UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

OR

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

For the transition period from ______________ to _______________

Commission File No. 0-23433

     WAYNE SAVINGS BANCSHARES, INC.     

(Exact name of registrant as specified in its charter)

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

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

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 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý          No o

Indicate by check mark whether the registrant 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).

ý Yes          o No

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

Large accelerated filer o          Accelerated filer o          Non-accelerated filer o          Smaller reporting company ý

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

Yes o          No ý

As of April 30, 2013, the latest practicable date, 2,948,877 shares of the registrant’s common stock, $.10 par value, were issued and outstanding.

Wayne Savings Bancshares, Inc.

Index

		Page
PART I - FINANCIAL INFORMATION
Item 1	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income and Comprehensive Income	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	37
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	38
Item 1A	Risk Factors	38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	39
SIGNATURES		40

Wayne Savings Bancshares, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	March 31, 2013			December 31, 2012
Assets	(Unaudited)
Cash and due from banks	$	6,095		$	7,303
Interest-bearing deposits		3,867			4,752
Cash and cash equivalents		9,962			12,055
Available-for-sale securities		110,228			111,518
Held-to-maturity securities		5,333			3,748
Loans, net of allowance for loan losses of $2,977 and           $3,328 at March 31, 2013 and December 31, 2012, respectively		246,910			247,849
Premises and equipment		7,014			7,088
Federal Home Loan Bank stock		5,025			5,025
Foreclosed assets held for sale, net		193			318
Accrued interest receivable		1,420			1,228
Bank-owned life insurance		8,793			8,723
Goodwill		1,719			1,719
Other intangible assets		105			128
Prepaid federal deposit insurance premiums		520			596
Other assets		2,270			1,944
Prepaid federal income taxes		143			178
Total assets	$	399,635		$	402,117
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	77,412		$	80,668
Savings and money market		117,457			112,229
Time		131,834			134,840
Total deposits		326,703			327,737
Other short-term borrowings		5,975			7,077
Federal Home Loan Bank advances		21,247			21,217
Interest payable and other liabilities		4,673			5,173
Deferred federal income taxes		1,196			1,128
Total liabilities		359,794			362,332
Commitments and Contingencies		—			—
Stockholders’ Equity
Preferred stock, 500,000 shares of $.10 par value authorized; no           shares issued		—			—
Common stock, $.10 par value; authorized 9,000,000 shares;           3,978,731 shares issued		398			398
Additional paid-in capital		35,975			35,975
Retained earnings		17,942			17,567
Shares acquired by ESOP		(552	)		(572	)
Accumulated other comprehensive income		1,127			1,340
Treasury stock, at cost: Common: 1,029,854 and 1,017,385 shares           at March 31, 2013 and December 31, 2012, respectively		(15,049	)		(14,923	)
Total stockholders’ equity		39,841			39,785
Total liabilities and stockholders’ equity	$	399,635		$	402,117

See accompanying notes to condensed consolidated financial statements. 2

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

For the three months ended March 31, 2013 and 2012

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Interest and Dividend Income
Loans	$	2,888		$	2,986
Securities		656			942
Dividends on Federal Home Loan Bank stock and other		55			59
Total interest and dividend income		3,599			3,987
Interest Expense
Deposits		435			610
Other short term borrowings		2			2
Federal Home Loan Bank advances		152			179
Total interest expense		589			791
Net Interest Income		3,010			3,196
Provision (Credit) for Loan Losses		(141	)		787
Net Interest Income After Provision (Credit) for Loan Losses		3,151			2,409
Noninterest Income
Gain on loan sales		47			46
Trust Income		—			92
Earnings on bank-owned life insurance		73			73
Service fees, charges and other operating		270			257
Total noninterest income		390			468
Noninterest Expense
Salaries and employee benefits		1,504			1,637
Net occupancy and equipment expense		477			476
Federal deposit insurance premiums		75			79
Franchise taxes		100			101
Loss on sale of foreclosed assets held for sale		3			13
Amortization of intangible assets		23			23
Other		551			456
Total noninterest expense		2,733			2,785
Income Before Federal Income Taxes		808			92
Provision (Benefit) for Federal Income Taxes		230			(60	)
Net Income	$	578		$	152
Other comprehensive loss:
Unrealized losses on available-for-sale securities		(322	)		(157	)
Tax benefit		109			53
Other comprehensive loss		(213	)		(104	)
Total comprehensive income	$	365		$	48
Basic Earnings Per Share	$	0.20		$	0.05
Diluted Earnings Per Share	$	0.20		$	0.05
Dividends Per Share	$	0.07		$	0.06

See accompanying notes to condensed consolidated financial statements. 3

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2013 and 2012

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Operating Activities
Net income	$	578		$	152
Items not requiring (providing) cash
Depreciation and amortization		148			134
Provision (Credit) for loan losses		(141	)		787
Amortization of premiums and discounts on securities		472			510
Amortization of mortgage servicing rights		6			17
Amortization of deferred loan origination fees		(25	)		(21	)
Amortization of intangible asset		23			23
Increase in value of bank-owned life insurance		(70	)		(71	)
Amortization expense of stock benefit plan		20			17
Loss on sale of foreclosed assets held for sale		3			13
Net gains on sale of loans		(47	)		(46	)
Proceeds from sale of loans in the secondary market		4,402			1,374
Origination of loans for sale in the secondary market		(4,355	)		(1,328	)
Deferred income taxes		176			104
Changes in
Accrued interest receivable		(192	)		(233	)
Prepaid federal deposit insurance premiums		76			73
Other assets		(297	)		(531	)
Interest payable and other liabilities		(86	)		(502	)
Net cash provided by operating activities		691			472
Investing Activities
Purchases of available-for-sale securities		(10,902	)		(13,885	)
Purchase of  held-to-maturity securities		(1,610	)		—
Proceeds from maturities and paydowns of available-for-sale securities		11,404			11,182
Proceeds from maturities and paydowns of held-to-maturity securities		20			13
Net change in loans		1,105			(125	)
Purchase of bank-owned life insurance		—			(1,243	)
Purchase of premises and equipment		(74	)		(74	)
Proceeds from the sale of foreclosed assets		122			1,165
Net cash provided by (used in) investing activities	$	65		$	(2,967	)

