UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q




(Mark
One)





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





For
      the quarterly period
      ended
              December
      31, 2008





OR





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





For the
transition period from ____________ to _______________





Commission
File No. 0-23433





WAYNE SAVINGS BANCSHARES,
INC.


(Exact
name of registrant as specified in its charter)





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





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





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





Yes
  ý                 No
o





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





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





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


Yes o                   No
  ý





As of
February 10, 2009, the latest practicable date, 3,004,113 shares of the
registrant’s common stock, $.10 par value, were issued and
outstanding.








Wayne
Savings Bancshares, Inc.


Index





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





Index
 Wayne
Savings Bancshares, Inc.
 Condensed
Consolidated Balance Sheets
 (In
thousands, except share data)


December
      31, 2008
                  
                  
                  March
      31, 2008(Unaudited)ASSETSCash
      and due from banks
                  
                  $
                  3,486
                  
                  
                  $
                  1,901Federal
      funds sold
                  
                  
                  ––
                  
                  
                  
                  6,000Interest-bearing
      demand deposits
                  
                  
                  7,211
                  
                  
                  
                  5,162Cash
      and cash equivalents
                  
                  
                  10,697
                  
                  
                  
                  13,063Available-for-sale
      securities
                  
                  
                  114,135
                  
                  
                  
                  120,170Held-to-maturity
      securities
                  
                  
                  991
                  
                  
                  
                  1,240Loans
      receivable – net of allowance for loan losses of $1,801 and $1,777
      at
                    December
      31, 2008 and March 31, 2008, respectively
                  
                  
                  255,121
                  
                  
                  
                  242,255Premises
      and equipment
                  
                  
                  7,680
                  
                  
                  
                  8,012Federal
      Home Loan Bank stock
                  
                  
                  5,025
                  
                  
                  
                  4,892Foreclosed
      assets held for sale  -  net
                  
                  
                  735
                  
                  
                  
                  93Accrued
      interest receivable
                  
                  
                  1,595
                  
                  
                  
                  1,753Bank-owned
      life insurance
                  
                  
                  6,449
                  
                  
                  
                  6,268Goodwill
                  
                  
                  1,719
                  
                  
                  
                  1,719Other
      intangible assets
                  
                  
                  497
                  
                  
                  
                  577Other
      assets
                  
                  
                  687
                  
                  
                  
                  1,360Prepaid
      federal income taxes
                  
                  
                  39
                  
                  
                  
                  182Total
      assets
                  
                  $
                  405,370
                  
                  
                  $
                  401,584LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesDepositsDemand
                  
                  $
                  51,409
                  
                  
                  $
                  50,884Savings
      and money market
                  
                  
                  82,287
                  
                  
                  
                  83,811Time
                  
                  
                  177,115
                  
                  
                  
                  183,036Total
      deposits
                  
                  
                  310,811
                  
                  
                  
                  317,731Other
      short term borrowings
                  
                  
                  11,592
                  
                  
                  
                  7,287Federal
      Home Loan Bank advances
                  
                  
                  44,500
                  
                  
                  
                  38,500Accrued
      interest payable and other liabilities
                  
                  
                  3,146
                  
                  
                  
                  2,511Deferred
      federal income taxes
                  
                  
                  1,234
                  
                  
                  
                  1,451Total
      liabilities
                  
                  
                  371,283
                  
                  
                  
                  367,480Commitments
      and Contingencies
                  
                  
                  ––
                  
                  
                  
                  ––Stockholders’
      EquityPreferred
      stock, 500,000 shares of $.10 par value authorized; no shares
      issued
                  
                  
                  ––
                  
                  
                  
                  ––Common
      stock, $.10 par value; authorized 9,000,000 shares;
                    3,978,731
      shares issued
                  
                  
                  398
                  
                  
                  
                  398Additional
      paid-in capital
                  
                  
                  36,166
                  
                  
                  
