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

                                    FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934

For the quarterly period ended September 30, 2005
                               ------------------

                                       OR

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

For the transition period from ____________ to _______________

Commission File No. 0-23433

                         WAYNE SAVINGS BANCSHARES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                              31-1557791
-------------------------------                           ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

151 North Market Street
Wooster, Ohio                                                      44691
-------------------------------                                  ----------
(Address of principal                                            (Zip Code)
executive office)

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

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.

Yes |X|                                 No |_|

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)

Yes |_|                                 No |X|

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

Yes |_|                                 No |X|

As of October 28, 2005, the latest practicable date, 3,364,244 shares of the
registrant's common stock, $.10 par value, were issued and outstanding.


                                       1
<PAGE>

                         Wayne Savings Bancshares, Inc.

                                      INDEX

                                                                            Page

PART I  -  FINANCIAL INFORMATION

  Item 1   Consolidated Statements of Financial Condition                      3
           Consolidated Statements of Earnings                                 4
           Consolidated Statements of Comprehensive Income                     5
           Consolidated Statements of Cash Flows                               6
           Notes to Consolidated Financial Statements                          8

  Item 2   Management's Discussion and Analysis of
           Financial Condition and Results of Operations                      12

  Item 3   Quantitative and Qualitative Disclosures About Market Risk         23

  Item 4   Controls and Procedures                                            23

PART II -  OTHER INFORMATION

  Item 1   Legal Proceedings                                                  24

  Item 2   Unregistered Sales of Equity Securities and Use of Proceeds        24

  Item 3   Defaults Upon Senior Securities                                    24

  Item 4   Submission of Matters to a Vote of Security Holders                24

  Item 5   Other Information                                                  24

  Item 6   Exhibits                                                           24

 SIGNATURES                                                                   25


                                       2
<PAGE>

                         Wayne Savings Bancshares, Inc.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                  September 30,         March 31,
         ASSETS                                                                                            2005              2005
                                                                                                    (Unaudited)
<S>                                                                                                   <C>               <C>
Cash and due from banks                                                                               $   2,734         $   4,176
Federal funds sold                                                                                           --            19,400
Interest-bearing deposits in other financial institutions                                                11,460             6,366
                                                                                                      ---------         ---------
         Cash and cash equivalents                                                                       14,194            29,942

Investment securities available for sale - at market                                                     65,664            60,844
Investment securities held to maturity - at amortized cost, approximate market value
  of $11,979 and $12,101 as of September 30, 2005 and March 31, 2005, respectively                       11,904            12,012
Mortgage-backed securities available for sale - at market                                                47,099            57,724
Mortgage-backed securities held to maturity - at cost, approximate market value of
  $2,110 and $2,647 as of September 30, 2005 and March 31, 2005, respectively                             2,092             2,628
Loans receivable - net                                                                                  225,698           213,627
Office premises and equipment - net                                                                       8,738             8,922
Real estate acquired through foreclosure                                                                     49                35
Federal Home Loan Bank stock - at cost                                                                    4,494             4,386
Cash surrender value of life insurance                                                                    6,706             6,581
Accrued interest receivable on loans                                                                        973               757
Accrued interest receivable on mortgage-backed securities                                                   215               444
Accrued interest receivable on investments and interest-bearing deposits                                    755               708
Prepaid expenses and other assets                                                                         4,180             3,996
Prepaid federal income taxes                                                                                432               795
                                                                                                      ---------         ---------

         Total assets                                                                                 $ 393,193         $ 403,401
                                                                                                      =========         =========

         LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                                              $ 325,818         $ 320,586
Advances from the Federal Home Loan Bank                                                                 28,500            40,000
Advances by borrowers for taxes and insurance                                                               461               481
Accrued interest payable                                                                                    239               198
Accounts payable on mortgage loans serviced for others                                                      194               231
Other liabilities                                                                                           828             1,305
Deferred federal income taxes                                                                               690               401
                                                                                                      ---------         ---------
         Total liabilities                                                                              356,730           363,202

Commitments                                                                                                  --                --

Stockholders' equity
   Preferred stock (500,000 shares of $.10 par value authorized-
    no preferred stock issued as of September 30, 2005 or March 31,2005)                                     --                --
  Common stock (9,000,000 shares of $ .10 par value authorized; 3,934,874 and 3,907,318 shares
    issued at September 30, 2005 and March 31, 2005)                                                        393               391
  Additional paid-in capital                                                                             35,525            35,133
  Retained earnings - substantially restricted                                                           11,463            11,371
  Less required contributions for shares acquired by Employee Stock Ownership Plan                       (1,280)           (1,304)
  Less 570,630 and 282,261 shares of treasury stock at September 30, 2005 and
    March 31, 2005 - at cost                                                                             (9,256)           (4,600)
  Accumulated other comprehensive loss - unrealized losses on securities designated
    as available for sale                                                                                  (382)             (792)
                                                                                                      ---------         ---------
         Total stockholders' equity                                                                      36,463            40,199
                                                                                                      ---------         ---------

         Total liabilities and stockholders' equity                                                   $ 393,193         $ 403,401
                                                                                                      =========         =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

                         Wayne Savings Bancshares, Inc.

                       CONSOLIDATED STATEMENTS OF EARNINGS

                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                         Six months           Three months
                                                                           ended                  ended
                                                                       September 30,          September 30,
                                                                       2005       2004        2005       2004
                                                                                   (Unaudited)
<S>                                                                 <C>        <C>         <C>        <C>
Interest income
  Loans                                                             $ 6,725    $ 6,394     $ 3,441    $ 3,231
  Mortgage-backed securities                                            979      1,168         467        573
  Investment securities                                               1,533        925         774        505
  Interest-bearing deposits and other                                   242        138         116         72
                                                                    -------    -------     -------    -------
         Total interest income                                        9,479      8,625       4,798      4,381

Interest expense
  Deposits                                                            3,346      2,695       1,728      1,363
  Borrowings                                                            502        539         238        246
                                                                    -------    -------     -------    -------
         Total interest expense                                       3,848      3,234       1,966      1,609
                                                                    -------    -------     -------    -------

         Net interest income                                          5,631      5,391       2,832      2,772
Provision for losses on loans                                            --         30          --         15
                                                                    -------    -------     -------    -------
         Net interest income after provision for losses on loans      5,631      5,361       2,832      2,757

Other income
  Gain on sale of loans                                                  69        142          44        126
  Increase in cash surrender value of life insurance                    125        137          63         66
  Service fees, charges and other operating                             660        619         339        301
                                                                    -------    -------     -------    -------
         Total other income                                             854        898         446        493

General, administrative and other expense
  Employee compensation and benefits                                  3,113      2,784       1,544      1,436
  Occupancy and equipment                                               901        847         476        426
  Federal deposit insurance premiums                                     22         23          11         12
  Franchise taxes                                                       261        297         132        168
  Other operating                                                       974        998         489        538
                                                                    -------    -------     -------    -------
         Total general, administrative and other expense              5,271      4,949       2,652      2,580
                                                                    -------    -------     -------    -------

         Earnings before income taxes                                 1,214      1,310         626        670

Federal incomes taxes
  Current                                                               229        414          81        602
  Deferred                                                               78        (55)         78       (421)
                                                                    -------    -------     -------    -------
         Total federal income taxes                                     307        359         159        181
                                                                    -------    -------     -------    -------

         NET EARNINGS                                               $   907    $   951     $   467    $   489
                                                                    =======    =======     =======    =======

