UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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


For the
Fiscal Year Ended March 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
      Street, Wooster, Ohio
            44691(Address
      of Principal Executive Offices)
            Zip
      Code


(330)
264-5767


(Registrant’s
telephone number)




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




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




Common Stock, par value $.10
per share


(Title of
Class)




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




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




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




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form
10-K.  [   ]




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




Large
accelerated filer [  ]     Accelerated filer
[  ]     Non-accelerated filer
[   ]    Smaller Reporting Company
[X]




Indicate
by check mark whether the Registrant is shell company (as defined in Rule 12b-2
of the Exchange Act). YES__ NO X




As of
June 11, 2008, there were 3,978,731 issued and outstanding shares of the
Registrant’s Common Stock.




The aggregate market value of the
voting and non-voting common equity held by non-affiliates of the Registrant,
computed by reference to the last closing price on June 6, 2008, as reported on
the Nasdaq National Market, was approximately $23.5 million.








Wayne
Savings Bancshares, Inc.


Form 10-K


For
the Year Ended March 31, 2008





PART I.Item 1.
            Business
            1Item 1A.
            Risk Factors
            31Item 1B.
            Unresolved Staff Comments
            33Item 2.
            Properties
            34Item 3.
            Legal Proceedings
            35Item 4.
            Submission of Matters to a Vote of Security
      Holders
            35PART II.Item 5.
            Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            35Item 6.
            Selected Financial Data
            37Item 7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            39Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            49Item 8.
            Financial Statements and Supplementary
Data
            51Item 9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            94Item9A(T).
            Controls and Procedures
            94Item 9B.
            Other Information
            95PART III.Item 10.
            Directors, Executive Officers and Corporate
      Governance
            95Item 11.
            Executive Compensation
            95Item 12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            95Item 13.
            Certain Relationships and Related Transactions
      and
            95Item 14.
            Principal Accountant Fees and Services
            95PART IV.Item 15.
            Exhibits and Financial Statement Schedules
            96














Index


PART
I





ITEM
1.Business





General





Wayne Savings Bancshares,
Inc.





Wayne Savings Bancshares, Inc. (the
“Company”), is a unitary holding company for Wayne Savings Community Bank (the
“Bank”).  The only significant asset of the Company is its investment
in the Bank.  A plan of conversion and reorganization was approved by
the stockholders of the Company, the depositors of Wayne Savings Community Bank
and the Office of Thrift Supervision (“OTS”) in fiscal 2003, and the related
stock offering was completed on January 8, 2003.  As of that date
1,350,699 shares of common stock of the Company owned by the M.H.C. were retired
and the Company sold 2,040,816 shares of common stock for $10.00 per
share.  After consideration of funding the employee stock ownership
plan (“ESOP”) with $1.6 million and related expenses of $1.9 million, net
proceeds from the stock offering amounted to $17.1 million.  An
additional 1,847,820 shares were issued to existing shareholders based on an
exchange rate of 1.5109 new shares of common stock for each existing share,
resulting in 3,888,795 total new shares outstanding.  On June 1, 2004,
the Company acquired Stebbins Bancshares, Inc., and its national bank
subsidiary, Stebbins National Bank of Creston, Ohio.  The acquisition
of Stebbins National Bank increased the Bank’s branches to eleven full-service
locations.  The Company’s principal office is located at 151 North
Market Street, Wooster, Ohio, and its telephone number at that address is (330)
264-5767.  At March 31, 2008, the Company had total assets of $401.6
million, total deposits of $317.7 million, and stockholders’ equity of $34.1
million.





Wayne Savings Community
Bank





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




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





During the most recent five fiscal
years, as part of its strategic plan, the Company has rebalanced the loan
portfolio by placing an increased emphasis on nonresidential real estate and
commercial business loans.  Nonresidential real estate loans and
commercial loans have increased from $18.4 million, or 8.8% of the loan
portfolio and $6.5 million, or 3.1% of the total loan portfolio at March 31,
2004 to $61.4 million, or 24.9%, and $26.9 million, or 10.9%, at March 31,
2008.  Correspondingly, one- to four-family residential and
construction loans have decreased from $174.4 million, or 83.3% of the total
loan portfolio at March 31, 2004 to $143.6 million, or 58.2%, at March 31,
2008.  Nonresidential real estate loans and commercial loans generally
carry higher yields and shorter terms than one- to four-family
loans.  The increased emphasis on nonresidential real estate and
commercial business loans have diversified the loan portfolio, expanded the
Company’s product offerings and broadened the Company’s customer
base.


1
 Index


The Bank’s principal executive office
is located at 151 North Market Street, Wooster, Ohio, and its telephone number
at that address is (330) 264-5767.





Market
Area/Local Economy





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





Wayne County is characterized by a
diverse economic base, which is not dependent on any particular
industry.  It is one of the leading agricultural counties in the
state.  Since 1892, Wooster has been the headquarters of the Ohio
Agricultural Research and Development Center, the agricultural research arm of
The Ohio State University.  In addition, Wayne County is also the home
base of such nationally known companies like J.M. Smucker Company, Worthington
Industries/The Gertsenslager Company, and the Wooster Brush
Company.  It is also the home of many industrial plants, including
Packaging Corporation of America, International Paper Company, Morton Salt, and
FritoLay, Inc.  The City of Wooster has benefited from the commitment
of the world renowned Cleveland Clinic as they have established new state of the
art medical facilities.  Wayne County is also known for its excellence
in education.  The College of Wooster was founded in 1866 and serves
1,800 students during the school season.  Other quality educational
opportunities are offered by the Agricultural Technical Institute of Ohio State
University, and Wayne College, a branch of The University of
Akron.  Wayne Savings operates four full-service offices in Wooster,
one stand-alone drive-thru facility and one full-service office in both Rittman
and Creston.





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





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





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





Stark County, located directly east of
Wayne County, is characterized by a diverse economy and over 1,500 different
products are manufactured in the county.  Stark County also has a
strong agricultural base, and ranks fourth in Ohio in the production of dairy
products.  The major employers in North Canton are the Hoover Company,
Diebold Incorporated (a major manufacturer of bank security products and
automated teller machines) and the Timken Company (a world-wide manufacturer of
tapered roller bearings and specialty steels).  The Bank does not have
a material concentration of loans in the North Canton market
area.  Jackson Township is the home to the Belden Village Shopping
Center, while Plain Township is a residential


2
 Index


and
agricultural area with a few widely scattered light industries.  North
Canton is the location of one of the Bank’s branches.





Lending
Activities





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





The Company has sought to make its
interest-earning assets more interest rate sensitive by originating adjustable
rate loans, such as ARM loans, home equity loans, and medium-term consumer
loans.  The Company also purchases mortgage-backed securities
generally with estimated remaining average lives of 5 years or
less.  At March 31, 2008, approximately $94.8 million, or 28.9%, of
the Company’s total loans and mortgage-backed securities consisted of loans or
securities with adjustable interest rates.





The Company continues to actively
originate fixed rate mortgage loans, generally with 15 to 40 year terms to
maturity, collateralized by one- to four-family residential
properties.  One- to four-family fixed rate residential mortgage loans
generally are originated and underwritten according to standards that allow the
Company to resell such loans in the secondary mortgage market for purposes of
managing interest rate risk and liquidity.  Since November 2005, the
Company has decided to retain all one- to four-family, fixed rate residential
mortgage loan originations with terms of 15 and 30 years in an attempt to
stabilize this sector of the loan portfolio.  All 40 year term
mortgage loans are underwritten to secondary market standards and are priced for
immediate sale.  To date, no 40 year term mortgages have been
originated.  The Company retains servicing on its sold mortgage loans
and realizes monthly service fee income.  The Company also originates
interim construction loans on one- to four-family residential
properties.





The Company has continued developing
the commercial business loan program.  The purpose of this program is
to increase the Company’s interest rate sensitive assets, increase interest
income and diversify both the loan portfolio and the Company’s customer
base.  The Company has three experienced commercial lenders to help in
this effort.  The Company targets small local businesses with loan
amounts in the $50,000 - $1.0 million range with a majority of loans under
$500,000.  While commercial business loans decreased to $26.9 million
at March 31, 2008 as compared to $32.6 million at March 31,
2007,  nonresidential real estate and land loans increased from $18.4
million, or 8.8%, of the total loan portfolio at March 31, 2004 to $61.4
million, or 24.9%, of the total loan portfolio at March 31, 2008.








3
 Index


Analysis of Loan
Portfolio.Set forth below are selected data relating to the
composition of the Company’s loan portfolio, including loans held for sale, by
type of loan as of the dates indicated.


At March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004$
            
            
            %
            
            
            $
            
            
            %
            
            
            $
            
            
            %
            
            
            $
            
            
            %
            
            
            $
            
            
            %(Dollars
      in thousands)Mortgage
      loans:One-
      to four-family residential(1)
            
            $
            142,010
            
            
            
            57.49
            %
            
            $
            143,942
            
            
            
            57.80
            %
            
            $
            148,823
            
            
            
            62.36
            %
            
            $
            157,373
            
            
            
            72.56
            %
            
            $
            171,471
            
            
            
            81.95
            %Residential
      construction loans
            
            
            1,636
            
            
            
            .66
            
            
            
            2,019
            
            
            
            .81
            
            
            
            4,675
            
            
            
            1.96
            
            
            
            4,053
            
            
            
            1.87
            
            
            
            2,914
            
            
            
            1.39Multi-family
      residential
            
            
            8,929
            
            
            
            3.61
            
            
            
            8,938
            
            
            
            3.60
            
            
            
            7,930
            
            
            
            3.32
            
            
            
            7,872
            
            
            
            3.63
            
            
            
            6,800
            
            
            
            3.25Non-residential
      real estate/land(2)
            
            
            61,407
            
            
            
            24.86
            
            
            
            56,049
            
            
            
            22.50
            
            
            
            50,778
            
            
            
            21.28
            
            
            
            29,187
            
            
            
            13.46
            
            
            
            18,439
            
            
            
            8.81Total
      mortgage loans
            
            
            213,982
            
            
            
            86.62
            
            
            
            210,948
            
            
            
            84.71
            
            
            
            212,206
            
            
            
            88.92
            
            
            
            198,485
            
            
            
            91.52
            
            
            
            199,624
            
            
            
            95.40Other
      loans:Consumer
      loans(3)
            
            
            6,183
            
            
            
            2.50
            
            
            
            5,460
            
            
            
            2.19
            
            
            
            4,901
            
            
            
            2.05
            
            
            
            4,306
            
            
            
            1.99
            
            
            
            3,156
            
            
            
            1.51Commercial
      business loans
            
            
            26,873
            
            
            
            10.88
            
            
            
            32,648
            
            
            
            13.10
            
            
            
            21,550
            
            
            
            9.03
            
            
            
            14,075
            
            
            
            6.49
            
            
            
            6,471
            
            
            
            3.09Total
      other loans
            
            
            33,056
            
            
            
            13.38
            
            
            
            38,108
            
            
            
            15.29
            
            
            
            26,451
            
            
            
            11.08
            
            
            
            18,381
            
            
            
            8.48
            
            
            
            9,627
            
            
            
            4.60Total
      loans before net items
            
            
            247,038
            
            
            
            100.00
            %
            
            
            249,056
            
            
            
            100.00
            %
            
            
            238,657
            
            
            
            100.00
            %
            
            
            216,866
            
            
            
            100.00
            %
            
            
            209,251
            
            
            
            100.00
            %Less:Loans
      in process
            
            
            2,616
            
            
            
            
            
            
            
            7,334
            
            
            
            
            
            
            
            1,729
            
            
            
            
            
            
            
            1,638
            
            
            
            
            
            
            
            2,579Deferred
      loan origination fees
            
            
            390
            
            
            
            
            
            
            
            425
            
            
            
            
            
            
            
            443
            
            
            
            
            
            
            
            512
            
            
            
            
            
            
            
            679Allowance
      for loan losses
            
            
            1,777
            
            
            
            
            
            
            
            1,523
            
            
            
            
            
            
            
            1,484
            
            
            
            
            
            
            
            1,374
            
            
            
            
            
            
            
            815Total
      loans receivable, net
            
            $
            242,255
            
            
            
            
            
            
            $
            239,774
            
            
            
            
            
            
            $
            235,001
            
            
            
            
            
            
            $
            213,342
            
            
            
            
            
            
            $
            205,178Mortgage-backed
      securities, net(4)
            
            $
            85,879
            
            
            
            
            
            
            $
            69,065
            
            
            
            
            
            
            $
            55,731
            
            
            
            
            
            
            $
            60,352
            
            
            
            
            
            
            $
            88,428





(1)
            Includes
      equity loans collateralized by second mortgages in the aggregate amount of
      $17.0 million, $19.2 million, $20.9 million, $20.3 million and $20.3
      million, as of March 31, 2008, 2007, 2006, 2005 and 2004,
      respectively.  Such loans have been underwritten on
      substantially the same basis as the Company’s first mortgage
      loans.


(2)
            Includes
      land loans of $175,000, $204,000, $674,000, $1.4 million and $535,000 as
      of March 31, 2008, 2007, 2006, 2005 and 2004,
  respectively.


(3)
            Includes
      second mortgage loans of $1.7 million, $1.6 million, $425,000, $783,000
      and $1.4 million as of March 31, 2008, 2007, 2006, 2005 and 2004,
      respectively.


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





4
 Index





Loan and Mortgage-Backed Securities
Maturity and Repricing Schedule.  The following table sets
forth certain information as of March 31, 2008, regarding the dollar amount of
loans and mortgage-backed securities maturing in the Company’s portfolio based
on their contractual terms to maturity.  Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less.  Adjustable and floating rate
loans and mortgage-backed securities are included in the period in which
interest rates are next scheduled to adjust rather than in which they mature,
and fixed rate loans and mortgage-backed securities are included in the period
in which the final contractual repayment is due.  Fixed rate
mortgage-backed securities are assumed to mature in the period in which the
final contractual payment is due on the underlying mortgage.





One
            
            
            Three
            
            
            Five
            
            
            Ten
            
            
            BeyondWithin
            
            
            Through
            
            
            Through
            
            
            Through
            
            
            Through
            
            
            TwentyOne Year
            
            
            Three Years
            
            
            Five Years
            
            
            Ten Years
            
            
            Twenty Years
            
            
            Years
            
            
            Total(In
      Thousands)Mortgage
      loans:One-
      to four-family residential:Adjustable
            
            $
            26,518
            
            
            $
            6,825
            
            
            $
            2,677
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            36,020Fixed
            
            
            74
            
            
            
            591
            
            
            
            1,517
            
            
            
            18,128
            
            
            
            31,171
            
            
            
            54,509
            
            
            
            105,990Construction:(1)Adjustable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Fixed
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            359
            
            
            
            359Multi-family
      residential, nonresidential and land:Adjustable
            
            
            13,886
            
            
            
            18,221
            
            
            
            4,918
            
            
            
            5,620
            
            
            
            -
            
            
            
            -
            
            
            
            42,645Fixed
            
            
            1,268
            
            
            
            3,911
            
            
            
            2,765
            
            
            
            5,461
            
            
            
            10,827
            
            
            
            2,159
            
            
            
            26,391Other
      Loans:Commercial
      business loans
            
            
            14,452
            
            
            
            2,880
            
            
            
            1,472
            
            
            
            2,123
            
            
            
            2,125
            
            
            
            3,782
            
            
            
            26,834Consumer
            
            
            670
            
            
            
            1,522
            
            
            
            2,334
            
            
            
            1,529
            
            
            
            58
            
            
            
            70
            
            
            
            6,183Total
      loans
            
            $
            56,868
            
            
            $
            33,950
            
            
            $
            15,683
            
            
            $
            32,861
            
            
            $
            44,181
            
            
            $
            60,879
            
            
            $
            244,422Mortgage-backed
      securities(2)
            
            $
            329
            
            
            $
            1,113
            
            
            $
            3,463
            
            
            $
            13,601
            
            
            $
            25,421
            
            
            $
            41,243
            
            
            $
            85,170





_____________________________


(1)      Amounts
shown are net of loans in process of $1.3 million in both residential
construction loans and nonresidential loans and $39,000 in commercial business
loans.


(2)      Includes
mortgage-backed securities available for sale.  Does not include
premiums of $571,000, discounts of $1.0 million and unrealized gains of $1.1
million.





5
 Index


The following table sets forth at March
31, 2008, the dollar amount of all fixed rate and adjustable rate loans and
mortgage-backed securities maturing or repricing after March 31,
2009.





Fixed
            
            
            Adjustable(In
      Thousands)Mortgage
      loans:One-
      to four-family residential
            
            $
            105,916
            
            
            $
            9,502Construction
      (1)
            
            
            359
            
            
            
            -Multi-family
      residential, non-residential and land (1)
            
            
            25,123
            
            
            
            28,759Consumer
            
            
            5,513
            
            
            
            -Commercial
      business
            
            
            10,480
            
            
            
            1,902Total
      loans
            
            $
            147,391
            
            
            $
            40,163Mortgage-backed
      securities(2)
            
            $
            84,841
            
            
            $
            -


_____________________________


(1)
            Net
      of loans in process of $1.3 million in both residential construction loans
      and non-residential loans and $39,000 in commercial business
      loans.


(2)
            Includes
      mortgage-backed securities available for sale, which totaled $84.4 million
      as of March 31, 2008.  Does not include premiums of $571,000,
      discounts of $1.0 million and unrealized gains of $1.1
      million.





One- to Four-Family Residential Real
Estate Loans.  The Company’s primary lending activity consists
of the origination of one- to four-family, owner-occupied, residential mortgage
loans on properties located in the Company’s market area.  The Company
generally does not originate one- to four-family residential loans secured by
properties outside of its market area.  At March 31, 2008, the Company
had $142.0 million, or 57.5%, of its total loan portfolio invested in one- to
four-family residential mortgage loans.





The Company’s fixed rate loans
generally are originated and underwritten according to standards that permit
resale in the secondary mortgage market.  Whether the Company can or
will sell fixed rate loans into the secondary market, however, depends on a
number of factors including the Company’s portfolio mix, gap and liquidity
positions, and market conditions.  Moreover, the Company is more
likely to retain fixed rate loans if its one-year gap is
positive.  The Company’s fixed rate mortgage loans are amortized on a
monthly basis with principal and interest due each month.  One- to
four-family residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because borrowers may
refinance or prepay loans at their option.  The Company’s one- to
four-family residential portfolio has declined $1.9 million, or 1.3%, from March
31, 2007 to March 31, 2008.  This decrease was reduced from prior
year’s balance decline of 3.3% mainly due to the Bank’s competitive pricing
which allowed the Bank to maintain its portfolio balance.  The
Company’s had no new secondary market sales for both fiscal 2008 and
2007.   Sales into the secondary market were $6.1 million, $6.0
million and $6.2 million for the fiscal years ended March 31, 2006, 2005 and
2004, respectively.  Such sales generally constituted current period
originations.  In the third quarter of fiscal 2006, the Company’s
management temporarily halted sales of loans to stabilize balances in this
segment of the loan portfolio.  There were no loans identified as held
for sale in any of the last five fiscal years ended as of March 31,
2008.





The Company currently offers one- to
four-family residential mortgage loans with terms typically ranging from 15 to
40 years, and with adjustable or fixed interest rates.  At March 31,
2008, no 40 year loans had been originated.  Originations of fixed
rate mortgage loans versus ARM loans are monitored on an ongoing basis and are
affected significantly by the level of market interest rates, customer
preference, the Company’s interest rate gap position, and loan products offered
by the Company’s competitors.  Despite the Company’s emphasis on ARM
loans, the low interest rate environment over the last few years has resulted in
customer preference for fixed rate mortgage loans.  As a result,
during the year ended March 31, 2008, the Company’s ARM portfolio decreased by
$4.4 million, or 11.0%.


6
 Index


The Company offers one ARM loan
product.  The Treasury ARM loan adjusts annually with interest rate
adjustment limitations of 2% per year and with a cap of 3% or 5% on total rate
increases or decreases over the life of the loan.  The index on the
Treasury ARM loan is the weekly average yield on U.S. Treasury securities,
adjusted to a constant maturity of one year plus a margin.  However,
these loans are underwritten at the fully-indexed interest rate.  All
loans require monthly principal and interest payments, negative amortization is
not permitted.  One- to four-family residential ARM loans totaled
$36.0 million, or 14.6%, of the Company’s total loan portfolio at March 31,
2008.





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





The Company also offers home equity
loans and equity lines of credit collateralized by a second mortgage on the
borrower’s principal residence.  In underwriting these home equity
loans, the Company requires that the maximum loan-to-value ratios, including the
principal balances of both the first and second mortgage loans, not exceed
85%.  The home equity loan portfolio consists of adjustable rate loans
which use the prime rate as published in The Wall Street Journal as
the interest rate index.  Home equity loans include fixed term
adjustable rate loans, as well as lines of credit.  As of March 31,
2008, the Company’s equity loan portfolio totaled $17.0 million, or 11.9%, of
its one- to four-family mortgage loan portfolio.





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





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





Multi-Family Residential Real Estate
Loans.  Loans secured by multi-family real estate constituted
approximately $8.9 million, or 3.6%, of the Company’s total loan portfolio at
March 31, 2008.  The Company’s multi-family real estate loans are
secured by multi-family residences, such as apartment buildings.  At
March 31, 2008, most of the Company’s multi-family loans were secured by
properties located within the Company’s market area.  At March 31,
2008, the Company’s multi-family real estate loans had an average balance of
$496,000, and the largest multi-family real estate loan had a principal balance
of $3.1 million.  Multi-family real estate loans currently are offered
with adjustable interest rates or short term balloon maturities, although in the
past the Company originated fixed rate long-term multi-family real estate
loans.


7
 Index


The terms
of each multi-family loan are negotiated on a case by case basis, although such
loans typically have adjustable interest rates tied to a market index, and
amortize over 15 to 25 years.  The Company currently does not
emphasize multi-family real estate construction loans.





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





Non-Residential Real Estate and Land
Loans.  Loans secured by non-residential real estate
constituted approximately $61.4 million, or 24.9%, of the Company’s total loan
portfolio at March 31, 2008 compared to $18.4 million or 8.81% of the total loan
portfolio at March 31, 2004.  This increase is the result of the
Company’s strategy to diversify its loan portfolio.  The Company’s
non-residential real estate loans are secured by improved property such as
offices, small business facilities, and other non-residential
buildings.  At March 31, 2008, most of the Company’s non-residential
real estate loans were secured by properties located within the Company’s market
area.  At March 31, 2008, the Company’s non-residential loans had an
average balance of $297,000 and the largest non-residential real estate loan had
a principal balance of $3.9 million.  The terms of each
non-residential real estate loan are negotiated on a case by case
basis.  Non-residential real estate loans are currently offered with
adjustable interest rates or short term balloon maturities, although in the past
the Company has originated fixed rate long term non-residential real estate
loans.  Non-residential real estate loans originated by the Company
generally amortize over 15 to 25 years.  The Company currently does
not emphasize non-residential real estate construction loans.





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





The Company also originates a limited
number of land loans secured by individual improved and unimproved lots for
future residential construction.  Land loans are generally offered
with a fixed rate and with terms of up to 5 years.  Land loans totaled
$175,000 at March 31, 2008.





Residential Construction
Loans.  To a lesser extent, the Company originates loans to
finance the construction of one- to four-family residential
property.  At March 31, 2008, the Company had $1.6 million, or 0.7%,
of its total loan portfolio invested in interim construction
loans.  The Company makes construction loans to private individuals
and to builders.  Loan proceeds are disbursed in increments as
construction progresses and as inspections warrant.  Construction
loans are typically structured as permanent one- to four-family loans originated
by the Company with a 12-month construction phase.  Accordingly, upon
completion of the construction phase, there is no change in interest rate or
term to maturity of the original construction loan, nor is a new permanent loan
originated.





Commercial Business
Loans.  Commercial business loans totaled $26.9 million, or
10.9% of the Company’s total loan portfolio at March 31, 2008. The Company has
three experienced commercial lenders and plans to continue commercial lending
growth as part of the Company’s strategic plan to diversify the loan
portfolio.


8
 Index


Commercial loans carry a higher degree
of risk than one-to-four family residential loans.  Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers for rental or business properties. In addition, the
payment experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy.  The Company makes loans generally in the $100,000 to
$1,000,000 range with the majority of them being under
$500,000.  Commercial loans are generally underwritten based on the
borrower’s ability to pay and assets such as buildings, land and equipment are
taken as additional loan collateral.  Each loan is evaluated for a
level of risk and assigned a rating from “1” (the highest rating) to “7” (the
lowest rating).  All loans originated to date have been rated 4 or
higher.





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





As of March 31, 2008, consumer loans
totaled $6.2 million, or 2.5%, of the Company’s total loan
portfolio.  The principal types of consumer loans offered by the
Company are second mortgage loans, fixed rate auto and truck loans, unsecured
personal loans, and loans secured by deposit accounts.  Consumer loans
are offered primarily on a fixed rate basis with maturities generally of less
than ten years.