See accompanying notes to condensed consolidated financial statements. 4

Wayne Savings Bancshares, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

For the three months ended March 31, 2013 and 2012

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Financing Activities
Net change in deposits	$	(1,034	)	$	(1,964	)
Net change in other short-term borrowings		(1,102	)		1,619
Proceeds from Federal Home Loan Bank and Federal Reserve advances		1,030			10
Repayments of Federal Home Loan Bank and Federal Reserve advances		(1,000	)		20
Advances by borrowers for taxes and insurance		(414	)		(333	)
Dividends on common stock		(203	)		(176	)
Treasury stock purchases		(126	)		—
Net cash used in by financing activities		(2,849	)		(824	)
Decrease in Cash and Cash Equivalents		(2,093	)		(3,319	)
Cash and Cash equivalents, Beginning of period		12,055			19,816
Cash and Cash equivalents, End of period	$	9,962		$	16,497
Supplemental Cash Flows Information
Interest paid on deposits and borrowings	$	586		$	788
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Recognition of mortgage servicing rights	$	44		$	13
Dividends payable	$	206		$	180

See accompanying notes to condensed consolidated financial statements. 5

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

Note 1:          Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012, 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 December 31, 2012. 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 adjustments) which are necessary for a fair presentation of the unaudited financial statements have been included. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results which may be expected for the full year. The condensed consolidated balance sheet of the Company as of December 31, 2012, has been derived from the consolidated balance sheet of the Company as of that date.

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

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.

6

Index

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

Note 2:          Principles of Consolidation

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

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

Note 3:          Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Available-for-sale securities
March 31, 2013:
U.S. government agencies	$	149	$	1	$	—	$	150
Mortgage-backed securities of government sponsored entities		83,839		1,873		130		85,582
Private-label collateralized mortgage obligations		968		34				1,002
State and political subdivisions		22,096		1,419		21		23,494
Totals	$	107,052	$	3,327	$	151	$	110,228

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
Available-for-sale securities	(In thousands)
December 31, 2012:
U.S. government agencies	$	155	$	1	$	1	$	155
Mortgage-backed securities of government sponsored entities		83,956		1,979		105		85,830
Private-label collateralized mortgage obligations		1,067		39		—		1,106
State and political subdivisions		22,842		1,587		2		24,427
Totals	$	108,020	$	3,606	$	108	$	111,518

7

Index

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Held-to-maturity Securities:
March 31, 2013:
U.S. government agencies	$	123	$	1	$	—	$	124
Mortgage-backed securities of government sponsored entities		1,454		52		—		1,506
State and political subdivisions		3,756		—		75		3,681
Totals	$	5,333	$	53	$	75	$	5,311

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
Held-to-maturity Securities:	(In thousands)
December 31, 2012:
U.S. government agencies	$	130	$	1	$	—	$	131
Mortgage-backed securities of government sponsored entities		1,469		45		—		1,514
State and political subdivisions		2,149		—		54		2,095
Totals	$	3,748	$	46	$	54	$	3,740

8

Index

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

Amortized cost and fair value of available-for-sale securities and held-to-maturity securities at March 31, 2013 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized cost		Fair Value		Amortized cost		Fair Value
	(In thousands)
One to five years	$	2,784	$	2,981	$	—	$	—
Five to ten years		4,432		4,675		2,034		2,021
After ten years		15,029		15,988		1,845		1,784
		22,245		23,644		3,879		3,805
Mortgage-backed securities of government sponsored entities		83,839		85,582		1,454		1,506
Private-label collateralized mortgage obligations		968		1,002		—		—
Totals	$	107,052	$	110,228	$	5,333	$	5,311

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $54.5 million and $60.4 million at March 31, 2013 and December 31, 2012, respectively.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The total fair value of these investments at March 31, 2013 and December 31, 2012, was $22.5 million and $19.0 million, which represented approximately 20% and 17%, respectively, of the Company’s aggregate amortized cost of the available-for-sale and held-to-maturity investment portfolios. These declines resulted primarily from changes in market interest rates.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary at March 31, 2013.

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 gross unrealized losses and fair value of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

9

Index

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

	March 31, 2013
	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Mortgage-backed securities of government sponsored entities	$	18,136	$	130	$	—	$	—	$	18,136	$	130
State and political  subdivisions		4,400		96		—		—		4,400		96
Total temporarily impaired securities	$	22,536	$	226	$	—	$	—	$	22,536	$	226

	December 31, 2012
	Less than 12 Months				More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
U.S. government agencies	$	—	$	—	$	66	$	1	$	66	$	1
Mortgage-backed securities of government sponsored entities		13,636		83		2,107		22		15,743		105
State and political subdivisions		3,162		56		—		—		3,162		56
Total temporarily impaired securities	$	16,798	$	139	$	2,173	$	23	$	18,971	$	162

Note 4:          Credit Quality of Loans and the Allowance for Loan Losses

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

10

Index

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

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Past due status is determined based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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

Allowance for Loan Losses

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

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

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

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

11

Index

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

The risk characteristics of each portfolio segment are as follows:

Residential Real Estate Loans

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

All Other Mortgage Loans

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

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

Nonresidential real estate loans are negotiated on a case by case basis. Loans secured by nonresidential 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 nonresidential 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. In addition, the Company originates loans to commercial customers with land held as the collateral.