         EARNINGS PER SHARE
           Basic                                                    $  0.27    $  0.26     $  0.14    $  0.13
                                                                    =======    =======     =======    =======
           Diluted                                                  $  0.27    $  0.26     $  0.14    $  0.13
                                                                    =======    =======     =======    =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                         Wayne Savings Bancshares, Inc.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                          Six months             Three months
                                                                            ended                   ended
                                                                        September 30,           September 30,
                                                                        2005        2004        2005        2004
                                                                                     (Unaudited)
<S>                                                                  <C>         <C>         <C>         <C>
Net earnings                                                         $   907     $   951     $   467     $   489

Other comprehensive income:
  Unrealized holding gains (losses) on securities, net of related
    taxes (benefits) of $211, $(172), $(156) and $429 during the
    respective periods                                                   410        (333)       (302)        832
                                                                     -------     -------     -------     -------

Comprehensive income                                                 $ 1,317     $   618     $   165     $ 1,321
                                                                     =======     =======     =======     =======

Accumulated comprehensive income (loss)                              $  (382)    $   146     $  (382)    $   146
                                                                     =======     =======     =======     =======
</TABLE>


                                       5
<PAGE>

                         Wayne Savings Bancshares, Inc.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     For the six months ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                             2005         2004
<S>                                                                                      <C>          <C>
Cash flows from operating activities:
  Net earnings for the period                                                            $    907     $    951
  Adjustments to reconcile net earnings to net cash
  provided by operating activities:
    Amortization of discounts and premiums on loans,
      investments and mortgage-backed securities - net                                        281          711
    Amortization of deferred loan origination fees                                            (74)        (134)
    Depreciation and amortization                                                             319          301
    Gain on sale of loans                                                                     (17)        (142)
    Proceeds from sale of loans in the secondary market                                     5,669        2,406
    Loans originated for sale in the secondary market                                      (5,654)      (2,355)
    Provision for losses on loans                                                              --           30
    Federal Home Loan Bank stock dividends                                                   (108)         (87)
    Increase (decrease) in cash:
      Accrued interest receivable on loans                                                   (216)         (71)
      Accrued interest receivable on mortgage-backed securities                               229           88
      Accrued interest receivable on investments and interest-bearing deposits                (47)        (197)
      Prepaid expenses and other assets                                                      (184)        (848)
      Accrued interest payable                                                                 41            3
      Accounts payable on mortgage loans serviced for others                                  (37)         (78)
      Other liabilities                                                                      (477)        (283)
      Federal income taxes
        Current                                                                               363          414
        Deferred                                                                               78         (350)
                                                                                         --------     --------
          Net cash provided by operating activities                                         1,073          359

Cash flows provided by (used in) investing activities:
  Purchase of investment securities designated as available for sale                       (5,344)     (10,989)
  Proceeds from maturity of investment securities designated as held to maturity               89           25
  Proceeds from maturity of investment securities designated as available for sale          1,051        1,500
  Purchase of mortgage-backed securities designated as available for sale                  (5,706)      (3,049)
  Principal repayments on mortgage-backed securities designated as held to maturity           530        1,199
  Principal repayments on mortgage-backed securities designated as available for sale      13,309       19,594
  Proceeds from sale of mortgage-backed securities designated as available for sale         2,860           --
  Loan principal repayments                                                                18,325       24,951
  Loan disbursements                                                                      (30,449)     (20,986)
  Purchase of office premises and equipment - net                                            (135)        (263)
  Proceeds from sale of real estate acquired through foreclosure                              115          100
  Increase in cash surrender value of life insurance                                         (125)        (137)
  Net cash used in the acquisition of Stebbins Bancshares, Inc.                                --       (1,314)
                                                                                         --------     --------
          Net cash provided by (used in) investing activities                              (5,480)      10,631
                                                                                         --------     --------

          Net cash provided by (used in) operating and investing activities
            (balance carried forward)                                                      (4,407)      10,990
                                                                                         --------     --------
</TABLE>


                                       6
<PAGE>

                         Wayne Savings Bancshares, Inc.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     For the six months ended September 30,
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                   2005         2004
<S>                                                                            <C>          <C>
          Net cash provided by (used in) operating and investing activities
            (balance brought forward)                                          $ (4,407)    $ 10,990

Cash flows used in financing activities:
  Net increase (decrease) in deposit accounts                                     5,232       (4,730)
  Proceeds from Federal Home Loan Bank advances                                  17,500           --
  Repayments of Federal Home Loan Bank advances                                 (29,000)      (5,000)
  Advances by borrowers for taxes and insurance                                     (20)         (52)
  Dividends paid on common stock                                                   (815)        (879)
  Proceeds from exercise of stock options                                           367           --
  Tax benefits from exercise of stock options                                        27           --
  Amortization of employee stock ownership benefit plan                              24          317
  Purchase of treasury shares                                                    (4,656)      (1,762)
                                                                               --------     --------
          Net cash used in financing activities                                 (11,341)     (12,106)
                                                                               --------     --------

Net decrease in cash and cash equivalents                                       (15,748)      (1,116)

Cash and cash equivalents at beginning of period                                 29,942       19,887
                                                                               --------     --------

Cash and cash equivalents at end of period                                     $ 14,194     $ 18,771
                                                                               ========     ========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
    Federal income taxes                                                       $    325     $     --
                                                                               ========     ========

    Interest on deposits and borrowings                                        $  3,807     $  3,214
                                                                               ========     ========

Supplemental disclosure of noncash investing activities:
  Transfers from loans to real estate acquired through foreclosure             $    129     $    141
                                                                               ========     ========

  Unrealized gains (losses) on securities designated as available for sale,
    net of related tax effects                                                 $    410     $   (333)
                                                                               ========     ========

  Recognition of mortgage servicing rights in accordance
    with SFAS No. 140                                                          $     52     $     21
                                                                               ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       7
<PAGE>

                         Wayne Savings Bancshares, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      For the six and three month periods ended September 30, 2005 and 2004

1.    Basis of Presentation
      ---------------------

      The accompanying  unaudited  consolidated financial statements for the six
      and three  months  ended  September  30,  2005 and 2004 were  prepared  in
      accordance  with  instructions  for Form 10-Q and Article 10 of Regulation
      S-X and, therefore,  do not include information or footnotes necessary for
      a complete  presentation of financial position,  results of operations and
      cash flows in conformity with accounting  principles generally accepted in
      the United  States of America.  Accordingly,  these  financial  statements
      should be read in conjunction with the consolidated  financial  statements
      and notes  thereto  of Wayne  Savings  Bancshares,  Inc.  (the  "Company")
      included  in the Annual  Report on Form 10-K for the year ended  March 31,
      2005.

      In the opinion of management,  all adjustments  (consisting only of normal
      recurring  accruals)  which are necessary for a fair  presentation  of the
      unaudited  financial  statements  have  been  included.   The  results  of
      operations for the six and three month period ended September 30, 2005 are
      not  necessarily  indicative  of the results which may be expected for the
      entire fiscal year.

      Critical  Accounting  Policy - The Company's  critical  accounting  policy
      relates to the allowance for losses on loans.  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 losses on
      loans. The allowance for losses on loans is based on management's  current
      judgments about the credit quality of individual loans and segments of the
      loan portfolio. The allowance for losses on loans 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 included 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.   Management  has  discussed  the  development  and
      selection of this critical  accounting  policy with the audit committee of
      the Board of Directors.

