**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**





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




**For
      the Fiscal Year Ended December 31, 2006**





**0-27672**


*(Commission
      File Number)*





**NORTH
      CENTRAL BANCSHARES, INC.**


*(Exact
      name of registrant as specified in its charter)*




**Iowa**
              *(State
                or other jurisdiction of incorporation or
                organization)*
            
            **42-1449849**
              *(I.R.S.
                Employer Identification Number)***825
                Central Avenue, Fort Dodge, Iowa**
              *(Address
                of principal executive offices)*
            
            **50501**
              *(Zip
                Code)*





**(515)
      576-7531**


*(Registrant's
      telephone number; including area code)*





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




Title
                of each class
            Name
                of each exchange on which registered**Common
                Stock, par value $0.01 per
                share**
            **The
                NASDAQ Stock Market
                LLC**







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


**None**




*(Title
      of Class)*





Indicate
      by check mark whether the registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act.




YES
            
            
            NO
            Ö




Indicate
      by check mark whether the registrant is not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act.


YES
              
              
              NO
              Ö





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding twelve months (or for such shorter period that the registrant was
      required to file such reports) and (2) has been subject to such requirements
      for
      the past 90 days.


YES
              Ö
              
              NO


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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer




Large
                  accelerated filer
              
              
              Accelerated
                  filer
              
              Ö
              Non-accelerated
                  filer







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


YES
                
                
                NO
                Ö


The
      aggregate value of the voting stock held by non-affiliates of the registrant,
      computed by reference to the average bid and asked prices of the common stock
      as
      of June 30, 2006 was $52,073,657.





As
      of
      March 5, 2007, there were issued and outstanding 1,364,653 shares of the
      registrant's common stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





1.  Portions
      of the Proxy Statement for the registrant's 2007 Annual Meeting of Shareholders
      are incorporated by reference to Items 10, 11, 12, 13 and Item 14 of Part III
      hereof.


2. Portions
      of the 2006 Annual Report to Shareholders are incorporated by reference to
      Items
      5, 6, 7, 7A and 8 of Part II hereof.













Table
                of ContentsPART
                IItem
                1
            BusinessItem
                1A
            Risk
                FactorsItem
                1B
            Unresolved
                Staff CommentsItem
                2
            PropertiesItem
                3
            Legal
                ProceedingsItem
                4
            Submission
                of Matters to a Vote of Security HoldersPART
                IIItem
                5
            Market
                For Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity SecuritiesItem
                6
            Selected
                Financial DataItem
                7
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                OperationItem
                7A
            Quantitative
                and Qualitative Disclosures About Market RiskItem
                8
            Financial
                Statements and Supplementary DataItem
                9
            Changes
                in and Disagreements With Accountants on Accounting and Financial
                DisclosureItem
                9A
            Controls
                and ProceduresItem
                9B
            Other
                InformationPART
                IIIItem
                10
            Directors,
                Executive Officers and Corporate GovernanceItem
                11
            Executive
                CompensationItem
                12
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder MattersItem
                13
            Certain
                Relationships and Related Transactions, and Director
                IndependenceItem
                14
            Principal
                Accountant Fees and ServicesPART
                IVItem
                15
            Exhibits,
                Financial Statement Schedules




**PART
      I**





North
      Central Bancshares, Inc. (the “Company”) and First Federal Savings Bank of Iowa
      (the “Bank”) may from time to time make written or oral “forward-looking
      statements.” These forward-looking statements may be contained in this annual
      filing with the Securities and Exchange Commission (the “SEC”), the Annual
      Report to Shareholders, other filings with the SEC, and in other communications
      by the Company and the Bank, which are made in good faith pursuant to the “safe
      harbor” provisions of the Private Securities Litigation Reform Act of 1995. The
      words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”,
“expect”, “intend”, “plan” and similar expressions are intended to identify
      forward-looking statements.





Forward-looking
      statements include statements with respect to the Company’s beliefs, plans,
      objectives, goals, expectations, anticipations, estimates and intentions, that
      are subject to significant risks and uncertainties. The following factors,
      many
      of which are subject to change based on various other factors beyond the
      Company’s control, and other factors discussed in this Form 10-K, as well as
      other factors identified in the Company’s filings with the SEC and those
      presented elsewhere by management from time to time, could cause its financial
      performance to differ materially from the plans, objectives, expectations,
      estimates and intentions expressed in such forward-looking
      statements:





•
            the
                strength of the United States economy in general and the strength
                of the
                local economies in which the Company and the Bank conduct
                operations;


•
            the
                effects of, and changes in, trade, monetary and fiscal policies and
                laws,
                including interest rate policies of the Federal Reserve
                Board;


•
            inflation,
                interest rate, market and monetary
                fluctuations;


•
            the
                timely development of and acceptance of new products and services
                and the
                perceived overall value of these products and services by users,
                including
                the features, pricing and quality compared to competitors’ products and
                services;


•
            the
                willingness of users to substitute competitors’ products and services for
                the Company’s and the Bank’s products and
                services;


•
            the
                Company’s and the Bank’s success in gaining regulatory approval of their
                products and services, when
                required;


•
            the
                impact of changes in financial services’ laws and regulations (including
                laws concerning taxes, banking, securities and
                insurance);


•
            the
                impact of technological changes;


•
            acquisitions;


•
            changes
                in consumer spending and saving habits;
                and


•
            the
                Company’s and the Bank’s success at managing the risks involved in their
                business.





This
      list
      of important factors is not exclusive. The Company or the Bank does not
      undertake to update any forward-looking statement, whether written or oral,
      that
      may be made from time to time by or on behalf of the Company or the
      Bank.





**ITEM
      1.**  **BUSINESS**





**General**





North
      Central Bancshares, Inc., an Iowa corporation, is the holding company for First
      Federal Savings Bank of Iowa, a federally chartered savings bank. The Company
      owns 100% of the outstanding stock of the Bank. The Company’s stock is quoted on
      the Nasdaq Global Market under the symbol “FFFD”.










At
      this
      time, the Company conducts business as a unitary savings and loan holding
      company and the principal business of the Company consists of the operation
      of
      the Bank. The Company’s executive offices are located at the home office of the
      Company at 825 Central Avenue, Fort Dodge, Iowa. The Company’s telephone number
      is (515) 576-7531.





**First
      Federal Savings Bank of Iowa**





The
      Bank
      is a federally-chartered savings bank that conducts its operations from its
      main
      office located in Fort Dodge, Iowa and ten branch offices located in Iowa.
      Eight
      of the Bank’s branches are located in north central and central Iowa, in the
      cities of Fort Dodge, Nevada, Ames, Perry, Ankeny, Clive and West Des Moines.
      Three of the Bank’s offices are located in southeast Iowa, in the cities of
      Burlington and Mount Pleasant. The Bank is the successor to First Federal
      Savings and Loan Association of Fort Dodge, which was chartered originally
      in
      1954, and on May 7, 1987 became a federally chartered savings bank. The Bank
      adopted its present name on February 27, 1998. The Bank is a community-oriented
      savings institution that is primarily engaged in the business of attracting
      deposits from the general public in the Bank’s market areas, and investing such
      deposits in one- to four-family residential real estate mortgages, multifamily
      and commercial mortgages and consumer loans, with emphasis on second mortgage
      loans. The Bank’s deposits are insured by the Federal Deposit Insurance
      Corporation (the “FDIC”). The Bank has been a member of the Federal Home Loan
      Bank (“FHLB”) System since 1954. At December 31, 2006, the Bank had total assets
      of $516.2 million, total deposits of $361.4 million, and total shareholders’
equity of $41.9 million.





The
      Bank’s principal executive office is located at 825 Central Avenue, Fort Dodge,
      Iowa and its telephone number at that address is (515) 576-7531. The Bank’s
      website address is www.firstfederaliowa.com .





**Market
      Area and Competition**





The
      Company is a savings and loan holding company serving its primary market area
      of
      Webster, Story, Dallas, Polk, Henry and Des Moines Counties, which are located
      in the central, north central and southeastern parts of the State of Iowa.
      The
      Company’s market area is influenced by agriculture, manufacturing, retail sales,
      insurance, financial and other professional services and public education.
      The
      Company is headquartered in Fort Dodge, the Webster County seat, where it
      operates two Company locations.





The
      unemployment rate for the month of December 2006 for Webster County was 3.9%,
      for Story County 2.4%, for Dallas County 2.5%, for Polk County 3.4%, for Henry
      County 4.9% and for Des Moines County 4.9%. These compare to the national rate
      of 4.5% and the State of Iowa rate of 3.5%.





Due
      to
      the type of loan demand in the Company’s overall market area, increased
      competition, and the Company’s decision to diversify its loan portfolio, the
      Company has originated and purchased loans (primarily one- to four-family,
      multifamily and commercial real estate loans) from out of state. The Company
      intends to continue such originations and purchases pursuant to its underwriting
      standards for Company-originated loans.