The Company’s second mortgage consumer
loans are secured by the borrower’s principal residence with a maximum
loan-to-value ratio, including the principal balances of both the first and
second mortgage loans, of 85% or less.  Such loans are offered on a
fixed rate basis with terms of up to ten years.  At March 31, 2008,
second mortgage loans totaled $1.7 million, or 1.2%, of one- to four-family
mortgages.





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





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





Mortgage-Backed
Securities.  The Company also invests in mortgage-backed
securities generally issued or guaranteed by the United States Government or
agencies thereof or rated AAA by a nationally recognized credit rating
organization in accordance with the Board approved investment
policy.  Investments in mortgage-backed securities are made either
directly or by exchanging mortgage loans in the Company’s portfolio for such
securities.  These securities consist primarily of adjustable rate
mortgage-backed securities issued or guaranteed by the Federal National Mortgage
Association (“FNMA”), Federal Home Loan


9
 Index


Mortgage
Corporation (“FHLMC”), and the Government National Mortgage Association
(“GNMA”).  Total mortgage-backed securities, including those
designated as available for sale, increased from $69.1 million at March 31, 2007
to $85.9 million at March 31, 2008, primarily due to purchases funded with
proceeds of maturing agency bonds to increase portfolio yield.





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





Loan Originations, Solicitation,
Processing, and Commitments.  Loan originations are derived
from a number of sources such as real estate broker referrals, existing
customers, borrowers, builders, attorneys and walk-in customers.  The
Company has also entered into a number of participation loans with high quality
lead lenders.  The participations are outside the Company’s normal
lending area and diversify the loan portfolio.  Upon receiving a loan
application, the Company obtains a credit report and employment verification to
verify specific information relating to the applicant’s employment, income, and
credit standing.  In the case of a real estate loan, an appraiser
approved by the Company appraises the real estate intended to secure the
proposed loan.  An underwriter in the Company’s loan department checks
the loan application file for accuracy and completeness, and verifies the
information provided.  One- to four-family and multi-family
residential, and commercial real estate loans, for up to $150,000, may be
approved by the manager of the mortgage loan department, loans between $150,000
and $300,000 must be approved by the Chief Executive Officer and loans in excess
of $300,000 must be approved by the Board of Directors.  The Loan
Committee meets once a week to review and verify that loan officer approvals of
loans are made within the scope of management’s authority.  All
approvals subsequently are ratified monthly by the full Board of
Directors.  Fire and casualty insurance is required at the time the
loan is made and throughout the term of the loan.  After the loan is
approved, a loan commitment letter is promptly issued to the
borrower.  At March 31, 2008, the Company had commitments to originate
$3.3 million of loans.





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


10
 Index


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





At March 31,2008
            
            
            2007
            
            
            2006(In
      Thousands)Total
      loans receivable, net at beginning of year
            
            $
            239,774
            
            
            $
            235,001
            
            
            $
            213,342Loans
      originated:One-
      to four-family residential(1)
            
            
            25,159
            
            
            
            24,319
            
            
            
            19,929Multi-family
      residential(2)
            
            
            -
            
            
            
            1,376
            
            
            
            128Non-residential
      real estate/land
            
            
            20,500
            
            
            
            11,275
            
            
            
            30,989Consumer
      loans
            
            
            3,374
            
            
            
            3,720
            
            
            
            3,613Commercial
      loans
            
            
            1,163
            
            
            
            14,511
            
            
            
            8,456Total
      loans originated
            
            
            50,196
            
            
            
            55,201
            
            
            
            63,115Loans
      sold:Whole
      loans
            
            
            -
            
            
            
            -
            
            
            
            (6,062
            )Total
      loans sold
            
            
            -
            
            
            
            -
            
            
            
            (6,062
            )Mortgage
      loans transferred to REO
            
            
            (220
            )
            
            
            -
            
            
            
            (412
            )Loan
      repayments
            
            
            (47,495
            )
            
            
            (50,413
            )
            
            
            (34,980
            )Other
      loan activity, net
            
            
            -
            
            
            
            (15
            )
            
            
            (2
            )Total
      loans receivable, net at end of year
            
            $
            242,255
            
            
            $
            239,774
            
            
            $
            235,001Mortgage-backed
      securities at beginning of year
            
            $
            69,065
            
            
            $
            55,731
            
            
            $
            60,352Mortgage-backed
      securities purchased
            
            
            35,613
            
            
            
            32,195
            
            
            
            22,361Principal
      repayments and other activity
            
            
            (18,799
            )
            
            
            (18,861
            )
            
            
            (26,982
            )Mortgage-backed
      securities at end of year
            
            $
            85,879
            
            
            $
            69,065
            
            
            $
            55,731


__________________________


(1)
            Includes
      loans to finance the construction of one- to four-family residential
      properties, and loans originated for sale in the secondary
      market.


(2)
            Includes
      loans to finance the sale of real estate acquired through
      foreclosure.





Loan Origination Fees and Other
Income.  In addition to interest earned on loans, the Company
generally receives loan origination fees.  The Company accounts for
loan origination fees in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 91 “Accounting for Non-refundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases.”  To the extent that loans are originated or acquired for the
Company’s portfolio, SFAS No. 91 requires that the Company defer loan
origination fees and costs and amortize such amounts as an adjustment of yield
over the life of the loan by use of the level yield method.  SFAS No.
91 reduces the amount of revenue recognized by many financial institutions at
the time such loans are originated or acquired.  Fees deferred under
SFAS No. 91 are recognized into income immediately upon prepayment or the sale
of the related loan.  At March 31, 2008, the Company had $390,000 of
deferred loan origination fees.  Loan origination fees are volatile
sources of income.  Such fees vary with the volume and type of loans
and commitments made and purchased, principal repayments, and competitive
conditions in the mortgage markets, which in turn respond to the demand for and
availability of money.





The Company receives other fees,
service charges, and other income that consist primarily of deposit transaction
account service charges, late charges, credit card fees, and income from REO
operations.  The Company recognized fees and service charges of $1.5
million, $1.3 million and $1.3 million, for the fiscal years ended March 31,
2008, 2007 and 2006, respectively.





Loans to One
Borrower.  Savings associations are subject to the same limits
as those applicable to national banks, which under current regulations restrict
loans to one borrower to an amount equal to 15% of unimpaired capital and
unimpaired surplus on an unsecured basis, and an additional amount equal to 10%
of unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments and bullion, but not
real estate).  At March 31, 2008, the Company’s
largest


11
 Index


concentration
of loans to one borrower totaled $4.3 million.  All of the loans in
this concentration were current at March 31, 2008.  The Company had no
loans at March 31, 2008 which exceeded the loans to one borrower
regulations.





Delinquencies
and Classified Assets





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





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





Under the provisions of SFAS No. 114,
“Accounting by Creditors for Impairment of a Loan,” a loan is defined as
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due under the contractual terms
of the loan agreement.  In applying the provisions of SFAS No. 114,
the Bank considers investment in one- to four-family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for impairment.  With respect to the Bank’s
investment in multi-family commercial and nonresidential loans, and the
evaluation of impairment thereof, such loans are collateral dependent and, as a
result, are carried as a practical expedient at the lower of cost or fair
value.





At March 31, 2008 non-performing loans
consisted of residential mortgage loans of $790,000, two commercial real estate
loans with a combined balance of $1.0 million and a $42,000 commercial
loan.    During the third quarter ended December 31, 2007,
the Company evaluated the three commercial loans and  recorded an
additional provision for loan losses based on updated appraisals and evaluation
of these loans.  Management is actively engaged with the three
borrowers to bring the loans current or liquidate the collateral to protect the
Bank’s interests. The Company’s ratio of non-performing and impaired loans to
loans receivable as of March 31, 2008 was 0.77%.  At March 31, 2007,
the Company had non-performing loans of $950,000 and a ratio of non-performing
and impaired loans to loans receivable of 0.40%. The Company generally does not
recognize losses on one- to four-family residential mortgage loans primarily
because the loan will generally be a maximum 85% LTV ratio on these mortgages
without further insurance.  In the opinion of management, all
non-performing loans are adequately collateralized as of March 31, 2008 and no
significant unreserved loss is anticipated.





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


12
 Index


The following table sets forth
information regarding our non-accrual and impaired loans and real estate
acquired by foreclosure at the dates indicated.  For all the dates
indicated, we did not have any material loans which had been restructured
pursuant to SFAS No. 15.





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars
      In Thousands)Non-accrual
      loans:Mortgage
      loans:One-
      to four-family residential
            
            $
            670
            
            
            $
            639
            
            
            $
            670
            
            
            $
            895
            
            
            $
            714All
      other mortgage loans
            
            
            120
            
            
            
            44
            
            
            
            55
            
            
            
            -
            
            
            
            24Nonresidential
      real estate loans
            
            
            1,038
            
            
            
            267
            
            
            
            -
            
            
            
            -
            
            
            
            -Non-mortgage
      loans:Commercial
      business loans
            
            
            42
            
            
            
            -
            
            
            
            47
            
            
            
            -
            
            
            
            -Consumer
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            11
            
            
            
            9Total
      non-accrual loans
            
            
            1,871
            
            
            
            950
            
            
            
            772
            
            
            
            906
            
            
            
            747Accruing
      loans 90 days or more delinquent
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      non-performing loans
            
            
            1,871
            
            
            
            950
            
            
            
            772
            
            
            
            906
            
            
            
            747Loans
      deemed impaired (1)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      non-performing and impaired loans
            
            
            1,871
            
            
            
            950
            
            
            
            772
            
            
            
            906
            
            
            
            747Total
      real estate owned (2)
            
            
            93
            
            
            
            -
            
            
            
            156
            
            
            
            35
            
            
            
            100Total
      non-performing and impaired assets
            
            $
            1,964
            
            
            $
            950
            
            
            $
            928
            
            
            $
            941
            
            
            $
            847Totalnon-performing and
      impaired loans to net loans receivable
            
            
            0.77
            %
            
            
            0.40
            %
            
            
            0.33
            %
            
            
            0.42
            %
            
            
            0.36
            %Total
      non-performing and impaired loans to total assets
            
            
            0.47
            %
            
            
            0.23
            %
            
            
            0.19
            %
            
            
            0.22
            %
            
            
            0.20
            %Total
      non-performing and impaired assets to total assets
            
            
            0.49
            %
            
            
            0.23
            %
            
            
            0.23
            %
            
            
            0.23
            %
            
            
            0.23
            %


________________________________


(1)
            Includes
      loans deemed impaired that are currently
  performing.


(2)
            Represents
      the net book value of property acquired by the Company through foreclosure
      or deed in lieu of foreclosure.  These properties are recorded
      at the lower of the loan’s unpaid principal balance or fair value less
      estimated selling expenses.





During the year ended March 31, 2008,
2007 and 2006, gross interest income of $111,000, $63,000 and $44,000 would have
been recorded on loans currently accounted for on a non-accrual basis if the
loans had been current throughout the period.  Interest income
recognized on non-accrual loans totaled $68,000, $11,000 and $44,000 for the
years ended March 31, 2008, 2007 and 2006, respectively.  The Company
did not record interest income on impaired loans for fiscal 2008 or
2007.





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





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      Thousands)Loans
      past due 60-89 days
            
            $
            819
            
            
            $
            281
            
            
            $
            626
            
            
            $
            1,084
            
            
            $
            669Loans
      past due 90 days or more
            
            
            1,871
            
            
            
            950
            
            
            
            772
            
            
            
            906
            
            
            
            747Total
      past due 60 days or more
            
            $
            2,690
            
            
            $
            1,231
            
            
            $
            1,398
            
            
            $
            1,990
            
            
            $
            1,416





Classification of
Assets.  Federal regulations provide for the classification of
loans and other assets such as debt and equity securities considered by the OTS
to be of lesser quality as “substandard,” “doubtful,” or “loss”
assets.  An asset is considered “substandard” if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any.  “Substandard” assets include those
characterized by the “distinct possibility” that the savings institution will
sustain “some loss” if the deficiencies are not corrected.  Assets
classified as “doubtful” have all of the weaknesses inherent in those classified
“substandard,” with the added characteristic that the weaknesses present make
“collection or liquidation in full,” on the basis of currently existing facts,
conditions, and values, “highly questionable and improbable.”  Assets
classified as “loss” are those considered “uncollectible” and of such little
value that their


13
 Index


Classification of
Assets.  (continued)





continuance
as assets without the establishment of a specific loss reserve is not
warranted.  Assets that do not expose the savings institution to risk
sufficient to warrant classification in one of the aforementioned categories,
but which possess some weaknesses, are required to be designated “special
mention” by management.





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





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





At March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      Thousands)Substandard
      assets(1)
            
            $
            2,283
            
            
            $
            1,280
            
            
            $
            1,119
            
            
            $
            2,767
            
            
            $
            839Doubtful
      assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      classified assets
            
            $
            2,283
            
            
            $
            1,280
            
            
            $
            1,119
            
            
            $
            2,767
            
            
            $
            839


_____________________________


(1)      Includes
REO.





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





During the fiscal years ended March 31,
2008, 2007 and 2006, the Company added $234,000, $100,000 and $211,000,
respectively, to the provision for loan losses.  The Company’s
allowance for loan losses totaled $1.8 million, $1.5 million and $1.5 million at
March 31, 2008, 2007 and 2006, respectively.  Management increased the
provision for loan losses by $134,000 in fiscal 2008 primarily due to the
increase in non-performing loans as discussed above in the changes in financial
condition.  Management evaluated three non-performing commercial loans
and elected to charge an additional $213,000 through the provision for loan
losses based on updated appraisals and the evaluations of these
loans.  While management believes that the Company’s current allowance
for loan losses is adequate, there can be no assurance that the allowance for
loan losses will be adequate to cover losses that may in fact be realized in the
future or that additional provisions for loan losses will not be
required.  To the best of management’s knowledge, all known losses as
of March 31, 2008 have been recorded.


14
 Index


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





At
      or for the Year Ended March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      Thousands)Loans
      receivable, net
            
            $
            242,255
            
            
            $
            239,774
            
            
            $
            235,001
            
            
            $
            213,342
            
            
            $
            205,178Average
      loans receivable, net
            
            
            244,800
            
            
            
            237,118
            
            
            
            222,629
            
            
            
            212,500
            
            
            
            213,909Allowance
      balance (at beginning of period)
            
            
            1,523
            
            
            
            1,484
            
            
            
            1,374
            
            
            
            815
            
            
            
            678Provision
      for losses
            
            
            234
            
            
            
            100
            
            
            
            211
            
            
            
            430
            
            
            
            173Stebbins
      acquisition
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            230
            
            
            
            -Charge-offs:Mortgage
      loans:One- to
      four-family
            
            
            (15
            )
            
            
            (31
            )
            
            
            (73
            )
            
            
            (28
            )
            
            
            -Residential
      construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Multi-family
      residential
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Non-residential real estate
      and land
            
            
            -
            
            
            
            (31
            )
            
            
            -
            
            
            
            -
            
            
            
            -Other
      loans:Consumer
            
            
            (1
            )
            
            
            (21
            )
            
            
            (75
            )
            
            
            (44
            )
            
            
            (65
            )Commercial
            
            
            -
            
            
            
            -
            
            
            
            (10
            )
            
            
            (54
            )
            
            
            -Gross charge-offs
            
            
            (16
            )
            
            
            (83
            )
            
            
            (158
            )
            
            
            (126
            )
            
            
            (65
            )Recoveries:Mortgage loans:One-
      to four-family
            
            
            13
            
            
            
            1
            
            
            
            14
            
            
            
            -
            
            
            
            -Residential construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Multi-family residential
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Non-residential real estate and land
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Other loans:Consumer
            
            
            23
            
            
            
            21
            
            
            
            35
            
            
            
            25
            
            
            
            29Commercial
            
            
            -
            
            
            
            -
            
            
            
            8
            
            
            
            -
            
            
            
            -Gross
recoveries
            
            
            36
            
            
            
            22
            
            
            
            57
            
            
            
            25
            
            
            
            29Net (charge-offs)
      recoveries
            
            
            20
            
            
            
            (61
            )
            
            
            (101
            )
            
            
            (101
            )
            
            
            (36
            )Allowance
      for loan losses balance (at end of period)
            
            $
            1,777
            
            
            $
            1,523
            
            
            $
            1,484
            
            
            $
            1,374
            
            
            $
            815Allowance
      for loan losses as a percent of loans receivable, net at end of
      period
            
            
            0.73
            %
            
            
            0.63
            %
            
            
            0.63
            %
            
            
            0.64
            %
            
            
            0.40
            %Net
      loan charge-off’s (recoveries) as a percent of average loans receivable,
      net
            
            
            (0.01
            )%
            
            
            0.03
            %
            
            
            0.05
            %
            
            
            0.05
            %
            
            
            0.02
            %Ratio
      of allowance for loan losses to total non-performing assets at end of
      period
            
            
            90.49
            %
            
            
            160.32
            %
            
            
            159.91
            %
            
            
            146.01
            %
            
            
            96.22
            %Ratio
      of allowance for loan losses to non-performing loans at end of
      period
            
            
            94.98
            %
            
            
            160.32
            %
            
            
            192.23
            %
            
            
            151.66
            %
            
            
            109.10
            %





15
 Index





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





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Amount
            
            
            %
      of
                Loans
      in
                Each
                Category
                to
      Total
                Loans
            
            
            Amount
            
            
            %
      of
                Loans
      in
                Each
                Category
                to
      Total
                Loans
            
            
            Amount
            
            
            %
      of
                Loans
      in
                Each
                Category
                to
      Total
                Loans
            
            
            Amount
            
            
            %
      of
                Loans
      in
                Each
                Category
                to
      Total
                Loans
            
            
            Amount
            
            
            %
      of
                Loans
      in
                Each
                Category
                to
      Total
                Loans(Dollars
      in Thousands)Mortgage
      loans:One- to
    four-family
            
            $
            226
            
            
            
            57.4
            %
            
            $
            169
            
            
            
            57.8
            %
            
            $
            97
            
            
            
            62.4
            %
            
            $
            99
            
            
            
            72.6
            %
            
            $
            100
            
            
            
            82.0
            %Residential
      construction
            
            
            -
            
            
            
            0.7
            
            
            
            -
            
            
            
            0.8
            
            
            
            -
            
            
            
            2.0
            
            
            
            -
            
            
            
            1.9
            
            
            
            -
            
            
            
            1.4Multi-family
      residential
            
            
            118
            
            
            
            3.6
            
            
            
            -
            
            
            
            3.6
            
            
            
            -
            
            
            
            3.3
            
            
            
            -
            
            
            
            3.6
            
            
            
            -
            
            
            
            3.2Non-residential real estate and
      land
            
            
            1,030
            
            
            
            24.9
            
            
            
            340
            
            
            
            22.5
            
            
            
            505
            
            
            
            21.3
            
            
            
            545
            
            
            
            13.4
            
            
            
            196
            
            
            
            8.8Other
      loans:Consumer
            
            
            45
            
            
            
            2.5
            
            
            
            72
            
            
            
            2.2
            
            
            
            40
            
            
            
            2.0
            
            
            
            37
            
            
            
            2.0
            
            
            
            20
            
            
            
            1.5Commercial
            
            
            358
            
            
            
            10.9
            
            
            
            942
            
            
            
            13.1
            
            
            
            842
            
            
            
            9.0
            
            
            
            693
            
            
            
            6.5
            
            
            
            499
            
            
            
            3.1Total
      allowance for loan losses
            
            $
            1,777
            
            
            
            100.0
            %
            
            $
            1,523
            
            
            
            100.0
            %
            
            $
            1,484
            
            
            
            100.0
            %
            
            $
            1,374
            
            
            
            100.0
            %
            
            $
            815
            
            
            
            100.0
            %


16
 Index





Investment
Activities





The Company’s investment portfolio is
comprised of investment securities, corporate bonds and notes and state and
local obligations.  The carrying value of the Company’s investment
securities totaled $35.5 million at March 31, 2008, compared to $54.7 million at
March 31, 2007.   The Company’s cash and cash equivalents,
consisting of cash and due from banks, federal funds sold and interest bearing
deposits due from other financial institutions with original maturities of three
months or less, totaled $13.1 million at March 31, 2008 compared to $17.2
million at March 31, 2007, a decrease of $4.2 million, or 24.1% as the Company
used cash from the federal funds sold to purchase mortgage backed
securities.





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





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





At March 31,2008
            
            
            2007
            
            
            2006Amortized
            
            
            Market
            
            
            Amortized
            
            
            Market
            
            
            Amortized
            
            
            MarketCost
            
            
            Value
            
            
            Cost
            
            
            Value
            
            
            Cost
            
            
            Value(In
      Thousands)Investment
      securities:Corporate
      bonds and notes
            
            $
            -
            
            
            $
            -
            
            
            $
            1,003
            
            
            $
            1,003
            
            
            $
            6,016
            
            
            $
            5,999U.S.
      Government and agency obligations
            
            
            17,530
            
            
            
            17,737
            
            
            
            40,571
            
            
            
            40,572
            
            
            
            55,802
            
            
            
            55,803Municipal
      obligations
            
            
            17,583
            
            
            
            17,800
            
            
            
            13,119
            
            
            
            13,126
            
            
            
            11,489
            
            
            
            11,499Total
      investment securities
            
            
            35,113
            
            
            
            35,537
            
            
            
            54,693
            
            
            
            54,701
            
            
            
            73,307
            
            
            
            73,301Other
      Investments:Interest-bearing
      deposits in other financialinstitutions
            
            
            5,162
            
            
            
            5,162
            
            
            
            6,021
            
            
            
            6,021
            
            
            
            11,171
            
            
            
            11,171Federal
      funds sold
            
            
            6,000
            
            
            
            6,000
            
            
            
            9,000
            
            
            
            9,000
            
            
            
            -
            
            
            
            -Federal
      Home Loan Bank stock
            
            
            4,892
            
            
            
            4,892
            
            
            
            4,829
            
            
            
            4,829
            
            
            
            4,623
            
            
            
            4,623Total
      investments
            
            $
            51,167
            
            
            $
            51,591
            
            
            $
            74,543
            
            
            $
            74,551
            
            
            $
            89,101
            
            
            $
            89,095








17
 Index





Investment Portfolio
Maturities.  The following table sets forth the scheduled
maturities, carrying values, market values and average yields for the Company’s
investment securities at March 31, 2008.  The Company does not hold
any investment securities with maturities in excess of 30 years.





At March 31, 2008One Year or Less
            
            
            One to Five Years
            
            
            Five to Ten Years
            
            
            More than Ten YearsAmortized
            
            
            Average
            
            
            Amortized
            
            
            Average
            
            
            Amortized
            
            
            Average
            
            
            Amortized
            
            
            AverageCost
            
            
            Yield
            
            
            Cost
            
            
            Yield
            
            
            Cost
            
            
            Yield
            
            
            Cost
            
            
            Yield(Dollars
      in Thousands)Investment
      Securities:U.S.
      Government and agency obligations
            
            $
            9,747
            
            
            
            3.50
            %
            
            $
            5,171
            
            
            
            4.20
            %
            
            $
            2,000
            
            
            
            6.25
            %
            
            $
            612
            
            
            
            3.65
            %Municipal
      obligations (tax equivalent yields)
            
            
            100
            
            
            
            4.35
            
            
            
            950
            
            
            
            5.02
            
            
            
            1,731
            
            
            
            5.83
            
            
            
            14,802
            
            
            
            6.16Total
      investment securities
            
            $
            9,847
            
            
            
            3.51
            %
            
            $
            6,121
            
            
            
            4.32
            %
            
            $
            3,731
            
            
            
            6.04
            %
            
            $
            15,414
            
            
            
            6.06
            %











At March 31, 2008Total
      InvestmentSecuritiesAverage
            
            
            
            
            
            
            
            
            WeightedLife
            
            
            Carrying
            
            
            Market
            
            
            AverageIn Years
            
            
            Value
            
            
            Value
            
            
            Yield(Dollars
      in Thousands)Investment
      Securities:U.S.
      Government and agency obligations
            
            
            1.73
            
            
            $
            17,530
            
            
            $
            17,737
            
            
            
            4.03
            %Municipal
      obligations (tax equivalent yields)
            
            
            14.83
            
            
            
            17,583
            
            
            
            17,800
            
            
            
            6.05Total
      investment securities
            
            
            8.31
            
            
            $
            35,113
            
            
            $
            35,537
            
            
            
            5.05
            %








18
 Index


Sources
of Funds





General.  Deposits
are the major source of the Company’s funds for lending and other investment
purposes.  In addition to deposits, the Company derives funds from the
amortization, prepayment or sale of loans and mortgage-backed securities, the
sale or maturity of investment securities, operations and, if needed, advances
from the Federal Home Loan Bank (“FHLB”).  Scheduled loan principal
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and market conditions.  Borrowings may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources or on a longer term basis for general business purposes.  The
Company had $38.5 million of advances from the FHLB at March 31,
2008.