                  36,127Retained
      earnings
                  
                  
                  12,637
                  
                  
                  
                  12,450Shares
      acquired by ESOP
                  
                  
                  (1,015
                  )
                  
                  
                  (1,097
                  )Accumulated
      other comprehensive income, net of tax effects
                  
                  
                  431
                  
                  
                  
                  707Treasury
      stock, at costCommon: December 31, 2008 -
      974,618 shares, March 31, 2008 – 969,627 shares
                  
                  
                  (14,530
                  )
                  
                  
                  (14,481
                  )Total
      stockholders’ equity
                  
                  
                  34,087
                  
                  
                  
                  34,104Total
      liabilities and stockholders’ equity
                  
                  $
                  405,370
                  
                  
                  $
                  401,584


See
accompanying notes to condensed consolidated financial
statements.
 2
 Index
 Wayne
Savings Bancshares, Inc.
 Condensed
Consolidated Statements of Income
 For
the nine and three months ended December 31, 2008 and
2007
 (In
thousands, except per share amounts)
 (Unaudited)


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





See
accompanying notes to condensed consolidated financial
statements.
 3
 Index
 Wayne
Savings Bancshares, Inc.
 Condensed
Consolidated Statements of Comprehensive Income
 For
the nine and three months ended December 31, 2008 and
2007
 (In
thousands)
 (Unaudited)





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





See
accompanying notes to condensed consolidated financial
statements.
 4
 Index
 Wayne
Savings Bancshares, Inc.
 Condensed
Consolidated Statements of Cash Flows
 For
the nine months ended December 31, 2008 and 2007
 (In
thousands)
 (Unaudited)


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





See
accompanying notes to condensed consolidated financial
statements.
 5
 Index
 Wayne
Savings Bancshares, Inc.
 Condensed
Consolidated Statements of Cash Flows (continued)
 For
the nine months ended December 31, 2008 and 2007
 (In
thousands)
 (Unaudited)


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








See
accompanying notes to condensed consolidated financial
statements.
 6
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Condensed Consolidated Financial Statements


Note
      1:
            Basis
      of Presentation




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




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




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




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




Note
      2:
            Principles
      of Consolidation




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




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




7
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Condensed Consolidated Financial Statements


Note
      3:
            Earnings
      Per Share




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




For
      the nine months ended
                
                
                For
      the three months endedDecember
      31,
                
                
                December
      31,2008
                
                
                2007
                
                
                2008
                
                
                2007Weighted-average
      common sharesoutstanding
      (basic)
                
                
                2,903,599
                
                
                
                3,061,671
                
                
                
                2,902,525
                
                
                
                3,027,848Dilutive
      effect of assumed exerciseof
      stock options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Weighted-average
      common sharesoutstanding
      (diluted)
                
                
                2,903,599
                
                
                
                3,061,671
                
                
                
                2,902,525
                
                
                
                3,027,848







None of
the outstanding options were included in the diluted earnings per share
calculation for the nine or three month periods ended December 31, 2008 and
December 31, 2007, as the average fair value of the shares was less than the
option exercise prices.







Note
      4:
            Stock
      Option Plan




In fiscal
2004, the Company adopted a new Stock Option Plan that provided for the issuance
of 142,857 incentive options and 61,224 non-incentive options with respect to
authorized common stock.  As of December 31, 2008, all options under
the 2004 Plan have been granted and (excluding forfeited options), are subject
to exercise at the discretion of the grantees, and will expire in fiscal 2014
unless otherwise exercised or forfeited.




The
Company accounts for the stock plan in accordance with the provisions of SFAS
No. 123(R), “Share Based Payment.”  SFAS No. 123(R) requires the
recognition of compensation expense related to stock option awards based on the
fair value of the option award at the grant date.  Compensation cost
is then recognized over the vesting period.  There were no options
granted during the three or nine months ended December 31, 2008 and
2007.  There was no compensation expense recognized for the stock
option plan during the three or nine month periods ended December 31, 2008 and
2007, as all options were fully vested prior to these periods.




