form10q-105264_wayne.htm

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

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PART I - FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4T	Controls and Procedures	39


PART II - OTHER INFORMATION

Item 1	Legal Proceedings	40

Item 1A	Risk Factors	40

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 3	Defaults Upon Senior Securities	40

Item 4	Submission of Matters to a Vote of Security Holders	40

Item 5	Other Information	40

Item 6	Exhibits	41

SIGNATURES		42

	December 31, 2009			March 31, 2009
	(Unaudited)
ASSETS
Cash and due from banks	$	9,132		$	2,935
Interest-bearing demand deposits		4,487			3,855
Cash and cash equivalents		13,619			6,790
Available-for-sale securities		112,144			117,733
Held-to-maturity securities		755			952
Loans receivable – net of allowance for loan losses of $3,028 and $2,484 at December 31, 2009 and March 31, 2009, respectively		250,574			254,326
Premises and equipment		7,413			7,553
Federal Home Loan Bank stock		5,025			5,025
Foreclosed assets held for sale - net		786			594
Accrued interest receivable		1,426			1,675
Bank-owned life insurance		6,693			6,508
Goodwill		1,719			1,719
Other intangible assets		400			471
Other assets		2,705			1,048
Prepaid federal income taxes		4			27
Total assets	$	403,263		$	404,421


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits
Demand	$	58,870		$	53,085
Savings and money market		92,416			83,759
Time		157,748			172,690
Total deposits		309,034			309,534
Other short term borrowings		7,776			10,154
Federal Home Loan Bank advances		45,500			46,000
Accrued interest payable and other liabilities		3,071			3,237
Deferred federal income taxes		1,261			1,083
Total liabilities		366,642			370,008

Commitments and Contingencies		–			–

Stockholders’ Equity
Preferred stock, 500,000 shares of $.10 par value authorized; no shares issued		–			–
Common stock, $.10 par value; authorized 9,000,000 shares; 3,978,731 shares issued		398			398
Additional paid-in capital		36,013			36,028
Retained earnings		14,094			12,726
Shares acquired by ESOP		(828	)		(899	)
Accumulated other comprehensive income, net of tax effects		1,474			690
Treasury stock, at cost - 974,618 common shares		(14,530	)		(14,530	)
Total stockholders’ equity		36,621			34,413
Total liabilities and stockholders’ equity	$	403,263		$	404,421

	Nine months				Three months
	ended				ended
	December 31,				December 31,
	2009		2008		2009		2008
Interest and Dividend Income
Loans	$	10,895	$	11,608	$	3,581	$	3,927
Securities		4,132		4,428		1,351		1,416
Dividends on Federal Home Loan Bank stock and other		179		236		57		65
Total interest and dividend income		15,206		16,272		4,989		5,408
Interest Expense
Deposits		3,720		5,788		1,099		1,798
Other short term borrowings		26		57		7		13
Federal Home Loan Bank advances		1,438		1,414		443		479
Total interest expense		5,184		7,259		1,549		2,290

Net Interest Income		10,022		9,013		3,440		3,118

Provision for Loan Losses		1,115		346		570		185

Net Interest Income After Provision for Loan Losses		8,907		8,667		2,870		2,933

Noninterest Income
Gain on disposal of real estate acquired through foreclosure		-		10		-		-
Gain on sale of available-for-sale securities		91		-		91		-
Gain on sale of loans		161		-		48		-
Trust income		142		137		53		46
Earnings on bank-owned life insurance		173		167		58		55
Service fees, charges and other operating		1,030		996		334		320
Total noninterest income		1,597		1,310		584		421
Noninterest Expense
Salary and employee benefits		4,352		4,208		1,480		1,430
Net occupancy and equipment expense		1,378		1,528		440		505
Federal deposit insurance premiums		579		35		122		13
Franchise taxes		263		349		87		128
Losses on real estate acquired through foreclosure		91		-		30		-
Loss on disposal of premises and equipment		4		-		-		-
Amortization of intangible assets		71		80		23		27
Other		1,425		1,468		472		465
Total noninterest expense		8,163		7,668		2,654		2,568

Income Before Federal Income Taxes		2,341		2,309		800		786

Provision for Federal Income Taxes		522		593		165		202

Net Income	$	1,819	$	1,716	$	635	$	584

Basic Earnings Per Share	$	.62	$	.59	$	.21	$	.20
Diluted Earnings Per Share	$	.62	$	.59	$	.21	$	.20
Dividends Per Share	$	.15	$	.36	$	.05	$	.12

	Nine months						Three months
	ended						ended
	December 31,						December 31,
	2009			2008			2009			2008

Net income	$	1,819		$	1,716		$	635		$	584

Other comprehensive income (loss):
Unrealized holding gains (losses) on securities, net of related
taxes (benefits) of $435, $(142), $(180) and $585 during the
respective periods		844			(276	)		(349	)		1,135
Reclassification adjustment for realized gains included in
income, net of related taxes of $31, $0, $31 and $0 during
the respective periods		(60	)		–			(60	)		–



Comprehensive income	$	2,603		$	1,440		$	226		$	1,719

Accumulated other comprehensive income	$	1,474		$	431		$	1,474		$	431

	2009			2008

Operating Activities
Net income	$	1,819		$	1,716
Items not requiring (providing) cash
Depreciation and amortization		438			500
Provision for loan losses		1,115			346
Amortization of premiums and discounts on securities		(120	)		(76	)
Amortization of mortgage servicing rights		29			19
Amortization of deferred loan origination fees		(71	)		(29	)
Amortization of intangible assets		71			80
Federal Home Loan Bank stock dividends		–			(133	)
Increase in value of bank owned life insurance		(185	)		(181	)
Amortization expense of stock benefit plan		40			86
Loss on real estate acquired through foreclosure		91			–
Net gain on sale of loans		(161	)		–
Net gain on sale of available-for-sale securities		(91	)		–
Proceeds from sale of loans in secondary market		5,406			–
Origination of loans for sale in the secondary market		(5,323	)		–
Deferred income taxes		(225	)		(75	)
Changes in
Accrued interest receivable		249			158
Other assets		(1,663	)		797
Interest payable and other liabilities		(519	)		(73	)
Net cash provided by operating activities		900			3,135