Deposits.  Consumer
and commercial deposits are attracted principally from within the Company’s
market area through the offering of a broad selection of deposit instruments
including NOW accounts, passbook savings, money market deposit, term certificate
accounts, commercial repurchase agreements, and individual retirement
accounts.  The Company accepts deposits of $100,000 or more and offers
negotiated interest rates on such deposits.  Deposit account terms
vary according to the minimum balance required, the period of time during which
the funds must remain on deposit, and the interest rate, among other
factors.  The Company regularly evaluates its internal cost of funds,
surveys rates offered by competing institutions, reviews the Company’s cash flow
requirements for lending and liquidity, and executes rate changes when deemed
appropriate.  The Company does not obtain funds through brokers, nor
does it solicit funds outside its market area.





Deposit
Portfolio.  Savings and other deposits in the Company as of
March 31, 2008, were comprised of the following:





Weighted
            
            
            
            
            
            
            
            
            
            PercentageAverage
            
            
            
            Minimum
            
            
            
            
            
            of
      TotalInterest Rate
            Minimum
      Term
            Checking and Savings
      Deposits
            
            Amount
            
            
            Balances
            
            
            Deposits(In
      Thousands)0.20
            %
            None
            NOW
      accounts
            
            $
            100
            
            
            $
            50,884
            
            
            
            16.01
            %0.59
            
            None
            Savings
      accounts
            
            
            25
            
            
            
            43,593
            
            
            
            13.723.09
            
            None
            Money
      market investor
            
            
            2,500
            
            
            
            40,218
            
            
            
            12.66Certificates of
      Deposit3.95
            
            12
      months or less
            Fixed
      term, fixed rate
            
            
            500
            
            
            
            51,141
            
            
            
            16.104.54
            
            12
      to 24 months
            Fixed
      term, fixed rate
            
            
            500
            
            
            
            42,157
            
            
            
            13.264.75
            
            25
      to 36 months
            Fixed
      term, fixed rate
            
            
            500
            
            
            
            18,143
            
            
            
            5.714.40
            
            36
      months or more
            Fixed
      term, fixed rate
            
            
            500
            
            
            
            36,052
            
            
            
            11.354.51
            
            Negotiable
            Jumbo
      certificates
            
            
            100,000
            
            
            
            35,543
            
            
            
            11.19$
            317,731
            
            
            
            100.00
            %





19
 Index


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





Balance
      at
            
            
            
            
            
            
            
            
            Balance
      at
            
            
            
            
            
            
            
            
            Balance
      atMarch
      31,
            
            
            Percent
      of
            
            
            Increase
            
            
            March
      31,
            
            
            Percent
      of
            
            
            Increase
            
            
            March
      31,
            
            
            Percent
      of2008
            
            
            Deposits
            
            
            (Decrease)
            
            
            2007
            
            
            Deposits
            
            
            (Decrease)
            
            
            2006
            
            
            Deposits(Dollars
      in Thousands)NOW
      accounts
            
            $
            50,884
            
            
            
            16.01
            %
            
            $
            (2,351
            )
            
            $
            53,235
            
            
            
            16.23
            %
            
            $
            (3,556
            )
            
            $
            56,791
            
            
            
            17.37
            %Savings
      accounts
            
            
            43,593
            
            
            
            13.72
            
            
            
            (8,101
            )
            
            
            51,694
            
            
            
            15.76
            
            
            
            (9,645
            )
            
            
            61,339
            
            
            
            18.77Money
      market investor
            
            
            40,218
            
            
            
            12.66
            
            
            
            10,413
            
            
            
            29,805
            
            
            
            9.09
            
            
            
            9,149
            
            
            
            20,656
            
            
            
            6.32Certificates
      of deposit(1)Original
      maturities of:12
      months or less
            
            
            51,141
            
            
            
            16.09
            
            
            
            (4,452
            )
            
            
            55,593
            
            
            
            16.95
            
            
            
            (6,221
            )
            
            
            61,814
            
            
            
            18.9112
      to 24 months
            
            
            42,157
            
            
            
            13.27
            
            
            
            9,137
            
            
            
            33,020
            
            
            
            10.07
            
            
            
            13,839
            
            
            
            19,181
            
            
            
            5.8725
      to 36 months
            
            
            18,143
            
            
            
            5.71
            
            
            
            (4,231
            )
            
            
            22,374
            
            
            
            6.82
            
            
            
            3,833
            
            
            
            18,541
            
            
            
            5.6736
      months or more
            
            
            36,052
            
            
            
            11.35
            
            
            
            (6,775
            )
            
            
            42,827
            
            
            
            13.06
            
            
            
            (10,814
            )
            
            
            53,641
            
            
            
            16.41Negotiated
      jumbo
            
            
            35,543
            
            
            
            11.19
            
            
            
            (3,896
            )
            
            
            39,439
            
            
            
            12.02
            
            
            
            4,536
            
            
            
            34,903
            
            
            
            10.68Total
            
            $
            317,731
            
            
            
            100.00
            %
            
            $
            (10,256
            )
            
            $
            327,987
            
            
            
            100.00
            %
            
            $
            1,121
            
            
            $
            326,866
            
            
            
            100.00
            %


______________________________


(1)
            Certain
      Individual Retirement Accounts (“IRAs”) are included in the respective
      certificate balances.  IRAs totaled $35.6 million, $35.4 million
      and $34.7 million, as of March 31, 2008, 2007 and 2006,
      respectively.





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





Years Ended March 31,2008
            
            
            2007
            
            
            2006Percent
            
            
            Weighted
            
            
            
            
            
            Percent
            
            
            Weighted
            
            
            
            
            
            Percent
            
            
            WeightedAverage
            
            
            of
            
            
            Average
            
            
            Average
            
            
            of
            
            
            Average
            
            
            Average
            
            
            of
            
            
            AverageBalance
            
            
            Deposits
            
            
            Rate
            
            
            Balance
            
            
            Deposits
            
            
            Rate
            
            
            Balance
            
            
            Deposits
            
            
            Rate(Dollars
      in Thousands)Noninterest-bearing
      demand deposits
            
            $
            11,870
            
            
            
            3.74
            %
            
            
            0.00
            %
            
            $
            12,313
            
            
            
            3.78
            %
            
            
            0.00
            %
            
            $
            12,843
            
            
            
            4.02
            %
            
            
            0.00
            %NOW
      accounts
            
            
            39,727
            
            
            
            12.52
            
            
            
            0.25
            
            
            
            42,181
            
            
            
            12.93
            
            
            
            0.31
            
            
            
            46,557
            
            
            
            14.57
            
            
            
            .40Savings
      accounts
            
            
            47,468
            
            
            
            14.95
            
            
            
            0.59
            
            
            
            54,641
            
            
            
            16.75
            
            
            
            0.59
            
            
            
            62,582
            
            
            
            19.58
            
            
            
            .73Money
      market investor
            
            
            33,508
            
            
            
            10.56
            
            
            
            3.09
            
            
            
            22,833
            
            
            
            7.00
            
            
            
            2.88
            
            
            
            19,055
            
            
            
            5.96
            
            
            
            1.77Certificates
      of deposit
            
            
            184,833
            
            
            
            58.23
            
            
            
            4.54
            
            
            
            194,162
            
            
            
            59.54
            
            
            
            4.32
            
            
            
            178,505
            
            
            
            55.87
            
            
            
            3.54Total
      deposits
            
            $
            317,406
            
            
            
            100.00
            %
            
            
            2.94
            %
            
            $
            326,130
            
            
            
            100.00
            %
            
            
            2.91
            %
            
            $
            319,542
            
            
            
            100.00
            %
            
            
            2.28
            %








20
 Index


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





At March 31,2008
            
            
            2007
            
            
            2006(Dollars
      in Thousands)Rate1.05-
      2.00%
            
            $
            2
            
            
            $
            -
            
            
            $
            9,2562.01-
      4.00%
            
            
            58,876
            
            
            
            46,493
            
            
            
            66,1034.01-
      6.00%
            
            
            124,158
            
            
            
            146,760
            
            
            
            112,721Total
            
            $
            183,036
            
            
            $
            193,253
            
            
            $
            188,080





The following table sets forth the
amount and maturities of certificates of deposit at March 31, 2008.





Amount DueLess
      Than
            
            
            1-2
            
            
            2-3
            
            
            AfterOne Year
            
            
            Years
            
            
            Years
            
            
            3 Years
            
            
            TotalRate
            
            (In
      Thousands)1.05-
      2.00%
            
            $
            1
            
            
            $
            1
            
            
            $
            -
            
            
            $
            -
            
            
            $
            22.01-
      4.00%
            
            
            42,156
            
            
            
            11,008
            
            
            
            1,273
            
            
            
            4,440
            
            
            
            58,8774.01-
      6.00%
            
            
            85,717
            
            
            
            25,167
            
            
            
            4,694
            
            
            
            8,579
            
            
            
            124,157Total
            
            $
            127,874
            
            
            $
            36,176
            
            
            $
            5,967
            
            
            $
            13,019
            
            
            $
            183,036





The following table indicates the
amount of the Company’s certificates of deposit of $100,000 or more by time
remaining until maturity as of March 31, 2008





Maturity
      Period
            
            Certificates of
      Deposit(In
      Thousands)Three
      months or less
            
            $
            18,952Over
      three months through six months
            
            
            13,249Over
      six months through twelve months
            
            
            12,254Over
      twelve months
            
            
            14,076Total
            
            $
            58,531





Borrowings





Savings deposits are the primary source
of funds for the Company’s lending and investment activities and for its general
business purposes.  The Bank may rely upon advances from the FHLB and
the Federal Reserve Bank discount window to supplement their supply of lendable
funds and to meet deposit withdrawal requirements.  Advances from the
FHLB typically are collateralized by stock in the FHLB and a portion of first
mortgage loans held by the Bank.  At March 31, 2008, the Company had
$38.5 million in advances outstanding.





The FHLB functions as a central reserve
bank providing credit for member savings associations and financial
institutions.  As members, the Banks are required to own capital stock
in the FHLB and are authorized to apply for advances on the security of such
stock and certain home mortgages and other assets (principally, securities that
are obligations of, or guaranteed by, the United States) provided certain
standards related to creditworthiness have been met.  Advances are
made pursuant to several different programs.  Each credit program has
its own interest rate and range of maturities.  Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of a member institution’s net worth or on the FHLB’s assessment of
the institution’s creditworthiness.  Although advances may be used on
a short-term basis for cash management needs, FHLB advances have not been, nor
are they expected to be, a significant long-term funding source for the
Company.





21
 Index





Year Ended March 31,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Federal
      Home Loan Bank advances:Maximum
      month-end balance
            
            $
            40,750
            
            
            $
            38,900
            
            
            $
            39,000Balance
      at end of period
            
            
            38,500
            
            
            
            34,500
            
            
            
            32,750Average
      balance
            
            
            36,262
            
            
            
            31,308
            
            
            
            28,424Weighted
      average interest rate on:Balance
      at end of period
            
            
            4.59
            %
            
            
            4.71
            %
            
            
            4.19
            %Average
      balance for period
            
            
            4.87
            
            
            
            4.60
            
            
            
            3.81




Year Ended March 31,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Other
      short term borrowings:Maximum
      month-end balance
            
            $
            8,599
            
            
            $
            6,836
            
            
            $
            7,078Balance
      at end of period
            
            
            7,287
            
            
            
            5,553
            
            
            
            5,704Average
      balance
            
            
            6,634
            
            
            
            5,593
            
            
            
            5,229Weighted
      average interest rate on:Balance
      at end of period
            
            
            3.09
            %
            
            
            4.26
            %
            
            
            3.76
            %Average
      balance for period
            
            
            3.39
            
            
            
            4.09
            
            
            
            2.83





Competition





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





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





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





Subsidiaries




At March 31, 2008, the Company did not
have any direct unconsolidated subsidiaries.








22
 Index


Total
Employees





The Company had 95 full-time
employees and 35 part-time employees at March 31, 2008.  None of these
employees are represented by a collective bargaining agent, and the Company
believes that it enjoys good relations with its personnel.





Regulation





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





Federal
Regulation of Savings Institutions





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





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





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





A savings association that fails the
QTL test must either convert to a bank charter or operate under certain
restrictions.  As of March 31, 2008, the Company maintained 93.0% of
its portfolio assets in qualified thrift investments and, therefore, met the QTL
test.


23
 Index


Limitation on Capital
Distributions.  OTS regulations impose limitations upon all
capital distributions by savings institutions, such as cash dividends, payments
to repurchase or otherwise acquire its shares, payments to stockholders of
another institution in a cash-out merger and other distributions charged against
capital.  A “well-capitalized” institution can, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year in an amount up to 100% of its net income during the calendar year, plus
its retained net income for the preceding two years.  As of March 31,
2008 the Bank was a “well-capitalized” institution.





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





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





Enforcement.  Under
the FDI Act, the OTS has primary enforcement responsibility over savings
institutions and has the authority to bring enforcement action against all
“institution-related parties,” including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured
institution.  Formal enforcement action may range from the issuance of
a capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance.  Civil penalties cover a wide range of
violations and actions, and range up to $25,000 per day, unless a finding of
reckless disregard is made, in which case penalties may be as high as
$1 million per day.  Criminal penalties for most financial
institution crimes include fines of up to $1 million and imprisonment for
up to 30 years.  Under the FDI Act, the FDIC has the authority to
recommend to the Director of OTS that enforcement action be taken with respect
to a particular savings institution.  If action is not taken by the
Director, the FDIC has authority to take such action under certain
circumstances.


24
 Index


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





Capital
Requirements.  The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 4.0% leverage ratio (or core capital ratio) and an 8.0% risk-based capital
standard.  Core capital is defined as common stockholders’ equity
(including retained earnings), certain non-cumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain qualifying supervisory goodwill
and certain mortgage servicing rights.  The OTS regulations also
require that, in meeting the tangible ratio, leverage and risk-based capital
standards, institutions must deduct investments in and loans to subsidiaries
engaged in activities not permissible for a national bank.





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





Prompt
Corrective Regulatory Action





Under the OTS Prompt Corrective Action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution’s degree of capitalization.  Generally, a savings
institution that has total risk-based capital of less than 8.0% or a leverage
ratio or a Tier 1 core capital ratio that is less than 4.0% is considered
to be undercapitalized.  A savings institution that has the total
risk-based capital less than 6.0%, a Tier 1 core risk-based capital ratio
of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
“significantly undercapitalized” and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be “critically
undercapitalized.”  Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is “critically undercapitalized.”  The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date an institution receives notice that it is “undercapitalized,”
“significantly undercapitalized” or “critically undercapitalized.”  In
addition, numerous mandatory supervisory actions become immediately applicable
to the institution, including, but not limited to, restrictions on growth,
investment activities, capital distributions, and affiliate
transactions.  The OTS could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.


25
 Index


Insurance
of Accounts and Regulation by the FDIC





The Bank is a member of the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the U.S. Government.  As
insurer, the FDIC imposes deposit insurance premiums and is authorized to
conduct examinations of and to require reporting by FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
the FDIC determines by regulation or order to pose a serious risk to the FDIC.
The FDIC also has the authority to initiate enforcement actions against savings
and loan associations, after giving the OTS an opportunity to take such action,
and may terminate the deposit insurance if it determines that the institution
has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or
unsound condition.  Currently, FDIC deposit insurance rates generally
range from zero basis points to 27 basis points, depending on the assessment
risk classification assigned to the depository institution.





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





Federal
Home Loan Bank System





The Bank is a member of the FHLB
System, which consists of 12 regional FHLBs.  The FHLB provides a
central credit facility primarily for member institutions.  The Bank,
as a member of the FHLB, is required to acquire and hold shares of capital stock
in that FHLB in an amount at least equal to 1% of the aggregate principal amount
of its unpaid residential mortgage loans and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB,
whichever is greater.  The Bank was in compliance with this
requirement with an investment in FHLB-Cincinnati stock, at March 31, 2008, of
$4.9 million.





The FHLBs are required to provide funds
for the resolution of insolvent thrifts and to contribute funds for affordable
housing programs.  These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members.  FHLB
dividends were 6.4% for the fiscal year ended March 31, 2008.  In the
likely event that dividends are reduced, or interest on future FHLB-Cincinnati
advances is increased, the Company’s net interest income will
decline.





Ohio
Regulation





As a savings and loan association
organized under the laws of the State of Ohio, the Bank is subject to regulation
by the Ohio Department of Commerce, Division of Financial Institutions
(“ODFI”).  Regulation by the ODFI affects the Bank’s internal
organization as well as its savings, mortgage lending, and other investment
activities.  Periodic examinations by the ODFI are usually conducted
on a joint basis with the OTS.  Ohio law requires that the Bank
maintain federal deposit insurance as a condition of doing
business.


26
 Index





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





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





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





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





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


27
 Index


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





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





Holding
Company Regulation





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





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





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





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





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





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





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





The
activities financial holding companies may engage in include:





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





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


28
 Index


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





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





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





·
            merchant
      banking activities.





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





·
            the
      payment of dividends by the savings
institution;


·
            transactions
      between the savings institution and its affiliates;
  and


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





Federal Securities
Laws.  The Company registered its common stock with the
Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934.  The Company is subject to the proxy and tender
offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act.





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





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





The Sarbanes-Oxley Act also increases
the oversight of, and codifies certain requirements relating to audit committees
of public companies and how they interact with the company’s “registered public
accounting firm.” Audit Committee members must be independent and are barred
from accepting consulting,


29
 Index


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





Federal
and State Taxation





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





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





Retained earnings as of March 31, 2008
include approximately $2.7 million for which no provision for Federal income tax
has been made.  This reserve (base year and supplemental) is
frozen/not forgiven as certain events could trigger a recapture such as stock
redemption or distributions to shareholders in excess of current or accumulated
earnings and profits.





The Company’s federal income tax
returns through March 31, 2004 have been closed by statute or
examination.





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





Delaware
Taxation.  As a Delaware holding company not earning income in
Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.  The tax is imposed as a percentage of the capital
base of the Company with an annual maximum of $165,000.  The Company
paid Delaware franchise taxes of $18,000 in fiscal 2008.


30
 Index


ITEM 1A.     Risk Factors





Except for the historical information
contained herein, the matters discussed in this Form 10-K include certain
forward-looking  statements  within
the  meaning  of  Section  27A of
the  Securities  Act  and  Section  21E
of the Securities  Exchange Act of 1934,  as amended
(the  "Exchange  Act"),  which are intended to be
covered by the safe
harbors  created  thereby.  Those statements
include, but may not be  limited to, all statements regarding the
intent, belief and expectations of the Company and its management, such as
statements concerning the Company's future profitability.  Investors
are cautioned that all forward-looking statements involve risks and
uncertainties including, without limitation, factors detailed from time to time
in the Company's filings with the SEC.  Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be
inaccurate.  Therefore, there can be no assurance that the
forward-looking statements included in this Form 10-K will prove to be accurate,
and in light of the significant uncertainties inherent in the forward-looking
Statements included herein, the inclusion of such information should not be
regarded as a presentation by the Company or any other person that the
objectives and plans of the Company will be achieved.  The Company
encounters a number of risks in the conduct of its business.  A
discussion of such risks follows.





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





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





There are increased risks involved
with commercial real estate, construction, commercial business and consumer
lending activities.Our lending activities include loans
secured by existing commercial real estate.  Commercial real estate
lending generally is considered to involve a higher degree of risk than
single-family residential lending due to a variety of factors, including
generally larger loan balances,


31
 Index


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





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





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





Control by Management; Anti-Takeover
Provisions.  The board of directors beneficially own in the
aggregate approximately 6.8% of the outstanding shares of Common Stock of the
Company at March 31, 2008. In addition to Ohio and federal laws and regulations
governing changes in control of insured depository institutions, the Company's
Articles of Incorporation and Code of Regulations contain certain provisions
that may delay or make more difficult an acquisition of control of the
Company.  For example, the Company's Articles of Incorporation do not
exempt the Company from the provisions of Ohio's "control share acquisition" and
"merger moratorium" statutes.  Assuming that the principal
stockholders continue to retain the number of the outstanding voting shares of
the Company that they presently own and the law of Delaware requires, as it
presently does, at least two-thirds majority vote of the outstanding shares to
approve a merger or other consolidation, unless the articles of incorporation of
the constituent companies provide for a lower approval percentage for the
transaction, which the Company's articles do not provide, such ownership
position could be expected to deter any prospective acquirer from seeking to
acquire  ownership or control of the Company, and the principal
stockholders  would be able to defeat any acquisition proposal that
requires approval of the Company's  stockholders, if the principal
stockholders chose to do so. In addition, the principal stockholders may make a
private sale of shares of common stock of the Company that they own, including
to a person seeking to acquire ownership or control of the
Company.  The Company has 500,000 shares of authorized but unissued
preferred stock, par value $ .10 per share, which may be issued in the future
with such rights, privileges and preferences as are determined by the Board of
Directors of the Company.





Limited Trading Market; Shares Eligible for
Future Sale; Possible Volatility of Stock Price.  The Common
Stock is traded on the Nasdaq Market under the symbol  "WAYN." During
the 12 months ended May 15, 2008, the average weekly trading volume in the
Common Stock has been approximately 10,883 shares per week.  There can
be no assurance given as to the liquidity of the market for the Common Stock or
the price at which any sales may occur, which price will depend upon, among
other things, the number of holders thereof, the interest of securities dealers
in maintaining a market in the Common Stock


32
 Index


and other
factors beyond the control of the Company.  The market price of the
Common Stock could be adversely affected by the sale of additional shares of
Common Stock owned by the Company's current shareholders.  The
principal shareholders are permitted to sell certain limited amounts of Common
Stock without registration, pursuant to Rule 144 under the Securities Act. The
market price for the Common Stock could be subject to significant fluctuations
in response to variations in quarterly and yearly operating results, general
trends in the banking industry and other factors. In addition, the stock market
can experience price and volume fluctuations that may be unrelated or
disproportionate to the operating performance of affected companies. These broad
fluctuations may adversely affect the market price of the Common
Stock.





Dependence on Management. The
Company's success depends to a great extent on its senior management, including
its Chairman, Russell L. Harpster; President, Phillip E. Becker and Chief
Financial Officer,  H. Stewart Fitz Gibbon III and Operations Officer,
Steven G. Dimos. The loss of their individual services could have a material
adverse impact on the Company's financial stability and its operations. In
addition, the Company's future performance depends on its ability to attract and
retain key personnel and skilled employees, particularly at the senior
management level. The Company's financial stability and its operations could be
adversely affected if, for any reason, one or more key executive officers ceased
to be active in the Company's management.





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





Holding
Company Structure; Government Regulations and Policies.  The
Company is a financial holding company, which is substantially dependent on the
profitability of its subsidiaries and the upstream payment of dividends from
Wayne Savings Community Bank to the Company.  Under state and federal
banking law, the payment of dividends by the Company are subject to capital
adequacy requirements. The inability of the Company to generate profits and pay
such dividends to the Company, or regulator restrictions on the payment of such
dividends to the Company even if earned, would have an adverse effect on the
financial condition and results of operations of the Company and the Company's
ability to pay dividends to the shareholders.





ITEM 1B.     Unresolved Staff
Comments





Not applicable.


33
 Index


ITEM
2.Properties





The
Company conducts its business through its main banking office located in
Wooster, Ohio, and its ten additional full service branch offices located in its
market area.  The following table sets forth information about its
offices as of March 31, 2008.





Location
            
            Leased
      or
                Owned
            Original
      Year
                Leased
      or
                Acquired
            Year
      of Lease
                ExpirationNorth
      Market Street Office
              151
      N. Market Street
              Wooster,
      Ohio
            
            Owned
            1902
            N/ACleveland
      Point Financial Center
              1908
      Cleveland Road
              Wooster,
      Ohio
            
            Owned
            1978
            N/AMadison
      South Office
              2024
      Millersburg Road
              Wooster,
      Ohio
            
            Owned
            1999
            N/ANorthside
      Office
              543
      Riffel Road
              Wooster,
      Ohio
            
            Leased
            1999
            2019Millersburg
      Office
              90
      N. Clay Street
              Millersburg,
      Ohio
            
            Owned
            1964
            N/AClaremont
      Avenue Office
              233
      Claremont Avenue
              Ashland,
      Ohio
            
            Owned
            1968
            N/ABuehlers-Sugarbush
      Office
              1055
      Sugarbush Drive
              Ashland,
      Ohio
            
            Leased
            2001
            2021Rittman
      Office
              237
      North Main Street
              Rittman,
      Ohio
            
            Owned
            1972
            N/ALodi
      Office
              303
      Highland Drive
              Lodi,
      Ohio
            
            Owned
            1980
            N/AVillage
      Office
              1265
      S. Main Street
              North
      Canton, Ohio
            
            Owned
            1998
            N/AStebbins
      Office
              121
      N. Main Street
              Creston,
      Ohio
            
            Owned
            2005
            N/A







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


34
 Index


ITEM
3.       Legal
Proceedings





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





ITEM4.        Submission of Matters to a
Vote of Security Holders





During the fourth quarter of the fiscal
year covered by this report, the Registrant did not submit any matters to the
vote of security holders.





