended December 31, 2012, a decrease of $33,000 from the $806,000 recorded for the nine months ended December 31, 2011.

Goodwill of $1.7 million is carried on the Company’s balance sheet as a result of the acquisition of Stebbins Bancshares in June 2004. In accordance with FASB ASC 350, this goodwill is tested for impairment on at least an annual basis. Management evaluated the goodwill using an analysis of required measures of value, including the current stock price as an indicator of minority interest value, change of control multiples as a measure of controlling interest value and discounted cash flow analysis as a measure of going concern value and applied a weighting based on appraisal standards to arrive at a valuation conclusion that indicated no impairment at December 31, 2012.

A prepaid asset of $1.5 million was created in the third fiscal quarter of 2010 due to the FDIC imposing a prepaid assessment on all insured institutions, including the Company’s subsidiary. The amount of the prepaid premium covered the fourth calendar quarter of 2009 and all of calendar years 2011, 2012 and 2013 and included a 5% deposit growth assumption. Actual deposit insurance premium expense is calculated by the FDIC on a quarterly basis, with the expense being charged to the prepaid asset. Any balance remaining in June 2013, will be refunded to the Company’s subsidiary bank. The balance at December 31, 2012 was $596,000.

Deposits totaled $327.7 million at December 31, 2012, a decrease of $6.1 million, or 1.8%, from December 31, 2011. Demand accounts increased $3.9 million, or 5.1%, and savings and money market accounts increased by $3.3 million, or 3.0%, which were offset by a decrease in certificates of deposit of $13.3 million, or 9.0%. The Company experienced an increase in low cost liquid deposit accounts as customers chose to keep funds in more liquid types of accounts due to the low level of market interest rates and as 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 FHLB advances and brokered deposits. Exceptions are made to defend customer relationships with significant value to the Bank while allowing rate sensitive certificate of deposit customers with no relationship with the Bank to move to other alternatives.

Other short term borrowings increased $1.8 million as a result of an increase in commercial repurchase agreements by rate sensitive customers.

Advances from the FHLB decreased $5.4 million, from $26.6 million at December 31, 2011 to $21.2 million at December 31, 2012 mainly due to the maturity of fixed rate and term advances. During December 2010, the Bank prepaid $8.5 million of existing fixed rate and term advances to reduce the carrying cost and extend the maturity dates of those advances into 2014 and 2015 to take advantage of the low interest rate environment at that time and to again extend liability duration at a cost lower than the use of retail certificates of deposit. As part of this restructuring transaction, a $526,000 prepayment penalty was paid and deferred. The remaining unamortized balance of $283,000 is reflected as a reduction in the carrying value of advances and will be amortized into interest expense over the remaining term of the new advances.

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At December 31, 2012, stockholders’ equity totaled $39.8 million, an increase of $70,000, or 0.2%, compared to the balance at December 31, 2011. This increase is primarily due to $1.7 million in net income and amortization of the ESOP shares of $72,000. These increases were partially offset by a decrease in the unrealized gains on available-for-sale securities of $249,000, a reduction in the pension unrecognized net loss of $46,000, an unrecognized loss in the split-dollar benefit plan of $246,000, the repurchase of treasury stock of $393,000 and cash dividends totaling $790,000 during the year ended December 31, 2012. In August 2012, the Board of Directors authorized a stock repurchase program for up to 5% of the Company’s common stock. At December 31, 2012, $1.0 million of retained earnings remained committed to the completion of this program in future periods subject to market conditions and regulatory requirements.

Comparison of operating results for the twelve month period ended December 31, 2012 and nine month period ended December 31, 2011

General

Net income totaled $1.7 million for the year ended December 31, 2012, and $1.3 million for the nine months ended December 31, 2011. The increase in net income was primarily attributable to the Company’s change in fiscal year end to December 31, from March 31, resulting in a nine month period ended December 31, 2011 compared to a twelve month period ended December 31, 2012.

Interest Income

Interest income increased $2.7 million, or 21.4%, to $15.3 million for the twelve months ended December 31, 2012, compared to the nine months ended December 31, 2011. The interest income increased for the period ended December 31, 2012 mainly due to the twelve month current period compared to the December 31, 2011 nine month period. This aforementioned increase was partially offset by a decline in the average yield on interest-earning assets of 25 basis points to 4.09% for December 31, 2012, from 4.34% for the nine month period ending December 31, 2011 causing a decline in interest income of $1.2 million as a result of the overall market rate decline. These rate decreases have negatively affected the yields earned on the Company’s interest-earning assets. Additionally, there was also a decrease in the average balance of interest-earning assets to $374.2 million for the year ended December 31, 2012, from $385.4 million for the nine months ended December 31, 2011.

Interest income on loans increased $2.6 million, or 28.4%, for the twelve months ended December 31, 2012, compared to the nine months ended December 31, 2011, due primarily to a shortened fiscal year end period ended December 31, 2011 and an increase of $2.5 million, or 1.1%, in the average balance of loans for the period ended December 31, 2012, partially offset by a 23 basis point decrease in the weighted-average yield on loans outstanding to 5.01%. The decrease in the yield was due to the decrease in market interest rates and the corresponding downward impact on new originations.

Interest income on securities increased $12,000, or 37.9%, during the twelve months ended December 31, 2012, compared to the nine months ended December 31, 2011, due primarily to a twelve month fiscal period ended December 31, 2012, offset with a decline of 65 basis points in the weighted-average yield to 2.50% as compared to 3.15%, for the nine month fiscal year ended December 31, 2011, generally reflecting reinvestment in lower yielding mortgage-backed securities as higher yielding securities prepaid or matured, as well as a decrease of $6.5 million, or 4.8%, in the average balance.

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Interest Expense

Interest expense for the twelve months ended December 31, 2012, totaled $2.8 million, a decrease of $181,000, or 6.1%, compared to interest expense for the nine months ended December 31, 2011. The decrease in interest expense resulted from a decrease in the weighted-average cost of funds of 30 basis points to 0.78% for the fiscal period ended December 31, 2012, and a decrease of $7.6 million, or 2.1%, in the average balance of deposits and borrowings outstanding, partially offset by twelve months in the current year period, compared to the nine months in the prior period ended December 31, 2011.

Interest expense on deposits totaled $2.1 million for the twelve months ended December 31, 2012, a decrease of $102,000, or 4.6%, compared to the nine months ended December 31, 2011. The decrease in deposit costs resulted from a decrease of 25 basis points in the weighted-average cost of deposits to 0.65% for the fiscal period ended December 31, 2012, and a decrease in the average balance outstanding of $305,000, partially offset by twelve months in the current year period, compared to the nine months in the prior period ended December 31, 2011. In addition, a shift in the composition of deposits from higher cost time deposits to lower cost checking, money market and savings accounts contributed to the decrease in the cost of deposits, along with a general decline in overall market rates.

Interest expense on other short-term borrowings totaled $10,000 for both the twelve and nine months ended December 31, 2012 and 2011. There was an increase of $6,000 due to the nine month period ended December 31, 2011 due primarily to three additional months combined with an average balance increase of $1.2 million, or 22.1% in fiscal 2012, fully offset by a decrease in the weighted-average cost of other short-term borrowings to 0.15% in the current year period from 0.24% for the nine months ended December 31, 2011.

Interest expense on Federal Home Loan Bank advances totaled $670,000 for the twelve months ended December 31, 2012, a decrease of $79,000, or 10.6%, compared to the nine months ended December 31, 2011, due primarily to a decrease in the average balance of $8.5 million, or 26.0%, combined with a rate decline of 27 basis points to 2.78% for the fiscal period ended December 31, 2012, partially offset by twelve months in the current year period, compared to the nine months in the prior period ended December 31, 2011. The decrease in the average balance was due to higher rate advance maturities, as funds from deposit growth were used to repay advances.

Net Interest Income

Net interest income totaled $12.5 million for the twelve month period ended December 31, 2012, an increase of $2.9 million, or 29.9%, from the amount for the nine month fiscal year ended December 31, 2011. The increase in net interest income was mainly due to the twelve month fiscal year partially offset with the repricing effect of the overall low rate environment. The average interest rate spread increased to 3.31% for the twelve month period ended December 31, 2012. The net interest margin also increased to 3.34% for the year ended December 31, 2012. The 25 basis point decrease in the yield on average interest-earning assets was more than offset by the 30 basis point decrease in the cost of funds. As noted earlier, a decrease in overall market interest rates and shift in the composition of deposits from higher cost time deposits to lower cost checking, money market and savings accounts contributed to the decrease in the cost of deposits.

Provision for Losses on Loans

The Company recorded a provision for loan losses totaling $773,000 for the twelve months ended December 31, 2012, compared to $806,000 for the nine months ended December 31, 2011. The principal reason for the high level of provision for loans loss was due to increased chargeoffs related to commercial real estate properties partially offset with refinancings in which the bank received additional collateral reducing the amounts required to be allocated within the allowance for loan losses to address loans individually evaluated for impairment. In the opinion of management, as of December 31, 2012, the carrying value of all non-performing loans as of December 31, 2012, is expected to be realized.

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Noninterest Income

Noninterest income, consisting primarily of earnings on bank-owned life insurance policies, gains on sale of loans, trust income and deposit service fees increased by $454,000, or 30.6%, to $1.9 million for the twelve months ended December 31, 2012, from $1.5 million for the nine months ended December 31, 2011. The increase was primarily due to the nine month fiscal period ended December 31, 2011 compared to the twelve month year ended December 31, 2012, and a $171,000 increase in gain on sale of loans. As described under Item 1 above, management engages in sales of newly originated loans to limit the buildup of interest rate risk on the balance sheet and to provide liquidity to accommodate additional refinancing activity. The Company sold $2.5 million of loans during the nine months ended December 31, 2011 compared to $6.1 million during fiscal year ended December 31, 2012.

Noninterest Expense

Noninterest expense increased by $2.8 million, or 32.4%, totaling $11.6 million for the twelve month period ended December 31, 2012. The increase in noninterest expense was primarily due to increased operating expenses due to the short nine month fiscal period ended December 31, 2011 compared to the full twelve month period ended December 31, 2012. The Company also incurred additional costs to complete the Trust Transfer and Assumption Agreement with Thomasville National Bank of approximately $354,000. Benefits costs increased primarily from increased employee healthcare and other employee benefit costs combined with additional staffing for the marketing initiative to increase the community’s awareness of the Bank’s products and services. Also the Company incurred other operating costs related to the strategic marketing program of a direct mail campaign and additional consulting services to negotiate vendor contracts.

Federal Income Taxes

Provision for Federal income taxes was $378,000 for the twelve months ended December 31, 2012, reflecting an increase of $144,000 from the nine months ended December 31, 2011, primarily due to a $532,000 increase in pre-tax income, partially offset by additional tax-exempt income recognized during the twelve months ended December 31, 2012. The difference in the effective tax rate of 18.0% for the year ended December 31, 2012 from the 34% statutory rate was mainly due to the beneficial effects of income from the cash surrender value of life insurance and other tax-exempt obligations.

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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. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented.