Investing Activities
Purchase of available-for-sale securities		(24,819	)		(18,466	)
Proceeds from maturities of available-for-sale securities		27,230			24,161
Proceeds from maturities of held-to-maturity securities		195			247
Proceeds from sale of investment securities designated as available-for-sale		4,579			–
Net change in loans		1,986			(13,980	)
Purchase of premises and equipment		(298	)		(168	)
Proceeds from the sale of foreclosed assets		517			154
Net cash provided by (used in) investing activities		9,390			(8,052	)

	2009			2008


Financing Activities
Net change in deposits	$	(500	)	$	(6,920	)
Net change in other short-term borrowings		(2,378	)		4,305
Proceeds from Federal Home Loan Bank advances		20,300			59,310
Repayments of Federal Home Loan Bank advances		(20,800	)		(53,310	)
Advances by borrowers for taxes and insurance		353			261
Cash dividends paid		(436	)		(1,046	)
Treasury stock purchases		–			(49	)
Net cash provided by (used in) financing activities		(3,461	)		2,551

Increase (Decrease) in Cash and Cash Equivalents		6,829			(2,366	)

Cash and Cash equivalents, Beginning of period		6,790			13,063

Cash and Cash equivalents, End of period	$	13,619		$	10,697

Supplemental Cash Flows Information Cash Paid For:
Interest on deposits and borrowings	$	5,333		$	7,374

Federal income taxes	$	725		$	525


Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale	$	800		$	797

Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects	$	844		$	(276	)

Dividends payable	$	150		$	360

The accompanying unaudited condensed consolidated financial statements as of and for the nine and three months ended December 31, 2009 and 2008, were prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Wayne Savings Bancshares, Inc. (the “Company”) included in the Annual Report on Form 10-K for the year ended March 31, 2009. Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the unaudited financial statements have been included. The results of operations for the nine and three month periods ended December 31, 2009, are not necessarily indicative of the results which may be expected for the entire fiscal year. The condensed consolidated balance sheet of the Company as of March 31, 2009, has been derived from the consolidated balance sheet of the Company as of that date.

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

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

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

	For the nine months ended				For the three months ended
	December 31,				December 31,
	2009		2008		2009		2008

Weighted-average common shares
outstanding (basic)		2,911,990		2,903,599		2,912,056		2,902,525
Dilutive effect of assumed exercise
of stock options		-		-		-		-
Weighted-average common shares
outstanding (diluted)		2,911,990		2,903,599		2,912,056		2,902,525

In fiscal 2004, the Company adopted a Stock Option Plan that provided for the issuance of 142,857 incentive options and 61,224 non-incentive options with respect to authorized common stock. As of December 31, 2009, all options under the 2004 Plan have been granted and (excluding forfeited options), are subject to exercise at the discretion of the grantees, and will expire in fiscal 2014 unless otherwise exercised or forfeited.

The Company accounts for the stock plan in accordance with the provisions of FASB ASC 718-10. FASB ASC 718-10 requires the recognition of compensation expense related to stock option awards based on the fair value of the option award at the grant date. Compensation cost is then recognized over the vesting period. There were no options granted during the nine months ended December 31, 2009 and 2008. There was no compensation expense recognized for the stock option plan during the nine month periods ended December 31, 2009 and 2008, as all options were fully vested prior to these periods.

	Nine months ended December 31,				Year ended March 31,
	2009				2009					2008
	Shares		Weighted Average exercise price		Shares			Weighted Average exercise price		Shares			Weighted Average exercise price
Outstanding at beginning of period		94,020	$	13.95		104,224		$	13.95		114,224		$	13.95
Granted		–		–		–			–		–			–
Exercised		–		–		–			–		–			–
Forfeited		–		–		(10,204	)		13.95		(10,000	)		13.95

Outstanding at end of period		94,020	$	13.95		94,020		$	13.95		104,224		$	13.95

Options exercisable at period-end		94,020	$	13.95		94,020		$	13.95		104,224		$	13.95

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 risk-based capital (as defined in the regulations) to risk-weighted assets (as defined), and of tangible and core capital (as defined) to adjusted total assets (as defined). Management believes, as of December 31, 2009, that the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2009, the most recent notification from the 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 below. There are no conditions or events since that notification that management believes have changed the Bank’s category.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2009
Tangible capital	$	32,060		8.0	%	$	5,980		1.5	%	$	19,933		5.0	%
Core capital		32,060		8.0			15,946		4.0			23,919		6.0
Risk-based capital		34,164		13.9			19,669		8.0			24,586		10.0


As of March 31, 2009
Tangible capital	$	30,525		7.6	%	$	6,018		1.5	%	$	20,060		5.0	%
Core capital		30,525		7.6			16,048		4.0			24,072		6.0
Risk-based capital		32,341		12.8			20,212		8.0			25,265		10.0


As of December 31, 2008
Tangible capital	$	30,629		7.6	%	$	6,037		1.5	%	$	20,123		5.0	%
Core capital		30,629		7.6			16,098		4.0			24,148		6.0
Risk-based capital		32,279		12.9			19,976		8.0			24,970		10.0

FASB ASC 805-10 concerning business combinations seeks to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This guidance introduces new accounting concepts, and several of these changes have the potential to generate greater earnings volatility, in connection with and after an acquisition. Some of the more significant changes include:

FASB ASC 805-10 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. The Company adopted FASB ASC 805-10 effective April 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 810-10 concerning noncontrolling interests in consolidated financial statements establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This guidance improves comparability by eliminating that diversity. The FASB ASC 810-10 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted FASB ASC 810-10 effective April 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