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

12

Index

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

Commercial Business Loans

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

Consumer Loans

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

The following presents by portfolio segment, the activity in the allowance for loan losses for the three months ended March 31, 2013 and 2012:

Three months ended March 31, 2013	One-to-four family residential			All other mortgage loans			Commercial business loans			Consumer loans			Total
	(In thousands)
Beginning balance	$	1,122		$	1,925		$	275		$	6		$	3,328
Provision (credit) charged to expense		(61	)		(18	)		(63	)		1			(141	)
Losses charged off		(34	)		(176	)		—			(2	)		(212	)
Recoveries		—			—			1			1			2
Ending balance	$	1,027		$	1,731		$	213		$	6		$	2,977

Three months ended March 31, 2012	One-to-four family residential			All other mortgage loans			Commercial business loans		Consumer loans			Total
	(In thousands)
Beginning balance	$	1,128		$	2,547		$	169	$	10		$	3,854
Provision charged to expense		185			598			5		(1	)		787
Losses charged off		(65	)		(5	)		—		—			(70	)
Recoveries		3			—			—		—			3
Ending balance	$	1,251		$	3,140		$	174	$	9		$	4,574

13

Index

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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on the portfolio segment and impairment method as of March 31, 2013 and December 31, 2012:

March 31, 2013	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans		Total
Allowance Balances:	(In thousands)
Ending balance:
Individually evaluated for impairment	$	232	$	950	$	87	$	—	$	1,269
Collectively evaluated for impairment		795		781		126		6		1,708
Total allowance for loan losses	$	1,027	$	1,731	$	213	$	6	$	2,977
Loan Balances:
Ending balance:
Individually evaluated for impairment	$	7,009	$	5,230	$	171	$	—	$	12,410
Collectively evaluated for impairment		154,697		73,796		10,536		1,409		240,438
Total balance	$	161,706	$	79,026	$	10,707	$	1,409	$	252,848

December 31, 2012	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans		Total
Allowance Balances:	(In thousands)
Ending balance:
Individually evaluated for impairment	$	248	$	1,074	$	100	$	—	$	1,422
Collectively evaluated for impairment		874		851		175		6		1,906
Total allowance for loan losses	$	1,122	$	1,925	$	275	$	6	$	3,328
Loan Balances:
Ending balance:
Individually evaluated for impairment	$	6,878	$	5,837	$	185	$	—	$	12,900
Collectively evaluated for impairment		154,032		71,884		14,060		1,517		241,493
Total balance	$	160,910	$	77,721	$	14,245	$	1,517	$	254,393

Total loans in the above tables do not include deferred loan origination fees of $610,000 and $569,000 or loans in process of $2.4 million and $2.6 million, respectively, for March 31, 2013 and December 31, 2012.

14

Index

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

The following tables present the credit risk profile of the Bank’s loan portfolio based on rating category and payment activity as of March 31, 2013 and December 31, 2012:

March 31, 2013	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	152,244	$	71,363	$	10,512	$	1,407
Special Mention (Risk 5)		700		2,433		24		—
Substandard (Risk 6)		8,762		5,230		171		2
Total	$	161,706	$	79,026	$	10,707	$	1,409

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

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

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

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

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

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

Risk 5 or “Special Mention,” also known as “watch,” has potential weakness that deserves Management’s close attention. This risk includes loans where the borrower has developed financial uncertainties or the borrower is resolving the financial uncertainties. Bank credits have been secured or negotiations will be ongoing to secure further collateral.

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

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

15

Index

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

The following tables present the Bank’s loan portfolio aging analysis for March 31, 2013 and December 31, 2012:

March 31, 2013	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In thousands)
One-to-four family residential loans	$	207	$	234	$	981	$	1,422	$	160,284	$	161,706	$	—
All other mortgage loans		—		—		1,129		1,129		77,897		79,026		—
Commercial business loans		—		—		—		—		10,707		10,707		—
Consumer loans		2		—		—		2		1,407		1,409		—
Total	$	209	$	234	$	2,110	$	2,553	$	250,295	$	252,848	$	—

December 31, 2012	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
	(In thousands)
One-to-four family residential loans	$	1,049	$	339	$	1,190	$	2,578	$	158,332	$	160,910	$	—
All other mortgage loans		1,544		—		1,309		2,853		74,868		77,721		—
Commercial business loans		—		—		—		—		14,245		14,245		—
Consumer loans		1		2		2		5		1,512		1,517		—
Total	$	2,594	$	341	$	2,501	$	5,436	$	248,957	$	254,393	$	—

16

Index

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

Non-accrual loans were comprised of the following at:

Non-accrual loans	March 31, 2013		December 31, 2012
	(In thousands)
One-to-four family residential loans	$	2,377	$	2,097
Nonresidential real estate loans		2,903		3,123
All other mortgage loans		—		—
Commercial business loans		30		32
Consumer loans		2		4
Total	$	5,312	$	5,256

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Information with respect to the Company’s impaired loans at March 31, 2013 and December 31, 2012 in combination with activity for the three months ended March 31, 2013 and 2012 is presented below:

	As of March 31, 2013						Three months ended March 31, 2013
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance
One-to-four family residential loans	$	5,653	$	5,653	$	—	$	5,620	$	78
All other mortgage loans		2,375		2,375		—		2,578		29
Commercial business loans		84		87		—		85		1
Loans with a specific valuation allowance
One-to-four family residential loans		1,356		1,356		232		1,324		13
All other mortgage loans		2,855		3,627		950		2,956		9
Commercial business loans		87		87		87		94		1
Total:
One-to-four family residential loans	$	7,009	$	7,009	$	232	$	6,944	$	91
All other mortgage loans		5,230		6,002		950		5,534		38
Commercial business loans		171		174		87		178		2
	$	12,410	$	13,185	$	1,269	$	12,655	$	131

17

Index

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

	As of December 31, 2012						Three months ended March 31, 2012
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance
One-to-four family residential loans	$	5,587	$	5,587	$	—	$	3,232	$	39
All other mortgage loans		2,781		2,781		—		1,923		27
Commercial business loans		85		85		—		—		—
Loans with a specific valuation allowance
One-to-four family residential loans		1,291		1,291		248		821		25
All other mortgage loans		3,056		3,652		1,074		5,248		20
Commercial business loans		100		100		100		71		—
Total:
One-to-four family residential loans	$	6,878	$	6,878	$	248	$	4,053	$	64
All other mortgage loans		5,837		6,433		1,074		7,171		47
Commercial business loans		185		185		100		71		—
	$	12,900	$	13,496	$	1,422	$	11,295	$	111