	Year ended December 31,							Nine month period ended December 31
	2012							2011
	Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net ⁽¹⁾	$	235,894	$	11,828		5.01	%	$	233,371	$	9,209		5.24	%
Investment securities ⁽²⁾		129,694		3,242		2.50			136,196		3,230		3.15
Interest-earning deposits ⁽³⁾		8,600		233		2.71			15,789		169		1.42
Total interest-earning assets		374,188		15,303		4.09			385,356		12,608		4.34
Non-interest-earning assets		28,747							23,876

Total assets	$	402,935						$	409,232

Interest-bearing liabilities:
Deposits	$	327,415		2,118		0.65		$	327,720		2,220		0.90
Other short term borrowings		6,767		10		0.15			5,541		10		0.24
Borrowings		24,134		670		2.78			32,619		749		3.05
Total interest-bearing liabilities		358,316		2,798		0.78			365,880		2,979		1.08

Non-interest-bearing liabilities		4,366							3,753

Total liabilities		362,682							369,633

Stockholders’ equity		40,253							39,599

Total liabilities and stockholders’ equity	$	402,935						$	409,232

Net interest income			$	12,505						$	9,629
Interest rate spread ⁽⁴⁾						3.31	%						3.26	%

Net yield on interest-earning assets ⁽⁵⁾						3.34	%						3.32	%
Ratio of average interest-earning assets to average
interest-bearing liabilities						104.43	%						105.32	%

(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.

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Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For the year ended December 31, 2011 there were only nine months of activity for each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) Decrease due to number of months is calculated using the nine months income or expense divided by 275 days multiplied by 365 days to get a twelve month equivalent; (ii) changes in average volume (changes in average volume multiplied by old rate); and (iii) changes in rate (change in rate multiplied by old average volume). Changes in rate-volume (changes in rate multiplied by the change in average volume) have been allocated proportionately between changes in rate and changes in volume;

	Year ended December 31, 2012 vs											Nine months ended December 31, 2011
	Nine months ended December 31, 2011											vs Year ended March 31, 2011
	Increase due		Increase						Total			Decrease due			Increase						Total
	to number of		(decrease)						increase			to number of			(decrease)						increase
	Months		Volume			Rate			(decrease)			Months			Volume			Rate			(decrease)
Interest Income attributable to:
Loans receivable	$	3,092	$	116		$	(589	)	$	2,619		$	(3,014	)	$	(430	)	$	(529	)	$	(3,973	)
Investment securities		1,084		(202	)		(870	)		12			(1,057	)		153			(442	)		(1,346	)
Interest-bearing deposits		56		(133	)		141			64			(55	)		24			(27	)		(58	)
Total interest-earning assets		4,232		(219	)		(1,318	)		2,695			(4,126	)		(253	)		(998	)		(5,377	)

Interest expense attributable to:
Deposits		746		(3	)		(845	)		(102	)		(727	)		64			(838	)		(1,501	)
Other short term borrowings		3		3			(6	)		—			(3	)		(6	)		(8	)		(17	)
Federal Home Loan Bank borrowings		251		(246	)		(84	)		(79	)		(245	)		(303	)		(169	)		(717	)
Total interest-bearing liabilities		1,000		(246	)		(935	)		(181	)		(975	)		(245	)		(1,015	)		(2,235	)
Increase (decrease) in net interest income
	$	3,232	$	27		$	(383	)	$	2,876		$	(3,151	)	$	(8	)	$	17		$	(3,142	)

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Liquidity and Capital Resources

The Bank’s primary sources of funds are deposits, principal repayments and prepayments on loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by the general level of interest rates, economic conditions and competition. The Bank manages the pricing of deposits to maintain a desired level of deposits and cost of funds. In addition, Bank invests excess funds in federal funds and other short-term interest-earning assets, which provide liquidity to meet lending requirements. Liquid assets outstanding at December 31, 2012 and December 31, 2011, totaled $123.6 million and $150.5 million, respectively. For additional information about cash flows from the Company’s operating, financing and investing activities, see the Statements of Cash Flows included in the Consolidated Financial Statements.

A major portion of the Bank’s liquidity consists of cash and cash equivalents, which are a product of operating, investing and financing activities. The primary sources of cash are net income, principal repayments on loans and mortgage-backed securities, proceeds from deposits and advances from the FHLB, and sales of residential mortgage loans and investment securities. Liquidity management is both a daily and long-term function of business management. If the Bank requires liquidity beyond its ability to generate funds internally at a reasonable cost, borrowing agreements are in place with the FHLB, which provide an additional source of funds. As noted above, FHLB advances are used as part of an overall liability management strategy to extend duration for interest rate risk management purposes generally at a cost lower than equivalent duration retail certificates. At December 31, 2012, the Company had $21.5 million in outstanding advances from the FHLB, offset with a prepayment penalty of $283,000 due to the restructuring of three FHLB advances as described above. At December 31, 2012, the Company had additional borrowing capacity from the FHLB totaling $70.3 million based on the Bank’s one-to-four family residential mortgage loans, mortgage-backed securities, home equity lines of credit, second mortgage loans and multi-family loans. The Bank also has pledged $23.6 million to secure a line of credit with the Federal Reserve Bank of $24.7 million which is in place to provide a backup, short term source of liquidity. The Bank has the ability to pledge remaining market value of investment and mortgage-backed securities of $52.8 million which would allow the Bank the ability to borrow additional longer term funds from the FHLB.

Contractual Obligations

The following table summarizes the Company’s contractual obligations at December 31, 2012:

	Payments due by period
	Less						More
	than		1-3		3-5		than
	1 year		years		years		5 years		Total
	(In thousands)
Contractual obligations:
Operating lease obligations	$	61	$	41	$	31	$	10	$	143
Advances from the Federal Home Loan Bank		5,000		9,000		7,500		—		21,500
Other short term borrowings		7,077		—		—		—		7,077
Certificates of deposit maturities		69,187		47,730		10,189		7,734		134,840

Amount of commitments expiring per period:
Commitments to originate loans:
Letters of credit		207		—		—		—		207
Credit card/overdraft lines of credit		316		—		—		—		316
Home equity/commercial lines of credit		29,690		—		—		—		29,690
One-to-four family and multi-family loans		2,186		—		—		—		2,186

Total contractual obligations	$	113,724	$	56,771	$	17,720	$	7,744	$	195,959

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Impact of Inflation and Changing Prices

The consolidated financial statements of the Company and notes thereto, presented elsewhere herein, have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. As a result, interest rates have a greater impact on the Company’s performance than do the effect of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset and Liability Management-Interest Rate Sensitivity Analysis

The Bank, like other financial institutions, is subject to interest rate risk to the extent that interest-earning assets reprice at a different time than interest-bearing liabilities. As part of its effort to monitor and manage interest rate risk, the Bank uses the “net portfolio value” (“NPV”) methodology adopted by the regulators as part of its interest rate sensitivity regulations. The application of NPV methodology illustrates certain aspects of the Bank’s interest rate risk.

Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV, which would result from a theoretical change in market interest rates.

Presented below, as of December 31, 2012 and 2011, is an analysis of the Bank’s interest rate risk as measured by changes in NPV for instantaneous and sustained 100, 200 and 300 basis point (1 basis point equals .01%) increases and a 100 basis point decrease in market interest rates.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from time deposits would likely deviate significantly from those assumed in making the risk calculations.

As of December 31, 2012
										Net Portfolio Value
Change in		Net Portfolio Value								as % of PV of Assets
Interest Rates
(Basis Points)		$ Amount		$ Change			% Change			NPV Ratio			Change
(In thousands)

	+300 bp	$	52,878	$	(13,751	)		(21	)%		13.90	%		(205	)bp
	+200 bp		59,317		(7,312	)		(11	)		15.08			(88	)
	+100 bp		63,514		(3,115	)		(5	)		15.64			(32	)
	0 bp		66,629		—			—			15.95			—
	-100 bp		59,975		(6,654	)		(10	)		14.08			(187	)

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As of December 31, 2011

Change in		Net Portfolio Value								Net Portfolio Value
Interest Rates										as % of PV of Assets
(Basis Points)		$ Amount		$ Change			% Change			NPV Ratio			Change
(In thousands)

	+300 bp	$	37,082	$	(11,754	)		(25	)%		9.64	%		(200	)bp
	+200 bp		41,083		(7,753	)		(16	)		10.33			(131	)
	+100 bp		46,225		(2,611	)		(6	)		11.27			(37	)
	0 bp		48,836		—			—			11.64			—
	-100 bp		48,124		(712	)		(2	)		11.28			(36	)

The Company attempts to reduce its exposure to interest rate risk generally by better matching the maturities of its interest rate sensitive assets and liabilities. Strategies include originating ARM loans and other adjustable rate or short-term loans, as well as by purchasing short-term investment and mortgage-backed securities and extending liabilities through promoting cost effective long-term retail time deposits or the use of long-term FHLB advances. However, particularly in the current interest rate and credit market environment, borrowers typically prefer fixed rate loans to ARM loans. Accordingly, ARM loan originations were very limited during the fiscal year ended December 31, 2012. Similarly, depositors currently prefer more liquid and short duration checking, money market and savings accounts to longer term time deposits. The net effect of this continuing shift in customer preference for longer duration loans and shorter duration deposits has been to expose the Company to increased interest rate risk.

The Company has an Asset-Liability Management Committee (“ALCO”), which is responsible for reviewing the Company’s asset-liability policies. The Committee meets and reports monthly to the Board of Directors on interest rate risks and trends, as well as liquidity and capital ratios and requirements. The Bank has operated within the framework of its prescribed NPV risk range for each of the last three years.

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ITEM 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

Wayne Savings Bancshares, Inc.

Wooster, Ohio

We have audited the accompanying consolidated balance sheets of Wayne Savings Bancshares, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2012 and the nine-month period ended December 31, 2011. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Wayne Savings Bancshares, Inc. as of, December 31, 2012 and 2011, and the results of its operations and its cash flows for the year ended December 31, 2012 and the nine-month period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ BKD,LLP

Cincinnati, Ohio

March 25, 2013

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Wayne Savings Bancshares, Inc.
Consolidated Balance Sheets
December 31, 2012 and 2011
(In thousands, except share data)

	2012			2011
Assets
Cash and due from banks	$	7,303		$	14,215
Interest-bearing deposits		4,752			5,601
Cash and cash equivalents		12,055			19,816

Available-for-sale securities		111,518			130,637
Held-to-maturity securities		3,748			1,679
Loans, net of allowance for loan losses of $3,328 and $3,854 at December 31, 2012 and 2011, respectively		247,849			232,099
Premises and equipment		7,088			7,165
Federal Home Loan Bank stock		5,025			5,025
Foreclosed assets held for sale, net		318			1,283
Accrued interest receivable		1,228			1,314
Bank-owned life insurance		8,723			7,193
Goodwill		1,719			1,719
Other intangible assets		128			219
Prepaid federal deposit insurance premiums		596			868
Other assets		1,944			1,026
Prepaid federal income taxes		178			54
Total assets	$	402,117		$	410,097

Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	80,668		$	76,750
Savings and money market		112,229			108,934
Time		134,840			148,164
Total deposits		327,737			333,848
Other short-term borrowings		7,077			5,278
Federal Home Loan Bank advances		21,217			26,597
Interest payable and other liabilities		5,173			3,751
Deferred federal income taxes		1,128			908
Total liabilities		362,332			370,382
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		35,975			35,986
Retained earnings		17,567			16,635
Shares acquired by ESOP		(572	)		(655	)
Accumulated other comprehensive income		1,340			1,881
Treasury stock, at cost
Common: 1,017,385 and 974,618 shares at December 31, 2012 and 2011, respectively		(14,923	)		(14,530	)
Total stockholders’ equity		39,785			39,715
Total liabilities and stockholders’ equity	$	402,117		$	410,097

See Notes to Consolidated Financial Statements

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Wayne Savings Bancshares, Inc.
Consolidated Statements of Income and Comprehensive Income
Periods Ended December 31, 2012 and 2011
(In thousands, except per share data)

	December 31, 2012 (12 months)			December 31, 2011 (9 months)
Interest and Dividend Income
Loans	$	11,828		$	9,209
Securities		3,242			3,230
Dividends on Federal Home Loan Bank stock and other		233			169
Total interest and dividend income		15,303			12,608