instruments, (ii) how derivative instruments and related hedge items are accounted for under FASB ASC 815-10 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, FASB ASC 815-10 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. FASB ASC 815-10 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted FASB ASC 815-10 effective April 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 805-20 concerns accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and clarifies previous guidance regarding the initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. FASB ASC 805-20 eliminates the distinction between contractual and noncontractual contingencies discussed in FASB ASC 805-10, specifies whether contingencies should be measured at fair value or in accordance with FASB ASC 450-10, provides application guidance on subsequent accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and establishes new disclosure requirements. FASB ASC 805-20 is effective for assets or liabilities arising from contingencies in 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. The Company adopted FASB ASC 805-20 effective April 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 820-10 concerns determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance was issued on April 9, 2009 and provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. FASB ASC 820-10 also includes guidance on identifying circumstances that indicate a transaction is not orderly. Even if there has been a significant decrease in the volume and level of activity regardless of valuation technique, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FASB ASC 820-10 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, only if FASB ASC 320-10 and FASB ASC 825-10 are adopted concurrently. FASB ASC 820-10 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. The Company adopted FASB ASC 820-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 320-10 concerns recognition and presentation of other-than-temporary impairments and was issued on April 9, 2009. The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FASB ASC 320-10 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, only if FASB ASC 820-10 and FASB ASC 825-10 are adopted concurrently. FASB ASC 320-10 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. The Company adopted FASB ASC 320-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 825-10 concerning interim disclosures about fair value of financial instruments was issued on April 9, 2009 and amends the other-than-temporary guidance in United States generally accepted accounting principles for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FASB ASC 825-10 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities and does not require disclosures for earlier periods presented for comparative purposes at initial adoption. Effective for interim reporting periods ending after June 15, 2009, early adoption is permitted for periods ending after March 15, 2009, only if FASB ASC 820-10 and FASB ASC 320-10 are adopted concurrently. The Company adopted FASB ASC 825-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 855-10 concerning subsequent events was issued in May 2009 and established standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FASB ASC 855-10 is effective for periods ending after June 15, 2009. The Company adopted FASB ASC 855-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 860-10 concerning accounting for transfers of financial assets was issued in June 2009 and changes the derecognition guidance for transferors of financial assets, including entities that sponsor securitizations, to align that guidance with the original intent of previous guidance. FASB ASC 860-10 also eliminates the exemption from consolidation for qualifying special-purpose entities (QSPEs). As a result, all existing QSPEs need to be evaluated to determine whether the QSPE should be consolidated in accordance with FASB ASC 860-10.

FASB ASC 860-10 is effective as of the beginning of a reporting entity’s first annual reporting period beginning after November 15, 2009 (April 1, 2010, as to the Company), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The recognition and measurement provisions of FASB ASC 860-10 must be applied to transfers that occur on or after the effective date. Early application is prohibited. FASB ASC 860-10 also requires additional disclosures about transfers of financial assets that occur both before and after the effective date. The Company does not believe that the adoption of FASB ASC 860-10 will have a significant effect on its consolidated financial statements.

FASB ASC 860-10 also improves how enterprises account for and disclose their involvement with variable interest entities (VIE’s), which are special-purpose entities, and other entities whose equity at risk is insufficient or lacks certain characteristics. Among other things, FASB ASC 860-10 changes how an entity determines whether it is the primary beneficiary of a variable interest entity (VIE) and whether that VIE should be consolidated. FASB ASC 860-10 requires an entity to provide significantly more disclosures about its involvement with VIEs. As a result, the Company must comprehensively review its involvements with VIEs and potential VIEs, including entities previously considered to be qualifying special purpose entities, to determine the effect on its consolidated financial statements and related disclosures. FASB ASC 860-10 is effective as of the beginning of a reporting entity’s first annual reporting period that begins after November 15, 2009 (April 1, 2010, as to the Company), and for interim periods within the first annual reporting period. Earlier application is prohibited. The Company does not believe that the adoption of FASB ASC 860-10 will have a significant effect on its consolidated financial statements.

FASB Accounting Standards Update (ASU) 2010-06 Fair Value Measurements and Disclosures (Topic 820) issued in January 2010 concerns improved disclosures about fair value measurements. The guidance requires the separate reporting of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. The guidance also requires separate disclosure about purchases, sales, issuances and settlements in the activity in Level 3. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 (April 1, 2011 for the Company), and for interim periods within those fiscal years. The Company will adopt the guidance in ASU 2010-06 effective January 1, 2010, as required, without material effect on the Company’s financial condition or results of operations.

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Available-for-sale Securities:
December 31, 2009:
U.S. government agencies	$	2,645	$	122	$	2	$	2,765
Mortgage-backed securities		86,078		2,690		195		88,573
State and political subdivisions		20,494		448		136		20,806

	$	109,217	$	3,260	$	333	$	112,144

March 31, 2009:
U.S. government agencies	$	9,057	$	250	$	3	$	9,304
Mortgage-backed securities		86,557		2,208		651		88,114
State and political subdivisions		20,380		442		507		20,315

	$	115,994	$	2,900	$	1,161	$	117,733

December 31, 2008:
U.S. government agencies	$	7,170	$	111	$	3	$	7,278
Mortgage-backed securities		85,932		1,621		482		87,071
State and political subdivisions		19,883		398		495		19,786

	$	112,985	$	2,130	$	980	$	114,135

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Held-to-maturity Securities:
December 31, 2009:
U.S. government agencies	$	175	$	–	$	2	$	173
Mortgage-backed securities		518		8		–		526
State and political subdivisions		62		5		–		67

	$	755	$	13	$	2	$	766

March 31, 2009:
U.S. government agencies	$	189	$	–	$	3	$	186
Mortgage-backed securities		674		4		5		673
State and political subdivisions		89		5		–		94

	$	952	$	9	$	8	$	953
December 31, 2008:
U.S. government agencies	$	191	$	–	$	3	$	188
Mortgage-backed securities		710		2		11		701
State and political subdivisions		90		6		–		96

	$	991	$	8	$	14	$	985

Amortized cost and fair value of available-for-sale securities and held-to-maturity securities at December 31, 2009, March 31, 2009, and December 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.

December 31, 2009	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

One to five years	$	3,275	$	3,405	$	62	$	67
Five to ten years		4,354		4,502		–		–
After ten years		15,510		15,664		175		173

		23,139		23,571		237		240

Mortgage-backed securities		86,078		88,573		518		526

Totals	$	109,217	$	112,144	$	755	$	766

March 31, 2009	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

Within one year	$	2,000	$	2,004	$	–	$	–
One to five years		3,669		3,777		89		95
Five to ten years		4,270		4,327		–		–
After ten years		19,498		19,511		189		185

		29,437		29,619		278		280

Mortgage-backed securities		86,557		88,114		674		673

Totals	$	115,994	$	117,733	$	952	$	953

December 31, 2008	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

Within one year	$	1,999	$	2,018	$	–	$	–
One to five years		3,779		3,867		90		96
Five to ten years		4,260		4,284		–		–
After ten years		17,015		16,895		191		188

		27,053		27,064		281		284

Mortgage-backed securities		85,932		87,071		710		701

Totals	$	112,985	$	114,135	$	991	$	985

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The total fair value of these investments at December 31, 2009, March 31, 2009, and December 31, 2008, was $19.4 million, $21.4 million and $28.0 million, which represented approximately 17%, 18% and 24%, respectively, of the Company’s aggregate available-for-sale and held-to-maturity investment portfolio. These declines resulted primarily from changes in market interest rates.