8
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Condensed Consolidated Financial Statements


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







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






The
following information applies to options outstanding at December 31,
2008:




Number
      outstanding
              104,224Exercise
      price on all remaining options outstanding
              $13.95Weighted-average
      remaining contractual life
              5.25
      years





Note
      5:
            Recent
      Accounting Developments




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




9
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements


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




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









Note
      6:
            Fair
      Value Measurements




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




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




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




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




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




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




10
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements







Available-for-sale
Securities




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




The
following table presents the fair value measurements of assets and liabilities
recognized in the accompanying balance sheet measured at fair value on a
recurring basis and the level within the SFAS No. 157 fair value hierarchy in
which the fair value measurements fall at December 31, 2008:




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





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




Available-for-sale
securities-Fair Value




Beginning
      balance
                                    
                                    $
                                    1,540Total
      realized and unrealized gains and lossesIncluded
      in net income
                                    
                                    
                                    -Included
      in other comprehensive income
                                    
                                    
                                    3Purchases,
      issuances and settlements
                                    
                                    
                                    -Transfers
      into Level 3
                                    
                                    
                                    -Transfers
      out of Level 3
                                    
                                    
                                    (1,543)Ending
      balance
                                    
                                    $
                                    -







11
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements


Impaired
Loans




At
December 31, 2008, impaired loans consisted primarily of loans secured by
multi-family residential real estate, nonresidential and commercial real
estate.  Management has determined fair value measurements on impaired
loans primarily through evaluation of appraisals performed.




The
following table presents the fair value measurements of assets and liabilities
measured at fair value on a nonrecurring basis and the level within the SFAS No.
157 fair value hierarchy in which the fair value measurements fall at December
31, 2008.




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









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







Discussion
of Financial Condition Changes from March 31, 2008 to December 31,
2008




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




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




Total
securities decreased by $6.0 million, or 5.0%, during the nine months ended
December 31, 2008.  This decrease was primarily due to principal
repayments of $24.2 million, and an aggregate decrease in the market value of
available for sale securities of $.4 million.  This was partially
offset by purchases of $18.5 million.  Purchases were funded by
principal repayments on loans, proceeds from maturities of investment securities
and from the reduction of the federal funds sold balance.




At
December 31, 2008, net loans receivable increased by $12.9 million, or 5.3%,
compared to March 31, 2008, as theBank originated and
retained $29.0 million of loans and received payments of $15.1 million.The lending division has
focused on the origination of shorter-term and adjustable-rate commercial and
commercial real estate loans.  The Company believes that investing in
shorter-term and adjustable-rate commercial loans positions the Company more
favorably from an interest rate risk management perspective, compared to the
origination of long term fixed-rate residential mortgages.  The
composition of the loan portfolio has changed during the nine months ended
December 31, 2008, mainly due to a net increase of $9.6 million in
non-residential loans and an increase of $5.8 million in commercial business
loans.




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




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


(2)
            Includes
      land loans of $215,000 and $175,000 as of December 31, 2008 and March 31,
      2008, respectively.


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


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


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


Non-performing
loans amounted to $2.0 million and $1.9 million at December 31, 2008 and March
31, 2008, respectively.  At December 31, 2008, non-performing loans
consisted primarily of residential mortgage loans of approximately $1.4 million,
two commercial real estate loans with a combined balance of $327,000, $89,000 in
home equity lines of credit and two commercial loans totaling
$189,000.  At March 31, 2008, non-performing loans were comprised of
$670,000 in residential loans, $1.0 million in commercial real estate loans,
$120,000 in home equity lines of credit and one commercial loan of $42,000,
which was paid off in June 2008.Real estate owned
amounted to $735,000 at December 31, 2008 compared to $93,000 at March 31,
2008.  The increase was due to the transfer of a $610,000
non-residential property from a non-performing loan status to real estate
acquired through foreclosure.  Total non-performing assets amounted to
$2.8 million at December 31, 2008 compared to $2.0 million at March 31,
2008.  The increase was mainly due to an increase in non-performing
residentialmortgage loans.The Company generally
has not realized significant losses on non-performing loans secured by
residential mortgages.  The following table sets forth information
regarding our past due, nonaccrual and impaired loans and real estate acquired
through foreclosure as of December 31, 2008 and March 31, 2008.