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

All the TDR classifications listed below occurred as concessions were granted to borrowers experiencing financial difficulties. In 2013, the concessions made to the borrowers included both a reduction in the stated interest rate below the market rate of similar debt and an extension of the maturity date. The TDR classifications which occurred in the March 31, 2012 period were both due to an effective interest rate below the market interest rate of similar debt. Each TDR has been individually evaluated for impairment with the appropriate specific valuation allowance included in the allowance for loan losses calculation.There were no TDR classifications which defaulted during the three month periods ended March 31, 2013 and 2012. The Company considers TDRs that become 90 days or more past due under modified terms as subsequently defaulted.

	Quarter-to-Date
Troubled Debt Restructurings	Number of loans	Pre-modification Unpaid Principal Balance		Post-modification Unpaid Principal Balance
	(dollars in thousands)
March 31, 2013
One-to-four family residential loans	1	$	113	$	113
All other mortgage loans	1		576		576
March 31, 2012
One-to-four family residential loans	2	$	538	$	538

18

Index

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

Note 5:          Goodwill and Intangible Assets

The composition of goodwill and other intangible assets, all of which is core deposit intangible, at March 31, 2013 and December 31, 2012:

	March 31, 2013			December 31, 2012
	(In thousands)
Goodwill	$	1,719		$	1,719
Other intangible assets – gross		974			974
Other intangible assets – amortization		(869	)		(846	)
Total	$	1,824		$	1,847

The Company recorded amortization relative to intangible assets totaling $23,000 for both of the three month periods ended March 31, 2013, and 2012 respectively. The Company anticipates $91,000 of amortization for 2013 and $37,000 for 2014. Such amortization is derived using the straight line method for the core deposit asset over ten years. Pursuant to FASB ASC 350, the Company is required to annually test goodwill and other intangible assets for impairment. The Company’s testing of goodwill and other intangible assets at November 30, 2012 indicated there was no impairment in the carrying value of these assets.

Note 6:           Earnings Per Share

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

	Three months ended March 31,
	2013		2012
Weighted-average common shares outstanding (basic)		2,902,644		2,938,660
Dilutive effect of assumed exercise of stock options		—		—
Weighted-average common shares outstanding (diluted)		2,902,644		2,938,660

19

Index

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

None of the outstanding options were included in the diluted earnings per share calculation for the three months ended March 31, 2013 and 2012, as the average fair value of the shares was less than the option exercise prices.

Note 7:           Stock Option Plan

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 March 31, 2013, 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 August of 2013 unless otherwise exercised or forfeited. The Company accounts for the stock option 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 three months ended March 31, 2013 and 2012. There was no compensation expense recognized for the stock option plan during the three months ended March 31, 2013 and 2012, as all options were fully vested prior to these periods.

A summary of the status of the Company’s stock option plan as of and for the three months ended March 31, 2013, and for the year ended December 31, 2012 is presented below:

	Three months ended March 31, 2013				Year ended December 31, 2012
	Shares		Weighted average exercise price		Shares		Weighted average exercise price
Outstanding at beginning of period		58,908	$	13.95		63,408	$	13.95
Granted		—		—		—		—
Exercised		—		—		—		—
Forfeited		17,704	$	13.95		4,500	$	13.95
Outstanding at end of period		41,204	$	13.95		58,908	$	13.95
Options exercisable at period-end		41,204	$	13.95		58,908	$	13.95

The following information applies to options outstanding at March 31, 2013:

Number outstanding		41,204
Exercise price on all remaining options outstanding	$	13.95
Weighted-average remaining contractual life		.42 years

20

Index

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

Note 8:          Regulatory Matters

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Tier I capital to average assets, of Tier 1 capital to risk-weighted assets, and of Total Risk-based capital to risk-weighted assets, all as defined in the regulations. Management believes, as of March 31, 2013, that the Bank met all capital adequacy requirements to which it is subject.

As of March 31, 2013, based on the computations for the call report the Bank is classified as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since March 31, 2013 that management believes have changed the Bank’s capital classification.

The Bank’s actual capital amounts and ratios as of March 31, 2013 and December 31, 2012 are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2013
Tier I Capital to average assets	$	35,223		8.8	%	$	15,969		4.0	%	$	19,961		5.0	%
Tier I Capital to risk weighted assets		35,223		14.9	%		9,473		4.0	%		14,210		6.0	%
Total Risk-based capital to risk-weighted assets		38,184		16.1	%		18,947		8.0	%		23,683		10.0	%
As of December 31, 2012
Tier I Capital to average assets	$	34,774		8.7	%	$	16,069		4.0	%	$	20,086		5.0	%
Tier I Capital to risk weighted assets		34,774		14.7	%		9,458		4.0	%		14,187		6.0	%
Total Risk-based capital to risk-weighted assets		37,734		16.0	%		18,916		8.0	%		23,644		10.0	%

21

Index

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

Note 9:          Accumulated Other Comprehensive Income

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

	Net Unrealized Gains on Available-for-sale Securities		Net Unrealized Loss for Unfunded Status of Split-dollar Life Insurance Plan Liability (tax-free)			Net Unrealized Loss for Unfunded Status of Defined Benefit Plan			Tax Effect			Total Accumulated Other Comprehensive Income
	(In thousands)
March 31, 2013	$	3,175	$	(246	)	$	(1,096	)	$	(706	)	$	1,127
December 31, 2012	$	3,498	$	(246	)	$	(1,096	)	$	(816	)	$	1,340

There were no amounts reclassified out of accumulated other comprehensive income during the three months ended March 31, 2013 or 2012.