Should the impairment of any of these government agency, mortgage-backed and state and political subdivision 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.

December 31, 2009
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. government agencies	$	–	$	–	$	367	$	4	$	367	$	4
Mortgage-backed securities		12,022		195		–		–		12,022		195
State and political subdivisions		6,605		120		430		16		7,035		136
Total temporarily impaired securities	$	18,627	$	315	$	797	$	20	$	19,424	$	335

March 31, 2009
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. government agencies	$	38	$	1	$	359	$	5	$	397	$	6
Mortgage-backed securities		5,025		302		6,171		354		11,196		656
State and political subdivisions		9,404		491		406		16		9,810		507
Total temporarily impaired securities	$	14,467	$	794	$	6,936	$	375	$	21,403	$	1,169

	December 31, 2008
	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. government agencies	$	332	$	5	$	71	$	1	$	403	$	6
Mortgage-backed securities		15,688		449		2,089		44		17,777		493
State and political subdivisions		9,817		495		–		–		9,817		495
Total temporarily impaired securities	$	25,837	$	949	$	2,160	$	45	$	27,997	$	994

FASB ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models that contain market pricing and information, quoted prices of securities with similar characteristics or discounted cash flows that use credit adjusted discount rates. Level 2 securities include U.S. Government

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
					(in thousands)
December 31, 2009
U.S. government agencies	$	2,765	$	–	$	2,765	$	–
Mortgage-backed securities	$	88,573	$	–	$	88,573	$	–
State and political subdivisions	$	20,806	$	–	$	20,806	$	–
	$	112,144	$	–	$	112,144	$	–
March 31, 2009
U.S. government agencies	$	9,304	$	–	$	9,304	$	–
Mortgage-backed securities	$	88,114	$	–	$	88,114	$	–
State and political subdivisions	$	20,315	$	–	$	20,315	$	–
	$	117,733	$	–	$	117,733	$	–
December 31, 2008
U.S. government agencies	$	7,278	$	–	$	7,278	$	–
Mortgage-backed securities	$	87,071	$	–	$	87,071	$	–
State and political subdivisions	$	19,786	$	–	$	19,786	$	–
	$	114,135	$	–	$	114,135	$	–

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value (based on current appraised 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. Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed, and current and past offers for the other real estate under evaluation.

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
					(In thousands)
December 31, 2009
Impaired loans	$	3,402	$	–	$	–	$	3,402
Foreclosed assets		786		–		–		786

March 31, 2009
Impaired loans	$	3,264	$	–	$	–	$	3,264
Foreclosed assets		594		–		–		594

December 31, 2008
Impaired loans	$	427	$	–	$	–	$	427
Foreclosed assets		735		–		–		735

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.

	December 31, 2009				March 31, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets
Cash and cash equivalents	$	13,619	$	13,619	$	6,790	$	6,790	$	10,697	$	10,697
Available-for-sale securities		112,144		112,144		117,733		117,733		114,135		114,135
Held-to-maturity securities		755		766		952		953		991		985
Loans, net of allowance for loan losses		250,574		255,911		254,326		263,450		255,121		269,091
Federal Home Loan Bank stock		5,025		5,025		5,025		5,025		5,025		5,025
Interest receivable		1,426		1,426		1,675		1,675		1,595		1,595

Financial liabilities
Deposits		309,034		303,397		309,534		305,937		310,811		309,220
Other short-term borrowings		7,776		7,776		10,154		10,154		11,592		11,592
Federal Home Loan Bank advances		45,500		46,607		46,000		47,411		44,500		46,206
Advances from borrowers for taxes and insurance		904		904		551		551		936		936
Interest payable		202		202		351		351		305		305

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at December 31, 2009, March 31, 2009, and December 31, 2008.

Total securities decreased by $5.8 million, or 4.9%, during the nine months ended December 31, 2009. This decrease was primarily due to principal repayments of $27.4 million and sales of $4.5 million, partially offset by purchases of $24.8 million and an increase in the market value of available for sale investment securities of $1.2 million. Purchases were mainly funded by proceeds from principal payments received from the securities portfolio. The securities sold from the available-for-sale portfolio were sold to improve both the interest rate risk and credit risk profile of the securities portfolio.

Prepaid assets increased by $1.7 million as a result of the federal deposit insurance assessment imposed on all insured institutions during December 2009. The assessment required the payment in advance of deposit insurance premiums for calendar years 2010, 2011 and 2012. This prepaid asset will be amortized into expense over the next three calendar years based on actual deposit balances subject to assessment as reported through the quarterly regulatory reporting process. Any balance remaining in the prepaid asset account after the payment due on June 30, 2013 will be refunded by the FDIC.

Net loans receivable decreased by $3.8 million, or 1.5% at December 31, 2009 compared to March 31, 2009. The Bank originated $48.1 million of loans, received payments of $50.6 million, originated and sold $5.3 million of 30-year fixed-rate mortgage loans into the secondary market and increased the allowance for loan losses, net of charge-offs, by $544,000. The low interest rate environment has induced a number of residential and commercial borrowers to refinance existing loans, which increases loan repayment activity. Due to the interest rate risk associated with 30-year fixed-rate mortgage loans, management has adopted a strategy of immediately selling certain newly originated loans of this type into the secondary market to limit the accumulation of interest rate risk on the balance sheet. In addition, management believes it appropriate to keep the secondary market channel open as a backup source of liquidity. As part of an overall interest rate risk management strategy, based on the Company’s belief that investing in shorter-term and adjustable-rate commercial loans positions the Company more favorably from an interest rate risk management perspective compared to the origination and retention of long term fixed-rate residential mortgages, the lending division continues to focus on the origination of shorter-term and adjustable-rate commercial and commercial real estate loans.