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

2.    Principles of Consolidation
      ---------------------------

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

      During fiscal 2004, the Company's  Board of Directors  approved a business
      combination,   which  was  completed  in  June  2004,   whereby   Stebbins
      Bancshares,  Inc.,  the parent of Stebbins  National Bank, was merged into
      Wayne Savings Bancshares,  Inc. and Stebbins National Bank merged with and
      into Wayne Savings Community Bank. The business  combination was accounted
      for using the purchase  method of accounting.  Accordingly,  the September
      30, 2004 consolidated  financial statements herein include the accounts of
      Stebbins  National  Bank from the June 1, 2004  acquisition  date  through
      September 30, 2004.


                                       8
<PAGE>

                         Wayne Savings Bancshares, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        For six and three month periods ended September 30, 2005 and 2004

2.    Principles of Consolidation (continued)
      ---------------------------

      Wayne  Savings has eleven  banking  locations in Wayne,  Holmes,  Ashland,
      Medina and Stark counties. All significant  intercompany  transactions and
      balances have been eliminated in the consolidation.

3.    Earnings Per Share
      ------------------

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

<TABLE>
<CAPTION>
                                              For the six months ended      For the three months ended
                                                    September 30,                 September 30,
                                                    2005           2004           2005           2004
<S>                                            <C>            <C>            <C>            <C>
      Weighted-average common shares
        outstanding (basic)                    3,365,102      3,616,294      3,273,901      3,596,303
      Dilutive effect of assumed exercise
        of stock options                          18,808         31,175         14,354         29,694
                                               ---------      ---------      ---------      ---------
      Weighted-average common shares
        outstanding (diluted)                  3,383,910      3,647,469      3,288,255      3,625,997
                                               =========      =========      =========      =========
</TABLE>

      All  outstanding  options were included in the diluted  earnings per share
      calculation for the three and six month periods ending  September 30, 2005
      and 2004.

4.    Stock Option Plan
      -----------------

      The Company has a 1993  Incentive  Stock Option Plan that provided for the
      grant of options  covering  196,390 shares of authorized  common stock, as
      adjusted,  with 2,567 options outstanding at September 30, 2005. In fiscal
      2004,  the Company  adopted a new Stock Option Plan that  provided for the
      issuance of 142,857  incentive  options and 61,224  non-incentive  options
      with respect to a  corresponding  number of shares of common stock.  As of
      September 30, 2005, all options under the 2004 Plan have been granted, are
      subject to exercise at the discretion of the grantees,  and will expire in
      fiscal 2014 unless otherwise exercised.

      In the fourth quarter of fiscal 2005,  the Company  adopted the provisions
      of SFAS No. 123(R),  "Share Based  Payment." SFAS No. 123(R)  requires the
      recognition of compensation  related stock option awards based on the fair
      value of the option  award at the grant  date.  Compensation  cost is then
      recognized over the vesting period. Subsequent to the adoption of SFAS No.
      123(R),  the Company  modified  163,265 stock option awards under the 2004
      Stock Option Plan,  eliminating the reload options  contained  therein and
      immediately  vesting  these  shares.  Pursuant  to SFAS  No.  123(R),  the
      modification represented a new grant. Accordingly,  in accordance with the
      modified prospective application method under SFAS No. 123(R), the Company
      recognized  compensation  costs  representing the fair value of the option
      awards at the date of modification.

      Prior to the fourth quarter of 2005,  the Company  accounted for its stock
      option  plans  pursuant  SFAS  No.  123,   "Accounting   for   Stock-Based
      Compensation,"  which  also  provided  for a fair  value-based  method for
      measuring  compensation  cost at the grant date based on the fair value of
      the award at the grant date.  Compensation  was then  recognized  over the
      service period, generally defined as the vesting period.


                                       9
<PAGE>

                         Wayne Savings Bancshares, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        For six and three month periods ended September 30, 2005 and 2004

4.    Stock Option Plan (continued)
      -----------------------------

      Alternatively,  SFAS No. 123  permits  entities to continue to account for
      stock options using the Accounting  Principles  Board ("APB")  Opinion No.
      25, "Accounting for Stock Issued to Employees."  Entities that continue to
      account for stock  options  using APB Opinion No. 25 were required to make
      pro forma  disclosures  of net earnings and earnings per share,  as if the
      fair  value-based  method of  accounting  defined in SFAS No. 123 had been
      applied.   Wayne   Savings  had  continued  to  account  for  stock  based
      compensation in accordance with APB Opinion No. 25.

      In  accordance  with APB  Opinion  No. 25, no  compensation  cost has been
      recognized for the plans in the six months or quarter ending September 30,
      2004. Had compensation cost for the Plan been determined based on the fair
      value at the grant  dates for awards  under the Plan  consistent  with the
      accounting method utilized in SFAS No. 123, the Company's net earnings and
      earnings per share for the  three-month  period ended  September  30, 2004
      would have been reported as the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                   Six months ended    Three months ended
                                                                     September 30,        September, 30
                                                                         2004                 2004
<S>                                           <C>                        <C>                  <C>
      Net earnings (In thousands)             As reported                $951                 $489
                     Stock-based compensation, net of tax                 (54)                 (27)
                                                                         ----                 ----

                                                Pro-forma                $897                 $462
                                                                         ====                 ====
      Earnings per share
        Basic                                 As reported                $.26                 $.13
                     Stock-based compensation, net of tax                (.01)                  --
                                                                         ----                 ----

                                                Pro-forma                $.25                 $.13
                                                                         ====                 ====

        Diluted                               As reported                $.26                 $.13
                     Stock-based compensation, net of tax                (.01)                  --
                                                                         ----                 ----

                                                Pro-forma                $.25                 $.13
                                                                         ====                 ====
</TABLE>

      There were no options  granted  during the six months ended  September 30,
      2005 or September 30, 2004.


                                       10
<PAGE>

                         Wayne Savings Bancshares, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      For the six and three month periods ended September 30, 2005 and 2004

4.    Stock Option Plan (continued)

      A summary of the status of the Company's  stock option plans as of and for
      the  years  ended  March  31,  2005 and  2004,  and the six  months  ended
      September 30, 2005 is presented below:

<TABLE>
<CAPTION>
                                                   Six months ended                              Year ended
                                                     September 30,                                March 31,
                                                         2005                         2005                          2004
                                                              Weighted-                    Weighted-                     Weighted-
                                                              average                      average                       average
                                                              exercise                     exercise                      exercise
                                                 Shares         price         Shares         price          Shares         price
<S>                                             <C>            <C>          <C>             <C>            <C>            <C>
      Outstanding at beginning of period        214,204        $13.84        214,204        $13.84          28,666        $ 6.26
      Granted                                        --            --        163,265         13.95         204,081         13.95
      Exercised                                 (27,556)        13.35             --            --         (18,543)         3.31
      Forfeited                                      --            --       (163,265)       (13.95)             --            --
                                               --------        ------       --------        ------        --------        ------

      Outstanding at end of period              186,648        $13.92        214,204        $13.84         214,204        $13.84
                                               ========        ======       ========        ======        ========        ======

      Options exercisable at period-end         186,648        $13.92        214,204        $13.84          10,123        $11.67
                                               ========        ======       ========        ======        ========        ======

      Fair value of options granted                            $   --                       $ 4.07                        $ 3.93
                                                               ======                       ======                        ======
</TABLE>

      The following  information applies to options outstanding at September 30,
      2005:

      Number outstanding......................................          186,648
      Range of exercise prices................................  $11.67 - $13.95
      Weighted-average exercise price.........................           $13.92
      Weighted-average remaining contractual life.............        8.5 years

      The fair value of options  granted was based on the Black Scholes  pricing
      model using a dividend  yield of 4.5% and 3.3% and an expected  volatility
      of 27.3% and 28.8% for fiscal  2005 and 2004,  respectively.  All  options
      granted in fiscal 2004 have expected lives of ten years, while the options
      granted in fiscal 2005 have expected lives of nine years.


