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, 2014

OR

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

For the transition period from ____________ to _______________

Commission File No. 0-23433

          WAYNE SAVINGS BANCSHARES, INC.          

(Exact name of registrant as specified in its charter)

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

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

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 ¨

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     ¨ 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 ¨    Accelerated filer ¨     Non-accelerated filer ¨     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 ¨                No  ý 

As of April 30, 2014, the latest practicable date, 2,838,439 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	33
Item 3  Quantitative and Qualitative Disclosures About Market Risk	42
Item 4  Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1  Legal Proceedings	43
Item 1A  Risk Factors	43
Item 2  Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3  Defaults Upon Senior Securities	43
Item 4  Mine Safety Disclosures	43
Item 5  Other Information	44
Item 6  Exhibits	44
SIGNATURES	45

Wayne Savings Bancshares, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	March 31, 2014			December 31, 2013
	(Unaudited)
Assets
Cash and due from banks	$	5,542		$	7,751
Interest-bearing deposits		4,576			5,630
Cash and cash equivalents		10,118			13,381
Available-for-sale securities		105,335			103,625
Held-to-maturity securities		6,600			6,623
Loans, net of allowance for loan losses of $2,574 and $2,819           at March 31, 2014 and December 31, 2013, respectively		262,562			261,130
Premises and equipment		6,636			6,692
Federal Home Loan Bank stock		4,226			5,025
Accrued interest receivable		1,419			1,184
Bank-owned life insurance		9,073			9,006
Goodwill		1,719			1,719
Other intangible assets		15			38
Other assets		1,853			1,810
Prepaid federal income taxes		33			60
Total assets	$	409,589		$	410,293
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	81,783		$	85,952
Savings and money market		125,674			121,140
Time		130,727			130,479
Total deposits		338,184			337,571
Other short-term borrowings		5,818			7,212
Federal Home Loan Bank advances		22,367			22,336
Interest payable and other liabilities		3,372			4,257
Deferred federal income taxes		525			365
Total liabilities		370,266			371,741
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		35,979			35,976
Retained earnings		19,190			18,743
Shares acquired by ESOP		(473	)		(492	)
Accumulated other comprehensive income		423			65
Treasury stock, at cost: Common: 1,140,292 and 1,135,292           shares at March 31, 2014 and December 31, 2013, respectively		(16,194	)		(16,138	)
Total stockholders’ equity		39,323			38,552
Total liabilities and stockholders’ equity	$	409,589		$	410,293

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, 2014 and 2013

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Interest and Dividend Income
Loans	$	2,890		$	2,888
Securities		780			656
Dividends on Federal Home Loan Bank stock and other		51			55
Total interest and dividend income		3,721			3,599
Interest Expense
Deposits		395			435
Other short-term borrowings		2			2
Federal Home Loan Bank advances		145			152
Total interest expense		542			589
Net Interest Income		3,179			3,010
Provision (Credit) for Loan Losses		8			(141	)
Net Interest Income After Provision (Credit) for Loan Losses		3,171			3,151
Noninterest Income
Gain on loan sales		25			47
Gain on sale of premises and equipment		6			—
Earnings on bank-owned life insurance		71			73
Service fees, charges and other operating		269			270
Total noninterest income		371			390
Noninterest Expense
Salaries and employee benefits		1,493			1,504
Net occupancy and equipment expense		511			477
Federal deposit insurance premiums		63			75
Franchise taxes		64			100
Loss on sale of foreclosed assets held for sale		—			3
Amortization of intangible assets		23			23
Other		497			551
Total noninterest expense		2,651			2,733
Income Before Federal Income Taxes		891			808
Provision for Federal Income Taxes		221			230
Net Income	$	670		$	578
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities		542			(322	)
Tax (expense) benefit		(184	)		109
Other comprehensive income (loss)		358			(213	)
Total comprehensive income	$	1,028		$	365
Basic Earnings Per Share	$	0.24		$	0.20
Diluted Earnings Per Share	$	0.24		$	0.20
Dividends Per Share	$	0.08		$	0.07

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, 2014 and 2013

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Operating Activities
Net income	$	670		$	578
Items not requiring (providing) cash
Depreciation and amortization		146			148
Provision (credit) for loan losses		8			(141	)
Amortization of premiums and discounts on securities		266			472
Amortization of mortgage servicing rights		12			6
Amortization of deferred loan origination fees		(22	)		(25	)
Amortization of intangible asset		23			23
Increase in value of bank-owned life insurance		(67	)		(70	)
Amortization expense of stock benefit plan		22			20
Loss on sale of foreclosed assets held for sale		—			3
Gain on sale of premises and equipment		(6	)		—
Net gain on sale of loans		(25	)		(47	)
Proceeds from sale of loans in the secondary market		611			4,402
Origination of loans for sale in the secondary market		(586	)		(4,355	)
Deferred income taxes		(24	)		176
Changes in
Accrued interest receivable		(235	)		(192	)
Prepaid federal deposit insurance premiums		—			76
Other assets		(28	)		(297	)
Interest payable and other liabilities		(453	)		(86	)
Net cash provided by operating activities		312			691
Investing Activities
Purchases of available-for-sale securities		(6,411	)		(10,902	)
Purchase of  held-to-maturity securities		—			(1,610	)
Proceeds from maturities and paydowns of available-for-sale securities		4,982			11,404
Proceeds from maturities and paydowns of held-to-maturity securities		19			20
Proceeds from Federal Home Loan Bank stock redemption		799			—
Net change in loans		(1,418	)		1,105
Purchase of premises and equipment		(90	)		(74	)
Proceeds from the sale of premises and equipment		6			—
Proceeds from the sale of foreclosed assets		—			122
Net cash (used in) provided by investing activities	$	(2,113	)	$	65