Note 10:          Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

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

22

Index

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

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012:

			Fair Value Measurement 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)
March 31, 2013
U.S. government agencies	$	150	$	—	$	150	$	—
Mortgage-backed securities of government sponsored entities		85,582		—		85,582		—
Private-label collateralized mortgage obligations		1,002		—		1,002		—
State and political subdivisions		23,494		—		23,494		—

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2012
U.S. government agencies	$	155	$	—	$	155	$	—
Mortgage-backed securities of government sponsored entities		85,830		—		85,830		—
Private-label collateralized mortgage obligations		1,106		—		1,106		—
State and political subdivisions		24,427		—		24,427		—

23

Index

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

Nonrecurring Measurements

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

Collateral-dependent Impaired Loans, Net of ALLL

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

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

Foreclosed Assets Held for Sale

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

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

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2013 and December 31, 2012.

24

Index

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

			Fair Value Measurement 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)
March 31, 2013
Collateral-dependent impaired loans	$	344	$	—	$	—	$	344
December 31, 2012
Collateral-dependent impaired loans	$	2,437	$	—	$	—	$	2,437
Foreclosed assets		16		—		—		16

Unobservable (Level 3) Inputs

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

March 31, 2013	Fair Value		Valuation Technique	Unobservable Inputs	Range
Collateral-dependent   impaired loans	$	344	Market comparable properties	Selling Costs  Sherriff's sale discount		10% 37%
December 31, 2012
Collateral-dependent   impaired loans	$	2,437	Market comparable properties	Selling Costs		10%
Foreclosed assets		16	Market comparable properties	Selling Costs		10%

There were no changes in the inputs or methodologies used to determine fair value at March 31, 2013 as compared to December 31, 2012.

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.

25

Index

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

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
March 31, 2013
Financial assets
Cash and cash equivalents	$	9,962	$	9,962	$	—	$	—
Held-to-maturity securities		5,333		—		5,311		—
Loans, net of allowance for loan losses		246,910		—		—		259,591
Federal Home Loan Bank stock		5,025		—		5,025		—
Interest receivable		1,420		—		1,420		—
Financial liabilities
Deposits		326,703		—		313,654		—
Other short-term borrowings		5,975		—		5,975		—
Federal Home Loan Bank advances		21,247		—		22,023		—
Advances from borrowers for taxes and insurance		655		—		655		—
Interest payable		54		—		54		—

26

Index

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

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2012
Financial assets
Cash and cash equivalents	$	12,055	$	12,055	$	—	$	—
Held-to-maturity securities		3,748		—		3,740
Loans, net of allowance for loan losses		247,849		—		—		259,986
Federal Home Loan Bank stock		5,025		—		5,025		—
Interest receivable		1,228		—		1,228		—
Financial liabilities
Deposits		327,737		—		317,312		—
Other short-term borrowings		7,077		—		7,077		—
Federal Home Loan Bank advances		21,217		—		22,048		—
Advances from borrowers for taxes and insurance		1,069		—		1,069		—
Interest payable		51		—		51		—

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

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

The carrying amount approximates fair value.

Held-to-maturity securities

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

27

Index

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

Loans

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

Deposits

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

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

The carrying amount approximates fair value.

Federal Home Loan Bank Advances

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

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

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at March 31, 2013 and December 31, 2012.

Note 11:          Recent Accounting Developments

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

FASB ASU 2013-04, Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date in Accounting Standards Update No. 2013-04, issued in February 2013 requires the Company to measure and report on obligations resulting from joint and several liability. This includes the amount the Company has agreed to pay on the basis of its arrangement among its co-obligors, and any additional amount the Company expects to pay on behalf of its co-obligors. The amendments in this update, should be applied retrospectively, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

28

Index

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

FASB ASU 2013-07, Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting, in Accounting Standards Update No. 2013-07, issued in April 2013 requires the Company to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. This standard requires the Company to present relevant information about its expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The amendments in this update, are to be applied prospectively, and are effective for annual reporting periods, and interim reporting periods therein, beginning after December 15, 2013 for those entities that determine liquidation is imminent, and early adoption is permitted. This standard is not expected to have any impact on the Company’s consolidated financial statements.

Note 12:          Transfer and Assumption Agreement

On November 15, 2012, the Bank completed a Transfer and Assumption Agreement with Thomasville National Bank (“TNB”), the national bank subsidiary of Thomasville Bancshares, Inc. headquartered in Thomasville, Georgia. The agreement provided for the transfer of the Bank’s trust business to TNB.

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

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

29

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

Strategic Initiatives

As part of an ongoing strategic planning process, which includes annual plan updates and regular progress reviews by the Board of Directors, the Company continues to be engaged in several initiatives to improve the returns to shareholders over a foreseeable time horizon.

These continuing initiatives include the execution of a comprehensive marketing and sales program to increase top line revenue of the Company through both loan and fee income generating activities, recognizing that marketing expense is likely to increase ahead of revenue.

Another ongoing initiative is the review of branch facilities and staff to identify opportunities for reductions in staff and facilities costs to improve operational efficiency without impairing revenue generation ability and considering the potential effect on shareholder’ equity.

A further ongoing initiative is the evaluation of information technology solutions to improve internal operating efficiency and customer service.

The final initiative includes the continuing development of a comprehensive Enterprise Risk Management (ERM) program to ensure that the earnings generated through existing and contemplated activities are commensurate with the risks assumed in those activities and consistent with legal requirements, regulatory requirements and general economic conditions.

Discussion of Financial Condition Changes from December 31, 2012 to March 31, 2013

At March 31, 2013, the Company had total assets of $399.6 million, a decrease of $2.5 million, or 0.6%, from total assets at December 31, 2012. Cash and cash equivalents decreased $2.1 million, due to funding a $1.0 million decline in total deposits, mainly in higher cost time deposits, and a $1.1 million decline in other short-term borrowings, while net loans decreased $939,000 which was partially used to fund growth of $295,000 in total securities compared to December 31, 2012.