PART II





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





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





CashFiscal
      Year Ended
            
            
            
            
            
            
            
            DividendMarch
      31, 2008
            
            High
            
            
            Low
            
            
            DeclaredFirst
      quarter
            
            $
            14.34
            
            
            $
            13.40
            
            
            $
            .120Second
      quarter
            
            $
            14.00
            
            
            $
            12.21
            
            
            $
            .120Third
      quarter
            
            $
            12.30
            
            
            $
            10.09
            
            
            $
            .120Fourth
      quarter
            
            $
            11.25
            
            
            $
            9.81
            
            
            $
            .120




CashFiscal
      Year Ended
            
            
            
            
            
            
            
            
            
            DividendMarch
      31, 2007
            
            High
            
            
            Low
            
            
            DeclaredFirst
      quarter
            
            $
            15.65
            
            
            $
            15.01
            
            
            $
            .120Second
      quarter
            
            $
            15.30
            
            
            $
            14.55
            
            
            $
            .120Third
      quarter
            
            $
            14.93
            
            
            $
            14.40
            
            
            $
            .120Fourth
      quarter
            
            $
            15.00
            
            
            $
            13.50
            
            
            $
            .120








35
 Index


As of
April 9, 2008, the Company had 1,378 shareholders of record and 3,009,104 shares
of common stock outstanding.  This does not reflect the number of
persons whose stock is in nominee or “street name” accounts through
brokers.





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





The
Company’s primary source of funds with which to pay dividends is cash and cash
equivalents held at the holding company level and dividends from the
Bank.  The Bank’s ability to pay dividends to the Company is limited
by OTS regulations, and the Bank is required to obtain OTS nonobjection to the
payment of dividends to the Company.  In determining whether to object
to such dividends, the OTS considers whether (i) the Bank would be
undercapitalized following the dividend, (ii) the dividend raises safety and
soundness concerns, or (iii) the dividend violates any regulatory prohibition or
policy.





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





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





Period
            
            Total
      Number
                of
      Shares
                Purchased
            
            
            Average
              Price
      Paid
              per
      Share
            
            
            Total
      Number of
                Shares
      Purchased as
                Part
      of Publicly
                Announced
      Plans or
                Programs
            
            
            Maximum
      Number of
                Shares
      that May Yet Be
                Purchased
      Under the
                Plans
      or Programs(1)January
      1-31, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            120,893February
      1-29, 2008
            
            
            45,902
            
            
            $
            10.92
            
            
            
            45,902
            
            
            
            74,991March
      1-31, 2008
            
            
            70,000
            
            
            $
            10.08
            
            
            
            70,000
            
            
            
            4,991Total
            
            
            115,902
            
            
            $
            10.42
            
            
            
            -
            
            
            
            4,991


____________


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





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


36
 Index


Equity
Compensation Plan Information





The following table sets forth
information as of March 31, 2008 with respect to compensation plans under which
equity securities of the Company are authorized for issuance.





Number
      of Shares RemainingNumber
      of shares to be issued
            
            
            Weighted-Average
            
            
            Available
      for Future IssuanceUpon
      the exercise of outstanding
            
            
            Exercise
      Price of
            
            
            (Excluding
      Shares reflected inPlan Category
            
            Options, Warrants and
Rights
            
            
            Outstanding Options
            
            
            the First Column)Equity
      CompensationPlans
      Approved bySecurity
      Holders
            
            
            104,224
            
            
            $
            13.95
            
            
            
            —Equity
      CompensationPlans
      Not Approved bySecurity
      Holders
            
            
            -
            
            
            
            -
            
            
            
            —104,224
            
            
            $
            13.95
            
            
            
            —








ITEM
6.Selected
Financial Data





The following table set forth certain
consolidated financial and other data of Wayne Savings Bancshares, Inc., at the
dates and for the years indicated.  The consolidated financial
statements as of and for the years ended March 31, 2004, inclusive, are those of
Wayne Savings Bancshares, Inc. prior to the reorganization and change in
corporate form discussed in the Notes to the Consolidated Financial Statements
and elsewhere herein.  For additional information about the Company,
reference is made to “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the Consolidated Financial Statements
of the Company.





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      thousands)Selected
      Financial Condition Data:Total
      assets
            
            $
            401,584
            
            
            $
            405,737
            
            
            $
            403,679
            
            
            $
            403,633
            
            
            $
            369,007Loans
      receivable, net (1)
            
            
            242,255
            
            
            
            239,774
            
            
            
            235,001
            
            
            
            213,342
            
            
            
            205,178Mortgage-backed
      securities (2)
            
            
            85,879
            
            
            
            69,065
            
            
            
            55,731
            
            
            
            60,352
            
            
            
            88,428Investment
      securities
            
            
            35,531
            
            
            
            54,693
            
            
            
            73,307
            
            
            
            72,856
            
            
            
            31,582Cash
      and cash equivalents (3)
            
            
            13,063
            
            
            
            17,215
            
            
            
            14,123
            
            
            
            29,942
            
            
            
            19,887Deposits
            
            
            317,731
            
            
            
            327,987
            
            
            
            326,866
            
            
            
            320,586
            
            
            
            291,830Stockholders’
      equity
            
            
            34,104
            
            
            
            34,433
            
            
            
            35,516
            
            
            
            40,199
            
            
            
            43,561







(1)  Includes
loans held for sale.


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


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


37
 Index








Year
      Ended March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      thousands, except for share amounts)Selected
      Operating Data:Interest
      income
            
            $
            22,958
            
            
            $
            22,410
            
            
            $
            19,688
            
            
            $
            17,632
            
            
            $
            18,216Interest
      expense
            
            
            11,793
            
            
            
            11,198
            
            
            
            8,280
            
            
            
            6,716
            
            
            
            7,147Net
      interest income
            
            
            11,165
            
            
            
            11,212
            
            
            
            11,408
            
            
            
            10,916
            
            
            
            11,069Provision
      for losses on  loans
            
            
            234
            
            
            
            100
            
            
            
            211
            
            
            
            430
            
            
            
            173Net
      interest income after provision for losses on loans
            
            
            10,931
            
            
            
            11,112
            
            
            
            11,197
            
            
            
            10,486
            
            
            
            10,896Other
      income
            
            
            1,921
            
            
            
            1,643
            
            
            
            1,778
            
            
            
            1,684
            
            
            
            1,933General,
      administrative and other expense (1)
            
            
            10,278
            
            
            
            9,744
            
            
            
            10,900
            
            
            
            11,874
            
            
            
            8,971Income
      before income taxes
            
            
            2,574
            
            
            
            3,011
            
            
            
            2,075
            
            
            
            296
            
            
            
            3,858Federal
      income taxes (benefits)
            
            
            610
            
            
            
            850
            
            
            
            435
            
            
            
            (85
            )
            
            
            1,154NET
      INCOME
            
            $
            1,964
            
            
            $
            2,161
            
            
            $
            1,640
            
            
            $
            381
            
            
            $
            2,704Basic
      earnings per share
            
            $
            0.65
            
            
            $
            0.68
            
            
            $
            0.50
            
            
            $
            0.11
            
            
            $
            0.72Diluted
      earnings per share
            
            $
            0.65
            
            
            $
            0.68
            
            
            $
            0.50
            
            
            $
            0.11
            
            
            $
            0.72Cash
      dividends declared per common share
            
            $
            0.48
            
            
            $
            0.48
            
            
            $
            0.48
            
            
            $
            0.48
            
            
            $
            0.47





(1)  In
2005, general, administrative and other expense includes $1.4 million of costs
related to accelerating the Company’s Management Recognition and Stock Option
Plans.








At
      or For the Year Ended March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Key
      Operating Ratios and Other Data:Return
      on average assets (net income dividedby
      average total assets)
            
            
            0.49
            %
            
            
            0.54
            %
            
            
            0.42
            %
            
            
            0.10
            %
            
            
            0.73
            %Return
      on average equity (net incomedivided
      by average equity)
            
            
            5.69
            
            
            
            6.09
            
            
            
            4.42
            
            
            
            0.90
            
            
            
            6.09Average
      equity to average assets
            
            
            8.65
            
            
            
            8.83
            
            
            
            9.47
            
            
            
            10.93
            
            
            
            11.95Equity
      to assets at year end
            
            
            8.49
            
            
            
            8.49
            
            
            
            8.80
            
            
            
            9.96
            
            
            
            11.80Interest
      rate spread (difference between averageyield
      on interest-earning assets and averagecost
      of interest-bearing liabilities)
            
            
            2.82
            
            
            
            2.83
            
            
            
            3.02
            
            
            
            2.89
            
            
            
            2.97Net
      interest margin (net interest incomeas
      a percentage of average interest-earning
      assets)
            
            
            2.96
            
            
            
            2.96
            
            
            
            3.11
            
            
            
            3.02
            
            
            
            3.14General,
      administrative and other expenseto
      average assets (1)
            
            
            2.58
            
            
            
            2.42
            
            
            
            2.83
            
            
            
            2.65
            
            
            
            2.41Nonperforming
      and impaired loansto
      loans receivable, net
            
            
            0.94
            
            
            
            0.40
            
            
            
            0.33
            
            
            
            0.42
            
            
            
            0.36Nonperforming
      and impaired assetsto
      total assets
            
            
            0.59
            
            
            
            0.23
            
            
            
            0.23
            
            
            
            0.23
            
            
            
            0.23Average
      interest-earning assets to averageinterest-bearing
      liabilities
            
            
            104.62
            
            
            
            104.46
            
            
            
            104.09
            
            
            
            106.49
            
            
            
            108.12Allowance
      for loan losses to nonperformingand
      impaired loans
            
            
            77.84
            
            
            
            160.32
            
            
            
            192.23
            
            
            
            151.66
            
            
            
            109.10





38
 Index








Key
      Operating Ratios and Other Data: (continued)Allowance
      for loan losses to nonperformingand
      impaired assets
            
            
            74.79
            
            
            
            160.32
            
            
            
            159.91
            
            
            
            146.01
            
            
            
            96.22Net
      interest income after provision for losseson
      loans, to general, administrative andother
      expense (1)
            
            
            106.35
            
            
            
            114.04
            
            
            
            102.72
            
            
            
            100.13
            
            
            
            121.46Number
      of full-service offices
            
            
            11
            
            
            
            11
            
            
            
            11
            
            
            
            11
            
            
            
            10Dividend
      payout ratio
            
            
            76.17
            
            
            
            70.59
            
            
            
            96.00
            
            
            
            436.36
            
            
            
            66.83


(1)  
In calculating this ratio, general, administrative and other expense does not
include provisions for losses or gains on the sale of real estate acquired
through foreclosure.  For fiscal  2005, this ratio does not
include expense relating to acceleration of the Company’s Management Recognition
Plan and Stock Option Plan.








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





General





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





The
Company’s net income is primarily dependent on its net interest income, which is
the difference between interest income earned on its loan, mortgage-backed
securities and investment portfolios, and its cost of funds consisting of
interest paid on deposits and borrowings.  The Company’s net income
also is affected by its provision for losses on loans, as well as the amount of
other income, including trust fees and service charges, and general,
administrative and other expense, such as salaries and employee benefits,
deposit insurance premiums, occupancy and equipment costs, and income
taxes.  Earnings of the Company also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory
authorities.





Business
Strategy





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





Discussion
of Financial Condition Changes from March 31, 2007 to March 31,
2008





In
addition to the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties.  Economic circumstances, the Company’s operations, and
actual results could differ significantly from those discussed in
forward-looking statements.  Some of the factors that could cause or
contribute to such differences are discussed herein but also include changes in
the


39
 Index


Discussion
of Financial Condition Changes from March 31, 2007 to March 31, 2008
(continued)





economy
and interest rates in the nation and the Company’s general market
area.  The forward-looking statements contained herein include, but
are not limited to, those with respect to the following matters:  (1)
management’s determination of the amount and adequacy of the allowance for loan
losses; (2) the effect of changes in interest rates; (3) management’s opinion as
to the effects of recent accounting pronouncements on the Company’s consolidated
financial statements; and (4) management’s opinion as to the Bank’s ability to
maintain regulatory capital at current levels.  The Company considers
the allowance for loan losses and related loss provision to be a critical
accounting policy.  A detailed discussion as to the application of
such policy is set forth on the following pages.





At March
31, 2008, total assets of $401.6 million decreased incrementally from the $405.7
million total at March 31, 2007. Liquid assets, consisting of cash, federal
funds sold and interest-bearing deposits decreased by $4.1 million, or 24.1%, to
$13.1 million at March 31, 2008, mainly due to a reduction in federal funds sold
which contributed to the total asset decline of $4.2 million. During
the fiscal year ended March 31, 2008, loans receivable increased $2.5 million,
or 1.0%, as the Bank originated and retained $50.2 million of loans and received
payments of $47.5 million.   Rather than reinvest funds from
repayments on loans in long-term, fixed rate and lower yielding residential
loans, the lending division has been able to originate non-residential real
estate loans.  The Company believes that investing in shorter-term
adjustable-rate commercial loans positions the Company favorably in the current
interest rate environment.  The composition of the loan portfolio
continued to evolve during the fiscal year ending March 31, 2008, as exemplified
by a net decrease of $2.3 million in residential and construction mortgage
loans, which were more than offset by increases in nonresidential real estate
loans of $5.4 million. At March 31, 2008 and 2007, the allowance for loan losses
totaled $1.8 million, or .73% of loans and $1.5 million or 0.63%,
respectively.  In determining the amount of loan loss analysis at any
point of time, management and the board apply a systematic process of focusing
on the risk of loss in the portfolio.  First, delinquent
nonresidential, multi-family and commercial loans are evaluated for potential
impairment in carrying value.  At March 31, 2008, all delinquent
nonresidential, multi-family and commercial loans were viewed as well-secured,
with no material loss anticipated. The second step in determining the allowance
for loan loss entails the application of historic loss experience to individual
loan types in the portfolio.  In addition to the historic loss
percentage, management employs an additional risk percentage tailored to the
Board’s and management’s perception of the overall risk in the
economy.  Finally, to provide additional assurance regarding the
validity of the commercial loan risk rating system, management engages a third
party loan reviewer who provides independent validation of the Bank’s loan
grading process.  Management recorded a $234,000 provision for losses
on loans for the fiscal 2008 period, an increase of $134,000 over the $100,000
recorded for fiscal year ended March 31, 2007, primarily due to the increase in
non-performing loans.  Management evaluated three non-performing
commercial loans and elected to charge an additional $213,000 through the
provision for loan losses based on updated appraisals and the evaluations of
these loans.





Deposits
totaled $317.7 million at March 31, 2008, a decrease of $10.3 million, or 3.1%,
from $328.0 million at March 31, 2007.  Certificates of deposit
decreased by $10.2 million, savings accounts decreased by $8.1 million and NOW
accounts decreased by $2.4 million.  These decreases were partially
offset by an increase in money market deposits of $10.4 million.  The
Company continues to experience a shift in depositor preference from low cost
liquid deposit accounts to higher cost money market
accounts.  Management exercised discipline during the period with
regard to the pricing of retail certificates.  In general, management
attempts to benchmark retail certificate of deposit pricing to the cost of
alternate sources of funds, including Federal Home Loan Bank advances and
brokered deposits.  Exceptions are made to defend customer
relationships with significant value to the Bank while allowing rate sensitive
certificate of deposit shoppers to move to other alternatives.  The
local deposit market has been negatively affected by national and online
competitors offering higher rates to address liquidity concerns in national
markets.





40
 Index


Discussion
of Financial Condition Changes from March 31, 2007 to March 31, 2008
(continued)





Other
short term borrowings increased by $1.7 million as a result of the increase in
commercial repurchase agreements growth.





Additional
Federal Home Loan Advances of $4.0 million maturing in fiscal 2011 were borrowed
as a replacement to the runoff incurred in deposits due to management’s
strategic pricing strategy.





Stockholders’
equity totaled $34.1 million, a decrease of $329,000, or 1.0%, during the year
ending March 31, 2008, due primarily to purchases of treasury stock totaling
$2.1 million, dividends totaling $1.5 million and an increase in the accumulated
other comprehensive income (loss) arising from the FAS 158 pension adjustment of
$100,000.  These amounts were partially offset by $2.0 million in net
income for the fiscal year ended March 31, 2008 and an increase of $1.3 million
in accumulated other comprehensive income (loss) resulting from the unrealized
gains on available for sale securities during fiscal 2008.





Comparison of Operating Results for
the Years Ended March 31, 2008 and 2007





General





Net
income totaled $2.0 million for fiscal year ended March 31, 2008, a decrease of
$197,000, or 9.1% compared to the net income of $2.2 million for the fiscal year
ended March 31, 2007.  The decrease in net income was primarily
attributable to an increase in general, administrative and other expense of
$534,000 or 5.5%, coupled with an increase in provision for loan losses of
$134,000, offset by an increase in service fees, charges and other operating of
$152,000, or 11.5% and a decrease in federal income taxes of $240,000, or
28.2%.





Interest
Income





Interest
income increased $548,000 or 2.4%, to $23.0 million for the fiscal year ended
March 31, 2008, compared to fiscal 2007.  This increase was mainly due
to an increase in the weighted-average yield on interest-earning assets to 6.09%
from 5.91% for the fiscal year ended March 31, 2007.  The yield
increase is primarily due to the shift of interest earning assets into
loans.  The Company has purposefully invested excess funds in
shorter-term securities and adjustable rate loans rather than long-term fixed
rate loans.  Although such strategy can sacrifice short-term income,
it strengthens the Company’s interest rate position and allows the Company to
profitably redeploy such assets in a rising rate environment.





Interest
income on loans increased $603,000, or 3.8%, for the year ended March 31, 2008,
compared to fiscal 2007, due primarily to a $7.6 million, or 3.2%, increase in
the average balance of loans year over year, coupled with a 4 basis point
increase in the weighted-average yield on loans outstanding.  The
increase in the average balance of loans was primarily due to the emphasis on
nonresidential loans.





Interest
income on securities increased $131,000, or 2.3%, during fiscal 2008, compared
to fiscal 2007, due primarily to an increase of 36 basis points to a
weighted-average yield of 4.94% as compared to 4.58%, from the comparable 2007
period, offset by a decrease of $6.5 million, or 5.1%, in the average balance,
caused mainly by principal repayments and maturities of $47.7 million, offset by
purchases of $43.3 million.

















41
 Index


Comparison of Operating Results for
the Years Ended March 31, 2008 and 2007 (continued)





Interest Income
(continued)





Interest
income on interest-bearing deposits decreased by $186,000, or 27.9%, during the
fiscal year ended March 31, 2008 compared to fiscal 2007, due primarily to a
decrease in the average balance during fiscal 2008 of $3.4 million, or 22.8%,
coupled with a decrease in the weighted-average yield of 29 basis points to
4.11%.





Interest
Expense





Interest
expense for the fiscal year ended March 31, 2008 totaled $11.8 million, an
increase of $595,000, or 5.3%, from interest expense for the fiscal year ended
March 31, 2007.  The increase in interest expense resulted from an
increase in the average cost of funds of 19 basis points to 3.27% for fiscal
2008, offset with a decrease of $2.7 million, or 0.8%, in the average balance of
deposits and borrowings outstanding in fiscal 2008.





Interest
expense on deposits totaled $9.8 million for fiscal 2008, an increase of
$271,000, or 2.8%, compared to fiscal 2007.  The increase in deposit
costs resulted from an increase of 17 basis points in the weighted-average cost
of deposits to 3.09% for fiscal 2008, offset by a decrease in the average
balance outstanding of $8.7 million, or 2.7%.  As noted earlier, a
shift in the composition of deposits from lower cost savings deposits to higher
cost certificates of deposits contributed to the increase in the cost of
deposits.





Interest
expense on other short term borrowings totaled $225,000 for the year ended March
31, 2008, a decrease of $4,000 from fiscal 2007, due primarily to a decrease in
the weighted-average rate of 70 basis points to 3.39% for the fiscal year ended
March 31, 2008, due to the Federal Reserve interest rate reductions over the
past year, offset by an increase in the average balance of $1.0
million.





Interest expense on Federal Home Loan
Bank advances totaled $1.8 million for the year ended March 31, 2008, an
increase of $328,000, or 22.8%, from fiscal 2007, due primarily to an increase
in the average balance of $5.0 million, or 15.8%, coupled with an increase in
the weighted-average rate of 27 basis points to 4.87% for the fiscal year ended
March 31, 2008 as a result of the repayment of lower rate advances.





Net Interest
Income





Net
interest income totaled $11.2 million for the fiscal year ended March 31, 2008,
a decrease of $47,000, or 0.4%, from the amount for fiscal 2007.  The
average interest rate spread decreased to 2.82% for fiscal 2008 from 2.83% for
fiscal 2007.  The net interest margin remained  unchanged at
2.96% for both fiscal 2008 and 2007.  These ratios were affected by
the increase in the yield on average interest earning assets of 18 basis points
and the cost of deposits increase of 17 basis points.  As noted
earlier, a shift in the composition of deposits from lower cost savings deposits
and NOW accounts to the higher cost of money market investor and certificates of
deposit accounts contributing to the larger increase in the cost of
deposits.





Provision for Losses on
Loans





Management
recorded a $234,000 provision for losses on loans for the year ended March 31,
2008, an increase of $134,000 over the $100,000 recorded for the fiscal year
ended March 31, 2007, primarily due to the increase in non-performing loans as
discussed above.  Management evaluated three non-performing commercial
loans and elected to charge an additional $213,000 through the provision for
loan losses based on updated appraisals and the evaluations of these
loans.  The Company generally has not recognized significant losses on
non-performing loans secured by residential mortgages. To the best of
management’s knowledge, all known and inherent losses that are probable and
which can be reasonably estimated have been recorded as of March 31,
2008.


42
 Index





Comparison of Operating Results for
the Years Ended March 31, 2008 and 2007(continued)





Other
Income





Other
income increased by $278,000, or 16.9%, to $1.9 million for fiscal 2008, from
$1.6 million for the year ended March 31, 2007.  The increase resulted
primarily from a non-recurring early prepayment penalty collected from a
commercial customer of $115,000, coupled with a $25,000 gain on the sale of Visa
stock , a gain on sale of real estate of $31,000 creating a $54,000 variance as
last year the Company incurred a $23,000 loss, an increase in trust income of
$61,000, including a one time fee of $14,000 collected during fiscal 2008, an
$11,000 increase in earnings on the cash surrender value of life insurance and
$11,000 in earnings from the Bank’s portion of the title company partnership
income.





General, Administrative and
Other Expense





General,
administrative and other expense increased by $534,000, or 5.5%, to $10.3
million for the fiscal year ended March 31, 2008, compared to fiscal
2007.  The increase in general, administrative and other expense is
primarily due to an increase in employee compensation expense of $174,000, or
3.2% due primarily to employee merit increases from year to year and severance
expense due to a restructuring of operations.  Franchise tax expense
increased by $170,000, or 78.3%, due to a tax return amendment causing a
reduction in expense of $154,000 in fiscal 2007.  An increase of
$169,000, or 8.9%, in other operating expense was primarily attributable to a
$121,000 increase in accounting fees related to compliance with the Sarbanes
Oxley regulation, as the Company elected to outsource its internal controls
assessment in preparation for an audit of internal controls, coupled with online
banking expense increase of $66,000 due to increased usage.





Federal Income
Taxes





The
federal income tax expense was $610,000 for the year ended March 31, 2008,
reflecting a decrease of $240,000 from fiscal 2007.  The decrease
resulted primarily from a $437,000 decrease in pre-tax income.  The
difference in the effective tax rate or rate of benefits from the 34% statutory
rate is mainly due to the beneficial effects of income from cash surrender value
of life insurance and other tax-exempt obligations.





Comparison of Operating Results for
the Years Ended March 31, 2007 and 2006





General





Net
income totaled $2.2 million for fiscal year ended March 31, 2007, an increase of
$521,000 when compared to the net income for the fiscal year ended March 31,
2006.  The increase in net income was primarily attributable to a
decrease in general, administrative and other expense of $1.2 million, or 10.6%
coupled with a decrease in provision for loan losses of $111,000.  The
decrease in employee compensation of $864,000 was mainly attributable to
employee attrition coupled with management’s initiative to enhance the Bank’s
sales culture, eliminating several positions.  The Ohio Franchise
expense reduction of $312,000 was due to a tax return amendment and the treasury
buybacks in prior years.  Net interest income was reduced by $196,000
mainly due to the runoff of the lower interest earning savings and NOW accounts
and the growth of higher earning money market investor and certificates of
deposit accounts.  Other income also decreased mainly due to the cash
payment received from the bank owned life insurance policy causing the decrease
of the average balance of these policies.  The growth in pretax
earnings was partially offset by an increase in federal income taxes of
$415,000.