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, 2014 and 2013

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Financing Activities
Net change in deposits	$	613		$	(1,034	)
Net change in other short-term borrowings		(1,394	)		(1,102	)
Proceeds from Federal Home Loan Bank advances		2,280			1,030
Repayments of Federal Home Loan Bank advances		(2,250	)		(1,000	)
Advances by borrowers for taxes and insurance		(433	)		(414	)
Dividends on common stock		(222	)		(203	)
Treasury stock purchases		(56	)		(126	)
Net cash used in financing activities		(1,462	)		(2,849	)
Decrease in Cash and Cash Equivalents		(3,263	)		(2,093	)
Cash and Cash equivalents, Beginning of period		13,381			12,055
Cash and Cash equivalents, End of period	$	10,118		$	9,962
Supplemental Cash Flows Information
Interest paid on deposits and borrowings	$	518		$	586
Federal income taxes paid	$	200		$	—
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Recognition of mortgage servicing rights	$	9		$	44
Dividends payable	$	227		$	206

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, 2014 and for the three months ended March 31, 2014 and 2013, 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, 2013. 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, 2014, 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, 2013, has been derived from the consolidated balance sheet of the Company as of that date.

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, 2014:
U.S. government agencies	$	134	$	—	$	—	$	134
Mortgage-backed securities of           government sponsored entities		81,089		1,172		479		81,782
Private-label collateralized mortgage           obligations		651		28		—		679
State and political subdivisions		22,123		765		148		22,740
Totals	$	103,997	$	1,965	$	627	$	105,335

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Available-for-sale securities
December 31, 2013:
U.S. government agencies	$	137	$	—	$	—	$	137
Mortgage-backed securities of           government sponsored entities		79,901		1,177		721		80,357
Private-label collateralized mortgage           obligations		675		29		—		704
State and political subdivisions		22,116		547		236		22,427
Totals	$	102,829	$	1,753	$	957	$	103,625

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, 2014:
U.S. government agencies	$	107	$	—	$	—	$	107
Mortgage-backed securities of           government sponsored entities		1,373		11		13		1,371
State and political subdivisions		5,120		—		379		4,741
Totals	$	6,600	$	11	$	392	$	6,219

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
	(In thousands)
Held-to-maturity Securities:
December 31, 2013:
U.S. government agencies	$	109	$	—	$	—	$	109
Mortgage-backed securities of           government sponsored entities		1,390		11		21		1,380
State and political subdivisions		5,124		—		492		4,632
Totals	$	6,623	$	11	$	513	$	6,121

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, 2014 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	$	5,003	$	5,238	$	—	$	—
Five to ten years		3,167		3,214		3,058		2,896
After ten years		14,087		14,422		2,169		1,952
		22,257		22,874		5,227		4,848
Mortgage-backed securities of government sponsored entities		81,089		81,782		1,373		1,371
Private-label collateralized mortgage obligations		651		679		—		—
Totals	$	103,997	$	105,335	$	6,600	$	6,219

The carrying value of securities pledged as collateral to secure public deposits and for other purposes was $62.9 million and $62.0 million at March 31, 2014 and December 31, 2013, 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, 2014 and December 31, 2013, was $47.0 million and $51.5 million, which represented approximately 42% and 47%, respectively, of the Company’s total aggregate amortized cost of the available-for-sale and held-to-maturity investment portfolios. These decreases 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 decreases in fair value for these securities are temporary at March 31, 2014.

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, 2014
	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	$	28,622	$	294	$	8,984	$	198	$	37,606	$	492
State and political subdivisions		6,910		333		2,440		194		9,350		527
Total temporarily impaired      securities	$	35,532	$	627	$	11,424	$	392	$	46,956	$	1,019

	December 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	$	36,004	$	575	$	5,330	$	167	$	41,334	$	742
State and political subdivisions		8,639		555		1,519		173		10,158		728
Total temporarily impaired      securities	$	44,643	$	1,130	$	6,849	$	340	$	51,492	$	1,470

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, chargeoffs, 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 uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the 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 chargeoff 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 using 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, 2014 and 2013:

Three months ended March 31, 2014	One-to-four family residential			All other mortgage loans			Commercial business loans		Consumer loans			Total
	(In thousands)
Beginning balance	$	1,017		$	1,526		$	271	$	5		$	2,819
Provision charged to expense		(135	)		127			17		(1	)		8
Losses charged off		—			(260	)		—		—			(260	)
Recoveries		7			—			—		—			7
Ending balance	$	889		$	1,393		$	288	$	4		$	2,574

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

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, 2014 and December 31, 2013:

March 31, 2014	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans		Total
	(In thousands)
Allowance Balances:
Ending balance:
Individually evaluated for impairment	$	153	$	359	$	61	$	—	$	573
Collectively evaluated for impairment		736		1,034		227		4		2,001
Total allowance for loan losses	$	889	$	1,393	$	288	$	4	$	2,574
Loan Balances:
Ending balance:
Individually evaluated for impairment	$	6,317	$	3,371	$	137	$	—	$	9,825
Collectively evaluated for impairment		160,648		82,469		14,064		1,939		259,120
Total balance	$	166,965	$	85,840	$	14,201	$	1,939	$	268,945

14

Index

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

December 31, 2013	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans		Total
	(In thousands)
Allowance Balances:
Ending balance:
Individually evaluated for impairment	$	226	$	618	$	65	$	—	$	909
Collectively evaluated for impairment		791		908		206		5		1,910
Total allowance for loan losses	$	1,017	$	1,526	$	271	$	5	$	2,819
Loan Balances:
Ending balance:
Individually evaluated for impairment	$	6,411	$	3,661	$	142	$	—	$	10,214
Collectively evaluated for impairment		160,317		82,434		14,773		1,110		258,634
Total balance	$	166,728	$	86,095	$	14,915	$	1,110	$	268,848

Total loans in the above tables do not include deferred loan origination fees of $682 and $682 or loans in process of $3.1 million and $4.2 million, respectively, for March 31, 2014 and December 31, 2013.

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, 2014 and December 31, 2013:

March 31, 2014	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	158,883	$	81,400	$	13,730	$	1,937
Special Mention (Risk 5)		487		1,579		335		—
Substandard (Risk 6)		7,595		2,861		136		2
Total	$	166,965	$	85,840	$	14,201	$	1,939

December 31, 2013	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	158,518	$	81,362	$	14,328	$	1,108
Special Mention (Risk 5)		419		1,587		445		—
Substandard (Risk 6)		7,791		3,146		142		2
Total	$	166,728	$	86,095	$	14,915	$	1,110

15

Index

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

* 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 nonperforming 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 chargeoff amount can be reasonably determined.

16

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, 2014 and December 31, 2013:

March 31, 2014	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	$	2,118	$	586	$	287	$	2,991	$	163,974	$	166,965	$	—
All other mortgage      loans		52		—		766		818		85,022		85,840		—
Commercial      business loans		39		—		—		39		14,162		14,201		—
Consumer loans		1		—		—		1		1,938		1,939		—
Total	$	2,210	$	586	$	1,053	$	3,849	$	265,096	$	268,945	$	—

December 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	$	679	$	228	$	624	$	1,531	$	165,197	$	166,728	$	—
All other mortgage      loans		150		64		811		1,025		85,070		86,095		—
Commercial      business loans		—		—		—		—		14,915		14,915		—
Consumer loans		79		—		—		79		1,031		1,110		—
Total	$	908	$	292	$	1,435	$	2,635	$	266,213	$	268,848	$	—

17

Index

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

Nonaccrual loans were comprised of the following at:

Nonaccrual loans	March 31, 2014		December 31, 2013
	(In thousands)
One-to-four family residential loans	$	1,571	$	1,851
Nonresidential real estate loans		766		1,045
All other mortgage loans		—		—
Commercial business loans		—		2
Consumer loans		2		—
Total	$	2,339	$	2,898

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, 2014 and December 31, 2013 in combination with activity for the three months ended March 31, 2014 and 2013 is presented below:

18

Index

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

	As of March 31, 2014						Three months ended March 31, 2014
	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	$	5,596	$	5,596	$	—	$	5,583	$	64
All other mortgage loans		2,027		2,027		—		2,039		20
Commercial business loans		76		76		—		77		1
Loans with a specific valuation allowance
One-to-four family residential loans		721		721		153		782		9
All other mortgage loans		1,344		2,070		359		1,477		14
Commercial business loans		61		61		61		63		1
Total:
One-to-four family residential loans	$	6,317	$	6,317	$	153	$	6,365	$	73
All other mortgage loans		3,371		4,097		359		3,516		34
Commercial business loans		137		137		61		140		2
	$	9,825	$	10,551	$	573	$	10,021	$	109

19

Index

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

	As of December 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	$	5,569	$	5,569	$	—	$	5,620	$	78
All other mortgage loans		2,051		2,051		—		2,578		29
Commercial business loans		77		77		—		85		1
Loans with a specific valuation allowance
One-to-four family residential loans		842		842		226		1,324		13
All other mortgage loans		1,610		2,076		618		2,956		9
Commercial business loans		65		65		65		94		1
Total:
One-to-four family residential loans	$	6,411	$	6,411	$	226	$	6,944	$	91
All other mortgage loans		3,661		4,127		618		5,534		38
Commercial business loans		142		142		65		179		2
	$	10,214	$	10,680	$	909	$	12,657	$	131

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. Concessions to borrowers can include exceptions to loan policy including high loan-to-value ratios, no private mortgage insurance (“PMI”) and high debt-to-income ratios, as well as term and rate exceptions. The TDR classification that occurred in the 2014 period included an extension of the maturity date. 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. 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, 2014 and 2013. The Company considers TDRs that become 90 days or more past due under modified terms as subsequently defaulted.