The
      Company encounters strong competition both in attracting deposits and in
      originating real estate and other loans. Its most direct competition for
      deposits has historically come from commercial and savings banks and credit
      unions in its market area. Competition for loans comes from such financial
      institutions as well as mortgage banking companies. The Company expects
      continued strong competition in the foreseeable future. Many such institutions
      have greater financial and marketing resources available to them than does
      the
      Company. The Company competes for savings deposits by offering depositors a
      high
      level of personal service and a wide range of competitively priced financial
      products. In recent years, additional strong competition has come from stock
      and
      bond dealers and brokers and, in particular, mutual funds. The Company competes
      for real estate loans primarily through the interest rates and loan fees it
      charges and advertising, as well as by offering high levels of personal
      service.





**Lending
      Activities**





*Loan
      Portfolio Composition* .
      The
      principal components of the Company’s loan portfolio are fixed-rate and
      adjustable-rate first mortgage loans secured primarily by one- to four-family
      owner-occupied residential real estate, fixed- and adjustable-rate first
      mortgage loans secured by multifamily residential and commercial real estate
      and
      secured and unsecured consumer loans, with emphasis on second mortgage real
      estate loans. At December 31, 2006, the Company’s total loans receivable totaled
      $453.3 million, of which $214.5 million, or 47.3 %, were one- to four-family
      residential real estate first mortgage loans, $65.8 million, or 14.5%, were
      multifamily real estate first mortgage loans, primarily purchased by the
      Company, $95.5 million, or 21.1%, were commercial real estate first mortgage
      loans, primarily purchased by the Company, and $12.1 million, or 2.7% were
      construction real estate loans. Consumer loans, consisting primarily of
      automobile loans and second mortgage loans, totaled $65.4 million, or 14.4%,
      of
      the Company’s loan portfolio.





*Loans
      to One Borrower.* Savings
      associations, such as the Bank, are generally subject to the same limits on
      loans to one borrower as are imposed on national banks. Generally, under these
      limits, a savings association may not make a loan or extend credit to a single
      or related group of borrowers in excess of 15% of the association’s unimpaired
      capital and surplus. Additional amounts may be lent, in the aggregate not
      exceeding 10% of unimpaired capital and surplus, if any such loan or extension
      of credit is fully secured by readily-marketable collateral. Such collateral
      is
      defined to include certain debt and equity securities, but generally does not
      include real estate. At December 31, 2006, it was the Company’s policy to limit
      loans to one borrower to $5.5 million, with higher limits subject to board
      approval. These limitations are less than regulatory requirements. At December
      31, 2006, the Company’s largest aggregate outstanding loans to a single borrower
      or group of related borrowers totaled $4.0 million. The Company had two other
      lending relationships of over $3.0 million as of December 31, 2006. At December
      31, 2006, each of these loans were performing, pursuant to their respective
      terms, as of that date.




*Analysis
      of Loan Portfolio* .
      Set
      forth below are selected data relating to the composition of the Company’s loan
      portfolio by type of loan as of the dates indicated:


**At
                  December 31****,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****Amount**
              
              **Percent**
                **of
                  Total**
              
              **Amount**
              
              **Percent**
                **of
                  Total**
              
              **Amount**
              
              **Percent**
                **of
                  Total**
              
              **Amount**
              
              **Percent**
                **of
                  Total**
              
              **Amount**
              
              **Percent**
                **of
                  Total****(Dollars
                    in thousands)**First
                  mortgage loans:One-
                  to four-family residential(1)
              
              $
              214,499
              
              
              47.31
              %
              $
              201,242
              
              
              45.88
              %
              $
              179,311
              
              
              42.81
              %
              $
              171,604
              
              
              46.71
              %
              $
              148,751
              
              
              43.17
              %Multifamily
              
              
              65,807
              
              
              14.52
              
              
              73,946
              
              
              16.86
              
              
              78,428
              
              
              18.73
              
              
              69,963
              
              
              19.04
              
              
              70,779
              
              
              20.54Commercial
              
              
              95,508
              
              
              21.07
              
              
              81,255
              
              
              18.52
              
              
              90,907
              
              
              21.70
              
              
              69,609
              
              
              18.95
              
              
              71,251
              
              
              20.68Construction
              
              
              12,091
              
              
              2.67
              
              
              21,192
              
              
              4.83
              
              
              14,308
              
              
              3.42
              
              
              2,285
              
              
              0.62
              
              
              -
              
              
              -Total first mortgage loans
              
              
              387,905
              
              
              85.57
              
              
              377,635
              
              
              86.09
              
              
              362,954
              
              
              86.66
              
              
              313,461
              
              
              85.32
              
              
              290,781
              
              
              84.39Consumer
                  loans:Automobiles
              
              
              10,459
              
              
              2.31
              
              
              9,252
              
              
              2.11
              %
              
              9,052
              
              
              2.16
              %
              
              9,801
              
              
              2.67
              %
              $
              10,115
              
              
              2.94
              %Second
                  mortgage(2)
              
              
              49,070
              
              
              10.82
              
              
              44,218
              
              
              10.08
              
              
              39,701
              
              
              9.48
              
              
              37,601
              
              
              10.23
              
              
              38,239
              
              
              11.10Other(3)
              
              
              5,901
              
              
              1.30
              
              
              7,545
              
              
              1.72
              
              
              7,134
              
              
              1.70
              
              
              6,533
              
              
              1.78
              
              
              5,438
              
              
              1.58Total
                  consumer loans
              
              
              65,430
              
              
              14,43
              
              
              61,015
              
              
              13.91
              
              
              55,887
              
              
              13.34
              
              
              53,935
              
              
              14.68
              
              
              53,792
              
              
              15.61Total
                  loans receivable
              
              $
              453,335
              
              
              100.00
              %
              $
              438,650
              
              
              100.00
              %
              $
              418,841
              
              
              100.00
              %
              $
              367,396
              
              
              100.00
              %
              $
              344,573
              
              
              100.00
              %Less:
                Undisbursed
                  portion of
                construction loans
              
              $
              1,217
              
              
              0.27
              %
              $
              5,666
              
              
              1.29
              %
              $
              9,114
              
              
              2.18
              %
              $
              1,855
              
              
              0.50
              %
              $
              929
              
              
              0.27
              %Unearned
                  loan (premium) discount
              
              
              (583
              )
              
              (0.13
              )
              
              (769
              )
              
              (0.18
              )
              
              (984
              )
              
              (0.24
              )
              
              (696
              )
              
              (0.19
              )
              
              (623
              )
              
              (0.18
              )Net
                  deferred loan origination
                fees (costs)
              
              
              165
              
              
              0.04
              
              
              149
              
              
              0.03
              
              
              160
              
              
              0.04
              
              
              113
              
              
              0.03
              
              
              3
              
              
              0.00Allowance
                  for loan losses
              
              
              3,493
              
              
              0.77
              
              
              3,326
              
              
              0.76
              
              
              3,235
              
              
              0.77
              
              
              3,165
              
              
              0.86
              
              
              3,118
              
              
              0.90Total
                  loans receivable, net
              
              $
              449,043
              
              
              99.05
              %
              $
              430,278
              
              
              98.10
              %
              $
              407,316
              
              
              97.25
              %
              $
              362,959
              
              
              98.80
              %
              $
              341,146
              
              
              99.01
              %




(1)
            Includes
                interest-only construction loans that convert to permanent loans,
                prior to
                2003.


(2)
            Second
                mortgage loans included $5.4 million, $5.0 million, $5.4 million,
                $4.9
                million and $4.0 million of nonowner-occupied residential first mortgage
                loans at December 31, 2006, 2005, 2004, 2003, and 2002,
                respectively.


(3)
            Other
                consumer loans included $2.0 million, $2.3 million, $2.8 million,
                $2.1
                million and $1.9 million of commercial mortgage loans at December
                31,
                2006, 2005, 2004, 2003, and 2002,
                respectively.




*Loan
      Maturity Schedule.* The
      following table sets forth the maturity or period to repricing of the Company’s
      loan portfolio at December 31, 2006. Overdraft lines of credit are reported
      as
      due in one year or less. Adjustable-rate loans are included in the period in
      which interest rates are next scheduled to adjust rather than in which they
      contractually mature, and fixed rate loans are included in the period in which
      the final contractual repayment is due.