                                       11
<PAGE>

ITEM 2         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Average Balance Sheet

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

<TABLE>
<CAPTION>
                                                         For the six months ended September 30,
                                    -------------------------------------------------------------------------------
                                                   2005                                            2004
                                    ------------------------------------       ------------------------------------
                                    Average                     Average        Average                     Average
                                    Balance       Interest        Rate         Balance       Interest        Rate
                                    --------      --------      --------       --------      --------      --------
                                                                (Dollars in thousands)
<S>                                 <C>           <C>             <C>          <C>           <C>             <C>
Interest-earning assets:
  Loans receivable, net(1)          $215,902      $  6,725          6.23%      $211,424      $  6,394          6.05%
  Mortgage-backed
    securities(2)                     55,971           979          3.50         79,773         1,168          2.93
  Investment securities               77,412         1,533          3.96         47,487           925          3.90
  Interest-bearing deposits(3)        16,335           242          2.96         21,387           138          1.29
                                    --------      --------                     --------      --------
     Total interest-
       earning assets                365,620         9,479          5.19        360,071         8,625          4.79
Non-interest-earning assets           25,169                                     21,171
                                    --------                                   --------
     Total assets                   $390,789                                   $381,242
                                    ========                                   ========

Interest-bearing liabilities:
  Deposits                          $323,406         3,346          2.07       $307,258         2,695          1.75
  Borrowings                          27,234           502          3.69         26,900           539          4.01
                                    --------      --------                     --------      --------
     Total interest-
       bearing liabilities           350,640         3,848          2.19        334,158         3,234          1.94
                                                  --------      --------                     --------      --------
Non-interest bearing
  liabilities                          1,692                                      4,645
                                    --------                                   --------
     Total liabilities               352,332                                    338,803
Stockholders' equity                  38,457                                     42,439
                                    --------                                   --------
     Total liabilities and
       stockholders' equity         $390,789                                   $381,242
                                    ========                                   ========
Net interest income                               $  5,631                                   $  5,391
                                                  ========                                   ========
Interest rate spread(4)                                             3.00%                                      2.85%
                                                                ========                                   ========
Net yield on interest-
  earning assets(5)                                                 3.08%                                      2.99%
                                                                ========                                   ========
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                                    104.27%                                    107.75%
                                                                ========                                   ========
</TABLE>

----------

(1)   Includes non-accrual loan balances.

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

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

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

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


                                       12
<PAGE>

ITEM 2         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Average Balance Sheet - (continued)

<TABLE>
<CAPTION>
                                                        For the three months ended September 30,
                                    -------------------------------------------------------------------------------
                                                   2005                                            2004
                                    ------------------------------------       ------------------------------------
                                    Average                     Average        Average                     Average
                                    Balance       Interest        Rate         Balance       Interest        Rate
                                    --------      --------      --------       --------      --------      --------
                                                                (Dollars in thousands)
<S>                                 <C>           <C>             <C>          <C>           <C>             <C>
Interest-earning assets:
  Loans receivable, net(1)          $218,695      $  3,441          6.29%      $214,958      $  3,231          6.01%
  Mortgage-backed
    securities(2)                     53,284           467          3.51         74,422           573          3.08
  Investment securities               78,075           774          3.97         51,013           505          3.96
  Interest-bearing deposits(3)        15,053           116          3.08         15,286            72          1.88
                                    --------      --------                     --------      --------
     Total interest-
       earning assets                365,107         4,798          5.26        355,679         4,381          4.93
Non-interest-earning assets           24,609                                     25,790
                                    --------                                   --------
     Total assets                   $389,716                                   $381,469
                                    ========                                   ========

Interest-bearing liabilities:
  Deposits                          $325,465         1,728          2.12       $313,544         1,363          1.74
  Borrowings                          25,076           238          3.80         25,000           246          3.94
                                    --------      --------                     --------      --------
     Total interest-
       bearing liabilities           350,541         1,966          2.24        338,544         1,609          1.90
                                                  --------      --------                     --------      --------
Non-interest bearing
  liabilities                          2,018                                        690
                                    --------                                   --------
     Total liabilities               352,559                                    339,234
Stockholders' equity                  37,157                                     42,235
                                    --------                                   --------
     Total liabilities and
       stockholders' equity         $389,716                                   $381,469
                                    ========                                   ========
Net interest income                               $  2,832                                   $  2,772
                                                  ========                                   ========
Interest rate spread(4)                                             3.02%                                      3.03%
                                                                ========                                   ========
Net yield on interest-
  earning assets(5)                                                 3.10%                                      3.12%
                                                                ========                                   ========
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities                                    104.16%                                    105.06%
                                                                ========                                   ========
</TABLE>

----------

(1)   Includes non-accrual loan balances.

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

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

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

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


                                       13
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial  Condition  Changes from March 31, 2005 to September 30,
--------------------------------------------------------------------------------
2005
----

At September  30, 2005,  we had total  assets of $393.2  million,  a decrease of
$10.2 million, or 2.5%, from March 31, 2005 levels.

Liquid  assets,  consisting of cash,  interest-bearing  deposits and  investment
securities,  decreased by $11.0 million, or 10.7%, to $91.8 million at September
30,  2005  mainly due to a  reduction  in federal  funds sold of $19.4  million,
offset by purchases of  investment  securities  designated as available for sale
totaling $5.3 million.  This decrease in liquid assets of $11.0 million was used
to pay down the Federal  Home Loan Bank  advances  in the  absence of  immediate
lending or investment  opportunities.  Mortgage-backed  securities  decreased by
$11.2  million,  or 18.5%,  to $49.2  million  due to the short  duration of the
securities;  such decline was partially  offset by purchases of  mortgage-backed
securities totaling $5.7 million.

During the six month period ended September 30, 2005 loans receivable  increased
$12.1  million as the Bank  originated  and retained  $30.4 million of loans and
received payments of $18.3 million. Rather than reinvest funds from sales of and
repayments on loans in long-term,  fixed rate and low yielding residential loans
during this period of low interest rates,  the lending division has been able to
originate  shorter-term  adjustable rate commercial  loans. The Company believes
that investing in shorter-term  and  adjustable-rate  commercial loans positions
the  Company  favorably  in  an  increasing   interest  rate  environment.   The
composition of the loan portfolio has changed during the six months due to a net
decrease of $10.2 million in residential and construction  mortgage loans offset
by increases  in  nonresidential  real estate  loans of $12.6  million and a net
increase  in  commercial  loans of $5.6  million in  connection  with the Bank's
increased emphasis on commercial lending.