Interest Expense
Deposits		2,118			2,220
Other short term borrowings		10			10
Federal Home Loan Bank advances		670			749
Total interest expense		2,798			2,979

Net Interest Income		12,505			9,629

Provision for Loan Losses		773			806

Net Interest Income After Provision for Loan Losses		11,732			8,823

Noninterest Income
Gain on loan sales		273			102
Trust Income		288			221
Earnings on bank-owned life insurance		298			199
Service fees, charges and other operating		1,079			962
Total noninterest income		1,938			1,484
Noninterest Expense
Salaries and employee benefits		6,546			4,588
Net occupancy and equipment expense		1,910			1,402
Federal deposit insurance premiums		297			240
Franchise taxes		401			281
Provision for impairment on foreclosed assets held for sale		46			681
(Gain) loss on sale of foreclosed assets held for sale		13			(6	)
Amortization of intangible assets		91			68
Other		2,266			1,485
Total noninterest expense		11,570			8,739

Income Before Federal Income Taxes		2,100			1,568

Provision for Federal Income Taxes		378			234

Net Income	$	1,722		$	1,334

Other comprehensive income (loss):

Unrealized gains (losses) on available-for-sale securities, net of taxes of ($128) and $425 for 2012 and 2011, respectively		(249	)		823
Change in split-dollar life insurance policy unrecognized net loss		(246	)		—
Change in defined benefit plan unrecognized net loss, net of taxes of ($44) and ($137) for 2012 and 2011, respectively		(87	)		(265	)
Amortization of net loss included in net periodic pension cost, net of taxes of $21 and $9 for 2012 and 2011, respectively		41			18

Other comprehensive income (loss)	$	(541	)	$	576

Total comprehensive income	$	1,181		$	1,910

Basic Earnings Per Share	$	0.59		$	0.46

Diluted Earnings Per Share	$	0.59		$	0.46

See Notes to Consolidated Financial Statements

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Wayne Savings Bancshares, Inc.
Consolidated Statements of Stockholders’ Equity
Periods Ended December 31, 2012 and 2011
(In thousands, except per share data)

									Shares						Accumulated
			Additional						Acquired						Other
	Common		Paid-in			Retained			By			Treasury			Comprehensive
	Stock		Capital			Earnings			ESOP			Stock			Income			Total
Balance, March 31, 2011	$	398	$	35,997		$	15,828		$	(719	)	$	(14,530	)	$	1,305		$	38,279
Net income (nine months)		—		—			1,334			—			—			—			1,334
Other comprehensive income																576			576
Cash dividends - $0.18 per share		—		—			(527	)		—			—			—			(527	)
Amortization of expense related to ESOP		—		(11	)		—			64			—			—			53
Balance, December 31, 2011		398		35,986			16,635			(655	)		(14,530	)		1,881			39,715
Net income		—		—			1,722			—			—			—			1,722
Other comprehensive loss																(541	)		(541	)
Purchase Treasury Shares – at cost		—		—			—			—			(393	)		—			(393	)
Cash dividends - $0.27 per share		—		—			(790	)		—			—			—			(790	)
Amortization of expense related to ESOP		—		(11	)		—			83			—			—			72
Balance, December 31, 2012	$	398	$	35,975		$	17,567		$	(572	)	$	(14,923	)	$	1,340		$	39,785

See Notes to Consolidated Financial Statements

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Wayne Savings Bancshares, Inc.
Consolidated Statements of Cash Flows
Periods Ended December 31, 2012 and 2011
(In thousands)

	December 31, 2012			December 31, 2011
	12 months			9 months
Operating Activities
Net income	$	1,722		$	1,334
Items not requiring (providing) cash
Depreciation and amortization		555			426
Provision for loan losses		773			806
Amortization of premiums and discounts on securities		2,125			1,169
Amortization of mortgage servicing rights		65			43
Amortization of deferred loan originations fees		(120	)		(56	)
Amortization of intangible asset		91			68
Deferred income taxes		371			(249	)
Net gains on sales of loans		(273	)		(102	)
Proceeds from sale of loans in the secondary market		6,420			2,605
Origination of loans for sale in the secondary market		(6,147	)		(2,503	)
Amortization expense of stock benefit plan		72			53
Provision for impairment on foreclosed assets held for sale		46			681
Loss (gain) on sale of foreclosed assets held for sale		13			(6	)
Increase in value of bank-owned life insurance		(287	)		(190	)
Changes in
Accrued interest receivable		86			333
Prepaid federal deposit insurance premiums		272			219
Other assets		(1,107	)		(69	)
Interest payable and other liabilities		948			346

Net cash provided by operating activities		5,625			4,908

Investing Activities
Purchases of available-for-sale securities		(36,560	)		(28,499	)
Purchases of held-to-maturity securities		(2,154	)		(1,136	)
Proceeds from maturities and paydowns of available-for-sale securities		53,187			29,898
Proceeds from maturities and paydowns of held-to-maturity securities		76			47
Net change in loans		(16,705	)		6,570
Purchase of bank-owned life insurance		(1,243	)		—
Purchase of premises and equipment		(478	)		(699	)
Proceeds from sale of foreclosed assets		1,208			830

Net cash provided by (used in) investing activities	$	(2,669	)	$	7,011

See Notes to Consolidated Financial Statements

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Wayne Savings Bancshares, Inc.
Consolidated Statements of Cash Flows (continued)
Periods Ended December 31, 2012 and 2011
(In thousands)

	December 31, 2012			December 31, 2011
	12 months			9 months
Financing Activities
Net change in deposits	$	(6,111	)	$	13,776
Net change in other short-term borrowings		1,799			(1,095	)
Proceeds from Federal Home Loan Bank advances		19,710			—
Repayments of Federal Home Loan Bank advances		(25,090	)		(12,910	)
Advances by borrowers for taxes and insurance		128			382
Dividends on common stock		(760	)		(527	)
Treasury stock purchases		(393	)		—

Net cash used in financing activities		(10,717	)		(374	)

Increase (Decrease) in Cash and Cash Equivalents		(7,761	)		11,545

Cash and Cash Equivalents, Beginning of Period		19,816			8,271

Cash and Cash Equivalents, End of Period	$	12,055		$	19,816

Supplemental Cash Flows Information
Interest paid on deposits and borrowings	$	2,814		$	3,036

Federal income taxes paid	$	125		$	530

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to real estate owned and other repossessed assets	$	302		$	511

Recognition of mortgage servicing rights	$	61		$	31

Dividends payable	$	207		$	180

See Notes to Consolidated Financial Statements

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

The Company’s revenues, operating income and assets are almost exclusively derived from banking. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. Customers are mainly located in Wayne, Holmes, Ashland, Medina and Stark Counties, and include a wide range of individuals, businesses and other organizations. The Company has historically conducted its business through its main office in Wooster, Ohio.

The Company’s primary deposit products are checking, savings, money market and term certificate accounts. Wayne Savings Community Bank’s primary lending products are residential mortgage, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Company can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management’s control.

Principles of Consolidation

The consolidated financial statements include the accounts of Wayne Savings Bancshares, Inc. (“Wayne” or the “Company”) and its wholly owned subsidiary, Wayne Savings Community Bank (the “Bank”). All intercompany transactions and balances have been eliminated.

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.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of foreclosed assets held for sale, management obtains independent appraisals for significant properties.

Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Pursuant to legislation enacted in 2010, the FDIC fully insured all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions. This legislation expired on December 31, 2012. Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution. The expiration of the FDIC insurance program of all non-interest bearing transaction accounts is not expected to have a material impact on the Bank.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

From time to time, the Company’s interest-bearing cash accounts may exceed the FDIC’s insured limit of $250,000. Management considers the risk of loss to be very low.

Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost. Securities not classified as held-to-maturity are classified as “available-for-sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below carrying value when the Company does not intend to sell a debt security, and it is more likely than not, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan. At December 31, 2012 and 2011, the Company did not have any loans held for sale.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is determined based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current for a period of six months and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful lives of the assets. An accelerated method is used for tax purposes. Leasehold improvements are also stated at cost less accumulated depreciation and are depreciated using the straight line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter.

Federal Home Loan Bank Stock

The Company is required as a condition of membership in the Federal Home Loan Bank of Cincinnati (“FHLB”) to maintain an investment in FHLB common stock. The required investment in the common stock is based on a predetermined formula. The stock is redeemable at par and, therefore, its cost is equivalent to its redemption value. At December 31, 2012, the FHLB placed no restrictions on redemption of shares in excess of a member’s required investment in the stock.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs, at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

Bank-Owned Life Insurance

The Bank has purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Goodwill and Intangible Assets

The composition of goodwill and other intangible assets, all of which is core deposit intangible, at December 31, 2012 and 2011:

	2012			2011
	(In thousands)
Goodwill	$	1,719		$	1,719
Other intangible assets – gross		974			974
Other intangible assets – amortization		(846	)		(755	)
Total	$	1,847		$	1,938

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The Company recorded amortization relative to intangible assets totaling $91,000 for the twelve month period ending December 31, 2012 and $68,000 for the nine month period ending December 31, 2011. The Company anticipates $91,000 of amortization for 2013 and $37,000 for 2014. Such amortization is derived using the straight line method for the core deposit asset over ten years. Pursuant to FASB ASC 350, the Company is required to annually test goodwill and other intangible assets for impairment. During fiscal 2012, the Company changed the date of its annual goodwill impairment test from March 31 to November 30. Management believes the accounting change is preferable in the circumstances because it incorporates more current market and other information to produce a goodwill impairment analysis that will provide timely and accurate information to the shareholders and other users of the Company’s financial statements. The Company’s testing of goodwill and other intangible assets in the current fiscal year indicated there was no impairment in the carrying value of these assets.

Mortgage Servicing Rights

Mortgage servicing assets are recognized separately when rights are acquired through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860-50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income. The amortized assets are assessed for impairment based on fair value at each reporting date.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage servicing right and may result in a reduction to noninterest income.

Each class of separately recognized servicing assets subsequently measured using the amortization method are evaluated and measured for impairment. Impairment is determined by stratifying rights into tranches based on predominant characteristics, such as interest rate, loan type and investor type. Impairment, if necessary, is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the carrying amount of the servicing assets for that tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment after the initial

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

measurement of impairment. Changes in valuation allowances are reported in the income statement. Fair value in excess of the carrying amount of servicing assets for that stratum is not recognized.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income.

Treasury Stock

Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first-in, first-out method.

Stock Options

The Company has a stock-based employee compensation plan, which is described more fully in Note 15.

The Company accounts for the plan in accordance with the fair value recognition provisions of FASB ASC 718-10, “Stock Compensation.”

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The Company recognizes interest and penalties on income taxes as a component of income tax expense. The Company files consolidated income tax returns with its subsidiary. With a few exceptions, the Company is no longer subject to tax authorities for years before 2009.

Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.

Treasury stock shares and unearned ESOP shares are not deemed outstanding for earnings per share calculations.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income, net of applicable income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on available-for-sale securities, changes in the funded status of the defined benefit pension plan and the split-dollar life insurance plan.

Current Economic Conditions

The current economic environment presents all financial institutions with unprecedented circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. Thus far, these trends have only modestly affected the Company. The financial statements have been prepared using values and information currently available to the Company. Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital that could negatively impact the Company’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

Advertising

Advertising costs are expensed as incurred. The Company’s advertising expense totaled $281,000 for the twelve month period ended December 31, 2012 and $75,000 for the nine month period ended December 31, 2011.