December
      31,
                  2008
                
                
                March
      31,
                  2008(Dollars
      in thousands)Past
      due loans 30-89 days:Mortgage
      loans:One-
      to four-family residential
                
                $
                996
                
                
                $
                812Nonresidential
                
                
                3,697
                
                
                
                ––Non-mortgage
      loans:Commercial
      business loans
                
                
                160
                
                
                
                ––Consumer
      loans
                
                
                12
                
                
                
                7$
                4,865
                
                
                $
                819Non-performing
      loans:Mortgage
      loans:One-
      to four-family residential
                
                $
                1,517
                
                
                $
                790All
      other mortgage loans
                
                
                327
                
                
                
                1,038Non-mortgage
      loans:Commercial
      business loans
                
                
                189
                
                
                
                42Consumer
                
                
                -
                
                
                
                1Total
      non-performing loans
                
                
                2,033
                
                
                
                1,871Total
      real estate acquired through foreclosure
                
                
                735
                
                
                
                93Total
      non-performing assets
                
                $
                2,768
                
                
                $
                1,964Total
      non-performing loans to net loans receivable
                
                
                0.80
                %
                
                
                0.77
                %Total
      non-performing loans to total assets
                
                
                0.50
                %
                
                
                0.47
                %Total
      non-performing assets to total assets
                
                
                0.68
                %
                
                
                0.49
                %








14
 Index




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










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







For
      the nine
                                        months
      ended
                                        December
      31, 2008
                                      
                                      
                                      For
      the
                                        year
      ended
                                        March
      31, 2008(Dollars
      in thousands)Loans
      receivable, net
                                      
                                      $
                                      255,121
                                      
                                      
                                      $
                                      242,255Average
      loans receivable, net
                                      
                                      $
                                      248,842
                                      
                                      
                                      $
                                      244,800Allowance
      balance (at beginning of period)
                                      
                                      $
                                      1,777
                                      
                                      
                                      $
                                      1,523Provision
      for losses
                                      
                                      
                                      346
                                      
                                      
                                      
                                      234Charge-offs:Mortgage
      loans:One-
      to four-family
                                      
                                      
                                      (24
                                      )
                                      
                                      
                                      (15
                                      )Non-residential
      real estate and land (1)
                                      
                                      
                                      (229
                                      )
                                      
                                      
                                      ––Other
      loans:Consumer
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      (1
                                      )Commercial
                                      
                                      
                                      (74
                                      )
                                      
                                      
                                      ––Gross
      charge-offs
                                      
                                      
                                      (331
                                      )
                                      
                                      
                                      (16
                                      )Recoveries:Mortgage
      loans:One-
      to four-family
                                      
                                      
                                      ––
                                      
                                      
                                      
                                      13Other
      loans:Consumer
                                      
                                      
                                      9
                                      
                                      
                                      
                                      23Gross
      recoveries
                                      
                                      
                                      9
                                      
                                      
                                      
                                      36Net
      (charge-offs) recoveries
                                      
                                      
                                      (322
                                      )
                                      
                                      
                                      20Allowance
      for loan losses balance (at end of period)
                                      
                                      $
                                      1,801
                                      
                                      
                                      $
                                      1,777Allowance
      for loan losses as a percent of loans receivable, net at end of
      period
                                      
                                      
                                      0.71
                                      %
                                      
                                      
                                      0.73
                                      %Net
      loans charged off (recovered) as a percent of average loans receivable,
      net
                                      