	December 31, 2009				March 31, 2009				December 31, 2008
	(Dollars in thousands)
Mortgage loans:
One- to four-family residential(1)	$	139,169	54.16	%	$	141,285	54.40	%	$	141,038	54.17	%
Residential construction loans		2,431	0.95			1,587	0.61			1,801	0.69
Multi-family residential		8,707	3.39			8,604	3.31			8,664	3.33
Non-residential real estate/land(2)		68,612	26.70			70,725	27.23			70,992	27.26
Total mortgage loans		218,919	85.20			222,201	85.55			222,495	85.45
Other loans:
Consumer loans(3)		3,562	1.39			4,923	1.90			5,210	2.00
Commercial business loans		34,462	13.41			32,592	12.55			32,679	12.55
Total other loans		38,024	14.80			37,515	14.45			37,889	14.55
Total loans before net items		256,944	100.00	%		259,716	100.00	%		260,384	100.00	%
Less:
Loans in process		2,921				2,506				3,065
Deferred loan origination fees		421				400				397
Allowance for loan losses		3,028				2,484				1,801
Total loans receivable, net	$	250,574			$	254,326			$	255,121
Mortgage-backed securities, net(4)	$	89,091			$	88,788			$	87,781

Non-performing loans amounted to $4.9 million and $5.0 million at December 31, 2009 and March 31, 2009, respectively. At December 31, 2009, non-performing loans consisted primarily of residential mortgage loans of approximately $1.8 million, commercial real estate loans with a combined balance of $2.7 million, commercial business loans totaling $367,000 and consumer loans totaling $16,000. At March 31, 2009, non-performing loans were comprised of $1.4 million in residential loans, $3.0 million in commercial real estate loans, commercial business loans totaling $558,000 and $4,000 in consumer loans. Foreclosed assets held for sale amounted to $786,000 in five properties at December 31, 2009, compared to $594,000 in two properties at March 31, 2009, an increase of 32.3%. The growth in the balance of foreclosed assets is due to the pace of acquisitions being faster than the pace of dispositions. However, despite the difficult real property markets in the Company’s market area, transactions are being executed. Since March 31, 2009, eight properties, seven of which are residential and one non-residential, have been acquired and five residential properties have been sold. Management has been actively working to maximize current net proceeds compared to estimates of expected future carrying costs and potential future values. Total non-performing assets amounted to $5.7 million at December 31, 2009, compared to $5.6 million at March 31, 2009.

	December 31, 2009			March 31, 2009			December 31, 2008
	(Dollars in thousands)
Past due loans 30-89 days:
Mortgage loans:
One- to four-family residential	$	677		$	491		$	996
Multifamily and nonresidential		966			77			3,697
Non-mortgage loans:
Commercial business loans		134			–			160
Consumer loans		4			18			12
	$	1,781		$	586		$	4,865

Non-performing loans:
Mortgage loans:
One- to four-family residential	$	1,790		$	1,409		$	1,517
All other mortgage loans		2,735			3,027			327
Non-mortgage loans:
Commercial business loans		366			558			189
Consumer		16			4			–
Total non-performing loans		4,908			4,998			2,033
Total foreclosed assets held for sale		786			594			735
Total non-performing assets	$	5,694		$	5,592		$	2,768


Total non-performing loans to net loans receivable		1.96	%		1.97	%		0.80	%
Total non-performing loans to total assets		1.22	%		1.24	%		0.50	%
Total non-performing assets to total assets		1.41	%		1.38	%		0.68	%

	For the nine months ended December 31, 2009			For the year ended March 31, 2009			For the nine months ended December 31, 2008

				(Dollars in thousands)

Loans receivable, net	$	250,574		$	254,326		$	255,121
Average loans receivable, net	$	252,698		$	250,220		$	248,842
Allowance balance (at beginning of period)	$	2,484		$	1,777		$	1,777
Provision for losses		1,115			1,068			346
Charge-offs:
Mortgage loans:
One- to four-family		(230	)		(49	)		(24	)
Non-residential real estate and land		(104	)		(245	)		(229	)
Other loans:
Consumer		–			(3	)		(4	)
Commercial		(266	)		(74	)		(74	)
Gross charge-offs		(600	)		(371	)		(331	)
Recoveries:
Mortgage		28			–			–
Consumer		1			10			9
Gross recoveries		29			10			9
Net charge-offs		(571	)		(361	)		(322	)

Allowance for loan losses balance (at end of period)	$	3,028		$	2,484		$	1,801
Allowance for loan losses as a percent of loans receivable, net at end of period		1.21	%		0.97	%		0.71	%
Net loans charged off as a percent of average loans receivable, net		0.23	%		0.14	%		0.13	%
Ratio of allowance for loan losses to non-performing loans at end of period		61.70	%		49.70	%		88.59	%

Deposits totaled $309.0 million at December 31, 2009, a decrease of $500,000, or 0.2%, from $309.5 million at March 31, 2009. Certificates of deposit decreased by $14.9 million, partially offset by an increase in savings and money market accounts of $8.7 million and an increase in demand accounts of $5.8 million. Management continued to exercise 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 accounts to move to other alternatives. Management believes that the changing composition of deposits is temporary due to the low interest rate environment and difficult economic environment that is inducing customers to deposit funds in more liquid types of deposit accounts. Management further believes that if interest rates begin to rise, customers will shift funds to take advantage of higher yielding, less liquid certificate of deposit accounts.

Other short-term borrowings, in the form of repurchase agreements with customers, totaled $7.8 million at December 31, 2009, and $10.2 million at March 31, 2009. The interest rate paid on these borrowings is 0.40% at December 31, 2009 compared to 0.66% at March 31, 2009. The decrease in the rate paid was due to decreases in short term market interest rates associated with Federal Reserve rate reductions during the period.

Advances from the Federal Home Loan Bank of Cincinnati totaled $45.5 million at December 31, 2009, a decrease of $500,000 from $46.0 million at March 31, 2009. The Company primarily uses advances from the FHLB for short term cash management purposes and to extend liability duration for interest rate risk management purposes. Repricing risk associated with advances is mitigated through the scheduling of staggered advance maturities over time. The weighted average cost of FHLB advances was 3.82% at December 31, 2009 compared to 4.13% at March 31, 2009. The decrease in the rate paid is due to decreases in market interest rates.