**At
                December 31, 2006****Within**
              **1
                Year**
            
            **1-3**
              **Years**
            
            **3-5**
              **Years**
            
            **5-10**
              **Years**
            
            **10-20**
              **Years**
            
            **Beyond
                20**
              **Years**
            
            **Total****(In
                thousands)**First
                mortgage loans:One-
                to four-familyresidential(1)
            
            $
            34,790
            
            $
            48,754
            
            $
            58,796
            
            $
            42,522
            
            $
            31,334
            
            $
            1,442
            
            $
            217,638Multifamily
            
            
            17,167
            
            
            28,497
            
            
            13,409
            
            
            6,734
            
            
            -
            
            
            -
            
            
            65,807Commercial
            
            
            40,854
            
            
            27,813
            
            
            13,157
            
            
            20,875
            
            
            1,761
            
            
            -
            
            
            104,460Consumer
                loans (2)
            
            
            9,441
            
            
            20,410
            
            
            24,327
            
            
            7,983
            
            
            2,726
            
            
            543
            
            
            65,430Total
            
            $
            102,252
            
            $
            125,474
            
            $
            109,689
            
            $
            78,114
            
            $
            35,821
            
            $
            1,985
            
            $
            453,335





(1)
            One-
                to four-family loans include $37.7 million of loans with repricing
                periods
                greater than 5 years that have been classified as fixed rate loans.
                $29.8
                million of these loans with repricing periods less than 5 years have
                been
                classified as adjustable rate
                loans.


(2)
            Includes
                second mortgage loans of $49.1 million at December 31,
                2006.




The
      following table sets forth the dollar amounts of all fixed rate and adjustable
      rate loans in each loan category at December 31, 2006 due after December 31,
      2007.





**Due
                After December 31, 2007****Fixed**
            
            **Adjustable**
            
            **Total****(In
                thousands)**First
                mortgage loans:One-
                to four-family residential(1)
            
            $
            78,827
            
            $
            104,021
            
            $
            182,848Multifamily
            
            
            9,210
            
            
            39,429
            
            
            48,639Commercial
            
            
            29,912
            
            
            33,694
            
            
            63,606Consumer
                loans (2)
            
            
            52,551
            
            
            3,439
            
            
            55,990Total
            
            $
            170,500
            
            $
            180,583
            
            $
            351,083




(1)
            One-
                to four-family loans include $37.7 million of loans with repricing
                periods
                greater than 5 years that have been classified as fixed rate
                loans.


(2)
            Includes
                second mortgage loans of $42.3 million at December 31,
                2006.




*One-
      to four-family Residential Real Estate Loans* .
      Traditionally, the Company’s primary lending activity consists of the
      origination of fixed- and adjustable-rate one- to four-family owner-occupied
      residential first mortgage loans, substantially all of which are collateralized
      by properties located in the Company’s market area. The Company also originates
      one- to four-family, interest-only construction loans that convert to permanent
      loans after an initial construction period that generally does not exceed nine
      months. At December 31, 2006, 37.2% of the Company’s residential real estate
      loans had fixed rates, and 62.8% had adjustable rates.





The
      Company originates loans for portfolio and sells loans in the secondary mortgage
      market. However, the Company’s one- to four-family, fixed-rate, residential real
      estate loans originated for portfolio are generally originated and underwritten
      according to standards that qualify such loans to be included in Freddie Mac
      and
      Fannie Mae purchase and guarantee programs and that otherwise permit resale
      in
      the secondary mortgage market. The Company has sold fixed-rate loans with
      maturities of 15 years or greater in the secondary mortgage market. For the
      year
      ended December 31, 2006, the Company sold $19.2 million of one- to four-family
      residential mortgage loans, generally to lower the Company’s interest rate risk.
      One- to four-family portfolio loans are underwritten and originated according
      to
      policies approved by the board of directors.




Originations
      of one- to four-family fixed-rate first mortgage loans are monitored on an
      ongoing basis and are affected significantly by the level of market interest
      rates, the Company’s interest rate gap position, and loan products offered by
      the Company’s competitors. The Company’s one- to four-family fixed-rate first
      mortgage loans amortize on a monthly basis with principal and interest due
      each
      month. The Company also offers one- to four-family adjustable-rate first
      mortgage loans that convert to adjustable-rate loans that adjust on an annual
      basis after the initial fixed rate term. The initial fixed rate term of these
      loans are primarily 5 and 7 years and the overall maturity of these loans may
      be
      up to 30 years. The Company determines whether a customer qualifies for these
      loans based upon the initial fixed interest rate.





The
      Company’s adjustable rate mortgage loans, or “ARM loans,” are generally
      originated for terms of up to 30 years, with interest rates that adjust annually
      after an initial fixed rate period. The Company establishes various annual
      and
      life-of-the-loan caps on ARM loan interest rate adjustments. At December 31,
      2006, the Company generally offered ARM loans with annual rate caps of 2.00%
      and
      maximum life-of-loan caps of 6.00% above the beginning rate. At present, the
      interest rate on its ARM loans is calculated by using the weekly average yield
      on United States Treasury Securities adjusted to a constant maturity of one
      year. In addition, the Company establishes floors for each loan originated
      below
      which the loan may not adjust. One- to four-family residential ARM loans totaled
      $136.7 million, or 30.1%, of the Company’s total loan portfolio at December 31,
      2006.





The
      primary purpose of offering ARM loans is to make the Company’s loan portfolio
      more interest rate sensitive. ARM loans carry increased credit risk associated
      with potentially higher monthly payments by borrowers as general market interest
      rates increase. It is possible, therefore, that during periods of rising
      interest rates, the risk of default on ARM loans may increase due to the upward
      adjustment of interest costs to the borrower. Management believes that the
      Company’s credit risk associated with its ARM loans is reduced because of the
      annual and lifetime interest rate adjustment limitations on such loans, although
      such limitations do create an element of interest rate risk. See “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Discussion of Market Risk - Interest Rate Sensitivity Analysis” in the 2006
      Annual Report to Shareholders, which is attached to this Form 10-K as Exhibit
      13.1 and incorporated herein by reference.





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





Regulations
      limit the amount that a savings association may lend relative to the appraised
      value of the real estate securing the loan, as determined by an appraisal at
      the
      time of loan origination. The Company originates one- to four-family residential
      mortgage loans with terms up to a maximum of 30 years and with loan-to-value
      ratios up to 103% of the lesser of the appraised value of the security property
      or the contract price. The Company generally requires that private mortgage
      insurance be obtained in an amount sufficient to reduce the Company’s exposure
      to be at or below the 80% loan-to-value level. The Company requires fire and
      casualty insurance, flood insurance, where applicable, an abstract of title,
      and
      a title opinion or title insurance on all properties securing real estate loans
      originated by the Company.





*Multifamily
      Residential and Commercial Real Estate Loans* .
      The
      Company’s loan portfolio contains loans secured by multifamily residential and
      commercial real estate. Such loans constituted approximately $170.3 million,
      or
      37.6%, of the Company’s total loan portfolio at December 31, 2006. Of such
      loans, $120.3 million, or 70.7%, were purchased or originated by the Company
      and
      were secured by properties outside the State of Iowa (the “out of state”
properties). The multifamily and commercial real estate loans are primarily
      secured by multifamily residences such as apartment buildings and by commercial
      facilities such as office buildings and retail buildings. Multifamily
      residential and commercial real estate loans are offered with fixed and
      adjustable rates and are structured in a number of different ways depending
      upon
      the circumstances of the borrower and the type of project. See “-Purchased or
      Out of State Originated Loans”.





All
      purchased or out of state originated multifamily or commercial real estate
      loans
      in excess of $1.0 million are approved by the chief executive officer, chief
      operating officer and the board of directors and are subject to the same
      underwriting standards as for loans originated by the Company. All out of state
      originated loans less than $1.0 million are approved by the chief executive
      officer and chief operating officer and ratified by the board of directors
      and
      are subject to the same underwriting standards as loans originated by the
      Company. Before a loan is purchased, the Company obtains copies of the original
      loan application, certified rent rolls, the original title insurance policy,
      the
      original appraisal and personal financial statements of any guarantors of the
      loan. An executive officer of the Company also makes a personal inspection
      of
      the property securing the loan. Such purchases are made without recourse to
      the
      seller. $15.9 million, or 13.2%, of out of state multifamily and commercial
      real
      estate loans are serviced by the Bank. $104.4 million, or 86.8%, of the out
      of
      state multifamily and commercial real estate loans are serviced by the
      originating financial institution or mortgage company. At December 31, 2006,
      the
      Company imposed a $3.0 million limit on the aggregate size of multifamily and
      commercial loans to any one borrower for loans secured by real estate located
      outside the State of Iowa. A $5.5 million limit on the aggregate size of
      multifamily and commercial loans to one borrower applied to loans secured by
      real estate located in Iowa. The Company also imposes a $3.0 million and $4.0
      million loan limit per secured property located outside and inside the State
      of
      Iowa, respectively. Any exceptions to these limits must be specifically approved
      by the board of directors on a loan-by-loan basis within the Company’s legal
      lending limit. See “Regulation - Regulation of Federal Savings Associations -
      Loans to One Borrower”.





Loans
      secured by multifamily and commercial real estate generally involve a greater
      degree of credit risk than single-family residential mortgage loans and
      typically, such loans also have 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 multifamily and commercial real estate is typically dependent
      upon the successful operation of the related real estate property. If the cash
      flow from such real estate projects is reduced, the borrower’s ability to repay
      the loan may be impaired. As a result, these types of loans present greater
      potential loan delinquencies and loan losses than single-family residential
      loans.