20

Index

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

	Quarter-to-Date
Troubled Debt Restructurings	Number of loans		Pre-modification Unpaid Principal Balance		Post-modification Unpaid Principal Balance
	(dollars in thousands)
March 31, 2014
One-to-four family residential loans			$	—	$	—
All other mortgage loans		1		261		261
March 31, 2013
One-to-four family residential loans		1	$	113	$	113
All other mortgage loans		1		576		576

Note 5: Goodwill and Intangible Assets

The composition of goodwill and other intangible assets, all of which is core deposit intangible, at March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013
	(In thousands)
Goodwill	$	1,719		$	1,719
Other intangible assets – gross		974			974
Other intangible assets – amortization		(959	)		(936	)
Total	$	1,734		$	1,757

The Company recorded amortization relative to intangible assets totaling $23,000 and for both of the three month periods ended March 31, 2014, and 2013 respectively. Such amortization is derived using the straight line method for the core deposit asset over ten years. 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 December 31, 2013 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:

21

Index

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

	Three months ended March 31,
	2014		2013
Weighted-average common shares outstanding (basic)		2,793,103		2,902,644
Dilutive effect of assumed exercise of stock options		—		—
Weighted-average common shares outstanding (diluted)		2,793,103		2,902,644

There were no options outstanding at March 31, 2014. Options to purchase 41,204 shares of common stock at an exercise price of $13.95 per share were outstanding at March 31, 2013, but none were included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares at March 31, 2013.

Note 7: Stock Option Plan

During fiscal year 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. At December 31, 2013, all options under the 2004 Plan were expired, and none were outstanding at March 31, 2014. The Company recognized compensation expense related to stock option awards based on the fair value of the option award at the grant date. Compensation cost was recognized over the vesting period. There were no options granted during the three months ended March 31, 2013. There was no compensation expense recognized for the stock option plan during the three months ended March 31, 2013, as all options were fully vested prior to these periods. As of March 31, 2013 there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. The cost was recognized in fiscal year ended March 31, 2005 when the Company accelerated full vesting of all the stock options at that time.

22

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, or under certain conditions specified by regulation, apply to, the Federal Reserve Bank of Cleveland prior to declaring a dividend to the Company. Under existing regulatory guidance, a dividend is generally 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, 2014, that the Bank met all capital adequacy requirements to which it is subject.

23

Index

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

As of March 31, 2014, 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 wellcapitalized, the Bank must maintain capital ratios as set forth in the table below. There are no conditions or events since March 31, 2014 that management believes have changed the Bank’s capital classification.

The Bank’s actual capital amounts and ratios as of March 31, 2014 and December 31, 2013 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, 2014
Tier I Capital to average assets	$	35,545		8.7	%	$	16,347		4.0	%	$	20,434		5.0	%
Tier I Capital to risk-weighted assets		35,545		14.3	%		9,916		4.0	%		14,875		6.0	%
Total Risk-based capital to risk-      weighted assets		38,119		15.4	%		19,833		8.0	%		24,791		10.0	%
As of December 31, 2013
Tier I Capital to average assets	$	35,065		8.6	%	$	16,372		4.0	%	$	20,465		5.0	%
Tier I Capital to risk-weighted assets		35,065		14.2	%		9,866		4.0	%		14,798		6.0	%
Total Risk-based capital to risk-      weighted assets		37,884		15.4	%		19,731		8.0	%		24,664		10.0	%

24

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:

	Gross Unrealized Gains on Available-for-sale Securities		Net Unrealized Loss for Unfunded Status of Split-dollar Life Insurance Plan Liability (tax-free)			Gross Unrealized Loss for Unfunded Status of Defined Benefit Plan			Tax Effect			Total Accumulated Other Comprehensive Income
	(In thousands)
March 31, 2014	$	1,338	$	(58	)	$	(609	)	$	(248	)	$	423
December 31, 2013	$	796	$	(58	)	$	(609	)	$	(64	)	$	65

There were no amounts reclassified out of accumulated other comprehensive (loss) income during the three

months ended March 31, 2014 or 2013.

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.

25

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, 2014 and December 31, 2013:

			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, 2014
U.S. government agencies	$	134	$	—	$	134	$	—
Mortgage-backed securities of           government sponsored entities		81,782		—		81,782		—
Private-label collateralized mortgage           obligations		679		—		679		—
State and political subdivisions		22,740		—		22,740		—

			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, 2013
U.S. government agencies	$	137	$	—	$	137	$	—
Mortgage-backed securities of           government sponsored entities		80,357		—		80,357		—
Private-label collateralized mortgage           obligations		704		—		704		—
State and political subdivisions		22,427		—		22,427		—

26

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, 2014 and December 31, 2013.

27

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, 2014
Collateral-dependent impaired loans	$	261	$	—	$	—	$	261
December 31, 2013
Collateral-dependent impaired loans	$	289	$	—	$	—	$	289

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.

	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
March 31, 2014
Collateral-dependent impaired loans	$	261	Market comparable properties	N/A		N/A
December 31, 2013
Collateral-dependent impaired loans	$	289	Present value of cashflows	Discount Rate		6.22	%

There were no changes in the inputs or methodologies used to determine fair value at March 31, 2014 as compared to December 31, 2013.

28

Index

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

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.

