Note 9:

Credit Quality of Loans and the Allowance for Loan Losses

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of June 30, 2011 and March 31, 2011:

June 30, 2011	One-to-four family residential			All other mortgage loans			Commercial business loans		Consumer loans		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,073		$	1,967		$	158	$	5	$	-	$	3,203
Provision charged to expense		55			(127	)		137		5		-		70
Losses charged off		(53	)		-			-		-		-		(53	)
Recoveries		1			-			-		-		-		1
Balance, end of year	$	1,076		$	1,840		$	295	$	10	$		$	3,221
Ending balance: individually evaluated for impairment	$	134		$	1,114		$	162	$	-	$	-	$	1,410
Ending balance: collectively evaluated for impairment	$	942		$	726		$	133	$	10	$	-	$	1,811

Loans:
Ending balance	$	157,952		$	68,947		$	9,659	$	2,456			$	239,014
Ending balance: individually evaluated for impairment	$	3,156		$	7,077		$	203	$	-			$	10,436
Ending balance: collectively evaluated for impairment	$	154,796		$	61,870		$	9,456	$	2,456			$	228,578

March 31, 2011	One-to-four family residential			All other mortgage loans			Commercial business loans			Consumer loans			Unallocated		Total
	(In thousands)
Allowance for loan losses:
Balance, beginning of year	$	1,140		$	1,469		$	209		$	8		$	-	$	2,826
Provision charged to expense		37			488			30			(3	)		-		552
Losses charged off		(112	)		(5	)		(81	)		(1	)				(199	)
Recoveries		8			15			-			1			-		24
Balance, end of year	$	1,073		$	1,967		$	158		$	5		$	-	$	3,203
Ending balance: individually evaluated for impairment	$	149		$	1,158		$	59		$	-		$	-	$	1,366
Ending balance: collectively evaluated for impairment	$	924		$	809		$	99		$	5		$	-	$	1,837

Loans:
Ending balance	$	162,435		$	70,976		$	8,204		$	2,414				$	244,029
Ending balance: individually evaluated for impairment	$	3,183		$	6,017		$	123		$	-				$	9,323
Ending balance: collectively evaluated for impairment	$	159,252		$	64,959		$	8,081		$	2,414				$	234,706

Total loans in above tables do not include deferred loan origination fees of $402,000 and $420,000 or loans in process of $265,000 and $413,000 for June 30, 2011 and March 31, 2011, respectively.

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

The following tables present the credit risk profile of the Bank's loan portfolio based on rating category and payment activity as of June 30, 2011 and March 31, 2011:

June 30, 2011	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	152,848	$	59,273	$	9,326	$	2,452
Special Mention (Risk 5)		125		2,597		130		-
Substandard (Risk 6)		4,979		7,077		203		4

Total	$	157,952	$	68,947	$	9,659	$	2,456

March 31, 2011	One-to-four family residential		All other mortgage loans		Commercial business loans		Consumer loans
	(In thousands)
Rating *
Pass (Risk 1-4)	$	156,866	$	58,341	$	7,917	$	2,391
Special Mention (Risk 5)		834		6,601		164		-
Substandard (Risk 6)		4,735		6,034		123		23

Total	$	162,435	$	70,976	$	8,204	$	2,414

* 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 are resolving them. Bank credits have been secured or negotiations will be ongoing to secure further collateral.

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

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

The following tables present the Bank's loan portfolio aging analysis for June 30, 2011 and March 31, 2011:

June 30, 2011	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 & Accruing
	(In thousands)

One-to-four family residential loans	$	288	$	157	$	814	$	1,259	$	156,693	$	157,952	$	-
All other mortgage loans		637		342		1,384		2,363		66,584		68,947		-
Commercial business loans		64		-		-		64		9,595		9,659		-
Consumer loans		11		-		16		27		2,429		2,456		-

Total	$	1,000	$	499	$	2,214	$	3,713	$	235,301	$	239,014	$	-

March 31, 2011	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
	(In thousands)

One-to-four family residential loans	$	1,306	$	113	$	1,782	$	3,201	$	159,234	$	162,435	$	-
All other mortgage loans		888		-		1,386		2,274		68,702		70,976		-
Commercial business loans		-		90		-		90		8,114		8,204		-
Consumer loans		-		-		20		20		2,394		2,414		-

Total	$	2,194	$	203	$	3,188	$	5,585	$	238,444	$	244,029	$	-

Non-accrual loans were comprised of the following at:

	June 30, 2011		March 31, 2011
	Nonaccrual		Nonaccrual
	(In thousands)		(In thousands)

One-to-four family residential loans	$	1,829	$	2,739
All other mortgage loans		2,672		2,362
Commercial business loans		203		33
Consumer loans		-		23

Total	$	4,704	$	5,157

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

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 June 30, 2011 and March 31, 2011 is presented below:

June 30, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized

Loans without a specific valuation allowance
One-to-four family residential loans	$	2,886	$	2,886	$	-	$	2,603	$	28
All other mortgage loans		2,066		2,066		-		1,493		5

Loans with a specific valuation allowance
One-to-four family residential loans		270		270		134		567		5
All other mortgage loans		5,011		5,011		1,114		5,055		49
Commercial business loans		203		203		161		163		-

Total:
One-to-four family residential loans	$	3,156	$	3,156	$	134	$	3,170	$	33
All other mortgage loans		7,077		7,077		1,114		6,548		54
Commercial business loans		203		203		161		163		-
	$	10,436	$	10,436	$	1,409	$	9,085	$	87

Wayne Savings Bancshares, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2011	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized

Loans without a specific valuation allowance
One-to-four family residential loans	$	2,319	$	2,319	$	-	$	1,781	$	91
All other mortgage loans		919		919		-		839		38

Loans with a specific valuation allowance
One-to-four family residential loans		863		863		149		505		7
All other mortgage loans		5,099		5,099		1,158		3,503		128
Commercial business loans		123		123		59		131		6

Total:
One-to-four family residential loans	$	3,182	$	3,182	$	149	$	2,286	$	98
All other mortgage loans		6,018		6,018		1,158		4,342		166
Commercial business loans		123		123		59		131		6
	$	9,323	$	9,323	$	1,366	$	6,759	$	270