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the 2012 financial statement presentation. These reclassifications had no effect on net income.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Fiscal Year Change

In April 2011, the Company decided to change its fiscal year end to December 31 to facilitate consistency with regulatory reporting requirements. Regulatory reporting under OTS Thrift Financial Reporting (“TFR”) requirements was reported on a quarter-to-date basis through December 31, 2011. Beginning with the quarter ended March 31, 2012 the Company began reporting to the FDIC using the Call Report on a calendar year-to-date period. The result of the fiscal year end change was a nine month period ended December 31, 2011. Therefore, the current year financial presentation includes twelve months of activity for year ending December 31, 2012 and nine months of activity for the period ending December 31, 2011.

Note 2:

Restriction on Cash and Due From Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2012, was $2.0 million.

Note 3:

Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Available-for-sale Securities:
December 31, 2012:
U.S. government agencies	$	155	$	1	$	1	$	155
Mortgage-backed securities of government-sponsored entities		83,956		1,979		105		85,830
Private-label collateralized mortgage obligations		1,067		39		—		1,106
State and political subdivisions		22,842		1,587		2		24,427

	$	108,020	$	3,606	$	108	$	111,518

December 31, 2011:
U.S. government agencies	$	1,559	$	26	$	1	$	1,584
Mortgage-backed securities of government-sponsored entities		98,816		2,636		124		101,328
Private-label collateralized mortgage obligations		1,693		48		—		1,741
State and political subdivisions		24,694		1,315		25		25,984

	$	126,762	$	4,025	$	150	$	130,637

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Held-to-maturity Securities:
December 31, 2012:
U.S. government agencies	$	130	$	1	$	—	$	131
Mortgage-backed securities of government-sponsored entities		1,469		45		—		1,514
State and political subdivisions		2,149		—		54		2,095

	$	3,748	$	46	$	54	$	3,740

December 31, 2011:
U.S. government agencies	$	145	$	—	$	—	$	145
Mortgage-backed securities of government-sponsored entities		1,527		16		—		1,543
State and political subdivisions		7		—		—		7

	$	1,679	$	16	$	—	$	1,695

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at December 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

One to five years	$	2,772	$	2,974	$	—	$	—
Five to ten years		5,186		5,452		425		415
After ten years		15,039		16,156		1,854		1,811

		22,997		24,582		2,279		2,226

Mortgage-backed securities of government-sponsored entities		83,956		85,830		1,469		1,514
Private-label collateralized mortgage obligations		1,067		1,106		—		—

Totals	$	108,020	$	111,518	$	3,748	$	3,740

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The carrying value of securities pledged as collateral, to secure public deposits, customer repurchase agreements and for other purposes, was $60.4 million and $53.9 million at December 31, 2012 and 2011, respectively.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The total fair value of these investments at December 31, 2012 and 2011 was $19.0 million and $17.7 million, which represented approximately 17% and 14%, respectively, of the Company’s aggregate amortized cost of the available-for-sale and held-to-maturity investment portfolios. These declines resulted primarily from changes in market interest rates.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary at December 31, 2012.

Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2012 and 2011:

December 31, 2012
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. government agencies	$	—	$	—	$	66	$	1	$	66		1
Mortgage-backed securities of government-sponsored entities		13,636		83		2,107		22		15,743		105
State and political subdivisions		3,162		56		—		—		3,162		56
Total temporarily impaired securities	$	16,798	$	139	$	2,173	$	23	$	18,971	$	162

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

December 31, 2011
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. government agencies	$	—	$	—	$	313	$	1	$	313	$	1
Mortgage-backed securities of government-sponsored entities		16,624		124		—		—		16,624		124
State and political subdivisions		—		—		759		25		759		25
Total temporarily impaired securities	$	16,624	$	124	$	1,072	$	26	$	17,696	$	150

The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies, mortgage-backed securities of government-sponsored entities and municipal securities were caused by changes in interest rates. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2012.

Note 4:

Loans and Allowance for Loan Losses

Categories of loans at December 31 include:

	2012		2011
	(In thousands)

One-to-four family residential	$	160,910	$	153,064
Multi-family residential		9,790		8,589
Construction		2,170		753
Nonresidential real estate and land		65,761		62,864
Commercial		14,245		10,526
Consumer and other		1,517		2,257
		254,393		238,053
Less:
Undisbursed portion of loans in process		2,647		1,691
Deferred loan origination fees		569		409
Allowance for loan losses		3,328		3,854

Total loans	$	247,849	$	232,099

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The risk characteristics of each portfolio segment are as follows:

Residential Real Estate Loans

For residential mortgage loans that are secured by one-to-four family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to-four family residences. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

All Other Mortgage Loans

All other mortgage loans consist of residential construction loans, non-residential real estate loans, land loans and multi-family real estate loans.

Residential construction loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction loans are typically structured as permanent one-to-four family loans originated by the Company with a 12-month construction phase. Accordingly, upon completion of the construction phase, there is no change in interest rate or term to maturity of the original construction loan, nor is a new permanent loan originated. These loans are generally owner occupied and the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded.

Non-residential real estate loans are negotiated on a case-by-case basis. Loans secured by non-residential real estate generally involve a greater degree of risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by non-residential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

Multi-family real estate loans generally involve a greater degree of credit risk than one-to-four family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Commercial Business Loans

Commercial business loans carry a higher degree of risk than one-to-four family residential loans. Such lending typically involves large loan balances concentrated in a single borrower or groups of related borrowers for rental or business properties. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Company originates commercial loans generally in the $50,000 to $1,000,000 range with the majority of these loans being under $500,000. Commercial loans are generally underwritten based on the borrower’s ability to pay and assets such as buildings, land and equipment are taken as additional loan collateral. Each loan is evaluated for a level of risk and assigned a rating from “1” (the highest quality rating) to “7” (the lowest quality rating).

Consumer Loans

Consumer loans entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as automobiles, mobile homes, boats, and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In particular, amounts realizable on the sale of repossessed automobiles may be significantly reduced based upon the condition of the automobiles and the lack of demand for used automobiles.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on the portfolio segment and impairment method as of December 31, 2012 and 2011:

December 31, 2012		One-to-four family residential			All other mortgage loans			Commercial business loans			Consumer loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, December 31, 2011		$	1,128		$	2,547		$	169		$	10		$	—	$	3,854
Provision charged to expense			98			577			92			6			—		773
Losses charged off			(146	)		(1,199	)		(1	)		(11	)		—		(1,357	)
Recoveries			42			—			15			1			—		58
Balance, December 31, 2012		$	1,122		$	1,925		$	275		$	6		$	—	$	3,328
Ending balance: individually evaluated for impairment		$	248		$	1,074		$	100		$	—		$	—	$	1,422
Ending balance: collectively evaluated for impairment		$	874		$	851		$	175		$	6		$	—	$	1,906

Loans:
Ending balance		$	160,910		$	77,721		$	14,245		$	1,517				$	254,393
Ending balance: individually evaluated for impairment		$	6,878		$	5,837		$	185		$	—				$	12,900
Ending balance: collectively evaluated for impairment		$	154,032		$	71,884		$	14,060		$	1,517				$	241,493

December 31, 2011		One-to-four family residential			All other mortgage loans		Commercial business loans		Consumer loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of year		$	1,073		$	1,967	$	158	$	5	$	—	$	3,203
Provision charged to expense			212			580		11		3		—		806
Losses charged off			(157	)		—		—		—				(157	)
Recoveries			—			—		—		2		—		2
Balance, end of year		$	1,128		$	2,547	$	169	$	10	$	—	$	3,854
Ending balance: individually evaluated for impairment		$	320		$	1,941	$	53	$	—	$	—	$	2,314
Ending balance: collectively evaluated for impairment		$	808		$	606	$	116	$	10	$	—	$	1,540

Loans:
Ending balance		$	153,064		$	72,206	$	10,526	$	2,257			$	238,053
Ending balance: individually evaluated for impairment		$	3,744		$	6,955	$	92	$	—			$	10,791
Ending balance: collectively evaluated for impairment		$	149,320		$	65,251	$	10,434	$	2,257			$	227,262

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The following tables present the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of December 31, 2012 and 2011:

December 31, 2012	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	151,749	$	68,949	$	14,034	$	1,513
Special Mention (Risk 5)		708		2,934		26		—
Substandard (Risk 6)		8,453		5,838		185		4
Total	$	160,910	$	77,721	$	14,245	$	1,517

December 31, 2011	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	145,061	$	61,970	$	10,268	$	2,257
Special Mention (Risk 5)		2,979		3,281		166		—
Substandard (Risk 6)		5,024		6,955		92		—
Total	$	153,064	$	72,206	$	10,526	$	2,257

* Ratings are generally assigned to consumer and residential mortgage loans on a “pass” or “fail” basis, where “fail” results in a substandard classification. Commercial loans, both secured by real estate or other assets or unsecured, are analyzed in accordance with an analytical matrix codified in the Bank’s loan policy that produces a risk rating as described below.

Risk 1 is unquestioned credit quality for any credit product. Loans are secured by cash and near cash collateral with immediate access to proceeds.

Risk 2 is very low risk with strong credit and repayment sources. Borrower is well capitalized in a stable industry, financial ratios exceed peers and financial trends are positive.

Risk 3 is very favorable risk with highly adequate credit strength and repayment sources. Borrower has good overall financial condition and adequate capitalization.

Risk 4 is acceptable, average risk with adequate credit strength and repayment sources. Collateral positions must be within Bank policies.

Risk 5 or “Special Mention,” also known as “watch,” has potential weakness that deserves Management’s close attention. This risk includes loans where the borrower has developed financial uncertainties or are resolving them. Bank credits have been secured or negotiations will be ongoing to secure further collateral. In accordance with regulatory guidance, this category is generally regarded as temporary, as successful remedial actions will either successfully move the credit back up to Risk 4 or unsuccessful remedial actions will result in the credit being downgraded to Risk 6.

Risk 6 or “Substandard” loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that exhibit a weakening of the borrower’s credit strength with limited credit access and all non-performing loans.