<TABLE>
<CAPTION>
                                             September 30, 2005            March 31, 2005
                                                          (Dollars in thousands)
<S>                                         <C>            <C>         <C>            <C>
Mortgage loans:
   One- to four-family residential(1)       $148,905       64.64%      $157,658       72.60%
   Residential construction loans              7,633        3.31          7,872        3.63
   Multi-family residential                    7,768        3.37          4,053        1.87
   Non-residential real estate/land(2)        41,748       18.12         29,187       13.44
                                            --------      ------       --------      ------
     Total mortgage loans                    206,054       89.44        198,770       91.54
Other loans:
   Consumer loans(3)                           4,604        2.00          4,306        1.98
   Commercial business loans                  19,717        8.56         14,075        6.48
                                            --------      ------       --------      ------
     Total other loans                        24,321       10.56         18,381        8.46
                                            --------      ------       --------      ------
   Total loans before net items              230,375      100.00%       217,151      100.00%
                                                          ======                     ======
Less:
   Loans in process                            2,845                      1,638
   Deferred loan origination fees                462                        512
   Allowance for loan losses                   1,370                      1,374
                                            --------                   --------
     Total loans receivable, net            $225,698                   $213,627
                                            ========                   ========
   Mortgage-backed securities, net(4)       $ 49,191                   $ 60,352
                                            ========                   ========
</TABLE>

----------

(1)   Includes equity loans  collateralized by second mortgages in the aggregate
      amount of $21.4  million and $20.3  million as of  September  30, 2005 and
      March  31,  2005,  respectively.  Such  loans  have been  underwritten  on
      substantially the same basis as the Company's first mortgage loans.

(2)   Includes  land loans of $1.3 million and $1.4 million as of September  30,
      2005 and March 31, 2005, respectively.

(3)   Includes  second  mortgage  loans of $1.0  million and $1.4  million as of
      September 30, 2005 and March 31, 2005, respectively.

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


                                       14
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Nonperforming and impaired loans amounted to $1.2 million at September 30, 2005,
as compared with $906,000 in nonperforming and impaired loans at March 31, 2005.
Such loans consisted,  on both dates, of primarily  residential  mortgage loans.
Historically,  the Company  generally has not recognized losses on nonperforming
loans  secured  by  residential  mortgages.   The  following  table  sets  forth
information  regarding  our past due,  nonaccrual  and  impaired  loans and real
estate acquired through foreclosure as of September 30, 2005 and March 31, 2005.

<TABLE>
<CAPTION>
                                                         September 30,      March 31,
                                                                  2005           2005
                                                                (Dollars in thousands)
<S>                                                             <C>            <C>
Past due loans 30-89 days:
  Mortgage loans:
    One- to four-family residential                             $  643         $1,298
    Nonresidential                                                  --             35
    Land                                                            --             --
  Non-mortgage loans:
    Commercial business loans                                        3              4
    Consumer loans                                                  44             98
                                                                ------         ------

                                                                $  690         $1,435
                                                                ======         ======

Non-accrual loans:
  Mortgage loans:
    One- to four-family residential                             $  974         $  895
    All other mortgage loans                                       178             --
  Non-mortgage loans:
    Commercial business loans                                       --             --
    Consumer                                                        18             11
                                                                ------         ------
Total non-accrual loans                                          1,170            906
Accruing loans 90 days or more delinquent                           --             --
                                                                ------         ------

Total non-performing loans                                       1,170            906
Loans deemed impaired                                               --             --
                                                                ------         ------
Total non-performing and impaired loans                          1,170            906
Total real estate acquired through foreclosure                      49             35
                                                                ------         ------

Total non-performing and impaired assets                        $1,219         $  941
                                                                ======         ======

Total non-performing and impaired loans to net
  loans receivable                                                0.52%          0.42%
                                                                ======         ======
Total non-performing and impaired loans to total assets           0.30%          0.22%
                                                                ======         ======
Total non-performing and impaired assets to total assets          0.31%          0.23%
                                                                ======         ======
</TABLE>

The Company  reclassified $2.1 million of the Stebbins  portfolio as substandard
pursuant  to the  definitions  set forth  under  Office  of  Thrift  Supervision
Regulations.  These loans are not delinquent, but until they can be restructured
and  supported by current  financial  statements,  the Company will  continue to
classify such loans as substandard.


                                       15
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial  Condition  Changes from March 31, 2005 to September 30,
--------------------------------------------------------------------------------
2005 (continued)
----------------

Historically,  the Company has had minimal  loan losses  charged off through the
allowance. The following table sets forth the analysis of the allowance for loan
losses for the periods indicated.

<TABLE>
<CAPTION>
                                                   For the six months ended   For the year ended
                                                      September 30, 2005        March 31, 2005
<S>                                                        <C>                    <C>
Loans receivable, net                                      $ 225,698              $ 213,627
                                                           =========              =========

Average loans receivable, net                              $ 215,902              $ 212,785
                                                           =========              =========

Allowance balance (at beginning of period)                 $   1,374              $     815
Charge-offs:
  Mortgage loans:
    One- to four-family                                           (7)                   (28)
    Residential construction                                      --                     --
    Multi-family residential                                      --                     --
    Non-residential real estate and land                          --                     --
  Other loans:
    Consumer                                                     (21)                   (44)
    Commercial                                                    --                    (54)
                                                           ---------              ---------
         Gross charge-offs                                       (28)                  (126)
                                                           ---------              ---------
Recoveries:
  Mortgage loans:
    One- to four-family                                           --                     --
    Residential construction                                      --                     --
    Multi-family residential                                      --                     --
    Non-residential real estate and land                          --                     --
  Other loans:
    Consumer                                                      16                     25
    Commercial                                                     8                     --
                                                           ---------              ---------
         Gross recoveries                                         24                     25
                                                           ---------              ---------
         Net charge-offs                                          (4)                  (101)
                                                           ---------              ---------
Provision charged to operations                                   --                    430
Stebbins acquisition                                              --                    230
                                                           ---------              ---------
Allowance for loans losses balance (at end
  of period)                                               $   1,370              $   1,374
                                                           =========              =========
Allowance for loan losses as a percent of loans
  receivable, net at end of period                              0.61%                  0.64%
                                                           =========              =========
Net loans charged off as a percent of average
  loans receivable, net                                         0.01%                  0.05%
                                                           =========              =========
Ratio of allowance for loan losses to non-
  performing loans at end of period                           117.09%                151.66%
                                                           =========              =========
</TABLE>

Deposits at September  30, 2005,  totaled  $325.8  million,  an increase of $5.2
million from $320.6 million at March 31, 2005, due to Bank's competitive deposit
pricing in all  market  areas.  Certificates  of  deposit  grew by $9.4  million
coupled with $5.9 million of growth in the  commercial  sweep  program and money
market  growth of $1.4  million.  This  growth was offset by a decrease of $11.9
million in  savings  deposits.  The  increase  in higher  rate  certificates  of
deposit,  combined with the decrease in relatively  lower rate savings  deposits
contributed  to the  increase in the average rate paid on deposits for the three
and six months ended September 30, 2005, compared to the same periods in 2004.

Borrowings  totaled  $28.5  million at September 30, 2005 as compared with $40.0
million at March 31, 2005. As described  above,  the Company  repaid  short-term
federal home loan advances  during the six months ended  September 30, 2005 with
excess cash balances.


                                       16
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Discussion of Financial  Condition  Changes from March 31, 2005 to September 30,
--------------------------------------------------------------------------------
2005 (continued)
----------------

Stockholders'  equity  decreased  by $3.8  million  during the six months  ended
September 30, 2005, due mainly to the purchase of treasury stock of $4.7 million
and dividends  totaling  $815,000.  These amounts were offset by $907,000 in net
earnings  for the six months  ended  September  30,  2005,  unrealized  gains on
available  for sale  securities  of $410,000,  and proceeds  from stock  options
exercised of $394,000.