*Construction
      Lending.* The
      Company makes construction loans to individuals for the construction of their
      residences as well as to builders for the construction of one- to four-family
      residences and commercial and multifamily real estate. At December 31, 2006,
      the
      Company’s construction loan portfolio totaled $12.1 million, or 2.7%, of the
      Company’s total loan portfolio. Construction loans to individuals for their
      residences are structured to be converted to permanent loans at the end of
      the
      construction phase, which typically runs up to twelve months. These construction
      loans have rates and terms which generally match the one- to four-family ARM
      loan rates then offered by the Company, except that during the construction
      phase the borrower pays interest only. Generally, the maximum loan-to-value
      ratio of owner occupied single family construction loans is 80% of appraised
      value. Residential construction loans are generally underwritten pursuant to
      the
      same guidelines used for originating permanent residential loans.





Generally,
      construction loans to builders of one- to four-family residences require the
      payment of interest only with terms of up to 12 months. These loans may also
      provide for the payment of interest and loan fees from loan proceeds and carry
      adjustable rates of interest. At December 31, 2006, the Company had $9.5 million
      of one- to four-family construction loans.





Construction
      loans on commercial and multifamily real estate projects may be secured by
      apartments, small office buildings, strip retail centers, or other property,
      and
      are generally structured to be converted to permanent loans at the end of the
      construction phase, which generally runs up to 12 months. During the
      construction phase the borrower pays interest only. These loans generally
      provide for the payment of interest and loan fees from loan proceeds. At
      December 31, 2006, the Company had approximately $2.6 million of loans for
      the
      construction of commercial real estate.





Construction
      loans are obtained principally through continued business from builders who
      have
      previously borrowed from the Company and from new or existing customers who
      are
      building new facilities. The application process includes a submission to the
      Company of accurate plans, specifications, and costs of the project to be
      constructed and projected revenues from the project. These items are also used
      as a basis to determine the appraised value of the subject property. Loans
      are
      based on the lesser of the current appraised value of the property or the cost
      of construction (land plus building).





Because
      of the uncertainties inherent in estimating construction costs and the market
      for the project upon completion, it is relatively difficult to evaluate
      accurately the total loan funds required to complete a project, the related
      loan-to-value ratios and the likelihood of ultimate success of the project.
      Construction loans to borrowers other than owner-occupants also involve many
      of
      the same risks discussed above regarding multifamily and commercial real estate
      loans and tend to be more sensitive to general economic conditions than many
      other types of loans. Also, the funding of loan fees and interest during the
      construction phase makes the monitoring of the progress of the project
      particularly important, as customary early warning signals of project
      difficulties may not be present.





*Consumer
      Loans, Including Second Mortgage Loans* .
      The
      Company also originates consumer loans, which consists primarily of one- to
      four-family second mortgage loans, including home equity lines of credit. As
      of
      December 31, 2006, consumer loans totaled $65.4 million, of which second
      mortgage loans totaled $49.1 million, or 10.8%, of the Company’s total loan
      portfolio. The Company’s second mortgage loans generally have fixed interest
      rates for terms of 3 to 5 years. The Company’s home equity lines of credit are
      adjustable rate loans with terms up to ten years. The Company’s second mortgage
      loans are generally secured by the borrower’s principal residence with a maximum
      loan-to-value ratio, including the principal balances of both the first and
      second mortgage loans, of generally no more than 90%. In recent years the
      Company has begun originating one- to four-family second mortgage loans of
      up to
      100%. These type loans are subject to stricter underwriting guidelines.
      Generally, loans in excess of 90% loan-to-value are insured through a pool
      insurance product, unless the loan has secondary collateral. The average
      principal amount of the Company’s second mortgage loans is approximately
      $20,600.





To
      a
      lesser extent, the Company also originates loans secured by automobiles, with
      fixed rates generally up to 100% loan-to-value basis for new cars. All of the
      Company’s automobile loans were originated by the Company and generally have
      terms of up to five years. At December 31, 2006, automobile loans totaled $10.5
      million, or 2.3%, of the Company’s total loan portfolio.





In
      addition, the Company also makes other types of consumer loans, including
      unsecured signature loans for various purposes. At December 31, 2006, other
      consumer loans totaled $5.9 million, or 1.3%, of the Company’s total loan
      portfolio. Included in the other consumer loans are unsecured consumer loans
      which totaled $849,000, or 0.19 %, of the Company’s total loan portfolio. The
      minimum loan amount for unsecured signature loans is $2,000, the maximum loan
      amount for such loans is generally $5,000, and the average balance of such
      loans
      is approximately $2,500.





The
      Company originates a limited number of commercial business loans, which the
      Company includes with its consumer loan portfolio for reporting purposes. Such
      loans are generally secured and are originated for any business purpose, such
      as
      for the purchase of business equipment.





The
      Company's business plan calls for an increase in consumer lending for the
      foreseeable future, particularly second mortgage lending. The Company expects
      consumer loan demand will come from its existing customer base. Consumer loans
      generally provide for shorter terms and higher yields as compared to residential
      first mortgage loans, but generally carry higher risks of default. At December
      31, 2006, $357,000, or 0.55%, of the Company's consumer loan portfolio was
      on
      non-accrual status.





*Loan
      Originations, Solicitation, Processing, and Commitments* .
      Loan
      originations are derived from a number of sources such as real estate agent
      referrals, existing customers, borrowers, builders, and walk-in customers.
      Upon
      receiving a loan application, the Company obtains a credit report and income
      information to verify specific information relating to the applicant's
      employment, income, and credit standing. In the case of a real estate loan,
      an
      appraiser approved by the Company appraises the real estate intended to
      collateralize the proposed loan. An underwriter in the Company's loan department
      reviews the loan application file for accuracy and completeness, and verifies
      the information provided. Pursuant to the Company's written loan policies,
      at
      least one member of management approves all first mortgage loans. The loan
      committee of the board of directors meets quarterly to review a sampling of
      all
      loans originated in the previous three months.





After
      a
      loan is approved, a loan commitment letter is promptly issued to the borrower.
      The commitment letter specifies the terms and conditions of the proposed loan
      including the amount of the loan, interest rate, and amortization term, a brief
      description of the required collateral, and required insurance coverage.
      Commitments are typically issued for 60-day periods in the case of loans to
      refinance, loans to purchase existing real estate, and construction loans.
      The
      borrower must provide proof of fire and casualty insurance on the property
      serving as collateral, which insurance must be maintained during the full term
      of the loan. At December 31, 2006, the Company had outstanding commitments
      to
      originate $3.8 million of loans. This amount does not include commitments to
      purchase loans, undisbursed overdraft loan privileges, undisbursed home equity
      lines of credit or the unfunded portion of loans in process.





*Purchased
      or Out of State Originated Loans.* The
      Company's loan portfolio contains $135.3  million
      of loans secured by out of state properties. These loans represented 29.8%
      of
      the Company's total loan portfolio at December 31, 2006. All of the one- to
      four-family, multifamily residential and commercial real estate loans in the
      Company’s loan portfolio, which are purchased out of state by the Company, are
      generally without recourse to the seller. At December 31, 2006, the Company's
      out of state multifamily residential and commercial real estate loans had an
      average balance of $696,000 and the largest loan had a principal balance of
      $2.9
      million. As of December 31, 2006, there were no out of state
      multifamily or commercial real estate loans that were more than 90 days past
      due.





To
      supplement its origination of one- to four-family first mortgage loans, the
      Company also purchases first mortgage loans secured by out of state one- to
      four-family residences. At December 31, 2006, $15.0 million, or 3.3%, of the
      Company's total loan portfolio consisted of out of state one- to four-family
      loans. As of December 31, 2006, there were no out of state one- to
      four-family first mortgage loans that were more than 90 days past
      due.





Loans
      purchased by the Company entail certain risks not necessarily associated with
      loans the Company originates. The Company's purchased loans are generally
      acquired without recourse against the seller. $22.5 million, or 14.7%, of
      purchased loans are serviced by the Bank. $130.2 million, or 85.3%, of purchased
      loans are serviced by the originating financial institution or mortgage company.
      Although the Company reviews each purchased loan using the Company's
      underwriting criteria for originations and a Company officer performs an on-site
      inspection of each purchased multifamily and commercial real estate loan, the
      Company is dependent on the servicer of the loan for ongoing collection efforts
      and collateral review. In addition, the Company purchases loans with a variety
      of terms, including maturities, interest rate caps and indices for adjustment
      of
      interest rates that may differ from those offered at the time by the Company
      in
      connection with loans the Company originates. Finally, the market areas in
      which
      the properties which secure the purchased loans are located are subject to
      economic and real estate market conditions that may significantly differ from
      those experienced in the Company's market areas. If economic conditions continue
      to limit the Company's opportunities to originate loans in its market areas,
      the
      Company may increase its investment in out of state mortgage loans. There can
      be
      no assurance, however, that economic conditions in these out of state areas
      will
      not deteriorate in the future resulting in increased loan delinquencies and
      loan
      losses among the loans secured by property in these areas.