Net income for the nine months ended December 31, 2009, totaled $1.8 million, an increase of $103,000, or 6.0%, compared to net income for the nine months ended December 31, 2008. The increase in net income was primarily attributable to an increase in net interest income of $1.0 million, an increase in noninterest income of $297,000 and a decrease in the provision for federal income taxes of $71,000. These items were partially offset by an increase in the provision for loan losses of $769,000 and an increase in total noninterest expenses of $505,000.

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

	For the nine months ended December 31,
	2009							2008
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net1	$	252,698	$	10,895		5.75	%	$	248,842	$	11,608		6.22	%
Investment securities2		114,161		4,132		4.83			118,256		4,428		4.99
Interest-earning deposits3		13,075		179		1.83			11,343		236		2.77
Total interest-earning assets		379,934		15,206		5.34			378,441		16,272		5.73
Noninterest-earning assets		23,059							21,570

Total assets	$	402,993						$	400,011

Interest-bearing liabilities:
Deposits	$	306,807		3,720		1.62		$	313,050		5,788		2.47
Other short-term borrowings		8,573		26		0.40			8,895		57		0.85
Borrowings		47,044		1,438		4.08			41,115		1,414		4.59
Total interest-bearing liabilities		362,424		5,184		1.91			363,060		7,259		2.67

Noninterest bearing liabilities		4,537							3,909
Total liabilities		366,961							366,969
Stockholders’ equity		36,032							33,042
Total liabilities and stockholders’ equity	$	402,993						$	400,011
Net interest income			$	10,022						$	9,013
Interest rate spread4						3.43	%						3.06	%
Net yield on interest-earning assets5						3.52	%						3.18	%
Ratio of average interest- earning assets to average interest-bearing liabilities						104.83	%						104.24	%

Interest income decreased by $1.1 million, or 6.6%, to $15.2 million for the nine months ended December 31, 2009, compared to the same period in 2008. This decrease was mainly due to a decrease in the weighted-average yield on interest-earning assets to 5.34% in the 2009 period from 5.73% for the nine month period ended December 31, 2008. The yield decrease was primarily due to a decrease in overall market rates from December 31, 2008, to December 31, 2009.

Interest income on loans decreased by $713,000, or 6.1%, for the nine months ended December 31, 2009, compared to the same period in 2008, due primarily to a reduction in the weighted-average rate on loans of 47 basis points from 6.22% for the period ended December 31, 2008, to 5.75% for the period ended December 31, 2009. As discussed earlier, this was mainly due to the decrease in market rates over the past year and the corresponding impact on adjustable rate loans and new originations. This decrease was partially offset by an increase in the average balance of loans outstanding period to period of $3.9 million, or 1.5%, to $252.7 million for the 2009 period.

Interest income on securities decreased by $296,000, or 6.7%, during the nine months ended December 31, 2009, compared to the same period in 2008. This decrease was primarily due to a decrease in the average balance of securities of $4.1 million, or 3.5%, combined with a decrease in the weighted-average yield to 4.83% for the period ended December 31, 2009, from 4.99% for the period ended December 31, 2008.

Dividends on Federal Home Loan Bank stock and other income decreased by $57,000, or 24.2%, for the nine months ended December 31, 2009, compared to the same period in 2008, due primarily to a decrease in the weighted-average yield to 1.83% for the nine months ended December 31, 2009, compared to 2.77% for the 2008 period, a decrease of 94 basis points resulting from reductions in short term market interest rates. The decrease in yield was offset by an increase of $1.7 million in the average balance.

Interest expense totaled $5.2 million for the nine months ended December 31, 2009, a decrease of $2.1 million, or 28.6%, compared to the nine month period ended December 31, 2008. The decrease resulted from a 76 basis point decrease in the weighted-average cost of funds to 1.91% for the nine month period ended December 31, 2009, along with a decrease of $636,000 in the average balance of deposits and borrowings outstanding, from $363.0 million for the nine month period ended December 31, 2008 to $362.4 million for the nine month period ended December 31, 2009.

Interest expense on deposits totaled $3.7 million for the nine month period ended December 31, 2009, a decrease of $2.1 million, or 35.7%, compared to the nine month period ended December 31, 2008. The decrease resulted from an 85 basis point decrease in the weighted-average cost of deposits to 1.62% for the nine month period ended December 31, 2009 combined with a decrease in the average balance outstanding of $6.2 million, or 2.0%, to $306.8 million for the 2009 period. The decrease in the rate was due to the market rate decreases discussed above, combined with management’s pricing strategy also discussed above.

Interest expense on other short-term borrowings totaled $26,000 for the nine month period ended December 31, 2009, a decrease of $31,000, from the $57,000 expense for the nine month period ended December 31, 2008. The decrease was primarily due to a decrease in the weighted-average cost of 45 basis points, to 0.40% for the nine months ended December 31, 2009 and a decrease in the average balance of $322,000. The decrease in rate was due to the market rate decreases discussed above.

Interest expense on Federal Home Loan Bank advances totaled $1.4 million for the nine months ended December 31, 2009, an increase of $24,000 over the 2008 nine month period. The increase was due to an increase in the average balance of $5.9 million, or 14.4%, as the Company replaced the loss of higher cost retail certificates of deposit with lower cost Federal Home Loan Bank advances as part of management’s deposit pricing strategy discussed above, combined with a decrease in the average rate of 51 basis points from 4.59% for the nine month period ended December 31, 2008, to 4.08% for the nine month period ended December 31, 2009.

Net interest income totaled $10.0 million for the nine month period ended December 31, 2009, an increase of $1.0 million, or 11.2%, compared to the nine month period ended December 31, 2008. The average interest rate spread increased to 3.43% for the nine month period ended December 31, 2009, from 3.06% for the nine month period ended December 31, 2008. The increase was primarily due to the effect of overall market rate decreases and management’s strategy not to compete with national and online competitors offering higher rates on retail deposits, combined with a shift in asset composition from lower yielding investment securities and deposits to higher yielding loans and mortgage-backed securities and a shift in composition of liabilities from higher cost retail certificates of deposit to lower cost Federal Home Loan Bank advances and money market and demand deposit accounts. The net interest margin increased to 3.52% for the nine month period ended December 31, 2009 from 3.18% for the nine month period ended December 31, 2008.