			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, 2014
Financial assets
Cash and cash equivalents	$	10,118	$	10,118	$	—	$	—
Held-to-maturity securities		6,600		—		6,219		—
Loans, net of allowance for loan losses		262,562		—		—		269,039
Federal Home Loan Bank stock		4,226		—		4,226		—
Interest receivable		1,419		—		1,419		—
Financial liabilities
Deposits		338,184		27,686		284,975		—
Other short-term borrowings		5,818		—		5,818		—
Federal Home Loan Bank advances		22,367		—		22,709		—
Advances from borrowers for taxes and insurance		672		—		672		—
Interest payable		91		—		91		—

29

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, 2013
Financial assets
Cash and cash equivalents	$	13,381	$	13,381	$	—	$	—
Held-to-maturity securities		6,623		—		6,121
Loans, net of allowance for loan losses		261,130		—		—		266,530
Federal Home Loan Bank stock		5,025		—		5,025		—
Interest receivable		1,184		—		1,184		—
Financial liabilities
Deposits		337,571		30,145		275,357		—
Other short-term Borrowings		7,212		—		7,212		—
Federal Home Loan Bank Advances		22,336		—		22,801		—
Advances from borrowers for taxes and insurance		1,105		—		1,105		—
Interest payable		68		—		68		—

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.

30

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, 2014 and December 31, 2013.

Note 11: Recent Accounting Developments

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 did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2013-12, Definition of a Public Business Entity, in Accounting Standards Update No. 2013-12, issued in December 2013 improves the United States Generally Accepted Accounting Principles by providing a single definition of public business entity for use in future financial accounting and reporting guidance. This update states that an entity that is required by the Securities and Exchange Commission (SEC) to file or furnish reports to the SEC is considered a public business entity. There is no actual

31

Index

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

effective date for the amendments in this update. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2014-01, Investments-Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Qualified Affordable Housing Projects in Accounting Standards Update No. 2014-01, issued in January 2014 permits the Company to make an accounting policy election to account for its investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The amendments in this update are effective prospectively for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014, and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, a consensus of the FASB Emerging Issues Task Force, in Accounting Standards Update No. 2014-04, issued in January 2014. The amendments in this update provides clarification on when an in-substance repossession or foreclosure occurs, including when a creditor should be considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan, when to derecognize the loan and recognize the foreclosed property. The amendments in this update are effective for public business entities for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this update using either a modified retrospective transition method or a prospective transition method. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

FASB ASU 2014-06, Technical Corrections and Improvements Related to Glossary Terms, in Accounting Standards Update No. 2014-06, was issued in March 2014. This update contains amendments that affect a wide variety of Topics in the Codification, and represent changes to clarify the Master Glossary of the Codification, consolidate multiple instances of the same term into a single definition, or make improvements to the Master Glossary. The amendments in this update do not have transition guidance and were effective upon issuance for both public and nonpublic entities. This standard did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, in Accounting Standards Update No. 2014-08, was issued in April 2014. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20. A discontinued operation may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The amendments in this update are effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. All businesses or nonprofit activities that, on acquisition, are classified as held for sale that occur within annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

32

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, product development, sales training and sales management expenses are likely to increase ahead of revenue.

Another ongoing initiative is the development of our branch staff, through sales and product training, to identify opportunities for revenue generation. During the current quarter the Company successfully hired a full time, experienced Director of Customer Service and Sales who has begun the process of re-evaluating staff and operational processes related to all aspects of customer interaction.

A further ongoing initiative, following an 18 month review process, is the upgrading of information technology solutions over a two year implementation schedule, to improve internal operating efficiency and customer service while remaining attentive to potential effect on short and long term operating results 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. The Board of Directors Risk Management Committee, formed during 2013 to oversee management’s ERM program, meets on a quarterly basis.

Critical Accounting Policies

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.

33

Index

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

Discussion of Financial Condition Changes from December 31, 2013 to March 31, 2014

At March 31, 2014, the Company had total assets of $409.6 million, a decrease of $704,000, from total assets at December 31, 2013. The decrease in total assets includes a $3.3 million decrease in cash and a $799,000 decrease in Federal Home Loan Bank stock, partially offset by a $1.7 million increase in total securities, and a $1.4 million increase in net loan balances.

Total securities increased $1.7 million during the three months ended March 31, 2014. The increase was due to purchases totaling $6.4 million and a $542,000 increase in unrealized gains on available-for-sale securities, partially offset by principal repayments of $5.0 million and amortization of premiums of $266,000 during the three months ended March 31, 2014.

Net loans receivable increased by $1.4 million at March 31, 2014 compared to December 31, 2013. The Bank originated $10.0 million of loans, received payments of $7.7 million, and originated and sold $586,000 of 30-year fixed-rate residential mortgage loans into the secondary market. The increase in net loan balances is mainly due to the increased sales efforts by our team of commercial lenders supported by marketing activities to increase awareness within our market area regarding the Bank’s commercial, mortgage and consumer loan products and services.