                                      
                                      0.13
                                      %
                                      
                                      
                                      (0.01
                                      )%Ratio
      of allowance for loan losses to non-performing
      loans at end of period
                                      
                                      
                                      88.59
                                      %
                                      
                                      
                                      94.98
                                      %


_______________________


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




15
 Index
 Wayne
Savings Bancshares, Inc.
 Management’s
Discussion and Analysis of Financial
 Condition
and Results of Operations


Deposits
totaled $310.8 million at December 31, 2008, a decrease of $6.9 million, or
2.2%, from $317.7 million at March 31, 2008.  Certificates of deposit
decreased by $5.9 million and savings and money market accounts decreased by
$1.6 million, which were partially offset by an increase in NOW accounts of $2.6
million.  Management exercised discipline during the period with
regard to the pricing of retail certificates.  In general, management
attempts to benchmark retail certificate of deposit pricing to the cost of
alternate sources of funds, including Federal Home Loan Bank advances and
brokered deposits.  Exceptions are made to defend customer
relationships with significant value to the Bank while allowing rate sensitive
certificate of deposit shoppers to move to other alternatives.  The
local deposit market has been negatively affected by national and online
competitors offering higher rates to address liquidity concerns in national
markets.




Other
short-term borrowings totaled $11.6 million at December 31, 2008, an increase of
$4.3 million, or 58.9%, as compared with $7.3 million at March 31,
2008.  The interest rate paid on these borrowings is .40%, which over
the past year has declined 280 basis points as the Federal Reserve lowered
rates.




Advances
from the Federal Home Loan Bank of Cincinnati totaled $44.5 million at December
31, 2008, an increase of $6.0 million, or 15.6%, compared with $38.5 million at
March 31, 2008.  The Company increased its borrowings to compensate
for the loss of higher cost retail certificates of deposit as discussed above
and to extend liability duration for interest rate risk management
purposes.




Stockholders’
equity decreased by $17,000, or .1%, during the nine months ended December 31,
2008, due primarily to a decrease in unrealized gains on available for sale
securities of $276,000, dividends declared of $1.1 million, a $448,000 reduction
due to the adoption of EITF Issue 06-4, which required the Company to record a
liability for the postretirement cost of the split dollar life insurance
agreements related to bank owned life insurance, and a stock repurchase of
$49,000.   These decreases were partially offset by net income of
$1.7 million and a reduction in unallocated ESOP shares of $86,000 through the
annual allocation process.




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




General




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







16
 Index







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












Average
Balance Sheet




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




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





1  Includes
non-accrual loan balances.


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


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


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


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


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


Interest
Income





Interest
income decreased by $1.0 million or 6.0%, to $16.3 million for the nine months
ended December 31, 2008, compared to the same period in 2007.  This
decrease was mainly due to a decrease in the weighted-average yield on
interest-earning assets
to 5.73% in the 2008 period from 6.15% for the nine month period ended December
31, 2007. The
yield decrease was primarily due to the Federal Reserve’s interest rate cuts of
400 basis points from December 31, 2007 to December 31, 2008.




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




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




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




Interest
Expense




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




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




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









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


Interest
expense on Federal Home Loan Bank advances totaled $1.4 million for the nine
months ended December 31, 2008, an increase of $116,000, over the 2007 period,
primarily due to an increase in the average balance of $5.6 million, or 15.7%,
as the Company replaced the loss of higher cost retail certificates of deposit
with lower cost Federal Home Loan Bank advances.




Net
Interest Income




Net
interest income totaled $9.0 million for the nine months ended December 31,
2008, an increase of $617,000, or 7.4%, compared to the nine month period ended
December 31, 2007.  The average interest rate spread increased to
3.07% for the nine months ended December 31, 2008 from 2.84% for the nine months
ended December 31, 2007, due to management’s strategy not to compete with
national and online competitors offering higher rates on deposits in the
national markets.  The increase in the average interest rate spread
was also due to a shift in asset composition from lower yielding investment
securities and deposits to higher yielding loans and mortgage-backed securities
and a shift in composition of liabilities from higher cost retail certificates
of deposit to lower cost Federal Home Loan Bank advances.  The net
interest margin increased to 3.18% for the nine months ended December 31, 2008
from 2.98% for the nine months ended December 31, 2007.