Comparison of Operating  Results for the Six Month  Periods Ended  September 30,
--------------------------------------------------------------------------------
2005 and 2004
-------------

General
-------

Net earnings  totaled  $907,000 for the six months ended  September  30, 2005, a
decrease of $44,000,  or 4.6%,  compared to the net earnings of $951,000 for the
six months ended  September 30, 2004.  The decline in net earnings was primarily
attributable  to an  increase in general,  administrative  and other  expense of
$322,000,  or 6.5% coupled with a decline of $44,000,  or 4.9%, from total other
income.  These  decreases in earnings were offset by an increase in net interest
income after provision for losses on loans of $270,000,  or 5.0%, and a decrease
in federal income taxes of $52,000, or 14.5%.

The Company has maintained  its strategy to  aggressively  manage  interest rate
risk.  This  strategy  negatively  affected  earnings  for the six months  ended
September 30, 2005.  However,  management believes that the investment of excess
funds  primarily  in shorter  term  assets  will help the Company in the current
rising  interest  rate  environment  by providing  flexibility  to redeploy such
assets in higher yielding loans and other investments as interest rates rise.

Interest Income
---------------

Interest income increased $854,000,  or 9.9%, to $9.5 million for the six months
ended September 30, 2005, compared to the same period in 2004. This increase was
mainly due to an  increase  in the  weighted-average  yield on  interest-earning
assets to 5.19% from 4.79% for the six month  period ended  September  30, 2004.
The yield  increase was primarily due to the Federal  Reserve  raising the prime
rate  2.75%  over the past year and the  corresponding  impact on the  Company's
investment  securities and interest-bearing  deposits.  The Company purposefully
invested excess funds in shorter-term  securities available for sale rather than
long-term  fixed  rate  mortgage  loans.   Although  this  strategy   sacrifices
short-term  income,  it  strengthens  the  Company's  interest rate position and
allows the Company to redeploy  such  assets in a rising rate  environment.  The
Company  continued  to pursue  its  strategy  of  originating  shorter  term and
variable rate commercial loans to diversify its loan portfolio to achieve higher
yields and manage interest rate risk.

Interest income on loans increased  $331,000,  or 5.2%, for the six months ended
September  30, 2005,  compared to the same period in 2004,  due  primarily to an
increase  in the  weighted-average  balance  of loans  period  to period of $4.5
million to $215.9  million  for the 2005 period  coupled  with an 18 basis point
increase in the weighted average yield on loans outstanding.

Interest income on  mortgage-backed  securities  decreased  $189,000,  or 16.2%,
during the six months ended  September 30, 2005,  compared to the same period in
2004,  due  primarily  to  a  decrease  of  $23.8  million,  or  29.8%,  in  the
weighted-average balance due mainly to prepayments. The decrease in the weighted
average  balance  was  offset by an  increase  of 57 basis  points to a weighted
average yield of 3.50% as compared to 2.93%, from the comparable 2004 period.


                                       17
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating  Results for the Six Month  Periods Ended  September 30,
--------------------------------------------------------------------------------
2005 and 2004 (continued)
-------------------------

Interest Income (continued)
---------------

Interest income on investment securities increased by $608,000, or 65.7%, during
the 2005 period  compared to the same period in 2004,  reflecting an increase in
the weighted  average balance of $29.9 million,  or 63.0%, to $77.4 million from
$47.5 million during the comparable 2004 period, coupled with an increase in the
average yield of 6 basis points to 3.96%.

Interest income on  interest-bearing  deposits increased by $104,000,  or 75.4%,
for the six months ended September 30, 2005, due primarily to an increase in the
average  yield of 167 basis points to an average  yield of 2.96% from an average
yield of 1.29% for the six months ended September 30, 2004, offset by a decrease
in the weighted average balance of $5.1 million, or 23.6%,  compared to the 2004
period of $21.4 million.

Interest Expense
----------------

Interest  expense  for the six months  ended  September  30, 2005  totaled  $3.8
million,  an increase of $614,000,  or 19.0%,  from interest expense for the six
months ended  September 30, 2004. The increase  resulted from an increase in the
average  balance of deposits and borrowings  outstanding  of $16.5  million,  or
4.9%, to $350.6  million for the period ended  September 30, 2005 and a 25 basis
point increase in the average cost of funds to 2.19% for the 2005 period.

Interest  expense on deposits  totaled  $3.3  million for the three months ended
September  30,  2005,  an increase of  $651,000,  or 24.2%,  compared to the six
months  ended  September  30,  2004,  as a result of an  increase in the average
balance  outstanding of $16.1  million,  or 5.3%, to $323.4 million for the 2005
period coupled with a 32 basis point increase in the average cost of deposits to
2.07% for the 2005  period.  During  the six month  period  the  composition  of
deposits   shifted  from  lower  cost  savings   deposits   toward  higher  cost
certificates of deposit.

Interest  expense  on  borrowings  totaled  $502,000  for the six  months  ended
September  30,  2005,  a decrease of  $37,000,  or 6.9%,  from the 2004  period,
primarily due to a decrease on the weighted  average yield of 32 basis points to
an average yield of 3.69% for the six months ended September 30, 2005.

Net Interest Income
-------------------

Net interest  income totaled $5.6 million for the six months ended September 30,
2005,  an  increase  of  $240,000,  or 4.5%,  from the six  month  period  ended
September 30, 2004. The average  interest rate spread increased to 3.00% for the
six  months  ended  September  30,  2005  from  2.85% for the six  months  ended
September  30, 2004.  The net interest  margin  increased to 3.08% for the three
months ended  September  30, 2005 from 2.99% for the six months ended  September
30, 2004.

Provision for Losses on Loans
-----------------------------

The  Company  did not  record any  provision  for losses on loans for the period
ending  September 30, 2005. For the period ended September 30, 2004,  management
recorded a $30,000  provision for losses on loans.  To the best of  management's
knowledge,  all known and  inherent  losses that are  probable  and which can be
reasonably estimated have been recorded as of September 30, 2005.


                                       18
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating  Results for the Six Month  Periods Ended  September 30,
--------------------------------------------------------------------------------
2005 and 2004 (continued)
-------------------------

Other Income
------------

Other  income,  consisting  primarily  of  the  cash  surrender  value  of  life
insurance, gains on sale of loans, service fees, and charges on deposit accounts
decreased  $44,000,  or 4.9%,  for the six months  ended  September  30, 2005 as
compared  with the six months ending  September 30, 2004.  Gain on sale of loans
was down  $73,000,  or 51.4%  mainly due the sale of the credit  card  portfolio
resulting  in a gain of  $44,000  in July 2004,  coupled  with more  competitive
pricing  in 2005  which  resulted  in a lower  gain on the  sale of  loans.  The
increase in cash  surrender  value of life  insurance was also down $12,000,  or
8.8%,  as a result of the  individual  insurance  policies'  performance.  These
decreases were offset with a $41,000 increase in service fees, charges and other
operating  income  which was mainly  comprised  of trust  income of $28,000  and
increased annuity sales of $9,000.

General, Administrative, and Other Expense
------------------------------------------

General,  administrative  and other expense  increased by $322,000,  or 6.5%, to
$5.3 million for the six months  ended  September  30, 2005  compared to the six
months  ended  September  30,  2004.  The increase  resulted  primarily  from an
increase in employee  compensation  and benefits  expense of $329,000,  or 11.8%
coupled with an increase in occupancy and equipment charges of $54,000, or 6.4%,
offset by a reduction in franchise tax expense of $36,000,  or 12.1%,  and other
operating  expense  reduction  of  $24,000,  or 2.4%.  The  increase in employee
compensation  and benefits was mainly due to the  Stebbins  acquisition  in June
2004 and the  expansion of personnel  needed to enhance our  commercial  lending
department and to establish a trust  department  staffed by a team of qualified,
experienced  trust  professionals.  The  increase in other  occupancy  operating
expense was  primarily due to additional  vendor  support and data  connectivity
upgrades  needed to  facilitate  operations.  The  reduction in franchise tax is
mainly  the  result of  increased  treasury  stock  due to the stock  repurchase
programs.   The  other  operating  expenses  were  reduced  mainly  due  to  the
elimination  of the  temporary  systems  operating  costs  associated  with  the
Stebbins acquisition until the November 2004 data conversion.