Management continues to focus on key areas of risk when reviewing potential loan originations and securities purchases, including interest rate, liquidity and credit risk. Interest rate risk arises mainly from longer term fixed-rate loans. Credit risk arises mainly from loan structure and underwriting conditions. The effects of additional loan portfolio risks generated by competitive pressures in the Company’s market area are evaluated relative to the projected returns to ensure acceptable financial performance over a long-term horizon. As part of an overall strategy to manage liquidity and interest rate risk, management continues to execute a strategy of immediately selling certain newly originated 30-year fixed-rate residential 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. These strategies have the effect of generating lower loan yields in the short-term due to the loans being priced off the lower yield short end of the yield curve. The principal source of liquidity is the Bank’s investment securities portfolio. To the extent that loan demand is insufficient in any given period, investments in the securities portfolio are made to provide cash flows to fund loan demand in future periods (a source of liquidity), 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.

34

Index

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

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

	March 31, 2014					December 31, 2013
	Balance		Percent of total loans			Balance		Percent of total loans
	(Dollars in thousands)
Mortgage loans:
One-to-four family residential(1)	$	166,965		62.08	%	$	166,728		62.02	%
Residential construction loans		4,191		1.56	%		4,951		1.84	%
Multi-family residential		14,201		5.28	%		14,011		5.21	%
Nonresidential real estate/land(2)		67,448		25.08	%		67,133		24.97	%
Total mortgage loans		252,805		94.00	%		252,823		94.04	%
Other loans:
Consumer loans(3)		1,939		0.72	%		1,110		0.41	%
Commercial business loans		14,201		5.28	%		14,915		5.55	%
Total other loans		16,140		6.00	%		16,025		5.96	%
Total loans before net items		268,945		100.00	%		268,848		100.00	%
Less:
Loans in process		3,127					4,217
Deferred loan origination fees		682					682
Allowance for loan losses		2,574					2,819
Total loans receivable, net	$	262,562				$	261,130

⁽¹⁾ Includes equity loans collateralized by second mortgages in the aggregate amount of $14.2 million at March 31, 2014 and $14.3 million at December 31, 2013. Such loans have been underwritten on substantially the same basis as the Company’s first mortgage loans.

⁽²⁾ Includes land loans of $2.6 million at March 31, 2014 and $2.7 million for December 31, 2013.

⁽³⁾ Includes second mortgage loans of $539 at March 31, 2014 and $566 at December 31, 2013.

35

Index

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

Federal Home Loan Bank stock, totaled $4.2 million, and decreased $799,000, compared to $5.0 million at December 31, 2013. The decrease was due to a stock repurchase program initiated by the FHLB whereby the FHLB repurchased excess shares held by member banks.

Foreclosed assets held for sale, if any, include those properties that have been foreclosed by the Bank and held for sale. There were no foreclosed assets held for sale at March 31, 2014 or December 31, 2013, nor were there any additions or sales in the current year quarter. Activity during the prior year quarter included the sale of two residential properties totaling $122,000 that had been held as foreclosed assets. Total nonperforming and impaired assets totaled $10.6 million, or 2.59% of total assets at March 31, 2014 compared to $11.1 million, or 2.70% of total assets at December 31, 2013.

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, 2013. Management believes that there were no interim impairment indicators that would require another evaluation at March 31, 2014.

Deposits totaled $338.2 million at March 31, 2014, an increase of $600,000 from $337.6 million at December 31, 2013. This increase includes a $4.5 million increase in savings and money market balances and a $248,000 increase in time deposits, partially offset by a $4.2 million decrease in demand deposits. The rate of change in the composition of deposits from higher cost term deposits to lower cost liquid deposits slowed during the quarter as the difference between maturing and renewal rates on term deposits has narrowed and customers adjust to the extended period of low interest rates. The Company continues to monitor deposit activity closely to respond to changes in customer preference for types of deposits.

Other short-term borrowings, which consist solely of repurchase agreements with commercial customers of the Bank, decreased by $1.4 million and totaled $5.8 million at March 31, 2014. 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, 2014 and December 31, 2013.

Advances from the Federal Home Loan Bank of Cincinnati (“FHLB”) totaled $22.4 million at March 31, 2014, compared to $22.3 million at December 31, 2013. This increase includes $31,000 related to amortized prepayment penalties. The Company uses advances from the FHLB for both short-term cash management purposes and to extend the term to maturity of liabilities for interest rate risk management purposes. The cost of longer term liabilities purchased from the FHLB is generally less expensive than obtaining a similar term to maturity 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 2.59% at March 31, 2014 compared to 2.82% at December 31, 2013.

Stockholders’ equity increased by $771,000 during the quarter ended March 31, 2014, primarily due to net income of $670,000, and a $358,000 increase in unrealized gains on available-for-sale securities. These increases were partially offset by dividends of $222,000, and purchases of treasury stock totaling $56,000 during the current year quarter.

36

Index

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

The purchase of treasury shares during the current year period was made as part of the Company’s share repurchase program that was initially announced during 2012 whereby the Company was authorized to repurchase up to 5.0%, or 150,206 shares of its common stock outstanding. On September 30, 2013 the Company announced the adoption of a new share repurchase program authorizing the repurchase of an additional 2.5% or 72,150, shares of its common stock outstanding. As a result of these two plans, net of shares previously repurchased, the Company may repurchase up to 56,682 shares of its common stock outstanding.