In
      an
      effort to reduce the risk of loss on out of state purchased loans, the Company
      generally purchases loans that meet the underwriting policies for loans
      originated by the Company although specific rates and terms may differ from
      the
      rates and terms offered by the Company. The Company requires appropriate
      documentation, and personal inspections of the underlying real estate collateral
      by an executive officer prior to purchase. The Company limits its out of state
      loan portfolio concentration within a single state to 10% of the Bank’s total
      assets. The Company also limits its loan portfolio concentration to a single
      servicer to 10% of the Bank’s total assets.





Set
      forth
      below is a table of the Company's out of state purchased or originated loans
      by
      state of origin (including multifamily residential, commercial real estate
      and
      one- to four-family first mortgage loans) as of December 31, 2006.





**State**
            
            **Balance
                as of**
              **December
                31, 2006**
            
            **Percentage
                as of**
              **December
                31, 2006****(In
                thousands)**California
            
            $
            20,077
            
            
            14.8
            %Washington
            
            
            19,876
            
            
            14.7South
                Carolina
            
            
            13,687
            
            
            10.1Wisconsin
            
            
            13,425
            
            
            9.9Oregon
            
            
            10,747
            
            
            8.0Colorado
            
            
            10,658
            
            
            7.9Missouri
            
            
            8,242
            
            
            6.1Nebraska
            
            
            7,162
            
            
            5.3Illinois
            
            
            4,793
            
            
            3.5Minnesota
            
            
            4,347
            
            
            3.2Texas
            
            
            3,208
            
            
            2.4Arizona
            
            
            3,151
            
            
            2.3Michigan
            
            
            2,362
            
            
            1.8Florida
            
            
            2,312
            
            
            1.7Indiana
            
            
            2,175
            
            
            1.6Ohio
            
            
            2,137
            
            
            1.6Utah
            
            
            1,846
            
            
            1.4Kansas
            
            
            1,649
            
            
            1.2South
                Dakota
            
            
            1,538
            
            
            1.1Nevada
            
            
            1,521
            
            
            1.1North
                Carolina
            
            
            396
            
            
            0.3Total
            
            $
            135,309
            
            
            100.0
            %





*Origination,
      Purchase and Sale of Loans* .
      The
      table below shows the Company's originations, purchases and sales of loans
      for
      the periods indicated.




**For
                the Years Ended**
              **December
                31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**Total
                loans receivable at beginning of period
            
            $
            438,650
            
            $
            418,841
            
            $
            367,396**Originations:**First
                mortgage loans:One-
                to four-family residential
            
            
            46,247
            
            
            74,583
            
            
            64,771Multifamily
            
            
            9,702
            
            
            -
            
            
            4,720Commercial
            
            
            16,281
            
            
            8,455
            
            
            3,924Consumer
                loans:Automobile
            
            
            8,406
            
            
            7,095
            
            
            6,246Second
                mortgage
            
            
            28,830
            
            
            24,779
            
            
            21,709Other
            
            
            3,435
            
            
            4,208
            
            
            6,115Total
                originations:
            
            
            112,901
            
            
            119,120
            
            
            107,485**Loan
                Purchases:**First
                mortgage one- to four-family
            
            
            11,269
            
            
            1,579
            
            
            1,769First
                mortgage multifamily
            
            
            8,763
            
            
            9,983
            
            
            19,907First
                mortgage commercial
            
            
            20,370
            
            
            12,462
            
            
            31,049**Loan
                Sales:**First
                mortgage one- to four-family
            
            
            (19,188
            )
            
            (19,488
            )
            
            (17,805
            )Transfer
                of mortgage loans (to)
              foreclosed
                real estate
            
            
            (267
            )
            
            (840
            )
            
            (335
            )Repayments
            
            
            (119,163
            )
            
            (103,007
            )
            
            (90,625
            )Net
                loan activity
            
            
            14,685
            
            
            19,809
            
            
            51,445Total
                loans receivable at end of period
            
            $
            453,335
            
            $
            438,650
            
            $
            418,841




*Loan
      Origination Fees and Other Income* .
      In
      addition to interest earned on loans, the Company generally receives fees in
      connection with loan originations. Such loan origination fees, net of costs
      to
      originate, are deferred and amortized using an interest method over the
      contractual life of the loan. Net deferred fees and costs are recognized into
      income immediately upon prepayment of the related loan. At December 31, 2006,
      the Company had $165,000 of deferred loan origination fees, net. Such fees
      vary
      with the type of loans and commitments made. The Company typically charges
      a
      document preparation fee on fixed- and adjustable-rate first mortgage loans.
      In
      addition to loan origination fees, the Company also receives other fees, service
      charges (such as overdraft fees), and other income that consist primarily of
      deposit transaction account service charges, late charges and loan prepayment
      fees. The Company recognized fees and service charges of $4.4 million, $4.5
      million and $3.1 million for the fiscal years ended December 31, 2006, 2005
      and
      2004, respectively.





**Investment
      Activities**





At
      December 31, 2006, the Company's investment portfolio is comprised of state
      and
      local obligations, mortgage-backed securities, mutual funds, interest-bearing
      deposits and equity securities consisting of Freddie Mac preferred stocks,
      Fannie Mae preferred stock, Federal Home Loan Bank stock and other common stock.
      At December 31, 2006, $960,000, or 26.1%, of the Company's investment portfolio,
      excluding mortgage-backed securities, mutual funds and equity securities, was
      scheduled to mature in one year or less, $1.9 million, or 51.1%, was scheduled
      to mature within one to five years, and $837,000, or 22.8%, was scheduled to
      mature in more than five years.





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





*Investment
      Portfolio* .
      The
      following table sets forth the carrying value of the Company's investment
      portfolio at the dates indicated.





**At
                December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**Investment
                securities:Mortgage-backed
                securities
            
            $
            2,881
            
            $
            4,255
            
            $
            6,044State
                and local obligations
            
            
            3,674
            
            
            3,366
            
            
            4,497FHLB
                stock
            
            
            5,476
            
            
            5,250
            
            
            5,045Mutual
                funds
            
            
            1,946
            
            
            1,950
            
            
            1,976Equity
                securities
            
            
            6,053
            
            
            5,887
            
            
            5,544Total
                investment securities
            
            
            20,030
            
            
            20,708
            
            
            23,106Interest-earning
                deposits
            
            
            12,431
            
            
            552
            
            
            604Total
                investments
            
            $
            32,461
            
            $
            21,260
            
            $
            23,710





*Investment
      Portfolio Maturities* .
      The
      following table sets forth the scheduled maturities, carrying values, market
      values and weighted average yields for the Company's investment portfolio at
      December 31, 2006.





**At
                December 31, 2006****One
                Year or Less**
            
            **One
                to Five Years**
            
            **Five
                to Ten Years**
            
            **Over
                Ten Years**
            
            **Total****Carrying**
              **Value**
            
            **Annualized**
              **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Annualized**
              **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Annualized**
              **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Annualized**
              **Weighted**
              **Average**
              **Yield**
            
            **Carrying**
              **Value**
            
            **Fair**
              **Value**
            
            **Average**
              **Life
                in**
              **Years**
            
            **Annualized**
              **Weighted**
              **Average**
              **Yield****(Dollars
                in thousands)**Investment
                securities:Mortgage-backed
                securities
            
            $
            1
            
            
            5.62
            %
            $
            329
            
            
            5.79
            %
            $
            120
            
            
            6.42
            %
            $
            2,431
            
            
            3.74
            %
            $
            2,881
            
            $
            2,881
            
            
            2
            
            
            4.08
            %State
                and local obligations(1)
            
            
            960
            
            
            3.77
            
            
            1,877
            
            
            3.94
            
            
            837
            
            
            6.22
            
            
            -
            
            
            -
            
            
            3,674
            
            
            3,674
            
            
            3
            
            
            4.41Mutual
                funds
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,946
            
            
            1,946
            
            
            
            
            
            5.09FHLB
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,476
            
            
            5,476
            
            
            
            
            
            4.25Common
                stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9
            
            
            9
            
            
            
            
            
            -Preferred
                stock-Fannie Mae(2)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            981
            
            
            981
            
            
            
            
            
            5.81Preferred
                stock-Freddie Mac(2)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,063
            
            
            5,063
            
            
            
            
            
            5.65Total
                securitiesavailable-for-sale
            
            $
            961
            
            
            3.77
            %
            $
            2,206
            
            
            4.22
            %
            $
            957
            
            
            6.25
            %
            $
            2,431
            
            
            3.74
            %
            $
            20,030
            
            $
            20,030
            
            
            
            
            
            4.76
            %Interest-bearing
                deposits
            
            
            12,431
            
            
            4.96
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            12,431
            
            
            12,431
            
            
            
            
            
            4.96Total
                investments
            
            $
            13,392
            
            
            4.87
            %
            $
            2,206
            
            
            4.22
            %
            $
            957
            
            
            6.25
            %
            $
            2,431
            
            
            3.74
            %
            $
            32,461
            
            $
            32,461
            
            
            
            
            
            4.84
            %




(1) Certain
      securities have call features which allow the issuer to call the security prior
      to maturity date.