43
 Index


Comparison of Operating Results for
the Years Ended March 31, 2007 and 2006(continued)





Interest
Income





Interest
income increased $2.7 million or 13.8%, to $22.4 million for the fiscal year
ended March 31, 2007, compared to fiscal 2006.  This increase was
mainly due to an increase in the weighted-average yield on interest-earning
assets to 5.91% from 5.36% for the fiscal year ended March 31, 2006, coupled
with an increase in the average balance of $11.6 million, or
3.2%.  The yield increase is primarily due to the Federal Reserve
raising the federal funds rate 50 basis points over the past
year.  These rate increases have beneficially affected the yields
earned on the Company’s investment securities and interest-bearing
deposits.  The Company has purposefully invested excess funds in
shorter-term securities and adjustable rate loans rather than long-term fixed
rate loans.  Although such strategy can sacrifice short-term income,
it strengthens the Company’s interest rate position and allows the Company to
profitably redeploy such assets in a rising rate environment.





Interest
income on loans increased $1.8 million, or 13.1%, for the year ended March 31,
2007, compared to fiscal 2006, due primarily to a $14.5 million, or 6.5%,
increase in the average balance of loans year over year, coupled with a 39 basis
point increase in the weighted-average yield on loans
outstanding.  The increase in the average balance of loans was
primarily due to the emphasis on nonresidential and commercial
loans.





Interest
income on securities increased $651,000, or 12.6%, during
fiscal  2007, compared to fiscal 2006, due primarily to an increase of
64 basis points to a weighted-average yield of 4.58% as compared to 3.94%, from
the comparable 2006 period, generally reflecting upward interest rate
adjustments in the rising rate environment, offset with a decrease of $4.2
million, or 3.2%, in the average balance, caused mainly by continued principal
prepayments, maturities and sales of $44.3 million, which exceeded purchases of
$37.8 million.





Interest
income on interest-bearing deposits increased by $224,000, or 50.7%, for the
fiscal year ended March 31, 2007, due primarily to an increase in the
weighted-average yield of 120 basis points to 4.40%, coupled with an increase in
the average balance during fiscal 2007 of $1.3 million, or 9.6%.





Interest
Expense





Interest
expense for the fiscal year ended March 31, 2007 totaled $11.2 million, an
increase of $2.9 million, or 35.2%, from interest expense for fiscal year ended
March 31, 2006.  The increase in interest expense resulted from an
increase in the weighted-average cost of funds of 74 basis points to 3.08% for
fiscal 2007, coupled with an increase of $9.8 million, or 2.8%, in the average
balance of deposits and borrowings outstanding in fiscal 2007.





Interest
expense on deposits totaled $9.5 million for fiscal 2007, an increase of $2.5
million, or 35.2%, compared to fiscal 2006.  The increase in deposit
costs resulted from an increase of 71 basis points in the weighted-average cost
of deposits to 2.92% for fiscal 2007, coupled with an increase in the average
balance outstanding of $6.6 million, or 2.1%.  As noted earlier, a
shift in the composition of deposits from lower cost savings deposits to higher
cost certificates of deposit contributed to the increase in the cost of
deposits.





Interest
expense on other short term borrowings totaled $229,000 for the year ended March
31, 2007, an increase of $81,000, or 54.7%, from the 2006 period, due primarily
to an increase in the weighted-average rate of 126 basis points to 4.09% for the
fiscal year ended March 2008.





Interest
expense on borrowings totaled $1.4 million for the year ended March 31, 2007, an
increase of $356,000, or 32.9%, from the 2006 period, due primarily to an
increase in the average balance of $2.9 million,


44
 Index


Comparison of Operating Results for
the Years Ended March 31, 2007 and 2006 (continued)





or 10.2%, coupled with an increase in
the weighted-average rate of 79 basis points to 4.60% for the fiscal year ended
March 31, 2007 as a result of the repayment of lower rate advances.





Net Interest
Income





Net
interest income totaled $11.2 million for the fiscal year ended March 31, 2007,
a decrease of $196,000, or 1.7%, from the amount for fiscal 2006.  The
average interest rate spread decreased to 2.83% for fiscal 2007 from 3.02% for
fiscal 2006.  The net interest margin decreased to 2.96% for fiscal
2007 from 3.11% for the fiscal year ended March 31, 2006.   These
ratios decreased as the increase in the yield on average interest earning assets
of 55 basis points was unable to exceed the cost of funds which increased 74
basis points.  As noted earlier, a shift in the composition of
deposits from lower cost savings deposits and NOW accounts to the higher cost of
Money market investor and certificates of deposit accounts contributing to the
larger increase in the cost of deposits.





Provision for Losses on
Loans





The
Company recorded a provision for losses on loans totaling $100,000 and $211,000
for the fiscal years ended March 31, 2007 and 2006, respectively.  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 March
31, 2007.





Other
Income





Other
income, consisting primarily of an increase in cash surrender value of life
insurance, gains on sale of loans, service fees, and charges on deposit accounts
decreased by $135,000, or 7.6%, to $1.6 million for fiscal 2007, from $1.8
million for the year ended March 31, 2006.  The decrease resulted
primarily from a decrease in the cash surrender value of life insurance of
$160,000 and a decrease of $67,000 in gain on sale of
loans.   These decreases were partially offset by an increase in
other service fees, charges and other operating income of $66,000, or 5.3%, and
trust income of $50,000.  The decline in gain on sale of loans is
primarily due to a significant reduction in origination volume, amplified by
management’s decision during fiscal 2007 to retain certain fixed rate mortgage
loans to facilitate growth in the portfolio.





General, Administrative and
Other Expense





General,
administrative and other expense decreased by $1.2 million, or 10.6%, to $9.7
million for the fiscal year ended March 31, 2007, compared to fiscal
2006.  The decrease in general, administrative and other expense was
primarily due to a reduction in employee compensation expense of $864,000, or
13.5%, due to employee attrition coupled with management’s initiative to enhance
the Bank’s sales culture, eliminating several positions.  Franchise
tax expense was reduced by $312,000, or 59.0%, mainly due to a receivable from
an amendment of prior returns of $154,000 coupled with the benefits of the
treasury stock repurchase program from the prior year.  A decrease of
$48,000, or 2.5%, in other operating expense was primarily attributable to
decreased advertising and public relations costs of $59,000 and reduced
professional, legal and audit expenses of $62,000 partially offset by increased
internet costs of $90,000.  These decreases were offset by an increase
of $71,000, or 3.7%, in occupancy and equipment expense, primarily due to
increased data line costs related to the online banking program, coupled with an
increase of depreciation expense, building related maintenance and real estate
taxes increases.





45
 Index


Comparison of Operating Results for
the Years Ended March 31, 2007 and 2006(continued)





Federal Income
Taxes





The
federal income tax expense was $850,000 for the year ended March 31, 2007,
reflecting an increase of $415,000 from fiscal 2006.  The increase
resulted primarily from a $936,000 increase in pre-tax income.  The
difference in the effective tax rate from the 34% statutory rate was mainly due
to the beneficial effects of income from cash surrender value of life insurance
and other tax-exempt obligations.
























































46
 Index





AVERAGE
BALANCE SHEET











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





Year
      Ended March 31,2008
            
            
            2007
            
            
            2006Average
            
            
            
            
            
            Average
            
            
            Average
            
            
            
            
            
            Average
            
            
            Average
            
            
            
            
            
            AverageBalance
            
            
            Interest
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate
            
            
            Balance
            
            
            Interest
            
            
            Rate(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable, net (1)
            
            $
            244,800
            
            
            $
            16,546
            
            
            
            6.76
            %
            
            $
            237,118
            
            
            $
            15,943
            
            
            
            6.72
            %
            
            $
            222,629
            
            
            $
            14,096
            
            
            
            6.33
            %Investment
      securities (2)
            
            
            120,181
            
            
            
            5,932
            
            
            
            4.94
            
            
            
            126,668
            
            
            
            5,801
            
            
            
            4.58
            
            
            
            130,875
            
            
            
            5,150
            
            
            
            3.94Interest-earning
      deposits (3)
            
            
            11,692
            
            
            
            480
            
            
            
            4.11
            
            
            
            15,140
            
            
            
            666
            
            
            
            4.40
            
            
            
            13,808
            
            
            
            442
            
            
            
            3.20Total
      interest-earning assets
            
            
            376,673
            
            
            
            22,958
            
            
            
            6.09
            
            
            
            378,926
            
            
            
            22,410
            
            
            
            5.91
            
            
            
            367,312
            
            
            
            19,688
            
            
            
            5.36Non-interest-earning
      assets
            
            
            21,972
            
            
            
            
            
            
            
            
            
            
            
            22,968
            
            
            
            
            
            
            
            
            
            
            
            25,051Total
      assets
            
            $
            398,645
            
            
            
            
            
            
            
            
            
            
            $
            401,894
            
            
            
            
            
            
            
            
            
            
            $
            392,363Interest-bearing
      liabilities:Deposits
            
            $
            317,406
            
            
            
            9,801
            
            
            
            3.09
            
            
            $
            326,130
            
            
            
            9,530
            
            
            
            2.92
            
            
            $
            319,542
            
            
            
            7,049
            
            
            
            2.21Other
      short term borrowings
            
            
            6,634
            
            
            
            225
            
            
            
            3.39
            
            
            
            5,593
            
            
            
            229
            
            
            
            4.09
            
            
            
            5,229
            
            
            
            148
            
            
            
            2.83Borrowings
            
            
            36,262
            
            
            
            1,767
            
            
            
            4.87
            
            
            
            31,308
            
            
            
            1,439
            
            
            
            4.60
            
            
            
            28,424
            
            
            
            1,083
            
            
            
            3.81Total
      interest-bearing liabilities
            
            
            360,302
            
            
            
            11,793
            
            
            
            3.27
            
            
            
            363,031
            
            
            
            11,198
            
            
            
            3.08
            
            
            
            353,195
            
            
            
            8,280
            
            
            
            2.34Non-interest-bearing
      liabilities
            
            
            3,846
            
            
            
            
            
            
            
            
            
            
            
            3,389
            
            
            
            
            
            
            
            
            
            
            
            2,025Total
      liabilities
            
            
            364,148
            
            
            
            
            
            
            
            
            
            
            
            366,420
            
            
            
            
            
            
            
            
            
            
            
            355,220Stockholders’
      equity
            
            
            34,497
            
            
            
            
            
            
            
            
            
            
            
            35,474
            
            
            
            
            
            
            
            
            
            
            
            37,143Total
      liabilities and stockholders’ equity
            
            $
            398,645
            
            
            
            
            
            
            
            
            
            
            $
            401,894
            
            
            
            
            
            
            
            
            
            
            $
            392,363Net
      interest income
            
            
            
            
            
            $
            11,165
            
            
            
            
            
            
            
            
            
            
            $
            11,212
            
            
            
            
            
            
            
            
            
            
            $
            11,408Interest
      rate spread (4)
            
            
            
            
            
            
            
            
            
            
            2.82
            %
            
            
            
            
            
            
            
            
            
            
            2.83
            %
            
            
            
            
            
            
            
            
            
            
            3.02
            %Net
      yield on interest-earning assets (5)
            
            
            
            
            
            
            
            
            
            
            2.96
            %
            
            
            
            
            
            
            
            
            
            
            2.96
            %
            
            
            
            
            
            
            
            
            
            
            3.11
            %Ratio
      of average interest-earning assets to averageinterest-bearing
      liabilities
            
            
            
            
            
            
            
            
            
            
            104.54
            %
            
            
            
            
            
            
            
            
            
            
            104.38
            %
            
            
            
            
            
            
            
            
            
            
            104.00
            %









(1)
            Includes
      non-accrual loan balances.


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


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


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


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


47
 Index


Rate/Volume
Analysis.





The table
below sets forth certain information regarding changes in interest income and
interest expense of the Company for the periods indicated.  For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); and (ii) changes in rate
(change in rate multiplied by old average volume).  Changes in
rate-volume (changes in rate multiplied by the change in average volume) have
been allocated proportionately between changes in rate and changes in
volume.





Year
      ended March 31,2008
      vs. 2007
            
            
            2007
      vs. 2006Increase
            
            
            
            
            
            Increase(decrease)
            
            
            Total
            
            
            (decrease)
            
            
            Totaldue
      to
            
            
            increase
            
            
            due
      to
            
            
            increaseVolume
            
            
            Rate
            
            
            (decrease)
            
            
            Volume
            
            
            Rate
            
            
            (decrease)(In
      thousands)Interest
      income attributable to:Loans
      receivable
            
            $
            519
            
            
            $
            84
            
            
            $
            603
            
            
            $
            941
            
            
            $
            906
            
            
            $
            1,847Investment
      securities
            
            
            (306
            )
            
            
            437
            
            
            
            131
            
            
            
            (172
            )
            
            
            823
            
            
            
            651Interest-bearing
      deposits
            
            
            (144
            )
            
            
            (42
            )
            
            
            (186
            )
            
            
            46
            
            
            
            178
            
            
            
            224Total
      interest-earning  assets
            
            
            69
            
            
            
            479
            
            
            
            548
            
            
            
            815
            
            
            
            1,907
            
            
            
            2,722Interest
      expense attributable to:Deposits
            
            
            (256
            )
            
            
            527
            
            
            
            271
            
            
            
            146
            
            
            
            2,335
            
            
            
            2,481Other
      short term borrowings
            
            
            39
            
            
            
            (43
            )
            
            
            (4
            )
            
            
            11
            
            
            
            70
            
            
            
            81Federal
      Home Loan Bank Borrowings
            
            
            237
            
            
            
            91
            
            
            
            328
            
            
            
            118
            
            
            
            238
            
            
            
            356Total
      interest-bearing liabilities
            
            
            20
            
            
            
            575
            
            
            
            595
            
            
            
            275
            
            
            
            2,643
            
            
            
            2,918Increase
      (decrease) in net interest income
            
            $
            49
            
            
            $
            (96
            )
            
            $
            (47
            )
            
            $
            540
            
            
            $
            (736
            )
            
            $
            (196
            )





Liquidity
and Capital Resources





The
Bank’s primary sources of funds are deposits, principal repayments and
prepayments on loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, and earnings and funds provided
from operations.  While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition.  The Bank manages
the pricing of deposits to maintain a desired level of deposits and cost of
funds.  In addition, the Bank invests excess funds in federal funds
and other short-term interest-earning assets, which provide liquidity to meet
lending requirements.  Federal funds sold and other liquid assets
outstanding at March 31, 2008, 2007 and 2006, amounted to $134.5 million, $141.0
million and $143.2 million, respectively.  For additional information
about cash flows from the Company’s operating, financing and investing
activities, see the Statements of Cash Flows included in the Consolidated
Financial Statements.





A major
portion of the Bank’s liquidity consists of cash and cash equivalents, which are
a product of  operating, investing and financing
activities.  The primary sources of cash are net income, principal
repayments on loans and mortgage-backed securities, proceeds from deposits and
advances from the Federal Home Loan Bank (“FHLB”), and sales of
securities.  Liquidity management is both a daily and long-term
function of business management.  If the Bank requires funds beyond
its ability to generate funds internally, borrowing agreements exist with the
Federal Home Loan Bank, which provide an additional source of
funds.  At March 31, 2008, the Company had $38.5 million in
outstanding advances from the FHLB.  At March 31, 2008, management
believes the Company has additional borrowing capacity from the FHLB totaling
$52.1 million based on the Bank’s one-to four-family residential mortgage
loans.  The Bank has the ability to pledge


48
 Index


investments
and mortgage-backed securities which would allow the Bank the ability to borrow
a total of $153.1 million.





Contractual
Obligations





The
following table summarizes the Company’s contractual obligations at March 31,
2008.





Payments
      due by periodLess
            
            
            
            
            
            
            
            
            Morethan
            
            
            1-3
            
            
            3-5
            
            
            than1
      year
            
            
            years
            
            
            years
            
            
            5
      years
            
            
            Total(In
      thousands)Contractual
      obligations:Operating
      lease obligations
            
            $
            88
            
            
            $
            122
            
            
            $
            5
            
            
            $
            -
            
            
            $
            215Advances
      from the Federal Home Loan Bank
            
            
            7,500
            
            
            
            20,000
            
            
            
            11,000
            
            
            
            -
            
            
            
            38,500Certificates
      of deposit maturities
            
            
            127,887
            
            
            
            42,129
            
            
            
            12,263
            
            
            
            757
            
            
            
            183,036Amount
      of commitments expiring per period:Commitments
      to originate loans:Letters
      of credit
            
            
            250
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            250Credit
      card/overdraft lines of credit
            
            
            371
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            371Home
      equity/commercial lines of credit
            
            
            29,184
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            29,184One-
      to four-family and multi-family loans
            
            
            3,303
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,303Total
      contractual obligations
            
            $
            168,583
            
            
            $
            62,251
            
            
            $
            23,268
            
            
            $
            757
            
            
            $
            254,859


Impact
of Inflation and Changing Prices





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





ITEM
7A.     Quantitativeand Qualitative
Disclosures About Market Risk





Asset
and Liability Management-Interest Rate Sensitivity Analysis





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





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


49
 Index


Asset
and Liability Management-Interest Rate Sensitivity Analysis
(continued)





Presented
below, as of March 31, 2008 and 2007, is an analysis of the Bank’s interest rate
risk as measured by changes in NPV for instantaneous and sustained 100, 200 and
300 basis point (1 basis point equals .01%) increases and a 100 and 200 basis
point decrease in market interest rates.  Due to the current interest
rate environment, the changes in NPV are not estimated for a decrease of 300
basis points.





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





As
      of March 31, 2008Net
      Portfolio ValueChange
      in
            
            Net
      Portfolio Value
            
            as
      % of PV of AssetsInterest
      Rates(Basis
      Points)
            
            $
      Amount
            
            $
      Change
            
            %
      Change
            
            NPV
      Ratio
            
            Change(In
      thousands)+300
            bp
            
            $
            20,800
            
            
            $
            (18,869
            )
            
            
            (48
            )%
            
            
            5.55
            %
            
            
            (419
            )bp+200
            bp
            
            
            26,917
            
            
            
            (12,752
            )
            
            
            (32
            )
            
            
            6.98
            
            
            
            (276
            )+100
            bp
            
            
            33,672
            
            
            
            (5,997
            )
            
            
            (15
            )
            
            
            8.49
            
            
            
            (125
            )0
            bp
            
            
            39,669
            
            
            
            -
            
            
            
            -
            
            
            
            9.74
            
            
            
            --100
            bp
            
            
            41,714
            
            
            
            2,045
            
            
            
            5
            
            
            
            10.05
            
            
            
            31-200
            bp
            
            
            39,710
            
            
            
            41
            
            
            
            0.1
            
            
            
            9.47
            
            
            
            (27
            )As
      of March 31, 2007Net
      Portfolio ValueChange
      in
            
            Net
      Portfolio Value
            
            as
      % of PV of Assets(4)Interest
      Rates(Basis
      Points)
            
            $
      Amount
            
            $
      Change
            
            %
      Change
            
            NPV
      Ratio
            
            Change(In
      thousands)+300
            bp
            
            $
            25,420
            
            
            $
            (14,885
            )
            
            
            (37
            )%
            
            
            6.81
            %
            
            
            (322
            )bp+200
            bp
            
            
            30,351
            
            
            
            (9,954
            )
            
            
            (25
            )
            
            
            7.94
            
            
            
            (209
            )+100
            bp
            
            
            35,947
            
            
            
            (4,358
            )
            
            
            (11
            )
            
            
            9.15
            
            
            
            (88
            )0
            bp
            
            
            40,305
            
            
            
            -
            
            
            
            -
            
            
            
            10.03
            
            
            
            --100
            bp
            
            
            41,912
            
            
            
            1,607
            
            
            
            4
            
            
            
            10.25
            
            
            
            22-200
            bp
            
            
            39,916
            
            
            
            (389
            )
            
            
            (1
            )
            
            
            9.65
            
            
            
            (38
            )





The
Company’s policy in recent years had been to reduce its exposure to interest
rate risk generally by better matching the maturities of its interest rate
sensitive assets and liabilities and by originating adjustable rate mortgage
(“ARM”) loans and other adjustable rate or short-term loans, as well as by
purchasing short-term investments and mortgage-backed
securities.  However, particularly in the current interest rate and
credit market environment, borrowers typically prefer fixed rate loans to ARM
loans.  Accordingly, ARM loan originations were very limited during
the fiscal year ended March 31, 2008.  The Company has sought to
lengthen the maturities of its deposits by promoting longer-term certificates
and the Company was successful in lengthening the maturities of its certificate
of deposit four to five year maturity by $3.7 million, or 42.7%.





The net
effect of this continuing shift in customer preference for longer duration loans
and shorter duration deposits has been to expose the Company to increased
interest rate risk.





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





50
 Index


Item
8: Financial Statementsand Supplementary Data





Report
of Independent Registered Public Accounting Firm











Audit
Committee, Board of Directors and Stockholders


Wayne
Savings Bancshares, Inc.


Wooster,
Ohio








We have
audited the accompanying consolidated balance sheet of Wayne Savings Bancshares,
Inc. as of March 31, 2008, and the related consolidated statements of income,
stockholders’ equity and cash flows for the year then ended.  The
Company's management is responsible for these financial
statements.  Our responsibility is to express an opinion on these
financial statements based on our audit.  The financial statements of
Wayne Savings Bancshares, Inc. as of and for each of the two years in the period
ended March 31, 2007 were audited by other accountants whose report dated June
18, 2007 expressed an unqualified opinion on those statements.




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




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Wayne Savings Bancshares,
Inc. as of March 31, 2008, and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.




/s/BKD,LLP





Cincinnati,
Ohio


May 30,
2008


51
 Index


Report
of Independent Registered Public Accounting Firm











Board of
Directors


Wayne
Savings Bancshares, Inc.








We have
audited the accompanying consolidated statement of financial condition of Wayne
Savings Bancshares, Inc. as of March 31, 2007, and the related consolidated
statements of earnings, comprehensive income, stockholders’ equity and cash
flows for each of the two years in the period ended March 31,
2007.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these financial statements based on our audits.





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





In our
opinion, the consolidated financial statement referred to above presents fairly,
in all material respects, the consolidated financial position of Wayne Savings
Bancshares, Inc. as of March 31, 2007 and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
March 31, 2007, in conformity with accounting principles generally accepted in
the United States of America.





As more
fully explained in Note 14, the Company changed its method of accounting for its
defined benefit plan in accordance with Statement of Financial Accounting
Standards No. 158.