Risk 7 or “Doubtful” loans are significantly under protected by the current net worth and paying capacity of the borrower or of the collateral pledged. This risk category contains loans that are likely to experience a loss of some magnitude, but where the amount of the expected loss is not known with enough certainty to allow for an accurate calculation of a loss amount for charge off. This category is considered to be temporary until a charge off amount can be reasonably determined.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The following tables present the Bank’s loan portfolio aging analysis as of December 31, 2012 and 2011:

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
	(In thousands)

One-to-four family residential loans	$	1,049	$	339	$	1,190	$	2,578	$	158,332	$	160,910	$	—
All other mortgage loans		1,544		—		1,309		2,853		74,868		77,721		—
Commercial business loans		—		—		—		—		14,245		14,245		—
Consumer loans		1		2		2		5		1,512		1,517		—

Total	$	2,594	$	341	$	2,501	$	5,436	$	248,957	$	254,393	$	—

December 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
	(In thousands)

One-to-four family residential loans	$	1,513	$	280	$	844	$	2,637	$	150,427	$	153,064	$	—
All other mortgage loans		903		—		1,905		2,808		69,398		72,206		—
Commercial business loans		17		—		35		52		10,474		10,526		—
Consumer loans		17		9		—		26		2,231		2,257		—

Total	$	2,450	$	289	$	2,784	$	5,523	$	232,530	$	238,053	$	—

Non-accrual loans were comprised of the following at December 31, 2012 and 2011:

	2012		2011
Nonaccrual
	(In thousands)

One-to-four family residential loans	$	2,097	$	2,433
Nonresidential real estate loans		3,123		3,271
All other mortgage loans		—		—
Commercial business loans		32		92
Consumer loans		4		12

Total	$	5,256	$	5,808

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2012, the Company had $3.2 million of residential mortgages, $2.4 million of nonresidential mortgages and land and $32,000 of commercial loans that were modified in troubled debt restructurings. Included in these amounts, the Company had troubled debt restructurings that were performing in accordance with their modified terms of $2.8 million in residential mortgage loans, nonresidential real estate and land loans of $364,000 at December 31, 2012.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The following tables present impaired loans as of and for the years ended December 31, 2012 and 2011:

December 31, 2012	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
One-to-four family residential loans	$	5,587	$	5,587	$	—	$	3,733	$	147
All other mortgage loans		2,781		2,781		—		2,376		102
Commercial business loans		85		85		—		21		1

Loans with a specific valuation allowance
One-to-four family residential loans		1,291		1,291		248		1,252		45
All other mortgage loans		3,056		3,652		1,074		4,453		1
Commercial business loans		100		100		100		59		4

Total:
One-to-four family residential loans	$	6,878	$	6,878	$	248	$	4,985	$	192
All other mortgage loans		5,837		6,433		1,074		6,829		103
Commercial business loans		185		185		100		80		5
	$	12,900	$	13,496	$	1,422	$	11,894	$	300

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

December 31, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance							(nine months)
One-to-four family residential loans	$	1,613	$	1,613	$	—	$	1,966	$	35
All other mortgage loans		1,771		1,771		—		1,345		52

Loans with a specific valuation allowance
One-to-four family residential loans		250		250		224		557		15
All other mortgage loans		5,184		5,184		1,941		5,142		75
Commercial business loans		92		92		53		76		—

Total:
One-to-four family residential loans	$	1,863	$	1,863	$	224	$	2,523	$	50
All other mortgage loans		6,955		6,955		1,941		6,487		127
Commercial business loans		92		92		53		76		—
	$	8,910	$	8,910	$	2,218	$	9,086	$	177

The interest income recognized in the above tables is not materially different from the cash basis method.

The following tables present information regarding newly classified troubled debt restructurings by class for the years ended December 31, 2012 and 2011.

December 31, 2012	Number of loans	Pre-modification Unpaid Principal Balance		Post-modification Unpaid Principal Balance
Troubled Debt Restructurings
One-to-four family residential loans	2	$	527	$	527
All other mortgage loans	2		1,296		1,296

December 31, 2011 (nine months)
Troubled Debt Restructurings
One-to-four family residential loans	2	$	205	$	205
All other mortgage loans	2		1,366		1,366
Commercial business loans	2		162		162

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

All the above TDR classifications occurred as concessions were granted to borrowers experiencing financial difficulties. These concessions may include a reduction in the stated rate, an interest rate that is below market interest rates for similar debt, an extension of the maturity date or delaying principal payments through interest only payments. Each TDR has been individually evaluated for impairment with the appropriate specific valuation allowance included in the allowance for loan losses calculation. There were no TDR classifications which defaulted during the twelve month period ended December 31, 2012 or the nine month period ended December 31, 2011. The Company considers TDRs that become 90 days or more past due under modified terms as subsequently defaulted.

As a result of adopting the amendments in Accounting Standards Update No. 2011-02 (the ASU), the Company reassessed all restructurings occurring on or after the beginning of its current fiscal year (April 1, 2011) for identification of TDRs. The Company identified no additional TDRs for which an allowance for credit losses had previously been measured under a general allowance for credit losses methodology.

Note 5:

Premises and Equipment

Major classifications of premises and equipment, stated at cost, at December 31, 2012 and 2011 are as follows:

	2012		2011
	(In thousands)

Land and improvements	$	1,799	$	1,748
Office buildings and improvements		7,993		7,861
Furniture, fixtures and equipment		3,702		3,409
Leasehold improvements		350		350

		13,844		13,368
Less accumulated depreciation		6,756		6,203

	$	7,088	$	7,165

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 6:

Loan Servicing

The Company has recognized servicing rights for residential mortgage loans sold with servicing retained. Residential mortgage loans serviced for others are subject to credit, prepayment and interest rate risks.

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others was $29.1 million and $28.9 million at December 31, 2012 and 2011, respectively. Contractually specified servicing fees, late fees and ancillary fees of approximately $16,000 and $17,000 are included in loan servicing fees in the income statement at December 31, 2012 and 2011, respectively.

Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were approximately $281,000 and $595,000 at December 31, 2012 and 2011, respectively.

Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value.

Activity in the balance of servicing assets was as follows at December 31, 2012 and 2011:

	2012		2011
	(In thousands)

Carrying amount, beginning of period	$	249	$	261
Additions
Servicing obligations that result from transfers of financial assets		61		31

Subtractions
Amortization		65		43

Carrying amount, end of period	$	245	$	249

The fair value of servicing rights subsequently measured using the amortization method was as follows:

Fair value, beginning of period		$	249			$	319
Fair value, end of period		$	304			$	249

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 7:

Interest-bearing Time Deposits

Interest-bearing time deposits in denominations of $100,000 or more were $52.2 million at December 31, 2012, and $55.2 million at December 31, 2011.

At December 31, 2012, the scheduled maturities of time deposits are as follows:

Due during the year ending December 31,	(In thousands)

2013	$	69,187
2014		25,005
2015		22,725
2016		7,064
2017		3,125
Thereafter		7,734

	$	134,840

Note 8:

Other Short-Term Borrowings

Short-term borrowings included the following at December 31, 2012 and 2011:

	2012		2011
	(In thousands)

Securities sold under repurchase agreements	$	7,077	$	5,278

Securities sold under agreements to repurchase consist of obligations of the Bank to other parties. The obligations are secured by available-for-sale securities and such collateral is held by the Bank. The maximum amount of outstanding agreements at any month end during fiscal periods ended December 31, 2012 and 2011 totaled $8.3 million and $6.2 million, respectively, and the average daily balance totaled $6.8 million and $5.6 million for years ended December 31, 2012 and 2011, respectively. The agreements at December 31, 2012, mature daily.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 9:

Federal Home Loan Bank Advances

At December 31, 2012, advances from the Federal Home Loan Bank were as follows:

Interest rate range	Maturing year ending December 31,
			(In thousands)
1.07%-2.60%		2013	$	5,000
1.70%-2.85%		2014		9,000
2.23%-2.49%		2015		7,500

			$	21,500

The Federal Home Loan Bank advances are secured by mortgage loans totaling $120.6 million at December 31, 2012.

At December 31, 2012, required annual principal payments on Federal Home Loan Bank advances were as follows:

For the year ended December 31,	(In thousands)

2013	$	5,000
2014		9,000
2015		7,500
		21,500
Deferred prepayment penalty, net of amortization		(283	)
	$	21,217

Each advance is payable at its maturity date and has a prepayment penalty if repaid prior to maturity. During the quarter ended December 31, 2010, the Company prepaid $8.5 million of Federal Home Loan Bank advances which resulted in a prepayment penalty of $526,000. The Company replaced these advances with lower rate advances of $8.5 million whose present value, based on a discount rate equal to the cost of funds rate of the original advances, was not substantially different than the value of the original advances immediately prior to prepayment. As such, the Company was required to defer the $526,000 penalty over the life of the new advances. As of December 31, 2012, the Bank had $283,000 in unamortized prepayment penalties.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Additionally, as a member of the Federal Home Loan Bank system at December 31, 2012, the Bank had the ability to obtain up to $70.3 million in additional borrowings. Borrowings from the FHLB are secured by a blanket pledge of the one-to-four family residential real estate loan portfolio. The Bank’s borrowing capacity can be further increased by the pledge of additional collateral, including additional types of loans from the Bank’s loan portfolio and unpledged investment securities.

At December 31, 2012, the Bank had a cash management line of credit with the Federal Reserve Bank in the amount of $24.7 million, none of which was drawn. The Bank had approximately $24.7 million of state and political subdivision bonds pledged as collateral for this line of credit.

Note 10:

Income Taxes

The provision for income taxes includes the following components at December 31, 2012 and 2011:

	2012		2011
	(In thousands)

Taxes currently payable	$	7	$	483
Deferred income taxes		371		(249	)

Income tax expense	$	378	$	234

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below:

	2012			2011
	(In thousands)

Computed at the statutory rate (34%)	$	714		$	533
Increase (decrease) resulting from
Tax exempt interest		(284	)		(222	)
Earnings on bank-owned life insurance		(80	)		(85	)
Other		28			8

Actual tax expense	$	378		$	234

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets were as follows:

	2012			2011
	(In thousands)

Deferred tax assets
Deferred loan origination fees	$	193		$	139
Allowance for loan losses		1,132			1,310
Real estate owned valuation		17			388
Pension adjustment		372			349
Reserve for uncollected interest		150			109
Benefit plan expenses		109			116
AMT credit carryover and low income housing credit		96			—

Total deferred tax assets		2,069			2,411

Deferred tax liabilities
Prepaid pension		(128	)		(119	)
Federal Home Loan Bank stock dividends		(1,217	)		(1,217	)
Book/tax depreciation differences		(437	)		(423	)
Financed loan fees		(98	)		(85	)
Unrealized gains on securities available-or-sale		(1,190	)		(1,317	)
Mortgage servicing rights		(83	)		(84	)
Purchase price adjustments – net		(44	)		(74	)

Total deferred tax liabilities		(3,197	)		(3,319	)

Net deferred tax liability	$	(1,128	)	$	(908	)

Prior to fiscal 1997, the Company was allowed a special bad debt deduction based on a percentage of earnings, generally limited to 8% of otherwise taxable income and subject to certain limitations based on aggregate loans and deposit account balances at the end of the year. This cumulative percentage of earnings bad debt deduction totaled approximately $2.7 million as of December 31, 2012. If the amounts that qualified as deductions for federal income taxes are later used for purposes other than bad debt losses, including distributions in liquidation, such distributions will be subject to federal income taxes at the then current corporate income tax rate. The amount of unrecognized deferred tax liability relating to the cumulative bad debt deduction was approximately $918,000 at December 31, 2012.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 11:

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, included in stockholders’ equity as of December 31, are as follows:

	2012			2011
	(In thousands)

Net unrealized gain on securities available-for-sale	$	3,498		$	3,876
Net unrealized loss for unfunded status of split-dollar life insurance plan liability (tax free)		(246	)		—
Net unrealized loss for unfunded status of defined benefit plan liability		(1,096	)		(1,026	)

		2,156			2,850
Tax effect		(816	)		(969	)

Net-of-tax amount	$	1,340		$	1,881

Note 12:

Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory–and possibly additional discretionary–actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

The Bank must give notice to the Federal Reserve Bank of Cleveland prior to declaring a dividend to the Company and is subject to existing regulatory guidance where, in general, a dividend is permissible without regulatory approval if the institution is considered to be “well capitalized” and the dividend does not exceed current year to date net income plus the change in retained earnings for the previous two calendar years.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2012, that the Bank met all capital adequacy requirements to which it is subject.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

As of December 31, 2012, based on the computations for the call report the Bank is classified as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since December 31, 2012 that management believes have changed the Bank’s capital classification.

The Bank’s actual capital amounts and ratios as of December 31, 2012 and 2011 are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2012
Tier I Capital to average assets (leverage ratio)	$	34,774		8.7	%	$	16,069		4.0	%	$	20,086		5.0	%
Tier I Capital to risk weighted Assets(Core)		34,774		8.7			16,069		4.0			24,103		6.0
Total Capital (risk based)		37,734		16.0			18,916		8.0			23,644		10.0


As of December 31, 2011
Tangible capital	$	35,132		8.7	%	$	6,074		1.5	%	$	20,248		5.0	%
Core capital		35,132		8.7			16,198		4.0			24,297		6.0
Risk-based capital		38,070		16.2			18,802		8.0			23,503		10.0

Note 13:

Related Party Transactions

At December 31, 2012 and 2011, the Bank had loans outstanding to executive officers, directors, and their affiliates (related parties). In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features. Such loans are summarized below.