Comparison of Operating Results for the Three Months Ended March 31, 2014 and 2013

General

Net income for the three months ended March 31, 2014, totaled $670,000, reflecting an increase of $92,000, from $578,000 for the three month period ended March 31, 2013. The increase in net income was primarily due to an increase in net interest income and a decrease in both noninterest expense and provision for federal income taxes, partially offset by a decrease in net noninterest income and an increase in provision for loan losses.

37

Index

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

Average Balance Sheet

The following table sets forth certain information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the periods indicated. 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,
	2014							2013
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable, net(1)	$	261,588	$	2,890		4.42	%	$	247,693	$	2,888		4.66	%
Investment securities(2)		112,902		780		2.76	%		115,023		656		2.28	%
Interest-earning deposits(3)		11,825		51		1.73	%		12,740		55		1.73	%
Total interest-earning assets		386,315		3,721		3.85	%		375,456		3,599		3.83	%
Noninterest-earning assets		23,357							24,807
Total assets	$	409,672						$	400,263
Interest-bearing liabilities:
Deposits	$	337,397	$	395		0.47	%	$	326,495	$	435		0.53	%
Other short-term borrowings		6,595		2		0.12	%		6,615		2		0.12	%
Borrowings		22,375		145		2.59	%		21,239		152		2.86	%
Total interest-bearing liabilities		366,367		542		0.59	%		354,349		589		0.66	%
Noninterest-bearing  liabilities		4,435							5,942
Total liabilities		370,802							360,291
Stockholders’ equity		38,870							39,972
Total liabilities and stockholders’ equity	$	409,672						$	400,263
Net interest income			$	3,179						$	3,010
Interest rate spread(4)						3.26	%						3.17	%
Net yield on interest-earning assets(5)						3.29	%						3.21	%
Ratio of average interest-earning assets to average interest-bearing liabilities						105.44	%						105.96	%

⁽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.

38

Index

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

Interest Income

Interest income increased $122,000 or 3.4%, to $3.7 million for the three months ended March 31, 2014, compared to the same period in 2013. The increase was due to a $10.8 million increase in the average balance of interest-earning assets from $375.5 million in the 2013 period to $386.3 million for the 2014 period, and a 2 basis point increase in the weighted-average yield on interest-earning assets from 3.83% in the 2013 period to 3.85% for the 2014 period. The increase in yield was primarily due to a shift in higher yielding loan balances and a decrease in both the lower interest yielding investment securities and interest-earning deposits

The increase in the average balance of earning assets for the 2014 period compared to the 2013 period includes a $13.9 million increase in average loan balances, partially offset by a $2.1 million decrease in average securities balances and a decline in the average interest earning deposit balances of $915,000 as the Company continues to enhance its mix of earning assets by converting lower yielding securities and interest-earning deposits into higher yielding loans. The increase in rate earned is primarily due to decreases in both securities prepayments and amortization of purchase premiums as a result of an increase in market rates which slowed the volume of rate driven refinancing compared to the prior year quarter. However, despite the rise in rates from historic lows, the continued overall low level of market interest rates continues to result in new loan originations at lower yields than the existing portfolio and the downward repricing of existing adjustable rate loans that continue to negatively affect the net interest margin.

Interest income on loans was $2.9 million for both of the three month periods ended March 31, 2014, and 2013, primarily due to an increase in the average balance of loans, substantially offset by a decrease in the weighted-average yield. The average balance of loans outstanding increased $13.9 million from $247.7 million in the 2013 period to $261.6 million in the 2014 period. The increase in the average balance of loans outstanding was substantially offset by a 24 basis point decrease in the weighted-average loan portfolio yield from 4.66% for the three months ended March 31, 2013 to 4.42% for the three months ended March 31, 2014, as a result of lower origination yields and the amortization, prepayment and repricing of higher yielding loans due to the low level of market interest rates. Interest income on securities increased $124,000 during the three months ended March 31, 2014, compared to the same period in 2013. This increase was due to a 48 basis point increase in the weighted-average rate from 2.28% in the 2013 period to 2.76% for the 2014 period, partially offset by a $2.1 million decrease in the average balance. The increase in yield was primarily to the slowing of prepayments causing a decline in premium amortization for the quarter.

Dividends on Federal Home Loan Bank stock and other income decreased $4,000 for three months ended March 31, 2014 compared to March 31, 2013. The decrease was substantially due to a $915,000 decrease in the average balance, while the weighted-average rate was 1.73% for both three month periods ended March 31, 2014, and 2013.

Interest Expense

Interest expense totaled $542,000 for the three month period ended March 31, 2014, a decrease of $47,000, or 8.0%, from $589,000 for the three month period ended March 31, 2013. The decrease was due to a 7 basis point decrease in the weighted-average cost of funds from 0.66% in the 2013 period to 0.59% in the current year period, partially offset by a $12.1 million, or 3.4%, increase in the average balance of total interest-bearing liabilities from $354.3 million in the 2013 period to $366.4 million in the 2014 period.

39

Index

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

Interest expense on deposits for the three month period ended March 31, 2014 totaled $395,000, a decrease of $40,000, or 9.2%, from $435,000 for the same period in the previous year. The decrease was due to a 6 basis point decrease in the weighted-average cost of deposits, from 0.53% in the 2013 period to 0.47% for the 2014 period, partially offset by a $10.9 million increase in the average balance from $326.5 million in the 2013 period to $337.4 million in the 2014 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 and as pricing pressure in the local market has begun rising.