Total securities increased $295,000 during the three months ended March 31, 2013. The increase was primarily due to purchases totaling $12.5 million, partially offset by principal repayments of $11.4 million, amortization of premiums of $472,000, and a $323,000 decline in unrealized gains on available-for-sale securities during the three months ended March 31, 2013.

Net loans receivable decreased by $939,000, at March 31, 2013 compared to December 31, 2012. The Bank originated $15.8 million of loans, received payments of $11.7 million, and originated and sold $4.4 million of 30-year fixed-rate mortgage loans into the secondary market, and recorded a credit for loan losses of $141,000. The low interest rate environment has induced a number of residential and commercial borrowers to refinance existing loans, which increases loan repayment activity. Although the extensive supply of liquidity provided by the Federal Reserve Board has decreased the cost of borrowing, it has not stimulated a substantial amount of loan growth. Employment, manufacturing, and investment in new plant and consumer spending are not doing as well as the housing sector. According to FDIC call report data based on Call Reports filed for March 31, 2013, loan growth analysis for all bank charters with assets exceeding $300 million (a universe of just over 2,100 banks) shows a general contraction of average loan growth compared to loan balances outstanding at December 31, 2012. Similar to the banking industry, loan growth for the Company remains difficult to achieve because the economic environment continues to limit the demand for new loans by credit worthy borrowers.

30

Index

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

As part of an overall strategy to manage liquidity and interest rate risk, management has executed a strategy of immediately selling certain newly originated 30-year fixed-rate mortgage loans into the secondary market to limit the interest rate risk exposure on the balance sheet and to utilize the secondary market as a backup source of liquidity. Similarly, in order to further limit the overall interest rate risk on the balance sheet, the Company focuses on the origination of shorter-term and adjustable-rate secured commercial loans and limits the retention of long term fixed-rate residential mortgages. To the extent that loan demand is insufficient in the current period, investments in the securities portfolio are made to provide cash flows to fund loan demand in future periods, while also limiting the interest rate risk exposure of the Company. Investments generally contribute to higher risk-based capital ratios, compared to loans, as the investments the Company purchases are risk weighted less than the loan originations. As loan volume increases relative to investment volume, risk-based capital ratios will decline.

The following table sets forth certain information regarding the Company’s loan portfolio for the dates indicated.

	March 31, 2013					December 31, 2012
	Balance		Percent of total loans			Balance		Percent of total loans
	(Dollars in thousands)
Mortgage loans:
One-to-four family residential(1)	$	161,706		63.95	%	$	160,910		63.25	%
Residential construction loans		2,654		1.05	%		2,170		0.85	%
Multi-family residential		9,798		3.88	%		9,790		3.85	%
Nonresidential real estate/land(2)		66,574		26.33	%		65,761		25.85	%
Total mortgage loans		240,732		95.21	%		238,631		93.80	%
Other loans:
Consumer loans(3)		1,409		0.56	%		1,517		0.60	%
Commercial business loans		10,707		4.23	%		14,245		5.60	%
Total other loans		12,116		4.79	%		15,762		6.20	%
Total loans before net items		252,848		100.00	%		254,393		100.00	%
Less:
Loans in process		2,351					2,647
Deferred loan origination fees		610					569
Allowance for loan losses		2,977					3,328
Total loans receivable, net	$	246,910				$	247,849

⁽¹⁾ Includes equity loans collateralized by second mortgages in the aggregate amount of $14.6 million at March 31, 2013 and $14.8 million at December 31, 2012. Such loans have been underwritten on substantially the same basis as the Company’s first mortgage loans.

⁽²⁾ Includes land loans of $2.1 million for March 31, 2013 and $2.3 million for December 31, 2012.

⁽³⁾ Includes second mortgage loans of $667,000 for March 31, 2013 and $683,000 for December 31, 2012.

31

Index

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

Foreclosed assets held for sale totaled $193,000 at March 31, 2013 compared to $318,000 at December 31, 2012. Activity during the current year period included the sale of two residential properties totaling $122,000, that were held as foreclosed assets at December 31, 2012, with no new foreclosed assets being added during the current year period. Total nonperforming and impaired assets totaled $14.4 million, or 3.59% of total assets, and $14.8 million, or 3.68% of total assets, at March 31, 2013 and December 31, 2012, respectively.

Goodwill of $1.7 million is carried on the Company’s balance sheet as a result of the acquisition of Stebbins Bancshares in June 2004. In accordance with FASB ASC 350, this goodwill is tested for impairment on at least an annual basis. Management evaluated the goodwill using an analysis of required measures of value, including the current stock price as an indicator of minority interest value, change of control multiples as a measure of controlling interest value and discounted cash flow analysis as a measure of going concern value and applied a weighting based on appraisal standards to arrive at a valuation conclusion that indicated no impairment at November 30, 2012, and there were no interim impairment indicators that would require another evaluation at March 31, 2013.

Deposits totaled $326.7 million at March 31, 2013, a decrease of $1.0 million, compared to $327.7 million at December 31, 2012. Demand deposits decreased $3.3 million, or 4.0%, and time deposits decreased by $3.0 million, or 2.2%, of which declines were partially offset by a $5.2 million, or 4.7% increase in savings and money market accounts. Management continued to exercise discipline during the period with regard to the pricing of retail certificates, keeping rates close to market benchmarks and not competing for certificates where a profitable customer relationship was not involved. Given the uncertain status of the economy in general, customers are choosing to increase their liquidity and keep their funds in insured checking, savings and money market products offered by the Bank.

Other short-term borrowings, which consist solely of repurchase agreements with commercial customers of the Bank, decreased by $1.1 million and totaled $6.0 million at March 31, 2013. These customer repurchase agreements are offered by the Bank in order to retain commercial customer funds and to afford those commercial customers the opportunity to earn a return on a short-term secured transaction. Average balances are shown in the tables below and reflect no significant variation during the periods. The interest rate paid on these borrowings was 0.15% at both March 31, 2013 and December 31, 2012.