	2012 Twelve months			2011 Nine months
	(In thousands)

Aggregate balance – Beginning of period	$	2,340		$	2,377
New loans		202			—
Repayments		(123	)		(37	)

Aggregate balance – End of period	$	2,419		$	2,340

The Bank had no undrawn lines of credit to certain directors as of December 31, 2012 and $217,000 as of December 31, 2011.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Deposits from related parties held by the Bank at December 31, 2012 and 2011, totaled $679,000 and $515,000, respectively.

The Bank paid legal fees to a law firm of which a director of the Company is a member. The amounts paid totaled approximately $20,000 and $7,000 for the year ended December 31, 2012 and the nine month period ended December 31, 2011, respectively.

The Bank leases an in-store retail branch from a corporation in which a director of the Company holds an interest. The current five year lease provides for renewal options through fiscal 2020 and payments totaling approximately $30,000 per year through fiscal 2014 and $10,000 for fiscal 2015. Rental expense for this lease was $28,000 and $21,000 for the year ended December 31, 2012 and the nine month period ended December 31, 2011, respectively.

Note 14:

Employee Benefit Plans

Pension and Other Postretirement Benefit Plans

The Company has a frozen noncontributory defined benefit pension plan covering all employees who met the eligibility requirements prior to December 31, 2003. Compensation and service accruals were frozen at the same date. The Company’s funding policy is to make the minimum annual contribution that is required by applicable regulations, plus such amounts as the Company may determine to be appropriate from time to time.

The Company expects to contribute approximately $100,000 to the plan in fiscal 2013.

The Company uses a December 31 measurement date for the plan. Information about the plan’s funded status and pension cost follows:

	2012			2011
	(In thousands)
Change in benefit obligation
Beginning of year	$	1,697		$	1,386
Interest cost		74			58
Actuarial loss		162			315
Benefits paid		(21	)		(15	)
Settlements		—			(47	)

End of year		1,912			1,697

Change in fair value of plan assets
Beginning of year		1,020			1,116
Actuarial return on plan assets		91			(39	)
Employer contribution		102			5
Benefits paid		(21	)		(15	)
Settlements		—			(47	)
End of year		1,192			1,020
Funded status at end of year	$	(720	)	$	(677	)

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Amounts recognized in accumulated other comprehensive income not yet recognized as components of net periodic benefit cost consist of the following at December 31, 2012 and 2011:

	2012			2011
	(In thousands)

Net loss	$	(1,096	)	$	(1,026	)

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is approximately $78,000.

The accumulated benefit obligation for the defined benefit pension plan was $1.9 million and $1.7 million at December 31, 2012 and 2011, respectively.

	2012			2011
	(In thousands)

Components of net periodic benefit cost
Interest cost	$	74		$	59
Expected return on plan assets		(60	)		(49	)
Amortization of net loss		62			27
Net periodic benefit cost	$	76		$	37

Plan assets are held by a bank-administered trust fund, which invests the plan assets in accordance with the provisions of the plan agreement. The plan agreement permits investment in mutual funds that may invest in common stocks, corporate bonds and debentures, U.S. Government securities, certain insurance contracts, real estate and other specified investments, based on certain target allocation percentages.

Asset allocation is primarily based on a strategy to provide stable earnings while still permitting the plan to recognize potentially higher returns through an investment in equity securities. The target asset allocation percentages for 2012 are as follows:

SMID-Cap stocks	30-70%
Fixed income investments	30-70%
Cash	0-15%

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

At December 31, 2012 and 2011, the fair value of plan assets as a percentage of the total was invested in the following:

	2012			2011

Equity securities		64	%		61	%
Debt securities		19			32
Cash and cash equivalents		17			7

		100	%		100	%

The cash composition exceeded the target allocation caused by a cash contribution late in December 2012.

Benefit payments expected to be paid from the plan as of December 31, 2012 are as follows:

	(In thousands)

2013	$	47
2014		47
2015		58
2016		66
2017		76
Thereafter		532

	$	826

Significant assumptions include the following as of December 31, 2012 and 2011:

	Pension Benefits
	2012			2011
Weighted-average assumptions used to determine benefit obligation:
Discount rate		4.05	%		4.40	%
Rate of compensation increase (frozen)		N/A			N/A
Weighted-average assumptions used to determine benefit cost:
Discount rate		4.40	%		5.75	%
Expected return on plan assets		6.00	%		6.00	%
Rate of compensation increase (frozen)		N/A			N/A

The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets, adjusted for changes in target portfolio allocations and recent changes in long-term interest rates based on publicly available information.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The fair value of the Company’s pension plan assets at December 31, 2012, and 2011 by asset category are as follows:

December 31, 2012			Fair Value Measurements Using
Asset Category	Total 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)
Mutual funds-Equity
Mid Cap Blend (a)	$	38	$	38	$	—	$	—
Large Cap Value (b)		25		25		—		—
Int’l Large Cap Blend (c)		106		106		—		—
Huntington Disciplined
Equity Fd Tr Shrs II (d)		64		64		—		—
Alernative Stability (e)		24		24		—		—
Mid Cap Blend (f)		56		56		—		—
Natural Resources (g)		41		41		—		—
Mutual funds-Fixed Income
Short-Term Bond (h)		63		63		—		—
Cash
Cash Mgm’t Funds-Taxable		198		198		—		—
Cash Receivable		3		3		—		—
Fixed Income Securities
US Government Obligations		65		65		—		—
Corporate Obligations		159		159		—		—
Equity Securities
Common Stock		331		331		—		—
Common Stock-Foreign		19		19		—		—
Total	$	1,192	$	1,192	$	—	$	—

(a)This category seeks long-term capital appreciation by investing primarily in equity securities of mid-cap companies.

(b)This category contains primarily companies which seek total return on investment, with dividend income as an important component of that return.

(c)This category seeks total return by investing in equities of large cap international companies. The focus of the category’s investments is in companies that have demonstrated the ability to grow the value of the enterprise at a higher rate than the cost of capital.

(d) This category contains primarily companies which seek total return on investment, investing in equity securities, which include put and call options on individual securities and stock indices.

(e) This category seeks total return on investment by investing in equities of companies domiciled in emerging markets.

(f)This category pursues primarily mid cap companies with goals of long-term capital appreciation. It invests in a strategic combination of U.S. and foreign companies whose situs, or geographical locations, gives them a competitive advantage and the potential to outperform.

(g)This category’s objective is to reduce risk related to inflation and diversify into investments which are less correlated to U.S. stocks and bonds.

(h)This category’s objective is to invest in high quality corporate bonds, U.S. Treasuries and government agencies to increase income without assuming a great deal of risk.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

December 31, 2011			Fair Value Measurements Using
Asset Category	Total 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)
Mutual funds-Equity
Mid Cap Blend (a)	$	46	$	46	$	—	$	—
Large Cap Value (b)		32		32		—		—
Intn’l Large Cap Blend (c)		91		91		—		—
Mid Cap Blend (d)		57		57		—		—
Natural Resources (e)		20		20		—		—
Mutual funds-Fixed Income
Short-Term Bond (f)		36		36		—		—
Cash
Cash Mgm’t Funds-Taxable		66		66		—		—
Cash Receivable		3		3		—		—
Fixed Income Securities
US Government Obligations		65		65		—		—
US Government Agencies		50		50
Corporate Obligations		216		216		—		—
Equity Securities
Common Stock		313		313		—		—
Common Stock-Foreign		25		25		—		—
Total	$	1,020	$	1,020	$	—	$	—

(a)This category seeks long-term capital appreciation by investing primarily in equity securities of mid-cap companies.

(b)This category contains primarily companies which seek total return on investment, with dividend income as an important component of that return.

(d)This category pursues primarily mid cap companies with goals of long-term capital appreciation. It invests in a strategic combination of U.S. and foreign companies whose situs, or geographical locations, gives them a competitive advantage and the potential to outperform.

(e)This category’s objective is to reduce risk related to inflation and diversify into investments which are less correlated to U.S. stocks and bonds.

(f)This category’s objective is to invest in high quality corporate bonds, U.S. Treasuries and government agencies to increase income without assuming a great deal of risk.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Also, the Company provides post-retirement benefits to certain officers of the Company under split-dollar life insurance policies. The Company accounts for the policies in accordance with ASC 715-60, which requires companies to recognize a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee extending to post-retirement periods. The liability is recognized based on the substantive agreement with the employee.

The Company uses a December 31 measurement date for the plan. Information about the plan’s funded status and pension cost follows:

	2012			2011
	(In thousands)
Change in benefit obligation
Beginning of year	$	396		$	454
Service cost		25			—
Interest cost		27			17
(Gain)/Loss		121			(69	)
Prior service cost		137			—
Benefits Paid		(13	)		(6	)

End of year	$	693		$	396

Amounts recognized in accumulated other comprehensive income not yet recognized as components of net periodic benefit cost consist of:

	2012			2011
	(In thousands)
Prior service cost	$	(125	)	$	—
Net loss		(121	)		—

The accumulated benefit obligation for the split-dollar benefit plan was $693,000 and $384,000 at December 31, 2012 and 2011, respectively.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The estimated net loss for the split-dollar plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is approximately $135,000.

	2012		2011
	(In thousands)

Components of net periodic benefit cost
Service cost	$	24	$	—
Interest cost		27		18
(Gain)/Loss recognized		—		(69	)
Prior service cost		12		—

Net periodic benefit cost	$	63	$	(51	)

The retiree accrued liability expected to be reversed from the plan as of December 31, 2012 are as follows:

	(In thousands)

2013	$	15
2014		17
2015		19
2016		21
2017		28
Thereafter		196

	$	296

Significant assumptions for the split-dollar plan liability include the following as of December 31, 2012 and 2011:

	2012			2011

Weighted-average assumptions used to determine benefit cost obligation:
Discount rate		4.40	%		6.00	%
Rate of compensation increase		1.50			1.50
Weighted-average assumptions used to determine benefit cost:
Discount rate		6.00	%		6.00	%
Rate of compensation increase		1.50			1.50

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The Company has an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees of the Company. The ESOP acquired 163,265 shares of Company common stock at $10.00 per share in 2003 with funds provided by a loan from the Company. Accordingly, $1.6 million of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings. Dividends on unallocated shares, which will be distributed to participants, are treated as compensation expense. Compensation expense is recorded equal to the average fair market value of the stock during the year when contributions, which are determined annually by the Board of Directors of the Company, are made to the ESOP.

ESOP expense for the year ended December 31, 2012 and the nine month ended December 31, 2011, was $97,000 and $67,000, respectively.

Share information for the ESOP is as follows at December 31, 2012 and 2011:

	2012		2011

Allocated shares		106,088		97,812
Unearned shares		57,177		65,453

Total ESOP shares		163,265		163,265

Fair value of unearned shares at end of period	$	529,459	$	507,915

At December 31, 2012, the fair value of the 106,088 allocated shares held by the ESOP was approximately $982,000.