/s/ Grant
Thornton LLP





Cincinnati,
Ohio


June 18,
2007


52
 Index
 Wayne
Savings Bancshares, Inc.
 Consolidated
Balance Sheets
 March
31, 2008 and 2007
 (In
thousands, except share data)





2008
            
            
            2007AssetsCash
      and due from banks
            
            $
            1,901
            
            
            $
            2,194Federal
      funds sold
            
            
            6,000
            
            
            
            9,000Interest-bearing
      demand deposits
            
            
            5,162
            
            
            
            6,021Cash
      and cash equivalents
            
            
            13,063
            
            
            
            17,215Available-for-sale
      securities
            
            
            120,170
            
            
            
            121,984Held-to-maturity
      securities
            
            
            1,240
            
            
            
            1,774Loans,
      net of allowance for loan losses of $1,777 and $1,523 at March 31, 2008
      and 2007, respectively
            
            
            242,255
            
            
            
            239,774Premises
      and equipment
            
            
            8,012
            
            
            
            8,179Federal
      Home Loan Bank stock
            
            
            4,892
            
            
            
            4,829Foreclosed
      assets held for sale, net
            
            
            93
            
            
            
            –Accrued
      interest receivable
            
            
            1,753
            
            
            
            2,081Bank-owned
      life insurance
            
            
            6,268
            
            
            
            6,034Goodwill
            
            
            1,719
            
            
            
            1,719Other
      intangible assets
            
            
            577
            
            
            
            683Other
      assets
            
            
            1,360
            
            
            
            1,340Prepaid
      federal income taxes
            
            
            182
            
            
            
            125Total
      assets
            
            $
            401,584
            
            
            $
            405,737





Liabilities
and Stockholders’ Equity


LiabilitiesDepositsDemand
            
            $
            50,884
            
            
            $
            53,235Savings
      and money market
            
            
            83,811
            
            
            
            81,499Time
            
            
            183,036
            
            
            
            193,253Total
      deposits
            
            
            317,731
            
            
            
            327,987Other
      short-term borrowings
            
            
            7,287
            
            
            
            5,553Federal
      Home Loan Bank advances
            
            
            38,500
            
            
            
            34,500Interest
      payable and other liabilities
            
            
            2,511
            
            
            
            2,267Deferred
      federal income taxes
            
            
            1,451
            
            
            
            997Total
      liabilities
            
            
            367,480
            
            
            
            371,304Commitments
      and ContingenciesStockholders’
      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
            
            
            36,127
            
            
            
            36,106Retained
      earnings
            
            
            12,450
            
            
            
            11,982Shares
      acquired by ESOP
            
            
            (1,097
            )
            
            
            (1,158
            )Accumulated
      other comprehensive income (loss)
            
            
            707
            
            
            
            (476
            )Treasury
      stock, at costCommon:
      2008 – 969,627 shares, 2007 – 784,622 shares
            
            
            (14,481
            )
            
            
            (12,419
            )Total
      stockholders’ equity
            
            
            34,104
            
            
            
            34,433Total
      liabilities and stockholders’ equity
            
            $
            401,584
            
            
            $
            405,737


See
Notes to Consolidated Financial Statements
 53
 Index
 Wayne
Savings Bancshares, Inc.
 Consolidated
Statements of Income
 Years
Ended March 31, 2008, 2007 and 2006
 (In
thousands, except per share data)


2008
            
            
            2007
            
            
            2006Interest
      and Dividend IncomeLoans
            
            $
            16,546
            
            
            $
            15,943
            
            
            $
            14,096Securities
            
            
            5,932
            
            
            
            5,801
            
            
            
            5,150Dividends
      on Federal Home Loan Bank stock and other
            
            
            480
            
            
            
            666
            
            
            
            442Total
      interest and dividend income
            
            
            22,958
            
            
            
            22,410
            
            
            
            19,688Interest
      ExpenseDeposits
            
            
            9,801
            
            
            
            9,530
            
            
            
            7,049Other
      short term borrowings
            
            
            225
            
            
            
            229
            
            
            
            148Federal
      Home Loan Bank advances
            
            
            1,767
            
            
            
            1,439
            
            
            
            1,083Total
      interest expense
            
            
            11,793
            
            
            
            11,198
            
            
            
            8,280Net
      Interest Income
            
            
            11,165
            
            
            
            11,212
            
            
            
            11,408Provision
      for Loan Losses
            
            
            234
            
            
            
            100
            
            
            
            211Net
      Interest Income After Provision for Loan Losses
            
            
            10,931
            
            
            
            11,112
            
            
            
            11,197Noninterest
      IncomeNet
      gains on loan sales
            
            
            –
            
            
            
            –
            
            
            
            67Gain
      (loss) on disposal of real estate acquired through
    foreclosure
            
            
            31
            
            
            
            (23
            )
            
            
            1Trust
      income
            
            
            187
            
            
            
            126
            
            
            
            76Earnings
      on bank-owned life insurance
            
            
            234
            
            
            
            223
            
            
            
            383Service
      fees, charges and other operating
            
            
            1,469
            
            
            
            1,317
            
            
            
            1,251Total
      noninterest income
            
            
            1,921
            
            
            
            1,643
            
            
            
            1,778Noninterest
      ExpenseSalaries
      and employee benefits
            
            
            5,692
            
            
            
            5,518
            
            
            
            6,382Net
      occupancy and equipment expense
            
            
            2,001
            
            
            
            1,978
            
            
            
            1,907Federal
      deposit insurance premiums
            
            
            38
            
            
            
            40
            
            
            
            43Franchise
      taxes
            
            
            387
            
            
            
            217
            
            
            
            529Amortization
      of intangible assets
            
            
            106
            
            
            
            106
            
            
            
            106Other
            
            
            2,054
            
            
            
            1,885
            
            
            
            1,933Total
      noninterest expense
            
            
            10,278
            
            
            
            9,744
            
            
            
            10,900Income
      Before Federal Income Taxes
            
            
            2,574
            
            
            
            3,011
            
            
            
            2,075Provision
      for Federal Income Taxes
            
            
            610
            
            
            
            850
            
            
            
            435Net
      Income
            
            $
            1,964
            
            
            $
            2,161
            
            
            $
            1,640Basic
      Earnings Per Share
            
            $
            .65
            
            
            $
            .68
            
            
            $
            .50Diluted
      Earnings Per Share
            
            $
            .65
            
            
            $
            .68
            
            
            $
            .50


See
Notes to Consolidated Financial Statements
 54
 Index
 Wayne
Savings Bancshares, Inc.
 Consolidated
Statements of Stockholders’ Equity
 Years
Ended March 31, 2008, 2007 and 2006
 (In
thousands, except per share data)





Shares
            
            
            
            
            
            AccumulatedAdditional
            
            
            
            
            
            Acquired
            
            
            
            
            
            OtherCommon
            
            
            Paid-in
            
            
            Retained
            
            
            By
            
            
            Treasury
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            ESOP
            
            
            Stock
            
            
            Income
      (Loss)
            
            
            TotalBalance,
      April 1, 2005
            
            $
            391
            
            
            $
            35,133
            
            
            $
            11,371
            
            
            $
            (1,304
            )
            
            $
            (4,600
            )
            
            $
            (792
            )
            
            $
            40,199Comprehensive
      incomeNet income
            
            
            –
            
            
            
            –
            
            
            
            1,640
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,640Unrealized losses on securities
      designated asavailable for sale, net of tax benefits
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (219
            )
            
            
            (219
            )Total comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,421Cash
      dividends – $0.48 per share
            
            
            –
            
            
            
            –
            
            
            
            (1,617
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (1,617
            )Purchase
      of treasury stock – shares at cost
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (5,025
            )
            
            
            –
            
            
            
            (5,025
            )Amortization
      of expense related to ESOP
            
            
            –
            
            
            
            108
            
            
            
            –
            
            
            
            65
            
            
            
            –
            
            
            
            –
            
            
            
            173Proceeds
      from the exercise of stock options
            
            
            2
            
            
            
            363
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            365Balance,
      March 31, 2006
            
            
            393
            
            
            
            35,604
            
            
            
            11,394
            
            
            
            (1,239
            )
            
            
            (9,625
            )
            
            
            (1,011
            )
            
            
            35,516Comprehensive
      incomeNet income
            
            
            –
            
            
            
            –
            
            
            
            2,161
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            2,161Unrealized gains on securities
      designated asavailable for sale, net of related taxes
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            761
            
            
            
            761Total comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,922Cash
      dividends - $0.48 per share
            
            
            –
            
            
            
            –
            
            
            
            (1,573
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (1,573
            )Purchase
      of treasury stock – shares at cost
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (2,794
            )
            
            
            –
            
            
            
            (2,794
            )Amortization
      of expense related to ESOP
            
            
            –
            
            
            
            49
            
            
            
            –
            
            
            
            81
            
            
            
            –
            
            
            
            –
            
            
            
            130Proceeds
      from the exercise of stock options
            
            
            5
            
            
            
            453
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            458Adoption
      of SFAS No. 158
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (226
            )
            
            
            (226
            )Balance,
      March 31, 2007
            
            
            398
            
            
            
            36,106
            
            
            
            11,982
            
            
            
            (1,158
            )
            
            
            (12,419
            )
            
            
            (476
            )
            
            
            34,433Comprehensive
      incomeNet income
            
            
            –
            
            
            
            –
            
            
            
            1,964
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,964Unrealized gains on securities
      designated as available for sale, net of related taxes
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,283
            
            
            
            1,283Change in unrecognized net loss
      in net periodicpension cost
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (100
            )
            
            
            (100
            )Total comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,147Cash
      dividends - $.48 per share
            
            
            –
            
            
            
            –
            
            
            
            (1,496
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (1,496
            )Purchase
      of treasury stock – shares at cost
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (2,062
            )
            
            
            –
            
            
            
            (2,062
            )Amortization
      of expense related to ESOP
            
            
            –
            
            
            
            21
            
            
            
            –
            
            
            
            61
            
            
            
            –
            
            
            
            –
            
            
            
            82Balance,
      March 31, 2008
            
            $
            398
            
            
            $
            36,127
            
            
            $
            12,450
            
            
            $
            (1,097
            )
            
            $
            (14,481
            )
            
            $
            707
            
            
            $
            34,104


See
Notes to Consolidated Financial Statements
 55
 Index
 Wayne
Savings Bancshares, Inc.
 Consolidated
Statements of Cash Flows
 Years
Ended March 31, 2008, 2007 and 2006
 (In
thousands)







2008
            
            
            2007
            
            
            2006Operating
      ActivitiesNet
      income
            
            $
            1,964
            
            
            $
            2,161
            
            
            $
            1,640Items
      not requiring (providing) cashDepreciation
      and amortization
            
            
            655
            
            
            
            700
            
            
            
            645Provision
      for loan losses
            
            
            234
            
            
            
            100
            
            
            
            211Amortization
      of premiums and discounts on securities
            
            
            (105
            )
            
            
            (49
            )
            
            
            (622
            )Amortization
      of loan-servicing rights
            
            
            43
            
            
            
            36
            
            
            
            28Amortization
      of deferred loan originations fees
            
            
            (60
            )
            
            
            (48
            )
            
            
            (110
            )Amortization
      of intangible asset
            
            
            106
            
            
            
            106
            
            
            
            106Deferred
      income taxes
            
            
            (150
            )
            
            
            55
            
            
            
            145Net
      gains on sales of loans
            
            
            –
            
            
            
            –
            
            
            
            (13
            )Proceeds
      from sale of loans in the secondary market
            
            
            –
            
            
            
            –
            
            
            
            6,075Origination
      of loans for sale in the secondary market
            
            
            –
            
            
            
            –
            
            
            
            (6,065
            )Amortization
      of stock benefit plan
            
            
            82
            
            
            
            130
            
            
            
            173(Gain)
      loss on sale of real estate owned and other repossessed
    assets
            
            
            (31
            )
            
            
            23
            
            
            
            (1
            )Federal
      Home Loan Bank stock dividends
            
            
            (63
            )
            
            
            (206
            )
            
            
            (237
            )Increase
      in value of bank-owned life insurance
            
            
            (234
            )
            
            
            (223
            )
            
            
            (405
            )Changes
      inAccrued
      interest receivable
            
            
            328
            
            
            
            (56
            )
            
            
            (116
            )Other
      assets
            
            
            (278
            )
            
            
            (56
            )
            
            
            935Interest
      payable and other liabilities
            
            
            206
            
            
            
            63
            
            
            
            (101
            )Net
      cash provided by operating activities
            
            
            2,697
            
            
            
            2,736
            
            
            
            2,288Investing
      ActivitiesPurchases
      of available-for-sale securities
            
            
            (43,343
            )
            
            
            (37,802
            )
            
            
            (34,211
            )Proceeds
      from maturities of available-for-sale securities
            
            
            47,210
            
            
            
            38,439
            
            
            
            28,752Proceeds
      from the sales of held-to-maturity securities
            
            
            –
            
            
            
            2,493
            
            
            
            –Proceeds
      from the sales of  available-for-sale securities
            
            
            –
            
            
            
            –
            
            
            
            2,860Proceeds
      from maturities of held-to-maturity securities
            
            
            531
            
            
            
            3,328
            
            
            
            7,058Net
      change in loans
            
            
            (2,854
            )
            
            
            (4,799
            )
            
            
            (22,094
            )Purchase
      of premises and equipment
            
            
            (488
            )
            
            
            (322
            )
            
            
            (280
            )Proceeds
      from bank-owned life insurance
            
            
            –
            
            
            
            –
            
            
            
            1,175Proceeds
      from the sale of foreclosed assets
            
            
            137
            
            
            
            133
            
            
            
            163Net
      cash provided by (used in) investing activities
            
            
            1,193
            
            
            
            1,470
            
            
            
            (16,577
            )


See
Notes to Consolidated Financial Statements
 56
 Index
 Wayne
Savings Bancshares, Inc.
 Consolidated
Statements of Cash Flows (continued)
 Years
Ended March 31, 2008, 2007 and 2006
 (In
thousands)










2008
            
            
            2007
            
            
            2006Financing
      ActivitiesNet
      change in deposits
            
            $
            (10,256
            )
            
            $
            1,121
            
            
            $
            6,280Net
      change in other short-term borrowings
            
            
            1,734
            
            
            
            (151
            )
            
            
            5,704Proceeds
      from Federal Home Loan Bank advances
            
            
            40,700
            
            
            
            78,400
            
            
            
            80,275Repayments
      of Federal Home Loan Bank advances
            
            
            (36,700
            )
            
            
            (76,650
            )
            
            
            (87,525
            )Advances
      by borrowers for taxes and insurance
            
            
            60
            
            
            
            95
            
            
            
            40Cash
      dividends paid
            
            
            (1,518
            )
            
            
            (1,591
            )
            
            
            (1,644
            )Tax
      benefits related to stock benefit plans
            
            
            –
            
            
            
            8
            
            
            
            80Proceeds
      from exercise of stock options
            
            
            –
            
            
            
            448
            
            
            
            285Treasury
      stock purchases
            
            
            (2,062
            )
            
            
            (2,794
            )
            
            
            (5,025
            )Net
      cash used in financing activities
            
            
            (8,042
            )
            
            
            (1,114
            )
            
            
            (1,530
            )Increase
      (Decrease) in Cash and Cash Equivalents
            
            
            (4,152
            )
            
            
            3,092
            
            
            
            (15,819
            )Cash
      and Cash Equivalents, Beginning of Year
            
            
            17,215
            
            
            
            14,123
            
            
            
            29,942Cash
      and Cash Equivalents, End of Year
            
            $
            13,063
            
            
            $
            17,215
            
            
            $
            14,123Supplemental
      Cash Flows InformationInterest
      paid on deposits and borrowings
            
            $
            11,756
            
            
            $
            11,078
            
            
            $
            8,215Federal
      income taxes paid
            
            $
            930
            
            
            $
            1,129
            
            
            $
            325Supplemental
      Disclosure of Non-Cash Investing ActivitiesTransfers
      from loans to real estate owned and other repossessed
    assets
            
            $
            220
            
            
            $
            –
            
            
            $
            412Unrealized
      gains (losses) on securities designated as available for sale, net of
      related tax effects
            
            $
            1,283
            
            
            $
            761
            
            
            $
            (219
            )Minimum
      pension liability adjustment, net of related tax effects
            
            $
            (100
            )
            
            $
            (226
            )
            
            $
            –Recognition
      of mortgage servicing rights in accordance with SFAS No.
    140
            
            $
            –
            
            
            $
            –
            
            
            $
            54Dividends
      payable
            
            $
            361
            
            
            $
            383
            
            
            $
            401








See
Notes to Consolidated Financial Statements
 57
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      1:
            Nature
      of Operations and Summary of Significant Accounting
    Policies






Principles
of Consolidation




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




Nature
of Operations




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




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




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.




58
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




Cash
Equivalents




The
Company considers all liquid investments with original maturities of three
months or less to be cash equivalents.




Securities




Available-for-sale
securities, which include any security for which the Company has no immediate
plan to sell but which may be sold in the future, are carried at fair
value.  Unrealized gains and losses are recorded, net of related
income tax effects, in other comprehensive income.




Held-to-maturity
securities, which include any security for which the Company has the positive
intent and ability to hold until maturity, are carried at historical cost
adjusted for amortization of premiums and accretion of discounts.




Amortization
of premiums and accretion of discounts are recorded as interest income from
securities.  Realized gains and losses are recorded as net security
gains (losses).  Gains and losses on sales of securities are
determined on the specific-identification method.




Loans
Held for Sale




Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of cost or fair value in the aggregate.  Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income. At March 31, 2008 and 2007, the Company did not have any loans
originated and held for sale.




Loans




Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding principal balances
adjusted for any charge-offs, the allowance for loan losses and any deferred
fees or costs on originated loans.  Interest income is reported on the
interest method and includes amortization of net deferred loan fees and costs
over the loan term.  Generally, loans are placed on non-accrual status
at ninety days past due and interest is considered a loss, unless the loan is
well-secured and in the process of collection.









59
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006




Allowance
for Loan Losses




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




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




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




Large
groups of smaller balance homogenous loans are collectively evaluated for
impairment.  Accordingly, the Company does not separately identify
individual consumer and residential loans for impairment
measurements.




Premises
and Equipment




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









60
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006




Federal
Home Loan Bank Stock




The
Company is required as a condition of membership in the Federal Home Loan Bank
of Cincinnati (FHLB) to maintain an investment in FHLB common
stock.  The required investment in the common stock is based on a
predetermined formula.  The stock is redeemable at par and, therefore,
its cost is equivalent to its redemption value.  At March 31, 2008,
the FHLB placed no restrictions on redemption of shares in excess of a member’s
required investment in the stock.




Foreclosed
Assets Held for Sale




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




Bank-Owned
Life Insurance




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




Goodwill
and Intangible Assets




The
composition of goodwill and other intangible assets at March 31, 2008 and 2007
is as follows:




2008
            
            
            2007(In
      thousands)Goodwill
            
            $
            1,719
            
            
            $
            1,719Other
      intangible assets - Gross
            
            
            974
            
            
            
            974Other
      intangible assets-Amortization
            
            
            (397
            )
            
            
            (291
            )Total
            
            $
            2,296
            
            
            $
            2,402




The
Company recorded amortization relative to intangible assets totaling $106,000
for each of  the fiscal years ended March 31, 2008, 2007 and
2006.  The Company anticipates $106,000 of amortization for fiscal
2009, $93,000 in fiscal 2010 and $91,000 in fiscal 2011, 2012 and 2013. Such
amortization is derived using the straight line method for the customer
intangible asset over 59 months and the core deposit asset over ten
years.  Pursuant to SFAS No. 142, the Company is required to annually
test goodwill and other intangible assets for impairment.  The
Company’s testing of goodwill and other intangible assets in the current fiscal
year indicated there was no impairment in the carrying value of these
assets.




61
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006




Mortgage
Servicing Rights




Beginning
April 1, 2007, mortgage servicing rights on originated loans that have been sold
are initially recorded at fair value.  Mortgage servicing rights on
originated loans that have been sold prior to 2007 are capitalized by allocating
the total cost of the mortgage loans between the mortgage servicing rights and
the loans based on their relative fair values.  Capitalized servicing
rights are amortized in proportion to and over the period of estimated servicing
revenues.  Impairment of mortgage-servicing rights is assessed based
on the fair value of those rights.  Fair values are estimated using
discounted cash flows based on a current market interest rate.  For
purposes of measuring impairment, the rights are stratified based on the
predominant risk characteristics of the underlying loans.  The
predominant characteristic currently used for stratification is type of
loan.  The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceed their fair
value.




Treasury
Stock




Treasury
stock is stated at cost.  Cost is determined by the first-in,
first-out method.




Stock
Options




The
Company has a stock-based employee compensation plan, which is described more
fully in Note 14.




The
Company accounts for the plan in accordance with the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123R,
Share-Based Payment.




Income
Taxes




Deferred
tax assets and liabilities are recognized for the tax effects of differences
between the financial statement and tax bases of assets and
liabilities.  A valuation allowance is established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not be
realized.  The Company files a consolidated federal income tax return
with its subsidiary.




Earnings
Per Share




Earnings
per share have been computed based upon the weighted-average common shares
outstanding during each year.  Unearned ESOP shares which have not
vested have been excluded from the computation of average shares
outstanding.  Diluted earnings per common share include the dilutive
effect of additional potential common shares issuable under the Company’s stock
option plan.




Advertising




Advertising
costs are expensed as incurred.  The Company’s advertising expense
totaled $115,000, $101,000 and $146,000 for the fiscal years ended March 31,
2008, 2007, and 2006, respectively.






62
 Index




Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006






Reclassifications




Certain
reclassifications have been made to the prior years’ financial statements to
conform to the 2008 financial statement presentation.  These
reclassifications had no effect on net income.







Note
      2:
            Restriction
      on Cash and Due From Banks




The
Company is required to maintain reserve funds in cash and/or on deposit with the
Federal Reserve Bank.  The reserve required at March 31, 2008 was $1.6
million.






Note
      3:
            Securities




The
amortized cost and approximate fair values of securities are as
follows:




Amortized
              Cost
            
            
            Gross
      Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Approximate
              Fair
      Value(In
      thousands)Available-for-sale
      Securities:March
      31, 2008:U.S.
      government agencies
            
            $
            17,210
            
            
            $
            209
            
            
            $
            1
            
            
            $
            17,418Mortgage-backed
      securities
            
            
            83,927
            
            
            
            1,518
            
            
            
            369
            
            
            
            85,076State
      and political subdivisions
            
            
            17,466
            
            
            
            335
            
            
            
            125
            
            
            
            17,676$
            118,603
            
            
            $
            2,062
            
            
            $
            495
            
            
            $
            120,170March
      31, 2007:U.S.
      government agencies
            
            $
            40,508
            
            
            $
            3
            
            
            $
            362
            
            
            $
            40,149Mortgage-backed
      securities
            
            
            68,087
            
            
            
            209
            
            
            
            440
            
            
            
            67,856State
      and political subdivisions
            
            
            12,767
            
            
            
            224
            
            
            
            15
            
            
            
            12,976Corporate
      bonds and notes
            
            
            1,000
            
            
            
            3
            
            
            
            –
            
            
            
            1,003$
            122,362
            
            
            $
            439
            
            
            $
            817
            
            
            $
            121,984







63
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Approximate
              Fair
      Value(In
      thousands)Held-to-maturity
      Securities:March
      31, 2008:U.S.
      Government agencies
            
            $
            320
            
            
            $
            –
            
            
            $
            1
            
            
            $
            319State
      and political subdivisions
            
            
            117
            
            
            
            7
            
            
            
            –
            
            
            
            124Mortgage-backed
      securities
            
            
            803
            
            
            
            8
            
            
            
            1
            
            
            
            810$
            1,240
            
            
            $
            15
            
            
            $
            2
            
            
            $
            1,253March
      31, 2007:U.S.
      Government agencies
            
            $
            422
            
            
            $
            1
            
            
            $
            –
            
            
            $
            423State
      and political subdivisions
            
            
            143
            
            
            
            7
            
            
            
            –
            
            
            
            150Mortgage-backed
      securities
            
            
            1,209
            
            
            
            12
            
            
            
            2
            
            
            
            1,219$
            1,774
            
            
            $
            20
            
            
            $
            2
            
            
            $
            1,792







The
amortized cost and fair value of available-for-sale securities and
held-to-maturity securities at March 31, 2008, by contractual maturity, are
shown below.  Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.




Available-for-sale
            
            
            Held-to-maturityAmortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value(Inthousands)Within
      one year
            
            $
            9,847
            
            
            $
            9,903
            
            
            $
            –
            
            
            $
            –One
      to five years
            
            
            6,004
            
            
            
            6,134
            
            
            
            117
            
            
            
            124Five
      to ten years
            
            
            3,731
            
            
            
            3,818
            
            
            
            –
            
            
            
            –After
      ten years
            
            
            15,094
            
            
            
            15,239
            
            
            
            320
            
            
            
            31934,676
            
            
            
            35,094
            
            
            
            437
            
            
            
            443Mortgage-backed
      securities
            
            
            83,927
            
            
            
            85,076
            
            
            
            803
            
            
            
            810Totals
            
            $
            118,603
            
            
            $
            120,170
            
            
            $
            1,240
            
            
            $
            1,253


64
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


The
carrying value of securities pledged as collateral, to secure public deposits
and for other purposes, was $21.5 million and $16.0 million at March 31,
2008 and 2007, respectively.




During
fiscal 2007, management elected to sell a $2.5 million corporate bond investment
from the held to maturity portfolio due to concerns as to the credit quality of
the issuer.  The security was scheduled to mature in January
2007.  The sale occurred in September 2006 and resulted in a gross
realized gain of approximately $400.




Proceeds
from the sale of mortgage-backed securities during the fiscal year ended March
31, 2007, totaled $26,000 resulting in a $2,400 gain. Proceeds from the sale of
mortgage-backed securities during the fiscal year ended March 31, 2006, totaled
$2.9 million, resulting in no gross realized gains or losses.




Certain
investments in debt securities are reported in the financial statements at an
amount less than their historical cost.  The total fair value of these
investments at March 31, 2008 and 2007 was $14.7 million and $75.7 million,
which represented approximately 12% and 61%, respectively, of the Company’s
available-for-sale and held-to-maturity investment portfolio.  These
declines resulted primarily from increases in market interest
rates.