Advances from the Federal Home Loan Bank of Cincinnati (“FHLB”) totaled $21.2 million at both March 31, 2013, and at December 31, 2012. The Company uses advances from the FHLB for both short-term cash management purposes and to extend liability duration for interest rate risk management purposes, as the cost of duration purchased from the FHLB is less expensive than obtaining a similar duration through retail certificates of deposit. Repricing risk associated with advances is mitigated through the laddering of advance maturities over time. The weighted average cost of FHLB advances was 2.86% at March 31, 2013 compared to 2.69% at December 31, 2012.

Stockholders’ equity increased by $56,000, during the three months ended March 31, 2013, primarily due to net income of $578,000, partially offset by dividends declared of $206,000, purchases of treasury stock totaling $126,000, and a $213,000 decline in accumulated other comprehensive income related solely to a decline in unrealized gains on available-for-sale securities.

32

Index

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

Comparison of Operating Results for the Three Months Ended March 31, 2013 and 2012

General

Net income for the three months ended March 31, 2013 totaled $578,000, reflecting an increase of $426,000, from $152,000 for the three month period ended March 31, 2012. The increase in net income was primarily due to a $928,000 decrease in provision (credit) for loan losses, and a $52,000 decrease in noninterest expense, partially offset by a $186,000 decrease in net interest income, a $78,000 decrease in noninterest income, and a $290,000 increase in provision (benefit) for federal income taxes.

Average Balance Sheet

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. 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 three months ended March 31,
	2013							2012
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)	$	247,693	$	2,888		4.66	%	$	231,663	$	2,986		5.16	%
Investment securities(2)		115,023		656		2.28	%		136,932		942		2.75	%
Interest-earning deposits(3)		12,740		55		1.73	%		13,852		59		1.70	%
Total interest-earning assets		375,456		3,599		3.83	%		382,447		3,987		4.17	%
Noninterest-earning assets		24,807							23,837
Total assets	$	400,263						$	406,284
Interest-bearing liabilities:
Deposits	$	326,495	$	435		0.53	%	$	329,567	$	610		0.74	%
Other short-term borrowings		6,615		2		0.12	%		5,947		2		0.13	%
Borrowings		21,239		152		2.86	%		26,608		179		2.69	%
Total interest-bearing liabilities		354,349		589		0.66	%		362,122		791		0.87	%
Noninterest bearing  liabilities		5,942							4,173
Total liabilities		360,291							366,295
Stockholders’ equity		39,972							39,989
Total liabilities and stockholders’ equity	$	400,263						$	406,284
Net interest income			$	3,010						$	3,196
Interest rate spread(4)						3.17	%						3.30	%
Net yield on interest-earning assets(5)						3.21	%						3.34	%
Ratio of average interest- earning assets to           average interest-bearing liabilities						105.96	%						105.61	%

⁽¹⁾ Includes nonaccrual loan balances.

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

⁽³ Includes interest-earning 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.

33

Index

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

Interest Income

Interest income decreased $388,000 or 9.7%, to $3.6 million for the three months ended March 31, 2013, compared to the same period in 2012. The decrease was due to 34 basis point decline in the weighted-average yield on interest-earning assets from 4.17% in the 2012 period to 3.83% for the 2013 period, as well as a $7.0 million decrease in the average balance of interest-earning assets from $382.4 million in the 2012 period to $375.4 million for the 2013 period. The yield decrease was primarily due to the cumulative effect of interest-earning assets repricing to lower current market rates compared to the 2012 period as a result of lower interest rate resets on adjustable rate loans, lower rates on new loan originations and reinvestment of securities cash flows at lower market yields.

Interest income on loans decreased $98,000, or 3.3%, for the three month period ended March 31, 2013, compared to the same period in 2012. This decrease was primarily due to a 50 basis point decrease in the weighted-average loan portfolio yield from 5.16% for the three months ended March 31, 2012 to 4.66% for the three months ended March 31, 2013, as a result of reduced origination yields and the amortization, prepayment and repricing of higher yielding loans due to the low level of market interest rates. The decline in the weighted-average loan portfolio yield was partially offset by a $16.0 million, or 6.9%, increase in the average balance of loans outstanding from $231.7 million in the 2012 period to $247.7 million for the 2013 period. Interest income on securities decreased $286,000 during the three months ended March 31, 2013, compared to the same period in 2012. This decrease was due to a 47 basis point decrease in the weighted-average rate from 2.75% in the 2012 period to 2.28% for the 2013 period, and a $21.9 million, or 16.0%, decline in the average balance.

Dividends on Federal Home Loan Bank stock and other income decreased $4,000 for three months ended March 31, 2013 compared to March 31, 2012. The decrease was due to a $1.1 million decline in the average balance, partially offset by a 3 basis point increase in the weighted average rate from 1.70% at March 31, 2012, to 1.73% at March 31, 2013.

Interest Expense

Interest expense totaled $589,000 for the three month period ended March 31, 2013, which decreased $202,000, or 25.5%, from $791,000 for the three month period ended March 31, 2012. The decrease was due to a 21 basis point decrease in the weighted-average cost of funds from 0.87% in the 2012 period to 0.66% in the current year period as well as a $7.8 million, or 2.1%, decrease in the average balance of total interest-bearing liabilities from $362.1 million in the 2012 period to $354.3 in the 2013 period.

Interest expense on deposits for the three month period ended March 31, 2013 totaled $435,000, which decreased $175,000, or 28.7%, from $610,000 for the same period in the previous year. The decrease was due to a 21 basis point decrease in the weighted-average cost of deposits, from 0.74% in the 2013 period to 0.53% for the 2013 period, as well as a $3.1 million decrease in the average balance from $329.6 million in the 2012 period to $326.5 million in the 2013 period. The decrease in interest expense continues to slow as rates paid on deposit products reach floors established by local market competitors and overall market conditions.