In addition to the defined benefit plan and ESOP, the Company has a 401(k) plan covering substantially all employees. The Company’s 401(k) matching percentage was 100% of the first 4% contributed by the employee and 50% of the employees’ next 2% of contributions. Expense related to the 401(k) plan totaled $177,000 and $112,000 for the year ended December 31, 2012 and the nine month period ended December 31, 2011, respectively.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 15:

Stock Option Plan

The Company’s Stock Option Plan (the Plan), which was approved by stockholders, permits the grant of up to 204,081 share options to its employees. The Company believes that such awards better align the interests of its employees with those of its stockholders. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. All outstanding options are fully exercisable. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plan). There was no compensation cost recognized in the income statement for share-based payment arrangements during the fiscal periods ended December 31, 2012 and 2011.

A summary of option activity under the Plan for the year ended December 31, 2012 is presented below:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding, beginning of period		63,408	$	13.95
Granted		—		—
Exercised		—		—
Forfeited or expired		4,500	$	13.95

Outstanding, end of period		58,908	$	13.95		0.75	$	—

Exercisable, end of period		58,908	$	13.95		0.75	$	—

As of December 31, 2012 and 2011, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. The cost was recognized in fiscal year ended March 31, 2005 when the Company accelerated full vesting of all the stock options at that time.

Table of Contents

Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 16:

Earnings Per Share

Earnings per share (EPS) were computed as follows:

		Year Ended December 31, 2012
		Net Income		Weighted- Average Shares		Per Share Amount
	(In thousands)

Net income		$	1,722

Basic earnings per share
Income available to common stockholders					2,932,349	$	0.59

Effect of dilutive securities
Stock options					—

Diluted earnings per share
Income available to common stockholders and assumed conversions		$	1,722		2,932,349	$	0.59

		Nine Month Period Ended December 31, 2011
		Net Income		Weighted- Average Shares		Per Share Amount
	(In thousands)

Net income		$	1,334

Basic earnings per share
Income available to common stockholders					2,930,106	$	0.46

Effect of dilutive securities
Stock options					—

Diluted earnings per share
Income available to common stockholders and assumed conversions		$	1,334		2,930,106	$	0.46

Options to purchase 58,908 shares of common stock at an exercise price of $13.95 per share were outstanding at December 31, 2012 and 63,408 at December 31, 2011, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares in both years.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 17:

Disclosures about Fair Value of Assets and Liabilities

Fair value is 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. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of 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

Recurring Measurements

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

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 quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and December 31, 2011:

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

			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)
December 31, 2012
U.S. government agencies	$	155	$	—	$	155	$	—
Mortgage-backed securities of government-sponsored entities		85,830		—		85,830		—
Private-label collateralized mortgage obligations		1,106		—		1,106		—
State and political subdivisions		24,427		—		24,427		—


December 31, 2011
U.S. government agencies	$	1,584	$	—	$	1,584	$	—
Mortgage-backed securities of government-sponsored entities		101,328		—		101,328		—
Private-label collateralized mortgage obligations		1,741		—		1,741		—
State and political subdivisions		25,984		—		25,984		—

Nonrecurring Measurements

Certain assets may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the office of the Chief Financial Officer. Appraisals are reviewed for accuracy and consistency by the office of the Chief Financial Officer. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the office of the Chief Financial Officer by comparison to historical results.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of real estate is based on appraisals or evaluations. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

Appraisals of real estate are obtained when the real estate is acquired and subsequently as deemed necessary by the office of the Chief Financial Officer. Appraisals are reviewed for accuracy and consistency by the office of the Chief Financial Officer. Appraisers are selected from the list of approved appraisers maintained by management.

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2012 and December 31, 2011.

			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)
December 31, 2012
Collateral-dependent impaired loans	$	2,437	$	—	$	—	$	2,437
Foreclosed assets		16		—		—		16
December 31, 2011
Collateral-dependent impaired loans	$	3,468	$	—	$	—	$	3,468
Foreclosed assets		1,283		—		—		1,283

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at December 31, 2012, in thousands.

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)

Collateral-dependent impaired loans	$	2,437	Market comparable properties	Selling Cost		10	%
Foreclosed assets		16	Market comparable properties	Selling Cost		10	%

There were no changes in the inputs or methodologies used to determine fair value at December 31, 2012 as compared to December 31, 2011

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

The following table presents estimated fair values of the Company’s financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2012	(In thousands)
Financial assets
Cash and cash equivalents	$	12,055	$	12,055	$	—	$	—
Held-to-maturity securities		3,748		—		3,740		—
Loans, net of allowance for loan losses		247,849		—		—		259,986
Federal Home Loan Bank stock		5,025		—		5,025		—
Interest receivable		1,228		—		1,228		—


Financial liabilities
Deposits		327,737		—		317,312		—
Other short-term borrowings		7,077		—		7,077		—
Federal Home Loan Bank advances		21,217		—		22,048		—
Advances from borrowers for taxes and insurance		1,069		—		1,069		—
Interest payable		51		—		51		—

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

December 31, 2011	(In thousands)
Financial assets
Cash and cash equivalents	$	19,816	$	19,816	$	—	$	—
Held-to-maturity securities		1,679		—		1,695		—
Loans, net of allowance for loan losses		232,099		—		—		239,983
Federal Home Loan Bank stock		5,025		—		5,025		—
Interest receivable		1,314		—		1,314		—

Financial liabilities
Deposits		333,848		—		332,222		—
Other short-term borrowings		5,278		—		5,278		—
Federal Home Loan Bank advances		26,597		—		27,717		—
Advances from borrowers for taxes and insurance		941		—		941		—
Interest payable		66		—		66		—

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents, Interest Receivable and Federal Home Loan Bank Stock

The carrying amount approximates fair value.

Held-to-Maturity Securities

The fair value of held-to-maturity securities was estimated by using pricing models that contain market pricing and information, quoted prices of securities with similar characteristics or discounted cash flows that use credit-adjusted discount rates.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Payable, Other Short-Term Borrowings and Advances From Borrowers for Taxes and Insurance

The carrying amount approximates fair value.

Federal Home Loan Bank Advances

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at December 31, 2012 and 2011.

Note 18:

Commitments and Credit Risk

Total commercial and commercial real estate loans made up 35% and 34% of the loan portfolio at December 31, 2012 and December 31, 2011, respectively, with most of these loans secured by commercial real estate and business assets mainly located in Ohio. Installment loans account for approximately 1% of the loan portfolio for both years ended December 31, 2012 and 2011. These loans are secured by consumer assets including automobiles, which account for 39% and 38%, respectively, of the installment loan portfolio. Real estate loans comprise 64% of the loan portfolio as of both December 31, 2012 and 2011, respectively, and primarily include first mortgage loans on residential properties and home equity lines of credit. Included in cash and due from banks as of December 31, 2012 and 2011, is $2.5 million and $2.6 million, respectively, of uninsured deposits in the form of branch cash on hand.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Commitments to Originate Loans

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

At December 31, 2012 and 2011, the Company had outstanding commitments to originate fixed-rate loans aggregating approximately $3.9 million and $731,000, respectively. The commitments extended over varying periods of time with the majority being disbursed within a one-year period.

Mortgage loans in the process of origination represent amounts that the Company plans to fund within a normal period of one year. Total mortgage loans in the process of origination amounted to approximately $1.8 million and $330,000 at December 31, 2012 and 2011, respectively.

The Company had undisbursed amounts of residential loans of $189,000, nonresidential of $463,000 and commercial loans of $27,000 at December 31, 2012. The Company had undisbursed amounts of residential loans of $320,000, nonresidential loans of $250,000 and commercial loans of $66,000 in land loans at December 31, 2011.

Standby Letters of Credit

Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Financial standby letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Performance standby letters of credit are issued to guarantee performance of certain customers under non-financial contractual obligations. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. Fees for letters of credit are initially recorded by the Company as deferred revenue and are included in earnings at the termination of the respective agreements.

Should the Company be obligated to perform under the standby letters of credit, the Company may seek recourse from the customer for reimbursement of amounts paid.

The Company had total outstanding standby letters of credit amounting to $207,000 and $145,000, at December 31, 2012 and 2011, respectively, with terms not exceeding eleven months. At both December 31, 2012 and 2011, the Company had no deferred revenue under standby letter of credit agreements.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

At December 31, 2012, the Company had granted unused lines of credit to borrowers aggregating approximately $11.9 million and $17.8 million for commercial lines and open-end consumer lines, respectively. At December 31, 2011, unused lines of credit to borrowers aggregated approximately $11.3 million for commercial lines and $17.7 million for open-end consumer lines, respectively.

Leases

The Company currently leases two branch banking facilities under an operating lease. The first lease originated in fiscal 2000 for a ten year term and two five year renewal options of which the Company committed to another five year renewal ending in April 2014. The Company’s second operating lease commenced in fiscal 2001 for an original five year term with 3 five year renewal options and has currently renewed the third option to expire in April 2016. The minimum annual lease payments over the current lease term are as follows:

Fiscal year ended	(In thousands)


2013	$	61
2014		41
2015		31
2016		10

Total	$	143

The Company incurred rental expense under operating leases totaling approximately $59,000 and $50,000 for the twelve months ended December 31, 2012 and the nine months ended December 31, 2011, respectively.

There were no other material commitments or contingencies at December 31, 2012.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 19:

Recent Accounting Developments

FASB Accounting Standards Update (ASU) 2011-03 “Reconsideration of Effective Control for Repurchase Agreements” (Topic 860), issued on April 29, 2011, concerns the improvement of accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity by amending the criteria for determining effective control of collateral. The guidance is effective for fiscal quarters and years beginning on or after December 15, 2011 (January 1, 2012 for the Company). Early adoption is not permitted. The adoption of FASB ASU 2011-03 did not have a material effect on the Company’s financial condition or results of operations.

FASB Accounting Standards Update (ASU) 2011-04 “Fair Value Measurement” (Topic 820), issued on May 12, 2011, concerns the establishment of a global standard for applying fair value measurement and clarifies three points in topic 820. First, only non-financial assets should be valued via a determination of their best use. Second, an instrument in shareholder’s equity should be measured from the perspective of an investor or trader who owns that instrument. Third, data will need to be provided and methods disclosed for assets valued in level 3 of the fair value hierarchy. The guidance is effective for fiscal quarters and years beginning on or after December 15, 2011 (January 1, 2012 for the Company). Early adoption is not permitted. The adoption of FASB ASU 2011-04 did not have a material effect on the Company’s financial condition or results of operations.

FASB Accounting Standards Update (ASU) 2011-05 “Comprehensive Income” (Topic 220), issued on June 16, 2011, concerns the presentation of comprehensive income in financial statements. An entity has the option to present the total comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for fiscal quarters and years beginning on or after December 15, 2011 (January 1, 2012 for the Company). Early adoption is permitted. The adoption of FASB ASU 2011-05 did not have a material effect on the Company’s financial condition or results of operations.

FASB Accounting Standards Update (ASU) 2011-08 Intangibles – Goodwill and Other” (Topic 350), issued on September 15, 2011, concerns the cost and complexity of performing the first step of the two-step goodwill impairment test. The amendments in this update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in the original ASU Topic 350. The guidance is effective for fiscal quarters and years beginning on or after December 15, 2011 (January 1, 2012 for the Company). Early adoption is permitted. The adoption of FASB ASU 2011-08 did not have a material effect on the Company’s financial condition or results of operations.

FASB ASU 2011-12, Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-12, issued in December 2011 is a deferral of only those changes in update 2011-05 that relate to the presentation of reclassification

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

adjustments out of accumulated other comprehensive income. All other requirements in Update 2011-05 are not affected by this update, including the requirements to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. This standard did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2013-02, issued in February 2013 requires the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. These amendments are effective prospectively for reporting periods beginning after December 15, 2012, and early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

Note 20:

Transfer and Assumption Agreement

On July 2, 2012, the Bank entered into a Transfer and Assumption Agreement with Thomasville National Bank (“TNB”), the national bank subsidiary of Thomasville Bancshares, Inc. headquartered in Thomasville, Georgia. The agreement provides for the transfer of the Bank’s trust business to TNB.