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




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




The
following table shows the Company’s investments’ gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at March 31, 2008
and 2007:






March 31,
      2008Less
      than 12 Months
              
              
              12
      Months or More
              
              
              TotalDescription
      of
                Securities
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                Losses
              
              
              Fair
      Value
              
              
              Unrealized
                Losses(In
      thousands)U.S.
      government agencies
              
              $
              610
              
              
              $
              2
              
              
              $
              ––
              
              
              $
              ––
              
              
              $
              610
              
              
              $
              2Mortgage-backed
      securities
              
              
              7,167
              
              
              
              343
              
              
              
              2,138
              
              
              
              27
              
              
              
              9,305
              
              
              
              370State
      and political subdivisions
              
              
              4,778
              
              
              
              125
              
              
              
              ––
              
              
              
              ––
              
              
              
              4,778
              
              
              
              125Total
      temporarily impaired securities
              
              $
              12,555
              
              
              $
              470
              
              
              $
              2,138
              
              
              $
              27
              
              
              $
              14,693
              
              
              $
              497





65
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


March
      31, 2007Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalDescription
      of
              Securities
            
            Fair
      Value
            
            
            Unrealized
              Losses
            
            
            Fair
      Value
            
            
            Unrealized
              Losses
            
            
            Fair
      Value
            
            
            Unrealized
              Losses(In
      thousands)U.S.
      government agencies
            
            $
            1,995
            
            
            $
            5
            
            
            $
            33,765
            
            
            $
            357
            
            
            $
            35,760
            
            
            $
            362Mortgage-backed
      securities
            
            
            9,317
            
            
            
            47
            
            
            
            28,701
            
            
            
            395
            
            
            
            38,018
            
            
            
            442State
      and political subdivisions
            
            
            ––
            
            
            
            ––
            
            
            
            1,952
            
            
            
            15
            
            
            
            1,952
            
            
            
            15Total
      temporarily impaired securities
            
            $
            11,312
            
            
            $
            52
            
            
            $
            64,418
            
            
            $
            767
            
            
            $
            75,730
            
            
            $
            819







Note
      4:
            Loans
      and Allowance for Loan Losses




Categories
of loans at March 31, include:




2008
            
            2007(In
      thousands)One-
      to four-family residential
            
            $
            142,010
            
            
            $
            143,942Multi-family
      residential
            
            
            8,929
            
            
            
            8,938Construction
            
            
            1,636
            
            
            
            2,019Nonresidential
      real estate and land
            
            
            61,407
            
            
            
            56,049Commercial
            
            
            26,873
            
            
            
            32,648Consumer
      and other
            
            
            6,183
            
            
            
            5,460247,038
            
            
            
            249,056Less:Undisbursed
      portion of loans in process
            
            
            2,616
            
            
            
            7,334Deferred
      loan origination fees
            
            
            390
            
            
            
            425Allowance
      for loan losses
            
            
            1,777
            
            
            
            1,523Total
      loans
            
            $
            242,255
            
            
            $
            239,774


66
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006




Activity
in the allowance for loan losses was as follows:




2008
            
            2007
            
            2006(In
      thousands)Balance,
      beginning of year
            
            $
            1,523
            
            
            $
            1,484
            
            
            $
            1,374Provision
      charged to expense
            
            
            234
            
            
            
            100
            
            
            
            211Losses
      charged off
            
            
            (16
            )
            
            
            (83
            )
            
            
            (158
            )Recoveries
            
            
            36
            
            
            
            22
            
            
            
            57Balance,
      end of year
            
            $
            1,777
            
            
            $
            1,523
            
            
            $
            1,484







Non-accrual
loans totaled $1.9 million and $950,000 at March 31, 2008 and 2007,
respectively.  Impaired loans totaled $1.1 million in fiscal
2008.  An allowance for losses of $253,000 relates to impaired loans
of $1.1 million at March 31, 2008.  At March 31, 2008 impaired loans
of $42,000 had  no related allowance for losses in
2008.  There were no impaired loans at March 31, 2007.




Interest
income of $55,000 was recognized on average impaired loans of $560,000 during
fiscal 2008 which is also the cash basis interest.  No income was
recognized on impaired loans for fiscal 2007 and 2006.




At March
31, 2008 and 2007 there were no accruing loans delinquent 90 days or
more.






Note
      5:
            Premises
      and Equipment




Major
classifications of premises and equipment, stated at cost, are as
follows:




2008
            
            2007Land
      and improvements
            
            $
            1,719
            
            
            $
            1,699Office
      buildings and improvements
            
            
            7,621
            
            
            
            7,331Furniture,
      fixtures and equipment
            
            
            4,386
            
            
            
            4,230Leasehold
      improvements
            
            
            356
            
            
            
            35614,082
            
            
            
            13,616Less
      accumulated depreciation
            
            
            6,070
            
            
            
            5,437$
            8,012
            
            
            $
            8,179







67
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      6:
            Loan
      Servicing




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




Mortgage
loans serviced for others are not included in the accompanying consolidated
balance sheets.  The unpaid principal balances of mortgage loans
serviced for others was $27.6 million and $30.4 million at March 31, 2008 and
2007, respectively.  Contractually specified servicing fees, late fees
and ancillary fees of approximately $27,000, $42,000 and $78,000 are included in
loan servicing fees in the income statement at March 31, 2008, 2007 and 2006,
respectively.




Custodial
escrow balances maintained in connection with the foregoing loan servicing, and
included in demand deposits, were approximately $182,000 and $197,000 at March
31, 2008 and 2007, respectively.




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




Activity
in the balance of servicing assets was as follows:




2008
            
            2007
            
            2006(In
      thousands)Carrying
      amount, beginning of year
            
            $
            275
            
            
            $
            311
            
            
            $
            285AdditionsServicing
      obligations that result from transfers of financial assets
            
            
            –
            
            
            
            –
            
            
            
            54SubtractionsAmortization
            
            
            43
            
            
            
            36
            
            
            
            28Carrying
      amount, end of year
            
            $
            232
            
            
            $
            275
            
            
            $
            311







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




Fair
      value, beginning of year
            
            $
            275
            
            
            $
            311Fair
      value, end of year
            
            $
            232
            
            
            $
            275












68
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      7:
            Interest-bearing
      Time Deposits




Interest-bearing
time deposits in denominations of $100,000 or more were $58.5 million at March
31, 2008, and $56.4 million at March 31, 2007.




At March
31, 2008, the scheduled maturities of time deposits are as follows:




Due
      during the year ending March 31,
            
            (In
      thousands)2009
            
            $
            127,8872010
            
            
            36,1622011
            
            
            5,9672012
            
            
            11,9482013
            
            
            315Thereafter
            
            
            757$
            183,036







Note
      8:
            Other
      short term borrowings




Short-term
borrowings included the following at December 31:




2008
            
            
            2007Securities
      sold under repurchase agreements
            
            $
            7,287
            
            
            $
            5,553







Securities
sold under agreements to repurchase consist of obligations of the
Bank  to other parties.  The obligations are secured by
available for sale securities and such collateral is held by the
Bank.  The maximum amount of outstanding agreements at any month end
during 2008 and 2007 totaled $8.6 million and $6.8 million, respectively, and
the monthly average of such agreements totaled $6.6 million and $5.6 million for
2008 and 2007, respectively.  The agreements at March 31, 2008,
mature daily.









69
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      9:
            Federal
      Home Loan Bank Advances




At March
31, 2008, advances from the Federal Home Loan Bank were as follows:




Interest
      rate range
            Maturing
      year
              ending
      March 31,
            
            20084.01%-5.31%
            2009
            
            $
            7,5004.34%-5.16%
            2010
            
            
            10,5004.60%-5.15%
            2011
            
            
            9,5004.77%-5.12%
            2012
      and thereafter
            
            
            11,000$
            38,500







At March
31, 2008 required annual principal payments on Federal Home Loan Bank advances
were as follows:




For
      the year ended March 31,
            
            (In
      thousands)2009
            
            $
            7,5002010
            
            
            10,5002011
            
            
            9,5002012
            
            
            8,0002013
            
            
            3,000Thereafter
            
            
            -$
            38,500







Additionally,
as members of the Federal Home Loan Bank system at March 31, 2008, the Bank had
the ability to obtain up to $52.1million in additional borrowings based on
collateral pledged to the FHLB at March 31, 2008.  At March 31, 2008,
the Bank had approximately $124.6 million one- to four-family residential real
estate loans pledged as collateral for borrowings.  At March 31, 2008,
the Bank had a cash management line of credit with Federal Reserve bank in the
amount of $1.0 million, none of which was drawn.











70
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      10:
            Income
      Taxes




The
provision for income taxes includes these components:




2008
            
            2007
            
            2006(In
      thousands)Taxes
      currently payable
            
            $
            760
            
            
            $
            795
            
            
            $
            290Deferred
      income taxes
            
            
            (150
            )
            
            
            55
            
            
            
            145Income
      tax expense
            
            $
            610
            
            
            $
            850
            
            
            $
            435







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




2008
            
            2007
            
            2006(In
      thousands)Computed
      at the statutory rate (34%)
            
            $
            875
            
            
            $
            1,024
            
            
            $
            706Increase
      (Decrease) resulting fromTax
      exempt interest
            
            
            (197
            )
            
            
            (150
            )
            
            
            (159
            )Earnings
      on bank-owned life insurance
            
            
            (79
            )
            
            
            (76
            )
            
            
            (130
            )Other
            
            
            11
            
            
            
            52
            
            
            
            18Actual
      tax expense
            
            $
            610
            
            
            $
            850
            
            
            $
            435







71
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




2008
            
            2007(In
      thousands)Deferred
      tax assetsDeferred
      loan origination fees
            
            $
            133
            
            
            $
            144General
      loan loss allowance
            
            
            604
            
            
            
            518Unrealized
      losses on securities available for sale
            
            
            –
            
            
            
            129Pension
      adjustment
            
            
            168
            
            
            
            117Reserve
      for uncollected interest
            
            
            38
            
            
            
            22Benefit
      plan expense
            
            
            89
            
            
            
            72Other
            
            
            –
            
            
            
            14Total
      deferred tax assets
            
            
            1,032
            
            
            
            1,016Deferred
      tax liabilitiesPrepaid
      pension
            
            
            (173
            )
            
            
            (171
            )Federal
      Home Loan Bank stock dividends
            
            
            (1,172
            )
            
            
            (1,151
            )Book/tax
      depreciation differences
            
            
            (206
            )
            
            
            (257
            )Financed
      loan fees
            
            
            (124
            )
            
            
            (120
            )Unrealized
      gains on securities available for sale
            
            
            (533
            )
            
            
            –Mortgage
      servicing rights
            
            
            (79
            )
            
            
            (93
            )Purchase
      price adjustments – net
            
            
            (196
            )
            
            
            (221
            )Total
      deferred tax liabilities
            
            
            (2,483
            )
            
            
            (2,013
            )Net
      deferred tax liability
            
            $
            (1,451
            )
            
            $
            (997
            )







Prior to
fiscal 1997, Wayne Savings was allowed a special bad debt deduction based on a
percentage of earnings, generally limited to 8% of otherwise taxable income and
subject to certain limitations based on aggregate loans and deposit account
balances at the end of the year. This cumulative percentage of earnings bad debt
deduction totaled approximately $2.7 million as of March 31, 2008. If the
amounts that qualified as deductions for federal income taxes are later used for
purposes other than bad debt losses, including distributions in liquidation,
such distributions will be subject to federal income taxes at the then current
corporate income tax rate. The amount of unrecognized deferred tax liability
relating to the cumulative bad debt deduction was approximately $918,000 at
March 31, 2008.




72
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      11:
            Other
      Comprehensive Income (Loss)




Other
comprehensive income (loss) components and related taxes were as
follows:




2008
            
            2007
            
            2006(In
      thousands)Unrealized
      gains (losses) on available-for-sale securities
            
            $
            1,945
            
            
            $
            1,153
            
            
            $
            (332
            )Change
      in defined benefit plan unrecognized net loss
            
            
            (176
            )
            
            
            (343
            )
            
            
            –Amortization
      of net loss included in net periodic pension cost
            
            
            24
            
            
            
            –
            
            
            
            –Components
      of other comprehensive income (loss), before tax effect
            
            
            1,793
            
            
            
            810
            
            
            
            (332
            )Tax
      (expense) benefit
            
            
            (610
            )
            
            
            (275
            )
            
            
            113Other
      comprehensive income (loss)
            
            $
            1,183
            
            
            $
            535
            
            
            $
            (219
            )







The
components of accumulated other comprehensive income (loss), included in
stockholders’ equity, are as follows:




2008
            
            2007
            
            2006(In
      thousands)Net
      unrealized gain (loss) on securities available-for-sale
            
            $
            1,566
            
            
            $
            (378
            )
            
            $
            (1,532
            )Net
      unrealized loss for unfunded status of defined benefit plan
      liability
            
            
            (495
            )
            
            
            (343
            )
            
            
            –1,071
            
            
            
            (721
            )
            
            
            (1,532
            )Tax
      effect
            
            
            (364
            )
            
            
            245
            
            
            
            521Net-of-tax
      amount
            
            $
            707
            
            
            $
            (476
            )
            
            $
            (1,011
            )







73
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      12:
            Regulatory
      Matters




The Bank
is subject to certain restrictions on the amount of dividends that it may
declare without prior regulatory approval.  At March 31, 2008, the
Bank had regulatory approval for $1.3 million of retained earnings for dividend
declaration or treasury stock repurchases.




The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies.  Failure to meet minimum capital
requirements can initiate certain mandatory–and possibly additional
discretionary–actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices.  The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.




Quantitative
measures established by regulation to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as
defined).  Management believes, as of March 31, 2008, that the Bank
met all capital adequacy requirements to which it is subject.




As of
March 31, 2008, the most recent notification from Office of Thrift Supervision
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action.  To be categorized as well-capitalized, the
Bank must maintain capital ratios as set forth in the table.  There
are no conditions or events since that notification that management believes
have changed the Bank’s category.




The
Bank’s actual capital amounts and ratios are presented in the following
table.




Actual
            
            For
      Capital Adequacy
              Purposes
            
            To
      Be Well Capitalized
              Under
      Prompt Corrective
              Action
      ProvisionsAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            Ratio(Dollars
      in thousands)As
      of March 31, 2008Tangible
      capital
            
            $
            30,331
            
            
            
            7.6
            %
            
            $
            5,971
            
            
            
            1.5
            %
            
            $
            19,903
            
            
            
            5.0
            %Core
      capital
            
            
            30,331
            
            
            
            7.6
            
            
            
            15,922
            
            
            
            4.0
            
            
            
            23,883
            
            
            
            6.0Risk-based
      capital
            
            
            31,855
            
            
            
            13.0
            
            
            
            18,698
            
            
            
            8.0
            
            
            
            23,372
            
            
            
            10.0As
      of March 31, 2007Tangible
      capital
            
            $
            31,736
            
            
            
            7.9
            %
            
            $
            6,060
            
            
            
            1.5
            %
            
            $
            20,200
            
            
            
            5.0
            %Core
      capital
            
            
            31,736
            
            
            
            7.9
            
            
            
            16,160
            
            
            
            4.0
            
            
            
            24,240
            
            
            
            6.0Risk-based
      capital
            
            
            33,259
            
            
            
            14.3
            
            
            
            18,593
            
            
            
            8.0
            
            
            
            23,241
            
            
            
            10.0







74
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      13:
            Related
      Party Transactions




At March
31, 2008 and 2007, the Bank had loans outstanding to executive officers,
directors, significant stockholders and their affiliates (related
parties).  In management’s opinion, such loans and other extensions of
credit and deposits were made in the ordinary course of business and were made
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other
persons.  Further, in management’s opinion, these loans did not
involve more than normal risk of collectibility or present other unfavorable
features.  Such loans are summarized below.




2008
            
            
            2007(In
      thousands)Aggregate
      balance – Beginning of year
            
            $
            2,682
            
            
            $
            2,767New
      loans
            
            
            2,291
            
            
            
            –Draws
      on existing lines of credit
            
            
            –
            
            
            
            37Repayments
            
            
            (2,591
            )
            
            
            (122
            )Aggregate
      balance – End of year
            
            $
            2,382
            
            
            $
            2,682







Deposits
from related parties held by the Bank at March 31, 2008 and 2007, totaled $2.2
million and $1.7 million, respectively.




The Bank
paid legal fees to the law firm to which one of the directors of the Company is
of counsel.  The amounts paid totaled approximately $13,000, $24,000
and $35,000 for the years ended March 31, 2008, 2007 and 2006,
respectively.




The Bank
leases an in-store retail branch from a corporation in which a director of the
Company holds an interest.  The current five year lease provides for
renewal options through fiscal 2016, and payments totaling approximately $25,000
per year through fiscal 2011 and $2,000 for fiscal 2012.  Rental
expense was $25,000, $25,000 and $24,000 for the years ended March 31, 2008,
2007 and 2006, respectively.









Note
      14:
            Employee
      Benefit Plans






Pension
and Other Postretirement Benefit Plans




The
Company has a noncontributory defined benefit pension plan covering all
employees who meet the eligibility requirements.  The Company’s
funding policy is to make the minimum annual contribution that is required by
applicable regulations, plus such amounts as the Company may determine to be
appropriate from time to time.




75
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


In
September 2006, the Financial Accounting Standards Board issued Statement No.
158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans:  an amendment
of FASB Statements No. 87, 88, 106 and 132(R).  Statement No.
158 requires the Company to recognize the funded status of its defined benefit
postretirement plan in the Company’s balance sheet.  The funded status
was previously disclosed in the notes to the Company’s financial statements, but
differed from the amount recognized in the balance sheet.




The
recognition and disclosure provisions of Statement No. 158 were effective as to
the Company as of March 31, 2007.  The Company adopted the recognition
and disclosure provisions of Statement No. 158 effective March 31,
2007.  The effect of the adoption of Statement No. 158 was recognition
of an after-tax liability and charge to other comprehensive income totaling
$226,000.




The
Company expects to contribute approximately $10,000 to the plan in fiscal
2009.




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




Pension
      Benefits2008
            
            2007
            
            2006(In
      thousands)Change
      in benefit obligationBeginning
      of year
            
            $
            1,042
            
            
            $
            1,007
            
            
            $
            2,323Interest
      cost
            
            
            62
            
            
            
            65
            
            
            
            136Actuarial
      loss (gain)
            
            
            138
            
            
            
            156
            
            
            
            (236
            )Benefits
      paid
            
            
            (89
            )
            
            
            (186
            )
            
            
            (1,216
            )End
      of year
            
            
            1,153
            
            
            
            1,042
            
            
            
            1,007Change
      in fair value of plan assetsBeginning
      of year
            
            
            1,200
            
            
            
            1,256
            
            
            
            2,323Actuarial
      return on plan assets
            
            
            46
            
            
            
            130
            
            
            
            149Employer
      contribution
            
            
            10
            
            
            
            –
            
            
            
            –Benefits
      paid
            
            
            (89
            )
            
            
            (186
            )
            
            
            (1,216
            )End
      of year
            
            
            1,167
            
            
            
            1,200
            
            
            
            1,256Funded
      status at end of year
            
            $
            14
            
            
            $
            158
            
            
            $
            249







76
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




Pension
      Benefits2008
            
            2007(In
      thousands)Net
      loss
            
            $
            (495
            )
            
            $
            (343
            )





The
estimated net loss for the defined benefit pension plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost over
the next fiscal year is approximately $23,000.




The
accumulated benefit obligation for the defined benefit pension plan was $1.2
million, $1.0 million and $1.0 million at March 31, 2008, 2007 and 2006,
respectively.




March
      31,2008
            
            2007
            
            2006(In
      thousands)Components
      of net periodic benefit costInterest
      cost
            
            $
            61
            
            
            $
            65
            
            
            $
            136Expected
      return on plan assets
            
            
            (83
            )
            
            
            (87
            )
            
            
            (159
            )Amortization
      of prior service cost
            
            
            –
            
            
            
            17
            
            
            
            73Amortization
      of net loss
            
            
            24
            
            
            
            –
            
            
            
            358Net
      periodic benefit cost
            
            $
            2
            
            
            $
            (5
            )
            
            $
            408





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




Asset
allocation is primarily based on a strategy to provide stable earnings while
still permitting the plan to recognize potentially higher returns through an
investment in equity securities.  The target asset allocation
percentages for 2008 are as follows:







SMID-Cap
      stocks
            Not
      to exceed 60%Fixed
      income investments
            Not
      to exceed 35%Cash
            Not
      to exceed  5%







77
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


At March
31, 2008, 2007 and 2006, the fair value of plan assets as a percentage of the
total was invested in the following:




March
      31,2008
            
            2007
            
            2006Equity
      securities
            
            
            60
            %
            
            
            59
            %
            
            
            60
            %Debt
      securities
            
            
            36
            
            
            
            40
            
            
            
            38Cash
      and cash equivalents
            
            
            4
            
            
            
            1
            
            
            
            2100
            %
            
            
            100
            %
            
            
            100
            %







Benefit
payments expected to be paid from the plan as of March 31, 2008 are as
follows:




(In
      thousands)2009
            
            $
            322010
            
            
            472011
            
            
            582012
            
            
            362013
            
            
            35Thereafter
            
            
            277$
            485







Significant
assumptions include:




Pension
      Benefits2008
            
            2007
            
            2006Weighted-average
      assumptions used todetermine
      benefit obligation:Discount
      rate
            
            
            6.75
            %
            
            
            6.00
            %
            
            
            6.50
            %Rate
      of compensation increase (frozen)
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/AWeighted-average
      assumptions used todetermine
      benefit cost:Discount
      rate
            
            
            6.75
            %
            
            
            6.00
            %
            
            
            6.00
            %Expected
      return on plan assets
            
            
            6.25
            %
            
            
            7.00
            %
            
            
            7.00
            %Rate
      of compensation increase (frozen)
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/A


78
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




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




ESOP
expense for the years ended March 31, 2008, 2007 and 2006 was $117,000,
$149,000, and $161,000, respectively.




Share
information for the ESOP is as follows at March 31, 2008, 2007 and
2006.




2008
            
            2007
            
            2006Allocated
      shares
            
            
            61,573
            
            
            
            51,721
            
            
            
            41,698Shares
      released for allocation
            
            
            2,380
            
            
            
            2,712
            
            
            
            2,886Unearned
      shares
            
            
            99,312
            
            
            
            108,832
            
            
            
            118,681Total
      ESOP shares
            
            
            163,265
            
            
            
            163,265
            
            
            
            163,265Fair
      value of unearned shares at March 31
            
            $
            993,120
            
            
            $
            1,522,560
            
            
            $
            1,786,149







At March
31, 2008, the fair value of the 61,573 allocated shares held by the ESOP is
approximately $615,730.




In
addition to the defined benefit plan and ESOP, the Company has a 401(k)
plan.  The Company’s 401(k) matching percentage was 100% of the first
4% contributed by the employee and 50% of the employees’ next 2% of
contributions for 2008, 2007 and 2006.  Expense related to the
integrated 401(k) plan totaled $158,000, $148,000 and $135,000 for the years
ended March 31, 2008, 2007 and 2006, respectively.




79
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      15:
            Stock
      Option Plan




The
Company’s Share Option Plan (the Plan), which is stockholder approved, permits
the grant of up to 204,081 share options to its employees.  The
Company believes that such awards better align the interests of its employees
with those of its stockholders.  Option awards are generally granted
with an exercise price equal to the market price of the Company’s stock at the
date of grant; those option awards generally vest based on ten years of
continuous service and have ten-year contractual terms.  Certain
option and share awards provide for accelerated vesting if there is a change in
control (as defined in the Plan).  There was no compensation cost
recognized in the income statement for share-based payment arrangements during
the years ended March 31, 2008, 2007 and 2006.




A summary
of option activity under the Plan as of March 31, 2008 is presented
below:




2008Shares
            
            Weighted-
              Average
              Exercise
      Price
            
            Weighted-
              Average
              Remaining
              Contractual
              Term
      (Years)
            
            Aggregate
              Intrinsic
      ValueOutstanding,
      beginning of year
            
            
            114,224
            
            
            $
            13.95Granted
            
            
            –
            
            
            
            –Exercised
            
            
            –
            
            
            
            –Forfeited
      or expired
            
            
            10,000
            
            
            
            13.95Outstanding,
      end of year
            
            
            104,224
            
            
            $
            13.95
            
            
            
            6.0
            
            
            $
            –Exercisable,
      end of year
            
            
            104,224
            
            
            $
            13.95
            
            
            
            6.0
            
            
            $
            –







80
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


As of
March 31, 2008, 2007 and 2006, there was no unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the
Plan.  The cost was recognized in fiscal year ended March 31, 2005
when the Company accelerated full vesting of all the stock options at that
time.




The total
intrinsic value of options exercised during the years ended March 31, 2007 and
2006 were $40,000 and $74,000, respectively.  There were no options
exercised in 2008.









Note
      16:
            Earnings
      Per Share




Earnings
per share (EPS) were computed as follows:




Year
      Ended March 31, 2008Net
              Income
            
            Weighted-
              Average
              Shares
            
            Per
      Share
              Amount(In
      thousands)Net
      income
            
            $
            1,964Basic
      earnings per shareIncome
      available to common stockholders
            
            
            
            
            
            
            3,044,419
            
            
            $
            0.65Effect
      of dilutive securitiesStock
      options
            
            
            
            
            
            
            –Diluted
      earnings per shareIncome
      available to common stockholders and assumed conversions
            
            $
            1,964
            
            
            
            3,044,419
            
            
            $
            0.65


81
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Options
to purchase 104,224 shares of common stock at $13.95 per share were outstanding
at March 31, 2008, but were not included in the computation of diluted EPS
because the options’ exercise price was greater than the average market price of
the common shares.