Federal Income Taxes
--------------------

The  provision  for federal  income  taxes was $307,000 for the six months ended
September 30, 2005, a decrease of $52,000, or 14.5%, compared to the same period
in 2004,  primarily  due to the $96,000,  or 7.3%,  decrease in earnings  before
federal income taxes.  The effective tax rate for the six months ended September
30,  2005,  was  25.3% as  compared  to 27.4% for the same  period in 2004.  The
effective tax rate for the six months ended  September 30, 2005 declined  mainly
due to income  earned from the purchase of additional  tax-advantaged  municipal
securities.

Comparison of Operating  Results for the Three Month Periods Ended September 30,
--------------------------------------------------------------------------------
2005 and 2004
-------------

General
-------

Net  earnings  totaled  $467,000  for the quarter  ended  September  30, 2005, a
decrease of $22,000,  or 4.5%,  compared to the net earnings of $489,000 for the
quarter  ended  September  30, 2004.  The decline in net earnings was  primarily
attributable  to an  increase in general,  administrative  and other  expense of
$72,000,  or 2.8%, coupled with a decrease in other income of $47,000,  or 9.5%,
offset by an increase in net interest income after provision for losses on loans
of $75,000,  or 2.7%,  and a decrease  in federal  income  taxes of $22,000,  or
12.2%.

The Company has maintained  its strategy to  aggressively  manage  interest rate
risk. This strategy negatively affected earnings for the quarter ended September
30, 2005.  However,  management  believes  that the  investment  of excess funds
primarily in shorter term assets will help the Company in a rising interest rate
environment  by providing  it with the  flexibility  to redeploy  such assets in
higher yielding loans and other investments as interest rates rise.


                                       19
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating  Results for the Three Month Periods Ended September 30,
--------------------------------------------------------------------------------
2005 and 2004 (continued)
-------------------------

Interest Income
---------------

Interest  income  increased  $417,000,  or 9.5%,  to $4.8  million for the three
months  ended  September  30,  2005,  compared to the same period in 2004.  This
increase  was  mainly  due to an  increase  in  the  weighted-average  yield  on
interest-earning  assets to 5.26% from 4.93% for the period ended  September 30,
2004.  The yield  increase is primarily due to the Federal  Reserve  raising the
prime  rate  2.75%  over  the  past  year and the  corresponding  impact  on the
Company's investment securities and interest-bearing deposits.

Interest income on loans increased $210,000, or 6.5%, for the three months ended
September  30, 2005,  compared to the same period in 2004,  due  primarily to an
increase in the weighted-average  yield of 28 basis points to 6.29% coupled with
an increase in the  weighted  average  balance of loans period to period of $3.7
million to $218.7 million for the 2005 period.

Interest income on  mortgage-backed  securities  decreased  $106,000,  or 18.5%,
during the three months ended September 30, 2005, compared to the same period in
2004,  due  primarily  to  a  decrease  of  $21.1  million,  or  28.4%,  in  the
weighted-average balance caused mainly by principal repayments.  The decrease in
the weighted  average  balance was offset by an increase of 43 basis points to a
weighted  average yield of 3.51% as compared to 3.08%,  from the comparable 2004
period.

Interest income on investment securities increased by $269,000, or 53.3%, during
the 2005 period  compared to the same period in 2004,  reflecting an increase in
the weighted  average balance of $27.1 million,  or 53.0%, to $78.1 million from
$51.0 million during the comparable 2004 period.

Interest income on interest-bearing deposits increased by $44,000, or 61.1%, for
the three months ended  September 30, 2005,  due primarily to an increase in the
average  yield of 120 basis points to an average  yield of 3.08% from an average
yield of 1.88% for the quarter ended September 30, 2004.

The Company  continued to pursue its strategy of shorter term and variable  rate
commercial  loans to diversify its loan  portfolio to achieve  higher yields and
manage interest rate risk.

Interest Expense
----------------

Interest  expense for the three  months  ended  September  30, 2005 totaled $2.0
million, an increase of $357,000,  or 22.2%, from interest expense for the three
months ended  September 30, 2004. The increase  resulted from an increase in the
average  balance of deposits and borrowings  outstanding  of $12.0  million,  or
3.5%, to $350.5 million for the period ended  September 30, 2005 and an 34 basis
point increase in the average cost of funds to 2.24% for the 2005 period.

Interest  expense on deposits  totaled  $1.7  million for the three months ended
September  30, 2005,  an increase of $365,000,  or 26.8%,  compared to the three
months  ended  September  30,  2004,  as a result of an  increase in the average
balance  outstanding of $11.9  million,  or 3.8%, to $325.5 million for the 2005
period coupled with a 38 basis point increase in the average cost of deposits to
2.12% for the 2005 period.  The composition of deposits  continued to shift from
lower cost savings deposits toward higher cost certificates of deposit.

Interest  expense on  borrowings  totaled  $238,000  for the three  months ended
September  30,  2005,  a decrease  of  $8,000,  or 3.3%,  from the 2004  period,
primarily due to a decrease on the weighted  average yield of 14 basis points to
an average yield of 3.80% for the three months ended September 30, 2005.


                                       20
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating  Results for the Three Month Periods Ended September 30,
--------------------------------------------------------------------------------
2005 and 2004 (continued)
-------------------------

Net Interest Income
-------------------

Net interest  income  totaled $2.8 million for the three months ended  September
30,  2005,  an increase of $60,000,  or 2.2%,  from the three month period ended
September 30, 2004. The average  interest rate spread decreased to 3.02% for the
three  months  ended  September  30, 2005 from 3.03% for the three  months ended
September  30, 2004.  The net interest  margin  decreased to 3.10% for the three
months ended  September 30, 2005 from 3.12% for the three months ended September
30, 2004.

Provision for Losses on Loans
-----------------------------

The  Company  did not  record any  provision  for losses on loans for the period
ending  September 30, 2005. For the period ended September 30, 2004,  management
recorded a $15,000  provision for losses on loans.  To the best of  management's
knowledge,  all known and  inherent  losses that are  probable  and which can be
reasonably estimated have been recorded as of September 30, 2005.

Other Income
------------

Other  income,  consisting  primarily  of  the  cash  surrender  value  of  life
insurance, gains on sale of loans, service fees, and charges on deposit accounts
decreased by $47,000,  or 9.5%, for the three months ended September 30, 2005 as
compared  with the quarter ended  September 30, 2004.  Gain on sale of loans was
down $82,000, or 65.1% mainly due to the sale of the credit card portfolio which
resulted in a gain of $44,000 in July 2004 coupled with more competitive pricing
in 2005 which  resulted in a lower gain on the sale of loans.  This decrease was
offset with a $38,000  increase  in service  fees,  charges and other  operating
income  which was mainly  comprised  of trust  income of $18,000  and  increased
annuity sales of $12,000.