(2)   
      Certain securities have call features which allow the issuer to call the
      security.




**Sources
      of Funds**





*General* .
      Deposits are the primary source of the Company's funds for lending and other
      investment purposes. In addition to deposits, the Company derives funds from
      FHLB advances, the amortization and prepayment of loans, the maturity and calls
      of investment securities and operations. Scheduled loan principal repayments
      are
      a relatively stable source of funds, while deposit inflows and outflows and
      loan
      prepayments are influenced significantly by general interest rates and market
      conditions. The Company uses short-term borrowings to compensate for reductions
      in the availability of funds from other sources or on a longer term basis for
      general business purposes.





*Deposits* .
      During
      2006, consumer and commercial deposits were attracted principally from within
      the Company's market area through the offering of a broad selection of deposit
      instruments including noninterest-bearing demand accounts, NOW accounts, savings
      accounts, money market savings, certificates of deposit, including brokered
      certificates of deposits and individual retirement accounts. Deposit account
      terms vary according to the minimum balance required, the period of time during
      which the funds must remain on deposit, and the interest rate, among other
      factors. The maximum rate of interest which the Company may pay is not
      established by regulatory authority. The Company regularly evaluates its
      internal cost of funds, surveys rates offered by competing institutions, reviews
      the Company's cash flow requirements for lending and liquidity, and executes
      rate changes when deemed appropriate. Public fund deposits totaled $1.7 million
      at December 31, 2006, a reduction of $80,000 from December 31, 2005. Beginning
      fiscal year 2005, the Company began utilizing brokered certificates of deposit
      as an alternative wholesale funding source. As of December 31, 2006, the Company
      had $30.4 million in brokered certificates of deposit, an increase of $26.4
      million from December 31, 2005.





*Deposit
      Portfolio* .
      Deposits with the Company as of December 31, 2006, were represented by the
      various types of deposit programs described below.




**Weighted**
              **Average**
              **Interest
                Rate**
            
            **Original
                Term**
            
            **Checking
                and**
              **Savings
                Deposits**
            
            **Minimum**
              **Balance**
            
            **Balances**
            
            **Percentage**
              **of
                Total**
              **Deposits****(Dollars
                in thousands)**0.00%
            
            
            None
            
            
            Noninterest-bearing
                demand
            
            $
            50
            
            $
            12,788
            
            
            3.5
            %0.22
            
            
            None
            
            
            NOW
                accounts
            
            
            50
            
            
            49,636
            
            
            13.80.36
            
            
            None
            
            
            Savings
                accounts
            
            
            25
            
            
            25,160
            
            
            7.02.67
            
            
            None
            
            
            Money
                market savings
            
            
            2,500
            
            
            34,688
            
            
            9.6Total
                  non-maturing deposits
            
            
            
            
            
            122,272
            
            
            33.9Certificates
                of Deposit2.46
            
            
            1-3
                months
            
            
            Fixed
                term, fixed rate
            
            $
            1,000
            
            $
            81
            
            
            0.0
            %4.49
            
            
            4-6
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            2,927
            
            
            0.85.08
            
            
            7-9
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            7,967
            
            
            2.24.93
            
            
            10-12
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            36,179
            
            
            10.04.66
            
            
            13-24
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            84,680
            
            
            23.54.42
            
            
            25-36
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            45,111
            
            
            12.63.67
            
            
            37-48
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            723
            
            
            0.24.39
            
            
            49-60
                months
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            57,512
            
            
            16.05.13
            
            
            61
                months or greater
            
            
            Fixed
                term, fixed rate
            
            
            1,000
            
            
            2,878
            
            
            0.8Total certificate of deposits
            
            238,058
            
            
            66.1Total deposits
            $
            360,330
            
            
            100.0
            %




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




**Increase**
              
              **Increase**
              
              
              
              **Increase**
              
              **Increase****Balance**
                **12/31/06**
              
              **(Decrease)**
                **%**
              
              (**Decrease)**
                **$**
              
              **Balance**
                **12/31/05**
              
              **(Decrease)**
                **%**
              
              (**Decrease)**
                **$**
              
              **Balance**
                **12/31/04****(Dollars
                  in thousands)**Noninterest
                  bearing demand
              
              $
              12,788
              
              
              4.94
              %
              $
              602
              
              $
              12,186
              
              
              11.35
              %
              $
              1,242
              
              $
              10,944NOW
              
              
              49,636
              
              
              0.80
              
              
              394
              
              
              49,242
              
              
              4.15
              
              
              1,960
              
              
              47,282Savings
                  account
              
              
              25,160
              
              
              (6.98
              )
              
              (1,888
              )
              
              27,048
              
              
              (5.38
              )
              
              (1,538
              )
              
              28,586Money
                  market savings
              
              
              34,688
              
              
              (22.64
              )
              
              (10,153
              )
              
              44,841
              
              
              (2.51
              )
              
              (1,153
              )
              
              45,994Certificates
                  of deposit
                that
                  mature:
                within
                  12 months
              
              
              134,369
              
              
              25.91
              
              
              27,652
              
              
              106,717
              
              
              33.54
              
              
              26,805
              
              
              79,912within
                  12-36 months
              
              
              82,784
              
              
              15.02
              
              
              10,811
              
              
              71,973
              
              
              (9.53
              )
              
              (7,582
              )
              
              79,555beyond
                  36 months
              
              
              20,905
              
              
              6.39
              
              
              (1,426
              )
              
              22,331
              
              
              (7.19
              )
              
              (1,730
              )
              
              24,061Total
              
              $
              360,330
              
              
              7.77
              %
              $
              25,992
              
              $
              334,338
              
              
              5.69
              %
              $
              18,004
              
              $
              316,334




**Increase**
            
            **Increase**
            
            
            
            **Increase**
            
            **Increase****Balance**
              **12/31/04**
            
            **(Decrease)**
              **%**
            
            (**Decrease)**
              **$**
            
            **Balance**
              **12/31/03**
            
            **(Decrease)**
              **%**
            
            (**Decrease)**
              **$**
            
            **Balance**
              **12/31/02****(Dollars
                in thousands)**Noninterest
                bearing demand
            
            $
            10,944
            
            
            19.46
            %
            $
            1,783
            
            $
            9,161
            
            
            12.32
            %
            $
            1,005
            
            $
            8,156NOW
            
            
            47,282
            
            
            13.65
            
            
            5,680
            
            
            41,602
            
            
            14.37
            
            
            5,228
            
            
            36,374Passbook
                savings
            
            
            28,586
            
            
            2.96
            
            
            821
            
            
            27,765
            
            
            8.06
            
            
            2,072
            
            
            25,693Money
                market savings
            
            
            45,994
            
            
            78.38
            
            
            20,209
            
            
            25,785
            
            
            8.58
            
            
            2,037
            
            
            23,748Certificates
                of deposit
              that
                mature:
              within
                12 months
            
            
            79,912
            
            
            (13.76
            )
            
            (12,748
            )
            
            92,660
            
            
            36.52
            
            
            24,788
            
            
            67,872within
                12-36 months
            
            
            79,555
            
            
            41.39
            
            
            23,287
            
            
            56,268
            
            
            (24.83
            )
            
            (18,587
            )
            
            74,855beyond
                36 months
            
            
            24,061
            
            
            (21.68
            )
            
            (6,662
            )
            
            30,723
            
            
            (23.77
            )
            
            (9,579
            )
            
            40,302Total
            
            $
            316,334
            
            
            11.40
            %
            $
            32,370
            
            $
            283,964
            
            
            2.51
            %
            $
            6,964
            
            $
            277,000




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





**At
                December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)****Rate**1.99%
                or less
            
            $
            347
            
            $
            3,747
            
            $
            25,5552.00-2.99%
            
            
            11,233
            
            
            50,257
            
            
            77,0703.00-3.99%
            
            
            38,326
            
            
            72,508
            
            
            27,9774.00-5.99%
            
            
            188,062
            
            
            69,999
            
            
            37,6856.00-7.99%
            
            
            90
            
            
            4,510
            
            
            15,241$
            238,058
            
            $
            201,021
            
            $
            183,528




The
      following table sets forth the amount and maturities of certificates of deposit
      at December 31, 2006.