Year
      Ended March 31, 2007Net
              Income
            
            Weighted-
              Average
              Shares
            
            Per
      Share
              Amount(In
      thousands)Net
      income
            
            $
            2,161Basic
      earnings per shareIncome
      available to common stockholders
            
            
            
            
            
            
            3,184,336
            
            
            $
            0.68Effect
      of dilutive securitiesStock
      options
            
            
            
            
            
            
            5,754Diluted
      earnings per shareIncome
      available to common stockholders and assumed conversions
            
            $
            2,161
            
            
            
            3,190,090
            
            
            $
            0.68










Year
      Ended March 31, 2006Net
              Income
            
            Weighted-
              Average
              Shares
            
            Per
      Share
              Amount(In
      thousands)Net
      income
            
            $
            1,640Basic
      earnings per shareIncome
      available to common stockholders
            
            
            
            
            
            
            3,296,674
            
            
            $
            0.50Effect
      of dilutive securitiesStock
      options
            
            
            
            
            
            
            17,222Diluted
      earnings per shareIncome
      available to common stockholders and assumed conversions
            
            $
            1,640
            
            
            
            3,313,896
            
            
            $
            0.50


82
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      17:
            Disclosures
      about Fair Value of Financial
Instruments




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




March
      31, 2008
            
            
            March
      31, 2007Carrying
              Amount
            
            Fair
      Value
            
            Carrying
              Amount
            
            Fair
      Value(In
      thousands)Financial
      assetsCash
      and cash equivalents
            
            $
            13,063
            
            
            $
            13,063
            
            
            $
            17,215
            
            
            $
            17,215Available-for-sale
      securities
            
            
            120,170
            
            
            
            120,170
            
            
            
            121,984
            
            
            
            121,984Held-to-maturity
      securities
            
            
            1,240
            
            
            
            1,253
            
            
            
            1,774
            
            
            
            1,792Loans,
      net of allowance for loan losses
            
            
            242,255
            
            
            
            247,851
            
            
            
            239,774
            
            
            
            237,854Federal
      Home Loan Bank stock
            
            
            4,892
            
            
            
            4,892
            
            
            
            4,829
            
            
            
            4,829Interest
      receivable
            
            
            1,753
            
            
            
            1,753
            
            
            
            2,081
            
            
            
            2,081Financial
      liabilitiesDeposits
            
            
            317,731
            
            
            
            315,698
            
            
            
            327,987
            
            
            
            317,647Other
      short-term borrowings
            
            
            7,287
            
            
            
            7,287
            
            
            
            5,553
            
            
            
            5,553Federal
      Home Loan Bank advances
            
            
            38,500
            
            
            
            39,898
            
            
            
            34,500
            
            
            
            34,331Advances
      from borrowers for taxes and insurance
            
            
            676
            
            
            
            676
            
            
            
            616
            
            
            
            616Interest
      payable
            
            
            420
            
            
            
            420
            
            
            
            383
            
            
            
            383


83
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




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




The
carrying amount approximates fair value.




Securities




Fair
values equal quoted market prices, if available.  If quoted market
prices are not available, fair value is estimated based on quoted market prices
of similar securities.




Loans




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




Deposits




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




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




The
carrying amount approximates fair value.




Federal
Home Loan Bank Advances




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




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




The fair
value of commitments to originate loans is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties.  For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates.  The fair values of letters of credit and lines of
credit are based on fees currently charged for similar agreements or on the
estimated cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date.  Fair values of commitments were
not material at March 31, 2008 and 2007.




84
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      18:
            Commitments
      and Credit Risk




At March
31, 2008 and 2007, total commercial and commercial real estate loans made up 36%
of the loan portfolio with most of these loans secured by commercial real estate
and business assets mainly in the Ohio area.  Installment loans
account for 2% of the loan portfolio in both years and are secured by consumer
assets including automobiles, which account for 80% and 68%, respectively, of
the installment loan portfolio.  Real estate loans comprise 87% of the
loan portfolio as of March 31, 2008 and 2007, and primarily include first
mortgage loans on residential properties and home equity lines of
credit.  Included in cash and due from banks as of March 31, 2008 and
2007, is $1.8 million and $1.9 million, respectively, of uninsured deposits as
this is our branch cash.  Also included in cash and cash equivalents
as of March 31, 2008 and 2007, is $4.3 million and $5.5 million, respectively,
of uninsured interest-bearing deposits with Federal Home Loan
Bank.  Federal Funds sold of $6.0 million and $9.0 million were sold
to Federal Home Loan Bank at March 31, 2008 and 2007, respectively.




Commitments
to Originate Loans




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




At March
31, 2008 and 2007, the Company had outstanding commitments to originate loans
aggregating approximately $3.3 million and $2.7 million,
respectively.  The commitments extended over varying periods of time
with the majority being disbursed within a one-year period.




Mortgage
loans in the process of origination represent amounts that the Company plans to
fund within a normal period of one year.  Total mortgage loans in the
process of origination amounted to approximately $1.3 million and $817,000 at
March 31, 2008 and 2007, respectively.




Standby
Letters of Credit




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




85
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


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




The
Company had total outstanding standby letters of credit amounting to $250,000
and $231,000, at March 31, 2008 and 2007, respectively, with terms not exceeding
nine months.  At both March 31, 2008 and 2007, the Company had no
deferred revenue under standby letter of credit agreements.




Lines
of Credit




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




At March
31, 2008, the Company had granted unused lines of credit to borrowers
aggregating approximately $16.9 million and $12.3 million for commercial lines
and open-end consumer lines, respectively.  At March 31, 2007, unused
lines of credit to borrowers aggregated approximately $9.7 million for
commercial lines and $16.9 million for open-end consumer lines.




Leases




The
Company leases certain branch banking facilities under operating leases. The
minimum annual lease payments over the initial lease term are as
follows:







Fiscal
      year ended
            
            (In
      thousands)2008
            
            $
            872009
            
            
            872010
            
            
            592011
            
            
            562012
            
            
            5Total
            
            $
            294





The
Company incurred rental expense under operating leases totaling approximately
$87,000, $82,000 and $71,000 for the fiscal years ended March 31, 2008, 2007 and
2006, respectively.




There
were no other material commitments or contingencies at March 31, 2008.




86
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      19:
            Future
      Change in Accounting Principle




In
September 2006, the 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 adoption of this Statement is not
expected to have a material adverse 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 requires
companies to recognize a liability and related compensation costs for
endorsement split-dollar life insurance policies that provide a benefit to an
employee extending to postretirement periods.  The liability should be
recognized based on the substantive agreement with the employee.  This
Issue is effective beginning April 1, 2008.  The Issue can be applied
as either a change in accounting principle through a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption, or
a change in accounting principle through retrospective application to all
periods.  The Company adopted Issue 06-4 effective April 1, 2008, as
required, without material effect on the Company’s financial position or results
of operations.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” which replaces SFAS 141.  The Statement applies to all
transactions or other events in which one entity obtains control of one or more
businesses.  It requires all assets acquired, liabilities assumed and
any noncontrolling interest to be measured at fair value at the acquisition
date.  The Statement requires certain costs such as
acquisition-related costs that were previously recognized as a component of the
purchase price, and expected restructuring costs that were previously recognized
as an assumed liability, to be recognized separately from the acquisition as an
expense when incurred.




FAS
141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008 and may not be applied before that
date.




87
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Concurrent
with SFAS No. 141 (revised 2007), the FASB recently issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements, an Amendment of
ARB 51.”  SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest (formerly known as minority
interest) in a subsidiary and for the deconsolidation of a
subsidiary.  A subsidiary, as defined by SFAS No. 160, includes a
variable interest entity that is consolidated by a primary
beneficiary.




A
noncontrolling interest in a subsidiary, previously reported in the statement of
financial position as a liability or in the mezzanine section outside of
permanent equity, will be included within consolidated equity as a separate line
item upon the adoption of SFAS No. 160.  Further, consolidated net
income will be reported at amounts that include both the parent (or primary
beneficiary) and the noncontrolling interest with separate disclosure on the
face of the consolidated statement of income of the amounts attributable to the
parent and to the noncontrolling interest.




SFAS No.
160 is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.




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







Note
      20:
            FDIC
      One-time Assessment Credit




Effective
November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to
eligible institutions.  The purpose of the credit is to recognize
contributions made by certain institutions to capitalize the Bank Insurance Fund
and Savings Association Insurance Fund, which have now been merged into the
Deposit Insurance Fund.  The Bank is an eligible institution and has
received notice from the FDIC that its remaining share of the credit is $157,000
at March 31, 2008.  This amount is not reflected in the accompanying
financial statements as it represents contingent future credits against future
insurance assessment payments.  As such, the timing and ultimate
recoverability of the one-time credit may change.









88
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      21:
            Condensed
      Financial Information (Parent Company
Only)




Presented
below is condensed financial information as to financial position, results of
operations and cash flows of the Company:




Condensed Balance Sheets




March
      31,2008
            
            2007(In
      thousands)AssetsCash
      and due from banks
            
            $
            58
            
            
            $
            66Notes
      receivable from the Bank
            
            
            1,097
            
            
            
            1,158Investment
      in the Bank
            
            
            33,356
            
            
            
            33,689Prepaid
      expenses and other assets
            
            
            41
            
            
            
            24Total
      assets
            
            $
            34,552
            
            
            $
            34,937Liabilities
      and Stockholders’ EquityAccrued
      expenses and other liabilities
            
            $
            448
            
            
            $
            504Stockholders’
      equityCommon
      stock and additional paid-in capital
            
            
            36,525
            
            
            
            36,504Retained
      earnings
            
            
            12,450
            
            
            
            11,982Less
      required contributions for shares acquired by ESOP
            
            
            (1,097
            )
            
            
            (1,158
            )Treasury
      stock – at cost
            
            
            (14,481
            )
            
            
            (12,419
            )Accumulated
      other comprehensive income (loss)
            
            
            707
            
            
            
            (476
            )Total
      stockholders’ equity
            
            
            34,104
            
            
            
            34,433Total
      liabilities and stockholders’ equity
            
            $
            34,552
            
            
            $
            34,937


89
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Condensed
Statements of Income









Years
      Ended March 31,2008
            
            2007
            
            2006(In
      thousands)Operating
      IncomeInterest
      income
            
            $
            69
            
            
            $
            73
            
            
            $
            85Dividends
      from subsidiaries
            
            
            3,669
            
            
            
            3,765
            
            
            
            5,375Total
      operating income
            
            
            3,738
            
            
            
            3,838
            
            
            
            5,460General,
      Administrative and Other Expenses
            
            
            231
            
            
            
            216
            
            
            
            155Earnings
      before Federal Income Tax Benefits and equity in undistributed income of
      subsidiaries
            
            
            3,507
            
            
            
            3,622
            
            
            
            5,305Federal
      Income Tax Benefits
            
            
            (55
            )
            
            
            (48
            )
            
            
            (39
            )Income
      before equity in undistributed income of subsidiaries
            
            
            3,562
            
            
            
            3,670
            
            
            
            5,344Equity
      in undistributed (excess distributed) income of
    subsidiaries
            
            
            (1,598
            )
            
            
            (1,509
            )
            
            
            (3,704
            )Net
      Income
            
            $
            1,964
            
            
            $
            2,161
            
            
            $
            1,640


90
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Condensed Statements of Cash Flows




Years
      Ended March 31,2008
            
            2007
            
            2006(In
      thousands)Operating
      ActivitiesNet
      income for the year
            
            $
            1,964
            
            
            $
            2,161
            
            
            $
            1,640Items
      not requiring (providing) cashDistributions
      in excess of income from the Bank
            
            
            1,598
            
            
            
            1,509
            
            
            
            3,704Increase
      (decrease) in cash due to changes in:Prepaid
      expenses and other assets
            
            
            (17
            )
            
            
            (2
            )
            
            
            526Accrued
      expenses and other liabilities
            
            
            (34
            )
            
            
            91
            
            
            
            (40
            )Net
      cash provided by operating activities
            
            
            3,511
            
            
            
            3,759
            
            
            
            5,830Investing
      ActivitiesRepayment
      of ESOP loan
            
            
            61
            
            
            
            82
            
            
            
            65Net
      cash provided by investing activities
            
            
            61
            
            
            
            82
            
            
            
            65Financing
      ActivitiesPayment
      of dividends on common stock
            
            
            (1,518
            )
            
            
            (1,573
            )
            
            
            (1,617
            )Purchase
      of treasury stock
            
            
            (2,062
            )
            
            
            (2,794
            )
            
            
            (5,025
            )Proceeds
      from exercise of stock options
            
            
            –
            
            
            
            486
            
            
            
            285Tax
      benefits related to employee stock plans
            
            
            –
            
            
            
            8
            
            
            
            80Net
      cash used in financing activities
            
            
            (3,580
            )
            
            
            (3,873
            )
            
            
            (6,277
            )Net
      Change in Cash and Cash Equivalents
            
            
            (8
            )
            
            
            (32
            )
            
            
            (382
            )Cash
      and Cash Equivalents at Beginning of Year
            
            
            66
            
            
            
            98
            
            
            
            480Cash
      and Cash Equivalents at End of Year
            
            $
            58
            
            
            $
            66
            
            
            $
            98


91
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Note
      22:
            Quarterly
      Financial Data (Unaudited)




The
following table summarizes the Company’s quarterly results of operations for the
years ended March 31, 2008 and 2007.









Three
      Months Ended2008:
            
            June
      30,
            
            September
      30,
            
            December
      31,
            
            March
      31,(In
      thousands, except per share data)Total
      interest income
            
            $
            5,699
            
            
            $
            5,793
            
            
            $
            5,826
            
            
            $
            5,640Total
      interest expense
            
            
            2,917
            
            
            
            2,975
            
            
            
            3,030
            
            
            
            2,871Net
      interest income
            
            
            2,782
            
            
            
            2,818
            
            
            
            2,796
            
            
            
            2,769Provision
      for loan losses
            
            
            30
            
            
            
            25
            
            
            
            140
            
            
            
            39Other
      income
            
            
            448
            
            
            
            469
            
            
            
            458
            
            
            
            546General,
      administrative and other expense
            
            
            2,494
            
            
            
            2,530
            
            
            
            2,543
            
            
            
            2,711Income
      before income taxes
            
            
            706
            
            
            
            732
            
            
            
            571
            
            
            
            565Federal
      income taxes
            
            
            183
            
            
            
            185
            
            
            
            125
            
            
            
            117Net
      income
            
            $
            523
            
            
            $
            547
            
            
            $
            446
            
            
            $
            448Earnings
      per shareBasic
            
            $
            0.17
            
            
            $
            0.18
            
            
            $
            0.14
            
            
            $
            0.16Diluted
            
            $
            0.17
            
            
            $
            0.18
            
            
            $
            0.14
            
            
            $
            0.16


92
 Index
 Wayne
Savings Bancshares, Inc.
 Notes
to Consolidated Financial Statements
 March
31, 2008, 2007 and 2006


Three
      Months Ended2007:
            
            June
      30,
            
            September
      30,
            
            December
      31,
            
            March
      31,(In
      thousands, except per share data)Total
      interest income
            
            $
            5,436
            
            
            $
            5,578
            
            
            $
            5,679
            
            
            $
            5,717Total
      interest expense
            
            
            2,515
            
            
            
            2,762
            
            
            
            2,955
            
            
            
            2,966Net
      interest income
            
            
            2,921
            
            
            
            2,816
            
            
            
            2,724
            
            
            
            2,751Provision
      for loan losses
            
            
            30
            
            
            
            30
            
            
            
            10
            
            
            
            30Other
      income
            
            
            424
            
            
            
            431
            
            
            
            412
            
            
            
            376General,
      administrative and other expense
            
            
            2,485
            
            
            
            2,538
            
            
            
            2,334
            
            
            
            2,387Income
      before income taxes
            
            
            830
            
            
            
            679
            
            
            
            792
            
            
            
            710Federal
      income taxes (benefits)
            
            
            237
            
            
            
            195
            
            
            
            229
            
            
            
            189Net
      income
            
            $
            593
            
            
            $
            484
            
            
            $
            563
            
            
            $
            521Earnings
      per shareBasic
            
            $
            .18
            
            
            $
            .15
            
            
            $
            .18
            
            
            $
            .17Diluted
            
            $
            .18
            
            
            $
            .15
            
            
            $
            .18
            
            
            $
            .17







93
 Index


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





Not Applicable





ITEM
9A.      Controls and
Procedures





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





Wayne
Savings Bancshares, Inc.


Management’s
Report on Internal Control Over Financial Reporting





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





Under the
supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Company conducted an
evaluation of the effectiveness of internal control over financial reporting
based on the framework in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this evaluation, management of the Company has
concluded the Company maintained effective internal control over financial
reporting, as such term is defined in Securities Exchange Act of 1934 Rules
13a-15(f), as of March 31, 2008.





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





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











/s/
      Phillip E. Becker
            
            /s/
      H. Stewart Fitz Gibbon IIIPresident
      & Chief Executive Officer
            
            Executive
      Vice President & Chief Financial OfficerJune
      26, 2008
            
            June
      26, 2008


94
 Index


ITEM
9B.     Other Information





Not
Applicable





PART
III





ITEM
10.      Directors and Executive Officers of the
Registrant





The information required herein is
incorporated by reference from the section captioned “Information with Respect
to Nominees for Director, Continuing Directors and Executive Officers” in the
Company’s definitive proxy statement for the annual meeting of shareholders to
be held on July 24, 2008, (the “Proxy Statement”) expected to be filed with the
Securities and Exchange Commission on or about June 26, 2008.





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





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





ITEM
11.      Executive
Compensation





The information required herein is
incorporated by reference from the sections captioned “Management Compensation,”
“Report of the Compensation Committee” and “Performance Graph” in the Proxy
Statement.





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





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





ITEM
13.      Certain Relationships and
Related Transactions





The information required by this Item
13 of Form 10-K is incorporated by reference from the section captioned
“Management Compensation - Indebtedness of Management and Related Party
Transactions” in the Proxy Statement.





ITEM
14.      Principal Accountant Fees
and Services





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


95
 Index


PART
IV





ITEM
15.            
  Exhibits, Financial Statement Schedules





(a)(1)
            Financial
      Statements





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





(i)
            Report
      of Independent Registered Public Accounting
  Firm;


(ii)
            Consolidated
      Balance Sheets;


(iii)
            Consolidated
      Statements of Income;


(iv)
            Consolidated
      Statements of Stockholders’ Equity;


(v)
            Consolidated
      Statements of Cash Flows; and


(vi)
            Notes
      to Consolidated Financial
Statements.





(a)(2)      Financial Statement
Schedules





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





(a)(3)
            Exhibits





Exhibit
      Number
            
            Description3.1(1)
            
            Articles
      of Incorporation3.2(1)
            
            Bylaws4.0(2)
            
            Form
      of Common Stock Certificate of Wayne Savings Bancshares,
    Inc.10.1(3)
            
            Employment
      Agreement between Wayne Savings Community Bank and Steven V. Dimos dated
      April 14, 200810.2(3)
            
            Employment
      Agreement between Wayne Savings Community Bank andH.
      Stewart Fitz Gibbon III dated November 14, 200510.3(4)
            
            Employment
      Agreement between Wayne Savings Community Bank and Phillip E. Becker dated
      February 15, 200510.4(5)
            
            The
      Wayne Savings and Loan Company 1993 Incentive Stock Option
      Plan10.5(6)
            
            Wayne
      Savings Bancshares, Inc. Amended and Restated 2003 Stock
      OptionPlan11.0(7)
            
            Statement
      re:  computation of per share earnings21.0
            
            Subsidiaries
      of Registrant-Reference is made to Item 1 – "Business" for theRequired
      Information23.0
            
            Consent
      of BKD LLP23.1
            
            Consent
      of Grant Thornton LLP31.1
            
            Certification
      pursuant to Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange
      Act of 1934 of the Chief Executive Officer31.2
            
            Certification
      pursuant to Rule 13a-14(a) and 15d-14(a) of the SecuritiesExchange
      Act of 1934 of the Chief Financial Officer32.0
            
            Certification
      pursuant to 18 U.S.C. Section 1350





96
 Index


________________________





(1)
            Filed
      as exhibits to the Plan of Conversion and Reorganization filed as Exhibit
      2 to the Registrant's registration statement on Form SB-2, initially filed
      on September 18, 2001, as amended (Registration No.
      333-69600).





(2)
            Filed
      as Exhibit 4, to the Registrant's registration statement on Form SB-2,
      initially filed on September 18, 2001, as amended (Registration No.
      333-69600).





(3)
            Incorporated
      by reference to the Exhibits to the Company's Form 10-K for year ended
      March 31, 2004, filed on June 29, 2004 (File No.
    000-23433).





(4)
            Incorporated
      by reference to the Exhibits to the Company's Form 10-Q for quarter ended
      December 31, 2004, filed on February 11, 2005 (File No.
      000-23433).





(5)
            Incorporated
      by reference from the Company's Registration Statement on Form S-8 filed
      on December 4, 1997 (File No.
333-41479).





(6)
            Incorporated
      by reference from the Company's Registration Statement on Form S-8 filed
      on October 5, 2004 (File No.
333-119556).





(7)
            Incorporated
      by reference to Note A.8. of "Notes to Consolidated Financial Statements"
      in Item 8 hereof.





(b)
            The
      Exhibits listed under (a)(3) of this Item 15 are filed
      herewith.





(c)
            Reference
      is made to (a)(2) of this Item 15.





97
 Index


SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.








WAYNE
      SAVINGS BANCSHARES, INC.Date:
            June
      26, 2008
            By:
            /s/Phillip E. BeckerPhillip
      E. BeckerPresident
      and Chief Executive Officer








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











By:
            /s/Phillip E. Becker
            
            By:
            /s/H. Stewart Fitz Gibbon
    IIIPhillip
      E. Becker, President and
            
            
            H.
      Stewart Fitz Gibbon III, Executive Vice President,Chief
      Executive Officer and Director
            
            
            Chief
      Financial Officer, Corporate Secretary and(Principal
      Executive Officer)
            
            
            TreasurerDate:
            June
      26, 2008
            
            Date:
            June
      26, 2008By:
            /s/Myron Swartzentruber
            
            By:
            /s/Peggy J. SchmitzMyron
      Swartzentruber, Vice President
            
            
            Peggy
      J. Schmitz, DirectorController
      (Principal Accounting
            
            
            Officer)Date:
            June
      26, 2008
            
            Date:
            June
      26, 2008By:
            /s/Rodney C. Steiger
            
            By:
            /s/James C. MorganRodney
      C. Steiger, Director
            
            
            James
      C. Morgan, DirectorDate:
            June
      26, 2008
            
            Date:
            June
      26, 2008By:
            /s/Terry A. Gardner
            
            By:
            /s/Russell L. HarpsterTerry
      A. Gardner, Director
            
            
            Russell
      L. Harpster,Chairman
      of the Board of DirectorsDate:
            June
      26, 2008
            
            Date:
            June
      26, 2008By:
            /s/Daniel R. BuehlerDaniel
      R. Buehler, DirectorDate:
            June
      26, 2008


98
 Index


STOCKHOLDER
INFORMATION








Annual
      Meeting
            Transfer
      AgentThe
      Annual Meeting of Stockholders will be
            Registrar
      and Transfer Companyheld
      at 10:00 a.m., on July 24, 2008, at
            10
      Commerce DriveThe
      Greenbriar Conference Centre,
            Cranford,
      New Jersey  07016-357250
      Riffel RoadWooster,
      Ohio  44691Special
      Counsel
            Investor
      InformationPatton
      Boggs LLP
            Executive
      Offices2550
      M Street N.W.
            Wayne
      Savings Bancshares, Inc.Washington,
      DC  20037
            151
      N. Market Street – P.O. Box 858Wooster,
      Ohio  44691(330)
      264-5767Independent
      Registered CertifiedPublic
      AccountantsBKD
      LLP312
      Walnut StreetSuite
      3000Cincinnati,
      Ohio  45202








DIRECTORS
AND OFFICERS


WAYNE
SAVINGS BANCSHARES, INC.





Board
      of Directors
            Executive
      OfficersRussell
      L. Harpster
            Phillip
      E. BeckerChairman
            President
      and Chief Executive OfficerPhillip
      E. Becker
            H.
      Stewart Fitz Gibbon IIIDaniel
      R. Buehler
            Executive
      Vice President and Chief Financial OfficerTerry
      A. Gardner
            Corporate
      Secretary and TreasurerJames
      C. MorganRodney
      C. Steiger
            Steven
      G. DimosPeggy
      J. Schmitz
            Executive
      Vice President and Chief Operations OfficerKenneth
      G. Rhode, EmeritusDonald
      E. Massaro, EmeritusJoseph
      L. Retzler, Emeritus