Management recorded a $1.1 million provision for loan losses for the nine month period ended December 31, 2009, an increase of $769,000 compared to the $346,000 provision made during the comparable period in 2008. The amount of the provision for loan losses is based on management’s assessment of portfolio performance indicators, primarily the increase in delinquent loans, non-performing loans and charge-offs, and economic conditions in the Company’s market area. To the best of management’s knowledge, all known and inherent losses that are probable and which can be reasonably estimated have been recorded as of December 31, 2009.

Noninterest income of $1.6 million, consisting primarily of service fees and charges on deposit accounts, earnings on bank-owned life insurance, trust income, gains on the sale of securities and gains from the sale of loans, increased by $287,000, or 21.9%, for the nine month period ended December 31, 2009, compared to $1.3 million for the nine month period ended December 31, 2008. The increase was primarily due to a gain on sale of loans of $161,000 in the nine months ended December 31, 2009, compared to no gain in the nine month period ended December 31, 2008, a gain from the sale of available for sale securities of $91,000, compared to no gain in the nine month period ended December 31, 2008, and an increase in service fees, charges and other operating income of $34,000, or 3.4%. As discussed above, management is executing a strategy of selectively selling newly originated 30 year fixed rate mortgage loans to limit the accumulation of interest rate risk on the balance sheet and to maintain the secondary market as a backup source of liquidity.

Noninterest expense of $8.2 million for the nine month period ended December 31, 2009 was up by $495,000, or 6.5%, compared to the $7.7 million for the nine months ended December 31, 2008. The increase was mainly due to a $544,000 increase in federal deposit insurance premiums resulting from an increase in the FDIC assessment rate schedule, the imposition of a special assessment by the FDIC on all insured institutions during the period and the absence of assessment credits in the 2009 period that were realized in the 2008 period. Loss on disposal of real estate acquired through foreclosure increased by $91,000 for the nine month period ended December 31, 2009, compared to the nine month period in 2008. Compensation expense increased by $144,000, or 3.4%, during the 2009 period due primarily to merit compensation increases and increased employee healthcare costs from period to period. These increased expenses were partially offset by a decrease in net occupancy and equipment expenses of $150,000, or 9.8%, mainly due to decreased depreciation expense as management has carefully controlled the purchase of capital items coupled with a decrease in leasehold expenditures. Other noninterest expense items decreased by $43,000 mainly due to a decline in accounting and professional service costs. Franchise tax expense decreased by $86,000, or 24.6%, to $263,000 for the nine month period ended December 31, 2009, compared to the nine months ended December 31, 2008, mainly due to adjustments in 2008 of a refund claim relating to a prior year’s amended return.

Federal income tax expense was $522,000 for the nine months ended December 31, 2009, a decrease of $71,000, or 12.0%, compared to the same period in 2008. The decrease was primarily due to an increase in interest income on non-taxable municipal securities during the 2009 period compared to the same period in 2008. The effective tax rates were 22.3% and 25.7% for the nine month periods ended December 31, 2009 and 2008, respectively.

Net income for the three months ended December 31, 2009 totaled $635,000, an increase of $51,000, or 8.7%, compared to $584,000 for the three month period ended December 31, 2008. The increase in net income was primarily attributable to an increase in net interest income of $322,000, an increase in noninterest income of $163,000 and a decrease in the provision for federal income taxes of $37,000. These items were partially offset by an increase in the provision for loan losses of $385,000 and an increase in noninterest expenses of $86,000.

	For the three months ended December 31,
	2009							2008
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)	$	252,656	$	3,581		5.67	%	$	256,409	$	3,927		6.13	%
Investment securities(2)		112,270		1,351		4.81			111,905		1,416		5.06
Interest-earning deposits(3)		13,119		57		1.74			10,130		65		2.57
Total interest-earning assets		378,045		4,989		5.28			378,444		5,408		5.72
Noninterest-earning assets		22,772							21,619

Total assets	$	400,817						$	400,063

Interest-bearing liabilities:
Deposits	$	306,125		1,099		1.44		$	311,315		1,798		2.31
Other short-term borrowings		7,008		7		0.40			9,531		13		0.55
Borrowings		45,938		443		3.86			42,609		479		4.50
Total interest-bearing liabilities		359,071		1,549		1.73			363,455		2,290		2.52

Noninterest bearing liabilities		5,010							3,382
Total liabilities		364,081							366,837
Stockholders’ equity		36,736							33,226
Total liabilities and stockholders’ equity	$	400,817						$	400,063
Net interest income			$	3,440						$	3,118
Interest rate spread(4)						3.55	%						3.20	%
Net yield on interest- earning assets(5)						3.64	%						3.30	%
Ratio of average interest- earning assets to average interest-bearing liabilities						105.28	%						104.12	%

Interest income decreased by $419,000 or 7.8%, to $5.0 million for the three months ended December 31, 2009, compared to the same period in 2008. This decrease was due to a decrease in the weighted-average yield on interest-earning assets to 5.28% in the 2009 period from 5.72% for the three month period ended December 31, 2008, combined with a decrease of $399,000 in the average balance of interest-earning assets outstanding to $378.0 million for the three month period ended December 31, 2009, from $378.4 million for the comparable period ended December 31, 2008. The yield decrease was primarily due to the effect of Federal Reserve rate decreases that culminated in December 2008, leading to lower short term interest rates through much of 2009 as compared to 2008.

Interest income on loans decreased by $346,000, or 8.8%, for the three month period ended December 31, 2009, compared to the same period in 2008, primarily due to a reduction in the weighted-average rate on loans from 6.13% for the three months ended December 31, 2008 to 5.67% for the three months ended December 31, 2009. As discussed earlier, this was mainly due to a decrease in rates of 175 basis points implemented by the Federal Reserve during the quarter ended December 31, 2008, and the corresponding effect on adjustable rate loans and new originations. The decrease in interest income was further impacted by a decrease in the average balance of loans outstanding of $3.8 million, or 1.5%, to $252.7 million for the 2009 period. Loan demand from qualified borrowers has been significantly reduced by the deterioration in economic conditions through 2009 as compared to 2008.

Interest income on securities decreased by $65,000, or 4.6%, during the three months ended December 31, 2009, compared to the same period in 2008. This decrease was due primarily to a decrease of 25 basis points in the weighted-average rate to 4.81% for the three months ended December 31, 2009, compared to 5.06% for the same period ended December 31, 2008, partially offset by an increase in the average balance of $365,000, or 0.3%.