Interest expense on other short-term borrowings totaled $2,000 for both three month periods ended March 31, 2013, and 2012. The weighted-average cost decreased 1 basis point to 0.12%, which was fully offset by a $668,000 increase in the average balance.

34

Index

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

Interest expense on Federal Home Loan Bank advances totaled $152,000 for the three month period ended March 31, 2013, which decreased $27,000 from $179,000 in the 2012 period. The decrease was primarily due to a $5.4 million, or 20.2%, decrease in the average balance outstanding, partially offset by a 17 basis point increase in the weighted-average cost from 2.69% in the 2012 period to 2.86% in the 2013 period. The increase in the weighted-average cost is due to the repayment of lower cost maturing advances without taking out new advances.

Net Interest Income

Net interest income totaled $3.0 million for the three month period ended March 31, 2013, a decrease of $186,000, or 5.8%, from the three month period ended March 31, 2012. The decline in net interest income was mainly due to a 13 basis point decrease in the net interest rate spread, from 3.30% at March 31, 2012 to 3.17% at March 31, 2013. The decrease in the net interest spread is a result of yields on earning-assets declining more than the rate paid on interest-bearing liabilities. During the three months ended March 31, 2013, the yield on earning assets declined 34 basis points, while the rate paid on interest-bearing liabilities declined 21 basis points, compared to the same period last year. The yield on earning assets was negatively impacted as a result of reduced origination yields, amortization, prepayment and repricing of higher yielding adjustable rate loans due to the low level of market interest rates, and security purchases at lower yields than in the prior year period. The cost of funds, which also declined from the prior year period, was managed in a manner that would allow the Bank to maintain its deposit base, and compete with existing market interest rates on interest-earning assets.

Provision (Credit) for Loan Losses

Management recorded a reversal of $141,000 in the provision (credit) for loan losses for the three month period ended March 31, 2013, resulting in a decrease of $928,000 compared to the $787,000 provision for the three month period ended March 31, 2012. The current quarter credit balance provision is based on improved local economic factors including the bank’s delinquency ratios and the number of foreclosures within the bank’s market area which both moved favorably during the current quarter combined with a decline in loan balances, compared to the prior year quarter. The increased provision in the prior year quarter was a result of several relationships requiring additional reserves, which included a loan downgrade, a foreclosure proceeding, and one that was considered doubtful, as well as an increase in classified loan balances.

Noninterest Income

Noninterest income totaled $390,000, for the three months ended March 31, 2013, which decreased $78,000, or 16.7%, from $468,000 for the same period in 2012. The decrease was primarily due to a $92,000 decline in Trust income related to the trust transfer and assumption agreement. This decrease was partially offset by a $13,000 increase in service fees, charges and other operating income which includes $17,000 in facilities and equipment reimbursements from TNB, as a result of the trust transfer and assumption agreement.

35

Index

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

Noninterest Expense

Noninterest expense totaled $2.7 million for the three months ended March 31, 2013, which decreased $52,000, or 1.9%, from $2.8 million for the three months ended March 31, 2012. The decrease was primarily due to a $133,000 decrease in salaries and employee benefits and a $10,000 decrease in loss on foreclosed assets held for sale, partially offset by a $95,000 increase in other operating expenses. The decrease in salaries and employee benefits was due to a non-recurring health savings account contribution made in the prior year quarter, lower compensation costs resulting from staff attrition since the prior year quarter and the completion of the trust transfer and assumption agreement which eliminated several positions and the related salary and benefit costs compared to the prior year quarter. The increase in other operating expenses was primarily due to increased marketing expenses incurred as part of the Company’s strategic initiative to increase top line revenues compared to the prior year quarter.

Federal Income Taxes

Federal income tax expense totaled $230,000 for the three month period ended March 31, 2013, an increase of $290,000 compared to a $60,000 benefit for three month period ended March 31, 2012. The increase was primarily due to a $716,000 increase in pretax income compared to the prior year period, as well as the tax benefit recorded in the prior year period which was a result of the composition of non-taxable earnings.

Forward-Looking Statements

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

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

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

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no material change in the Company’s market risk since the Company’s Form 10-K was filed with the Securities and Exchange Commission for the year ended December 31, 2012.

36

Index

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

ITEM 4 Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal controls.

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

37

Index

Wayne Savings Bancshares, Inc.
PART II

ITEM 1. Legal Proceedings

Not applicable.

ITEM 1A. Risk Factors

There have been no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for year ended December 31, 2012.

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

(a) Not applicable.

(b) Not applicable.

(c) The following table sets forth certain information regarding repurchases by the Company for the quarter ended March 31, 2013.

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of the announced plan		Maximum number of shares which may still be purchased as part of the announced plan
January 1 - 31, 2013		—	$	—		42,767		107,439
February 1 - 28, 2013		—	$	—		42,767		107,439
March 1 - 31, 2013		12,469	$	10.12		55,236		94,970
Total		12,469	$	10.12		55,236		94,970

Notes to the Table:

On August 10, 2012, the Company announced the authorization by the Board of Directors of a new program for the repurchase of 150,206 shares, or five percent (5%) of the Company’s outstanding shares of common stock.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

Not applicable.

38

Index

Wayne Savings Bancshares, Inc.
PART II

ITEM 6. Exhibits

Exhibit
Number	Description
10.7*	Group Term Carve-Out Plan entered into by Wayne Savings Community Bank for Senior Vice Presidents and above in November 2002
10.8*	Summary of Cash Incentive Bonus Plan
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
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
101	Interactive financial data (XBRL)

* management contract or compensatory plan or arrangement

39

SIGNATURES

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

Date:  May 10, 2013	By:	/s/Rod C. Steiger
		Rod C. Steiger
		President and Chief Executive Officer
Date:  May 10, 2013	By:	/s/Myron Swartzentruber
		Myron Swartzentruber
		Senior Vice President and
		Chief Financial Officer

40