Under terms of the agreement, TNB maintains a trust office at a Wayne Savings office in Wooster, Ohio. The Bank and TNB entered into an office support and referral agreement under which the Bank will be compensated for, among other services, the use of facilities and equipment required for the operation of the TNB trust office. The costs of exiting the trust business include a one-time expense of approximately $354,000 that was mainly recognized during the quarter ended June 30, 2012. Closing of the transaction occurred during the fourth quarter of 2012 and the Bank surrendered its trust license to the Ohio Division of Financial Institutions (“ODFI”) in January 2013 after the ODFI confirmed that the Bank had met the conditions for ceasing to conduct trust business. The Bank received no consideration and there was no gain or loss on the transfer other than the one-time expense noted above.

The strategic rationale for this transaction was to partner with a stronger provider of trust services, who will absorb the operating expense overhead and assume the fiduciary risk associated with post-closing management of the trust accounts.

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 21:

Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company at December 31, 2012 and 2011:

Condensed Balance Sheets

	2012			2011
	(In thousands)
Assets
Cash and due from banks	$	1,113		$	150
Notes receivable from the Bank		688			770
Investment in the Bank		37,987			38,974
Prepaid expenses and other assets		219			17

Total assets	$	40,007		$	39,911

Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities	$	222		$	196

Stockholders’ equity
Common stock and additional paid-in capital		36,373			36,384
Retained earnings		17,567			16,635
Shares acquired by ESOP		(572	)		(655	)
Treasury stock – at cost		(14,923	)		(14,530	)
Accumulated other comprehensive income		1,340			1,881

Total stockholders’ equity		39,785			39,715

Total liabilities and stockholders’ equity	$	40,007		$	39,911

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Condensed Statements of Income and Comprehensive Income

	2012 12 months			2011 9 months
	(In thousands)

Operating Income
Interest income	$	46		$	38
Dividends from the Bank		2,401			501
Total operating income		2,447			539

Noninterest Expense		256			206

Earnings before Federal Income Tax Benefits and equity in undistributed (excess distributed) income of the Bank		2,191			333

Federal Income Tax Benefits		(68	)		(56	)
Income before equity in undistributed (excess distributed) income of the Bank		2,259			389

Equity in undistributed (excess distributed) income of the Bank		(537	)		945

Net Income	$	1,722		$	1,334

Total Comprehensive income	$	1, 181		$	1,910

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Condensed Statements of Cash Flows


	2012 12 months			2011 9 months
	(In thousands)
Operating Activities
Net income	$	1,722		$	1,334
Items not requiring (providing) cash
Equity in (undistributed) excess distributed net income of the Bank		537			(945	)
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets		(251	)		35
Accrued expenses and other liabilities		26			(1	)
Net cash provided by operating activities		2,034			423

Investing Activities
Repayment of ESOP loan		82			82

Net cash provided by investing activities		82			82


Financing Activities
Payment of dividends on common stock		(760	)		(527	)
Purchase of treasury stock		(393	)		—

Net cash used in financing activities		(1,153	)		(527	)

Net Change in Cash and Cash Equivalents		963			(22	)

Cash and Cash Equivalents at Beginning of Period		150			172

Cash and Cash Equivalents at End of Period	$	1,113		$	150

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

Note 22:

Quarterly Financial Data (Unaudited)

The following table summarizes the Company’s quarterly results of operations for the twelve month period ended December 31, 2012 and the nine months ended December 31, 2011:

	Three Months Ended
Year Ended December 2012:	March 31,			June 30,			September 30,		December 31,
	(In thousands, except per share data)

Total interest income	$	3,987		$	3,864		$	3,807	$	3,645
Total interest expense		791			718			668		621

Net interest income		3,196			3,146			3,139		3,024

Provision (credit) for loan losses		787			(394	)		225		155
Noninterest income		468			493			516		461
Noninterest expense		2,785			3,215			2,840		2,730

Income before income taxes		92			818			590		600
Federal income tax expense (benefit)		(60	)		194			125		119

Net income	$	152		$	624		$	465	$	481

Earnings per share
Basic	$	0.05		$	0.21		$	0.16	$	0.17

Diluted	$	0.05		$	0.21		$	0.16	$	0.17

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Wayne Savings Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 2012 and 2011

	Three Months Ended
Nine Month Period Ended December 31, 2011:	June 30,		September 30,		December 31,
	(In thousands, except per share data)

Total interest income	$	4,372	$	4,212	$	4,024
Total interest expense		1,090		1,027		862

Net interest income		3,282		3,185		3,162

Provision for loan losses		70		442		294
Noninterest income		441		534		515
Noninterest expense		3,002		2,952		2,791

Income before income taxes		651		325		592
Federal income taxes		136		16		82

Net income	$	515	$	309	$	510

Earnings per share
Basic	$	0.18	$	0.10	$	0.18

Diluted	$	0.18	$	0.10	$	0.18

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ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not Applicable

ITEM 9A. Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.

Wayne Savings Bancshares, Inc.

Management’s Report on Internal Control Over Financial Reporting

Management of Wayne Savings Bancshares, Inc. and subsidiary (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U. S. generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management of the Company has concluded that the Company maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rules 13a-15(f), as of December 31, 2012.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. These inherent limitations, however, are known features of the financial reporting process. It is possible, therefore, to design into the process safeguards to reduce, though not eliminate, this risk.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

/s/ Rod C. Steiger		/s/ Myron Swartzentruber
Rod C. Steiger		Myron Swartzentruber
President & Chief Executive Officer		Senior Vice President & Chief Financial Officer
March 25, 2013		March 25, 2013

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ITEM 9B. Other Information

Not Applicable

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

The information required herein is incorporated by reference from the section captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” in the Company’s definitive proxy statement for the annual meeting of shareholders to be held on May 23, 2013, (the “Proxy Statement”) expected to be filed with the Securities and Exchange Commission on or about April 22, 2013.

Incorporated by reference to “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management - Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

The Company has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of the Company and the Bank. Upon receipt of a written request we will furnish without charge to any stockholder a copy of the Code of Conduct and Ethics. Such written requests should be directed to Mr. H. Stewart Fitz Gibbon III, Secretary, Wayne Savings Bancshares, Inc., 151 North Market Street, Wooster, Ohio 44691.

ITEM 11. Executive Compensation

The information required herein is incorporated by reference from the sections captioned “Management Compensation” in the Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required herein is incorporated herein by reference from the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information required herein is incorporated by reference from the section captioned “Management Compensation - Indebtedness of Management and Related Party Transactions” in the Proxy Statement.

ITEM 14. Principal Accountant Fees and Services

The information required herein is incorporated by reference from the section captioned “Proposal II - Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules

(a)(1)

Financial Statements

The following documents have been filed under “Item 8, Financial Statement and
Supplementary Data” of this Form 10.

(i)

Report of Independent Registered Public Accounting Firm;

(ii)

Consolidated Balance Sheets;

(iii)

Consolidated Statements of Income;

(iv)

Consolidated Statements of Stockholders’ Equity;

(v)

Consolidated Statements of Cash Flows; and

(vi)

Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

(a)(3)

Exhibits

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Exhibit Number		Description (and location)

3.1		Certificate of Incorporation (incorporated herein by reference to Exhibit D of the Plan of Conversion and Reorganization included as Exhibit 2 of the Form SB-2 Registration Statement filed with the SEC on September 18, 2001 (SEC file number 333-69600))
3.1.1		Amendment of the Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Form SB-2 Registration Statement, Amendment Number 6, filed with the SEC on November 8, 2002 (SEC file number 333-69600))
3.2		By-Laws (incorporated herein by reference to Exhibit E of the Plan of Conversion and Reorganization included as Exhibit 2 of the Form SB-2 Registration Statement filed with the SEC on September 18, 2001 (SEC file number 333-69600))
4.0		Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4 of the Form SB-2 Registration Statement filed with the SEC on September 18, 2001 (SEC file number 333-69600))
10.2 *		Amended and Restated Employment Agreement between Wayne Savings Community Bank and H. Stewart Fitz Gibbon III dated November 30, 2006 (incorporated herein by reference to Exhibit 10.3 of the Form 8-K Current Report filed with the SEC on December 6, 2006 (SEC file number 0-23433))
10.2.1 *		Addendum dated November 20, 2012 to the Amended and Restated Employment Agreement between Wayne Savings Community Bank and H. Stewart Fitz Gibbon III (incorporated herein by reference to Exhibit 10.2.1 of the Form 8-K Current Report filed with the SEC on November 21, 2012 (SEC file number 0-23433))
10.3 *		Employment Agreement between Wayne Savings Community Bank and Rod C. Steiger dated January 15, 2011 (incorporated herein by reference to Exhibit 10.1 of the Form 8-K Current Report filed with the SEC on January 18, 2011 (SEC file number 0-23433))
10.3.1 *		Addendum dated November 20, 2012 to the Employment Agreement between Wayne Savings Community Bank and Rod C. Steiger (incorporated herein by reference to Exhibit 10.3.1 of the Form 8-K Current Report filed with the SEC on November 21, 2012 (SEC file number 0-23433))
10.4 *		Amended and Restated Employment Agreement between Wayne Savings Community Bank and Joel D. Beckler dated November 20, 2012 (incorporated herein by reference to Exhibit 10.6 of the Form 8-K Current Report filed with the SEC on November 21, 2012 (SEC file number 0-23433))
10.5 *		Amended and Restated 2003 Stock Option Plan (incorporated herein by reference to Appendix C of the definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, filed with the SEC on June 24, 2004 (SEC file number 0-23433))
10.6 *		Indemnification Agreement with directors and executive officers (filed herewith) (the form of Indemnification Agreement included herewith as Exhibit 10.6 has been entered into by the Registrant with directors, with Executive Vice President and Chief Operating Officer H. Stewart Fitz Gibbon III, and with Senior Vice President and Senior Loan Officer Joel D. Beckler)

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Exhibit Number		Description (and location)

18.1		Preferability Letter from BKD, LLP (filed herewith)
21.0		Subsidiaries of Registrant (included in Item 1 – "Business" and incorporated herein by reference)
23.0		Consent of BKD, LLP (filed herewith)
31.1		Certification pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer (filed herewith)
32.0		Certification pursuant to 18 U.S.C. Section 1350 (filed herewith)
101		Interactive financial data (XBRL) (furnished herewith)

*	management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	WAYNE SAVINGS BANCSHARES, INC.


Date: March 25, 2013	By:	/s/Rod C. Steiger
		Rod C. Steiger
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By:	/s/Rod C. Steiger	By:	/s/Myron Swartzentruber
	Rod C. Steiger, President and Chief		Myron Swartzentruber,
	Executive Officer and Director		Senior Vice President and
	(Principal Executive Officer)		Chief Financial Officer
			(Principal Accounting and Financial Officer)

Date:	March 25, 2013	Date:	March 25, 2013


By:	/s/Daniel R. Buehler	By:	/s/Peggy J. Schmitz
	Daniel R. Buehler, Director		Peggy J. Schmitz, Chair

Date:	March 25, 2013	Date:	March 25, 2013


By:	/s/Jonathan Ciccotelli	By:	/s/David L. Lehman
	Jonathan Ciccotelli, Director		David L Lehman, Director

Date:	March 25, 2013	Date:	March 25, 2013


By:	/s/Glenn W. Miller	By:	/s/Debra A. Marthey
	Glenn W. Miller, Director		Debra A. Marthey, Director

Date:	March 25, 2013	Date:	March 25, 2013

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