Dividends on Federal Home Loan Bank stock and other income decreased by $8,000, or 12.3%, for the three months ended December 31, 2009, compared to the same period in 2008, due primarily to a decrease in the weighted-average yield of 83 basis points resulting from reductions in short term market interest rates, to 1.74% for the 2009 quarter from 2.57% for the period ended December 31, 2008. This decrease was partially offset by an increase in the average balance of $3.0 million.

Interest expense totaled $1.5 million for the three months ended December 31, 2009, a decrease of $741,000, or 32.4%, compared to $2.3 million for the three months ended December 31, 2008. The decrease resulted from a 79 basis point decrease in the weighted-average cost of funds to 1.73% for the 2009 period coupled with a decrease of $4.4 million in the average balance of deposits and borrowings outstanding to $359.1 million for the three month period ended December 31, 2009.

Interest expense on deposits totaled $1.1 million for the three months ended December 31, 2009, a decrease of $699,000, or 38.9%, compared to $1.8 million for the three months ended December 31, 2008. The decrease resulted from an 87 basis point decrease in the weighted-average cost of deposits, to 1.44% for the 2009 period, combined with a decrease in the average balance outstanding of $5.2 million, or 1.7%, to $306.1 million for the 2009 period. The decrease in the rate was due to market interest rate decreases and management’s retail deposit pricing strategy as discussed above.

Interest expense on other short-term borrowings totaled $7,000 for the three month period ended December 31, 2009, a decrease of $6,000, from the 2008 period. The decrease was primarily due to a decrease in the weighted-average cost of 15 basis points, to 0.40% for the three month period ended December 31, 2009, as the Federal Reserve decreased rates from period to period, combined with a decrease in the average balance of short-term borrowings of $2.5 million.

Interest expense on Federal Home Loan Bank advances totaled $443,000 for the three month period ended December 31, 2009, a decrease of $36,000 compared to the 2008 period. The decrease was primarily due to a decrease in the weighted-average cost of 64 basis points to 3.86%. This was partially offset by an increase of $3.3 million, or 7.8%, in the average balance of advances outstanding, as the Company replaced the loss of higher cost retail certificates of deposit with lower cost Federal Home Loan Bank advances. The substitution of borrowings in place of deposits was consistent with management’s retail deposit pricing strategy as discussed above.

Net interest income totaled $3.4 million for the three month period ended December 31, 2009, an increase of $322,000, or 10.3%, compared to the three month period ended December 31, 2008. The interest rate spread increased 35 basis points to 3.55% for the three month period ended December 31, 2009, compared to 3.20% for the three month period ended December 31, 2008. The net interest margin increased 34 basis points to 3.64% for the three month period ended December 31, 2009, compared to 3.30% for the three month period ended December 31, 2008. The increase in the interest rate spread was due to a shift in asset composition from lower yielding investment securities and deposits in other financial institutions to higher yielding loans and mortgage-backed securities and a shift in composition of liabilities from higher cost retail certificates of deposit to lower cost Federal Home Loan Bank advances.

Management recorded a $570,000 provision for loan losses for the three month period ended December 31, 2009, an increase of $385,000 compared to the $185,000 provision for the comparable period in 2008. The amount of the provision for loan losses is based on management’s assessment of portfolio performance indicators, primarily the increase in delinquent loans, non-performing loans and charge-offs, and economic conditions in the Company’s market area. To the best of management’s knowledge, all known and inherent losses that are probable and which can be reasonably estimated have been recorded as of December 31, 2009.

Noninterest income, consisting of service fees and charges on deposit accounts, earnings on bank-owned life insurance, trust income, gain on sale of securities available for sale and gain on the sale of loans increased by $163,000, or 38.7%, for the three month period ended December 31, 2009, compared to the three month period ended December 31, 2008. The increase was primarily due to gains on the sale of available for sale securities totaling $91,000 and gains on loan sales totaling $48,000 during the 2009 period, compared to no gains in the 2008 period. As discussed above, management is executing a strategy of selective sale of newly originated 30 year fixed rate mortgage loans to limit the accumulation of interest rate risk on the balance sheet and to maintain the secondary market as a backup source of liquidity. As also discussed above, management sold certain available for sale securities to improve the interest rate risk and credit risk profile of the securities portfolio. Service fees, charges and other operating income increased

Noninterest expense increased by $86,000, or 3.4%, to $2.7 million for the three months ended December 31, 2009, compared to the three months ended December 31, 2008. The increase was primarily due to a $109,000 increase in federal deposit insurance expense, as a result of increased assessment rates imposed by the FDIC on all insured institutions and the absence of credits in the 2009 period that were realized in the 2008 period, and an increase in losses on disposal of real estate acquired through foreclosure of $30,000. Compensation and employee benefits increased $50,000, or 3.5%, mainly due to merit compensation increases and increased healthcare costs for the period ended December 31, 2009 compared to the period ended December 31, 2008. These increases were partially offset by a decrease in occupancy and equipment expense items of $65,000 due to decreased depreciation as management has exercised careful control over the purchase of capital items coupled with a decrease in leasehold and maintenance expenditures. Finally, franchise tax expense decreased $41,000, or 32.0%, to $87,000 for the three months ended December 31, 2009, compared to the three months ended December 31, 2008, mainly due to adjustments in 2008 of a refund claim relating to a prior year’s amended returns.

Federal income tax expense was $165,000 for the three month period ended December 31, 2009, a decrease of $37,000, or 18.3%, compared to the same period in 2008. The decrease was primarily due to an increase in the proportion of non-taxable income, mainly bank owned life insurance and municipal securities interest income, compared to the same period in 2008. The effective tax rates were 20.6% and 25.7% for the three month periods ended December 31, 2009, and 2008, respectively.

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

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

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

ITEM 6.	Exhibits

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

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

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

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

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

Number outstanding		94,020
Exercise price on all remaining options outstanding		$13.95
Weighted-average remaining contractual life		4.25 years

Date:	February 5, 2010	By:	/s/Phillip E. Becker
			Phillip E. Becker
			President and Chief Executive Officer



Date:	February 5, 2010	By:	/s/H. Stewart Fitz Gibbon III
			H. Stewart Fitz Gibbon III
			Executive Vice President and
			Chief Financial Officer