**Amount
                Due****Less**
              **Than
                1**
              **Year**
            
            **1-2**
              **Years**
            
            **2-3**
              **Years**
            
            **3-4**
              **Years**
            
            **4-5**
              **Years**
            
            **After
                5**
              **Years**
            
            **Total****(In
                thousands)****Rate**1.99%
                or less
            
            $
            339
            
            $
            8
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            3472.00-2.99%
            
            
            9,786
            
            
            1,193
            
            
            254
            
            
            -
            
            
            -
            
            
            -
            
            
            11,2333.00-3.99%
            
            
            18,795
            
            
            6,768
            
            
            9,099
            
            
            3,664
            
            
            -
            
            
            -
            
            
            38,3264.00-5.99%
            
            
            105,359
            
            
            40,283
            
            
            25,179
            
            
            5,791
            
            
            11,450
            
            
            -
            
            
            188,0626.00-7.99%
            
            
            90
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            90$
            134,369
            
            $
            48,252
            
            $
            34,532
            
            $
            9,455
            
            $
            11,450
            
            $
            -
            
            $
            238,058




The
      following table indicates the amount of the Company's certificates of deposit,
      including brokered certificates of deposit, greater than $100,000 by time
      remaining until maturity at December 31, 2006. This amount does not include
      savings accounts of greater than $100,000, which totaled approximately $757,000
      at December 31, 2006.




**Remaining
                Maturity**
            
            **Certificates**
              **of
                Deposit over**
              **$100,000****(In
                thousands)**Three
                months or less
            
            $
            5,924Three
                through six months
            
            
            5,086Six
                through twelve months
            
            
            7,046Over
                twelve months
            
            
            37,638Total
            
            $
            55,694




The
      following table sets forth the changes in deposits of the Company for the
      periods indicated:




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(In
                thousands)**Net
                increase (decrease) before interestcredited
            
            $
            17,816
            
            $
            11,330
            
            $
            26,633Interest
                credited
            
            
            8,176
            
            
            6,674
            
            
            5,737Net
                increase in deposits
            
            $
            25,992
            
            $
            18,004
            
            $
            32,370




**Borrowings**





Deposits
      are the Company's primary source of funds. The Company may also obtain funds
      from the FHLB. FHLB advances are collateralized by selected assets of the
      Company. Such advances are made pursuant to several different credit programs,
      each of which has its own interest rate and range of maturities. The maximum
      amount that the FHLB will advance to member institutions, including the Bank,
      for purposes other than meeting withdrawals, fluctuates from time to time in
      accordance with the policies of the Office of Thrift Supervision (“OTS”) and the
      FHLB. The maximum amount of FHLB advances to a member institution generally
      is
      reduced by borrowings from any other source.





**For
                the**
              **Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****(Dollars
                in thousands)**Weighted
                average rate paid on:FHLB
                advances
            
            
            4.75
            %
            
            4.59
            %
            
            4.51
            %FHLB
                advances:
              Maximum
                balance
            
            $
            115,424
            
            $
            111,446
            
            $
            103,979Average
                balance
            
            
            108,749
            
            
            102,223
            
            
            97,833Weighted
                average rate paid on:
              Other
                borrowings
            
            
            1.00
            %
            
            1.00
            %
            
            1.00
            %Other
                borrowings:
              Maximum
                balance
            
            $
            8
            
            $
            13
            
            $
            17Average
                balance
            
            
            5
            
            
            11
            
            
            15





**Title
      Abstract Business**





A
      component of the Company's operating strategy to increase non-interest income
      is
      through the abstract company business conducted through a wholly owned
      subsidiary of the Bank, First Iowa Title Services, Inc. ("First Iowa"). First
      Iowa sold one of its three abstract offices at the end of the second quarter
      of
      2006 and currently provides real estate title abstracting services in Webster
      and Boone counties of Iowa. These services include researching recorded
      documents at the county courthouse and providing a history of those documents
      as
      they pertain to specific parcels of real estate. This information is used to
      determine who owns specific parcels of real estate and what encumbrances are
      on
      those specific parcels. The abstract business performed by First Iowa replaces
      a
      significant portion of the function of a title insurance company. Iowa law
      prohibits Iowa insurance companies or companies authorized to do business in
      Iowa from issuing title insurance or insurance against loss or damage by reason
      of defective title, encumbrance or otherwise. Institutions can purchase title
      insurance, for their own protection or to sell loans on the secondary market.
      First Iowa had 12 employees as of December 31, 2006.





**Insurance
      and Annuity Business**




Another
      component of the Company’s operating strategy to increase non-interest income is
      through First Federal Investment Services, Inc. (“First Federal Investments"), a
      wholly owned subsidiary of the Bank. First Federal Investments’ activities
      include the sale of life insurance on mortgage loans, credit life and accident
      and health insurance on consumer loans made by the Company. In addition, First
      Federal Investments sells life insurance, annuity products, mutual funds and
      other noninsured products. First Federal Investments had four employees as
      of
      December 31, 2006.





**Mortgage
      Company Business**





First
      Iowa Mortgage, Inc. is a wholly-owned subsidiary of the Bank. First Iowa
      Mortgage, Inc. originated first mortgage loans and subsequently sold those
      loans
      and the mortgage servicing rights to investors. First Iowa Mortgage, Inc.
      currently is inactive and these services are provided by the Bank.





**Multifamily
      Apartment Buildings**





On
      July
      13, 1995, the Company formed the Northridge Apartments Limited Partnership,
      a
      subsidiary of the Bank, with the Fort Dodge Housing Corporation ("FDHC"), a
      non-profit Iowa corporation formed to acquire, develop and manage low- and
      moderate-income housing for residents of the Fort Dodge area. The FDHC is
      controlled by the Fort Dodge Municipal Housing Agency, an agency chartered
      by
      the City of Fort Dodge. The Northridge Partnership is a low-income housing
      tax
      credit project for certain federal tax purposes. A 44-unit apartment complex
      was
      completed on February 1, 1997. The tax credits for the year ended December
      31,
      2006 were approximately $151,000. The final federal income tax credits of
      approximately $46,000 associated with this project will be recognized in
      2007.





On
      October 24, 1996, the Company formed the Northridge Apartments Limited
      Partnership II, a subsidiary of the Bank, to acquire, develop and manage low-
      and moderate-income housing for residents of the Fort Dodge area. Northridge
      Partnership II was awarded low-income housing tax credits in 2002 by the Iowa
      Finance Authority. These credits were awarded to construct a 23-unit apartment
      building in Fort Dodge, Iowa, which was completed on March 31, 2003. The tax
      credits for the year ended December 31, 2006 were approximately $127,000. The
      tax credits will continue for an additional 6.3 year period.





**Personnel**





At
      December 31, 2006, the Company had 121 full-time and 35 part-time employees
      (including the 12 employees of First Iowa and the 4 employees of First Federal
      Investments). None of the Company's employees are represented by a collective
      bargaining group. The Company believes its relationship with its employees
      to be
      good.





**FEDERAL
      AND STATE TAXATION**




**Federal
      Taxation**





*General.* The
      following discussion of tax matters is intended only as a summary and does
      not
      purport to be a comprehensive description of the tax rules applicable to the
      Company. For federal income tax purposes, the Company, the Bank and the Bank’s
      subsidiaries will be eligible to file consolidated income tax returns and report
      their income on a calendar year basis using the accrual method of accounting
      and
      are subject to federal income taxation in the same manner as other corporations
      with some exceptions, including particularly the Bank's tax reserve for bad
      debts, discussed below. The Company and the Bank are not currently under audit
      by the IRS and have not been audited for the past five years.





*Bad
      Debt Reserves.* The
      Bank,
      as a “small bank” (one with assets having an adjusted tax basis of $500 million
      or less) is permitted to maintain a reserve for bad debts with respect to loans
      and to make, within specified formula limits, annual additions to the reserve
      which are deductible for purposes of computing the Bank’s taxable income.
      Pursuant to the Small Business Job Protection Act of 1996, the Bank has now
      recaptured (and taken into income) over a multi-year period a portion of the
      balance of its bad debt reserve as of December 31, 1995.





*Distributions.* To the
      extent that the Bank makes "nondividend distributions" to shareholders, such
      distributions will be considered to result in distributions from the Bank's
      “base year reserve”, i.e. its reserve as of December 31, 1987, to the extent
      thereof and then from its supplemental reserve for losses on loans, and an
      amount based on the amount distributed will be included in the Bank's taxable
      income. Nondividend distributions include distributions in excess of the Bank's
      current and accumulated earnings and profits, distributions in redemption of
      stock and distributions in partial or complete liquidation. However, dividends
      paid out of the Bank's current or accumulated earnings and profits, as
      calculated for federal income tax purposes, will not constitute nondividend
      distributions and, therefore, will not be included in the Bank's
      income.





The
      amount of additional taxable income created from a nondividend distribution
      is
      an amount that, when reduced by the tax attributable to the income, is equal
      to
      the amount of the distribution. Thus, in some situations, approximately one
      and
      one-half times the nondividend distribution would be includable in gross income
      for federal income tax purposes, assuming a 34% federal corporate income tax
      rate. We do not intend to pay distributions that would result in the recapture
      of any portion of our bad debt reserves.





*Corporate
      Alternative Minimum Tax.* The
      Internal Revenue Code (the "Code") imposes a tax on alternative minimum taxable
      income ("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by AMTI minimum
      tax net operating loss carryovers, of which there is none. AMTI is also adjusted
      by determining the tax treatment of certain items in a manner that negates
      the
      deferral of income resulting from the regular tax treatment of those items.
      The
      Company does not expect to be subject to the alternative minimum
      tax.