General, Administrative, and Other Expense
------------------------------------------

General, administrative and other expense increased by $72,000, or 2.8%, to $2.7
million for the three  months  ended  September  30, 2005  compared to the three
months  ended  September  30,  2004.  The increase  resulted  primarily  from an
increase in employee  compensation  and benefits  expense of $108,000,  or 7.5%,
coupled  with an increase of  $50,000,  or 11.7%,  in  occupancy  and  equipment
expense.  These increased expenses were offset with a reduction in franchise tax
expense of $36,000,  or 21.4%, and other operating expense of $49,000,  or 9.1%.
The  increase  in  employee  compensation  and  benefits  was  mainly due to the
expansion of personnel needed to enhance our commercial  lending  department and
to  establish a trust  department  staffed by a team of  qualified,  experienced
trust  professionals.  The  increase in other  occupancy  operating  expense was
primarily due to additional vendor support and data connectivity upgrades needed
to facilitate operations. The reduction in franchise tax is mainly the result of
increased treasury stock due to stock repurchases.  The other operating expenses
were reduced  mainly due to the  elimination of the temporary  system  operating
costs  associated  with the Stebbins  acquisition  until the November  2004 data
conversion.


                                       21
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating  Results for the Three Month Periods Ended September 30,
--------------------------------------------------------------------------------
2005 and 2004 (continued)
-------------------------

Federal Income Taxes
--------------------

The provision  for federal  income taxes was $159,000 for the three months ended
September 30, 2005, a decrease of $22,000, or 12.2%, compared to the same period
in 2004,  primarily  due to the $44,000,  or 6.6%,  decrease in earnings  before
federal  income  taxes.  The  effective  tax rate  for the  three  months  ended
September 30, 2005,  was 25.4% as compared to 27.0% for the same period in 2004.
The  effective  tax rate for the three months ended  September 30, 2005 declined
mainly due to income  earned  from the  purchase  of  additional  tax-advantaged
municipal securities.

Other Information
-----------------

On October  11,  2005,  the Company  filed a report on Form 8-K which,  in part,
announced  the  appointment  of Phillip E.  Becker as  Interim  Chief  Executive
Officer in response to the illness of the  Company's  Chairman  Chief  Executive
Officer,  Charles  F.  Finn.  As set forth in that  filing,  it is  management's
current  belief  that Mr.  Finn will  return to the  Company  as  Chairman  upon
completion of an appropriate recuperation period.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related data presented herein have been prepared in
accordance with U.S. generally accepted accounting principles, which require the
measurement of financial  position and operating  results in terms of historical
dollars without  considering  changes in the relative  purchasing power of money
over time due to inflation. Unlike most industrial companies,  substantially all
of the assets and liabilities of a financial institution are monetary in nature.
As a result,  interest  rates  have a more  significant  impact  on a  financial
institution's  performance  than the  effects  of general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or in the same
magnitude as the prices of goods and services as measured by the consumer  price
index.

FORWARD LOOKING STATEMENTS

This Form 10-Q  contains  certain  forward-looking  statements  and  information
relating to the Company that are based on the beliefs of  management  as well as
assumptions  made by and  information  currently  available  to  management.  In
addition, in those and other portions of this document,  the words "anticipate,"
"believe," "estimate," "except," "intend," "should" and similar expressions,  or
the negative thereof, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements reflect the
current  views of the  Company  with  respect to future  looking  events and are
subject to certain risks,  uncertainties and assumptions.  Should one or more of
these risks or uncertainties  materialize or should underlying assumptions prove
incorrect,  actual results may vary from those described  herein as anticipated,
believed,  estimated,  expected or intended.  Factors that could have a material
adverse  effect on our  operations  and future  prospects  include,  but are not
limited  to,  changes  in:  interest   rates,   general   economic   conditions,
legislative/regulatory  changes,  monetary  and  fiscal  policies  of  the  U.S.
Government,  including  policies of the U.S. Treasury and the Board of Governors
of the  Federal  Reserve  System,  the  quality  or  composition  of the loan or
investment  portfolios,  demand for loan products,  deposit flows,  competition,
demand for  financial  services  in our market area and  accounting  principles,
policies and guidelines.  These risks and uncertainties  should be considered in
evaluating forward-looking statements contained herein, and you should not place
undue reliance on such statements,  which reflect our position as of the date of
this report.


                                       22
<PAGE>

                         Wayne Savings Bancshares, Inc.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      There has been no material  change in the Company's  market risk since the
Company's Form 10-K filed with the  Securities  and Exchange  Commission for the
year ended March 31, 2005.

ITEM 4 CONTROLS AND PROCEDURES

      (a) Evaluation of disclosure controls and procedures.

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

      (b) Changes in internal controls.

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


                                       23
<PAGE>

                         Wayne Savings Bancshares, Inc.

                                     PART II

ITEM 1.     Legal Proceedings
            -----------------

            Not applicable

ITEM 2.     Unregistered Sales of Equity Securities and Use of Proceeds
            -----------------------------------------------------------

            (a)   Not applicable

            (b)   Not applicable

            (c)   The following table sets forth certain  information  regarding
                  repurchases by the Company for the quarter ended September 30,
                  2005.

<TABLE>
<CAPTION>
                                                                    Total # of       Maximum # of shares
                                        Total         Average    shares purchased     which may still be
                                     # of shares     price paid   as part of the      purchased as part
            Period                    purchased      per share    announced plan    of the announced plan
            ------                    ---------      ---------    --------------    ---------------------
<S>                                     <C>           <C>             <C>                  <C>
            July 1-31, 2005                 --        $    --             --               229,794
            August 1-31, 2005               --        $    --             --               229,794
            September 1-30, 2005        65,000        $ 16.08         65,000               164,794
</TABLE>

            Notes to the Table:

                  A  repurchase  program  for  185,491,  or 5% of the  Company's
                  outstanding  shares,  was  publicly  announced on September 2,
                  2004 and  expired on August  26,  2005.  On June 6, 2005,  the
                  Company announced the completion of the repurchase program and
                  the  authorization  by the Board of Directors of a new program
                  for the repurchase of 352,433 shares, or 10%, of the Company's
                  outstanding shares.

ITEM 3.     Defaults Upon Senior Securities
            -------------------------------

            Not applicable

ITEM 4.     Submission of Matters to a Vote of Security Holders
            ---------------------------------------------------

            None

ITEM 5.     Other Information
            -----------------

            Not applicable

ITEM 6.     Exhibits
            --------

                  EX-10             Form of Employment  Agreement  between Wayne
                                    Savings  Community  Bank and H. Stewart Fitz
                                    Gibbon III

                  EX-31.1           Certification  of  Chief  Executive  Officer
                                    pursuant    to    Section    302    of   the
                                    Sarbanes-Oxley   Act  of  2002,   18  U.S.C.
                                    Section 1350

                  EX-31.2           Certification  of  Chief  Financial  Officer
                                    pursuant    to    Section    302    of   the
                                    Sarbanes-Oxley   Act  of  2002,   18  U.S.C.
                                    Section 1350

                  EX-32             Written Statement of Chief Executive Officer
                                    and  Chief   Financial   Officer   furnished
                                    pursuant    to    Section    906    of   the
                                    Sarbanes-Oxley   Act  of  2002,   18  U.S.C.
                                    Section 1350


                                       24
<PAGE>

                                   SIGNATURES
                                   ----------

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


Date: November 14, 2005                 By: /s/Phillip E. Becker
      -----------------------------         ------------------------------------
                                            Phillip E. Becker, EVP and Chief
                                            Lending Officer, Interim Chief
                                            Executive Officer


Date: November 14, 2005                 By: /s/H. Stewart Fitz Gibbon
      -----------------------------         ------------------------------------
                                            H. Stewart Fitz Gibbon III
                                            SVP and Chief Financial Officer


                                       25