Provision
for Loan Losses




Management
recorded a $346,000 provision for loan losses for the nine month period ended
December 31, 2008, an increase of $151,000 compared to the provision for the
same period in 2007, primarily due to the increase in non-performing loans and
charge-offs during the period.  To the best of management’s knowledge,
all known and inherent losses that are probable and which can be reasonably
estimated have been recorded as of  December 31, 2008.




Non-interest
Income




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




Non-interest
Expense




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




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







Federal
Income Taxes




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




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




General




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




Average
Balance Sheet




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








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







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








1  Includes
non-accrual loan balances.


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


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


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


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


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




Interest
Income




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




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




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




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




Interest
Expense




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




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




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




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


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




Net
Interest Income




Net
interest income totaled $3.1 million for the three months ended December 31,
2008, an increase of $322,000, or 11.5%, compared to the three month period
ended December 31, 2007.  The average interest rate spread increased
to 3.20% for the three months ended December 31, 2008 from 2.80% for the three
months ended December 31, 2007.  The net interest margin increased to
3.30% for the three months ended December 31, 2008 from 2.95% for the three
months ended December 31, 2007.  The increase in the average interest
rate spread was due to a shift in asset composition from lower yielding
investment securities and deposits to higher yielding loans and mortgage-backed
securities and a shift in composition of liabilities from higher cost retail
certificates of deposit to lower cost Federal Home Loan Bank
advances.




Provision
for Loan Losses




Management
recorded a $185,000 provision for loan losses for the three month period ended
December 31, 2008, an increase of $45,000 compared to the provision for the same
period in 2007, primarily due to the increase in non-performing
loans  and charge-offs during the period.  To the best of
management’s knowledge, all known and inherent losses that are probable and
which can be reasonably estimated have been recorded as of December 31,
2008.




Noninterest
Income




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




Non-interest
Expense




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

















23
 Index
 Wayne
Savings Bancshares, Inc.
 Management’s
Discussion and Analysis of Financial
 Condition
and Results of Operations






Federal
Income Taxes




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










24
 Index
 Wayne
Savings Bancshares, Inc.
 Management’s
Discussion and Analysis of Financial
 Condition
and Results of Operations







Forward-Looking
Statements




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




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




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




ITEM
3                  Quantitative
and Qualitative Disclosures About Market Risk




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







ITEM
4T               Controls
and Procedures




(a)           Evaluation
of disclosure controls and procedures.




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




(b)           Changes
in internal controls.




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




25
 Index
 Wayne
Savings Bancshares, Inc.
 PART II


ITEM
1.                 Legal
Proceedings




Not
applicable





ITEM
1A.              Risk
Factors




There
have been no material changes in the risk factors set forth in Part I, Item 1A
of the Company’s Annual Report on Form 10-K for the year ended March 31,
2008.





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




(a)           Not
applicable


(b)           Not
applicable


(c)
            Not
      applicable





ITEM
3.          
       Defaults Upon Senior
Securities




Not
applicable





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




Not
applicable.








ITEM
5.                 Other
Information




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





26
 Index
 Wayne
Savings Bancshares, Inc.
 PART
II





ITEM
6.                      Exhibits




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





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





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











27
 Index


SIGNATURES









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














Date:  February 12, 2009
                By:
                /s/Phillip E. BeckerPhillip
      E. BeckerPresident
      and Chief Executive OfficerDate:  February 12, 2009
                By:
                /s/H. Stewart Fitz Gibbon
    IIIH.
      Stewart Fitz Gibbon IIIExecutive
      Vice President andChief
      Financial Officer







28