Interest expense on other short-term borrowings totaled $2,000 for both three month periods ended March 31, 2014, and 2013. The weighted-average cost was unchanged at 0.12%, for both periods, while the average balance decreased by $20,000.

Interest expense on Federal Home Loan Bank advances totaled $145,000 for the three month period ended March 31, 2014, which decreased $7,000 from $152,000 in the 2013 period. The decrease was primarily due to a 27 basis point decrease in the weighted-average cost from 2.86% in the 2013 period to 2.59% in the 2014 period, partially offset by a $1.1 million, or 5.3%, increase in the average balance outstanding. The decrease in the weighted-cost was due to the maturity of higher rate advances, while the increase in the average balance was due to taking out new fixed-rate term advances in excess of the scheduled maturity of fixed-rate term advances.

Net Interest Income

Net interest income totaled $3.2 million for the three month period ended March 31, 2014, an increase of $169,000, or 5.6%, from the three month period ended March 31, 2013. The increase in net interest income was mainly due to a 9 basis point increase in the net interest rate spread, from 3.17% at March 31, 2013 to 3.26% at March 31, 2014. The increase in the net interest spread was a result of yields on earning assets increasing, while the cost of funds decreased. During the three months ended March 31, 2014, the yield on earning assets increased 2 basis points, while the rate paid on interest-bearing liabilities decreased 7 basis points, compared to the same period last year. The yield on earning assets was positively impacted by a shift in the mix of earning assets from lower yielding securities into higher yielding loans, as well as a slowdown in securities prepayments and amortization of purchase premiums. The decrease in the cost of funds from the prior year period, was mainly due to a continuing preference by customers in the current low interest rate environment for lower cost and more liquid deposit accounts over longer term certificate accounts and management’s continuing strategy of limiting competition for higher cost term deposits by focusing on relationship balances.

Provision for Loan Losses

Management recorded an $8,000 provision for loan losses for the three month period ended March 31, 2014, compared to a provision reversal of $141,000 for the three month period ended March 31, 2013. The increase is primarily due to certain improved economic and specific factors in the 2013 quarter that allowed the release of reserves that was not repeated in the 2014 quarter. The provision for the current year quarter remained low due to a continuation of consistent economic factors as reported in December 2013, combined with moderate loan growth.

Noninterest Income

Noninterest income totaled $371,000, for the three months ended March 31, 2014, a decrease of $19,000, from $390,000 for the same period in 2013. The decrease was primarily due to a $22,000 decrease in gain on sale of residential mortgage loans. The decrease in gain on sale of residential mortgage loans was primarily due to reduced loan sales in the 2014 quarter compared to the 2013 quarter.

40

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 both the three months ended March 31, 2014, and 2013. Changes included a $36,000 decrease in franchise taxes and a $54,000 decrease in other operating expenses, partially offset by a $34,000 increase in occupancy and equipment expense. The decrease in franchise taxes was primarily due to the State of Ohio’s newly enacted Financial Institutions Tax during the 2014 quarter, which resulted in lower taxes compared to the previous Ohio corporate franchise tax that was in place during the 2013 quarter. The decrease in other operating expenses was primarily due a decrease in office supplies and marketing expenses, partially offset by an increase in audit and accounting expense compared to the prior year quarter. The increase in occupancy and equipment expense was due to increases in building insurance, data processing and upgrades to our automated teller machine (ATM) network during the current quarter compared to the prior year quarter.

Federal Income Taxes

Federal income tax expense totaled $221,000 for the three month period ended March 31, 2014, a decrease of $9,000 compared to $230,000 for three month period ended March 31, 2013. The decrease was due to a lower effective tax rate for the three month period ended March 31, 2014 at 24.8% compared to 28.5% for the prior year period. The effective rate is below the statutory rate of 34% due to certain income items that are not subject to tax. The impact of the lower effective tax was partially offset by an $83,000 increase in pretax income compared to the prior year period.

41

Index

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

Forward-Looking Statements

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

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

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

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Management believes there has been no material change in the Company’s market risk since the Company’s Form 10-K was filed with the Securities and Exchange Commission for the year ended December 31, 2013.

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.

42

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, 2013.

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, 2014.

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, 2014		—	$	—		160,674		61,682
February 1 - 28, 2014		—		—		160,674		61,682
March 1 - 31, 2014		5,000		11.15		165,674		56,682
Total		5,000	$	11.15		165,674		56,682

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 5.0%, of the Company’s outstanding shares of common stock. On September 30, 2013 the Company announced the adoption of a new share buy-back program authorizing the repurchase of an additional 2.5% or 72,150, shares of its common stock outstanding. As a result of these two plans, net of shares previously repurchased, the Company may repurchase up to 56,682 shares of its common stock outstanding.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

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ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits

Exhibit
Number	Description
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)

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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 9, 2014	By:	/s/Rod C. Steiger
			Rod C. Steiger
			President and Chief Executive Officer
Date:	May 9, 2014	By:	/s/Myron Swartzentruber
			Myron Swartzentruber
			Senior Vice President and
			Chief Financial Officer

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