*Dividends-Received
      Deduction* .
      The
      Company may exclude from its income 100% of dividends received from the Bank
      as
      a member of the same affiliated group of corporations.





**State
      and Local Taxation**





*Iowa
      and Colorado Taxation.* The
      Company and the Bank's subsidiaries file Iowa corporation tax returns and the
      Bank files an Iowa franchise and Colorado income tax return.





The
      State
      of Iowa imposes a tax on the Iowa franchise taxable income of thrift
      institutions at the rate of 5%. Iowa franchise taxable income is generally
      similar to federal taxable income except that interest from state and municipal
      obligations is taxable, and no deduction is allowed for state franchise taxes.
      The net operating loss carryback and carryforward rules are similar to the
      federal rules.





The
      state
      corporation income tax rate ranges from 6% to 12% depending upon Iowa
      corporation taxable income. Interest from federal securities is not taxable
      for
      purposes of the Iowa corporation income tax.








**REGULATION**


**General**




North
      Central Bancshares, Inc. is regulated as a savings and loan holding company
      by
      the Office of Thrift Supervision (the “OTS”). First Federal Savings Bank of
      Iowa, as a federally chartered savings bank, is subject to regulation,
      examination and supervision by the OTS, as its primary regulator, and the
      Federal Deposit Insurance Corporation (the “FDIC”), as its deposit insurer. The
      Bank must file reports with the OTS concerning its activities and financial
      condition. The Company is also required to file reports with, and otherwise
      comply with, the rules and regulations of the OTS and of the SEC under the
      federal securities laws.




The
      OTS
      and the FDIC have significant discretion in connection with their supervisory
      and enforcement activities and examination policies, including policies with
      respect to the Bank’s capital levels, classification of assets and establishment
      of adequate loan loss reserves for regulatory purposes. Any change in such
      policies, whether by the OTS, the FDIC, SEC or the Congress, could have a
      material adverse impact on the Company, the Bank, and their operations and
      stockholders.




**Regulation
      of Federal Savings Associations**




*Business
      Activities* .
      The
      Bank derives its lending and investment powers from the Home Owners’ Loan Act,
      as amended (the “HOLA”), and OTS regulations. Under these laws and regulations,
      the Bank may invest in mortgage loans secured by residential and commercial
      real
      estate, commercial and consumer loans, certain types of debt securities, and
      certain other assets. The Bank may also establish service corporations that
      may
      engage in activities not otherwise permissible for the Bank, including certain
      real estate equity investments and securities and insurance brokerage. The
      Bank’s authority to invest in certain types of loans or other investments is
      limited by federal law and regulation.




*Loans
      to One Borrower.* The Bank
      is generally subject to the same limits on loans to one borrower as a national
      bank. With specified exceptions, the Bank’s total loans or extensions of credit
      to a single borrower cannot exceed 15% of the Bank’s unimpaired capital and
      surplus which does not include accumulated other comprehensive income. The
      Bank
      may lend additional amounts up to 10% of its unimpaired capital and surplus
      which does not include accumulated other comprehensive income, if the loans
      or
      extensions of credit are fully-secured by readily-marketable collateral. The
      Bank currently complies with applicable loans-to-one borrower
      limitations.




*QTL
      Test.* Under
      federal law, the Bank must comply with the qualified thrift lender or “QTL”
test. Under the QTL test, the Bank is required to maintain at least 65% of
      its
“portfolio assets” in certain “qualified thrift investments” in at least nine
      months of the most recent 12-month period. “Portfolio assets” means, in general,
      the Bank’s total assets less the sum of:




•  specified
      liquid assets up to 20% of total assets;




•  goodwill
      and other intangible assets; and




•  the
      value
      of property used to conduct the Bank’s business.




The
      Bank
      may also satisfy the QTL test by qualifying as a “domestic building and loan
      association” as defined in the Internal Revenue Code of 1986. The Bank met the
      QTL test at December 31, 2006, and in each of the prior 12 months, and,
      therefore, is a “qualified thrift lender.”




If
      the
      Bank fails the QTL test it must promptly come into compliance, operate under
      certain restrictions on its activities or convert to a bank charter.







*Capital
      Requirements.* OTS
      regulations require the Bank to meet three minimum capital standards:




(1)
            a
                tangible capital ratio requirement of 1.5% of total assets as adjusted
                under the OTS regulations;




(2)
            a
                leverage ratio requirement of 3.0% of core capital to such adjusted
                total
                assets, if a savings association has been assigned the highest composite
                rating of 1 under the Uniform Financial Institutions Rating System;
                and




(3)
            a
                risk-based capital ratio requirement of 8.0% of core and supplementary
                capital to total risk-based assets, provided that the amount of
                supplementary capital used to satisfy this requirement shall not
                exceed
                the amount of core capital.




The
      minimum leverage capital ratio for any other depository institution that does
      not have a composite rating of 1 will be 4%, unless a higher leverage capital
      ratio is warranted by the particular circumstances or risk profile of the
      depository institution. In determining the amount of risk-weighted assets for
      purposes of the risk-based capital requirement, a savings association must
      compute its risk-based assets by multiplying its assets and certain off-balance
      sheet items by risk-weights, which range from 0% for cash and obligations issued
      by the United States Government or its agencies and certain other assets to
      100%
      for consumer, commercial, home equity and constructions loans and certain other
      assets, as assigned by the OTS capital regulations based on the risks found
      by
      the OTS to be inherent in the type of asset.




Tangible
      capital is defined, generally, as common stockholder’s equity (including
      retained earnings), certain noncumulative perpetual preferred stock and related
      earnings, minority interests in equity accounts of fully consolidated
      subsidiaries, less intangibles assets (other than certain servicing rights
      and
      nonsecurity financial instruments) and investments in and loans to subsidiaries
      engaged in activities not permissible for a national bank. Core capital (or
      tier
      1 capital) is defined similarly to tangible capital, but core capital also
      includes certain qualifying supervisory goodwill and certain purchased credit
      card relationships. Supplementary capital (or tier 2 capital) includes
      cumulative and other preferred stock, mandatory convertible debt securities,
      subordinated debt and intermediate preferred stock and the allowance for loan
      and lease losses. In addition, up to 45% of unrealized gains on
      available-for-sale equity securities with a readily determinable fair value
      may
      be included in tier 2 capital. The allowance for loan and lease losses
      includable in supplementary capital is limited to a maximum of 1.25% of
      risk-weighted assets.




At
      December 31, 2006, the Bank met and exceeded each of its capital requirements.
      The table below presents the Bank’s regulatory capital as compared to the OTS
      regulatory capital requirements at December 31, 2006:




**Bank**
            
            **Capital**
              **Requirements**
            
            **Excess
                Capital****(In
                thousands)**Tangible
                capital
            
            $
            36,174
            
            $
            7,665
            
            $
            28,509Core
                capital
            
            
            36,174
            
            
            15,330
            
            
            20,844Risk-based
                capital
            
            
            39,851
            
            
            28,072
            
            
            11,779





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




CRA
      regulations rate an institution based on its actual performance in meeting
      community needs. In particular, the assessment system focuses on three tests:




• a
      lending
      test, to evaluate the institution’s record of making loans in its assessment
      areas;




•
            an
                investment test, to evaluate the institution’s record of investing in
                community development projects, affordable housing, and programs
                benefiting low or moderate income individuals and businesses in its
                assessment area, or a broader area that includes its assessment areas;
                and




•
            a
                service test, to evaluate the institution’s delivery of services through
                its retail banking channels and the extent and innovativeness of
                its
                community development services.




*Transactions
      with Affiliates.* The
      Bank’s authority to engage in transactions with its affiliates is limited by
      Sections 23A and 23B of the Federal Reserve Act (the “FRA”) and the Federal
      Reserve Board’s Regulation W, as made applicable to federal savings associations
      by the HOLA and the OTS regulations. In general, these transactions must be
      on
      terms which are as favorable to the Bank as comparable transactions with
      non-affiliates. In addition, certain types of these transactions referred to
      as
“covered transactions” are subject to quantitative limits based on a percentage
      of the Bank’s capital, thereby restricting the total dollar amount of
      transactions the Bank may engage in with each individual affiliate and with
      all
      affiliates in the aggregate. Affiliates must pledge qualifying collateral in
      amounts between 100% and 130% of the covered transaction in order to receive
      loans from the Bank. In addition, applicable regulations prohibit a savings
      association from lending to any of its affiliates that engage in activities
      that
      are not permissible for bank holding companies and from purchasing low-quality
      (i.e., non-performing) assets from an affiliate or purchasing the securities
      of
      any affiliate, other than a subsidiary.




*Loans
      to Insiders* .
      The
      Bank’s authority to extend credit to its directors, executive officers and
      principal shareholders, as well as to entities controlled by such persons,
      is
      currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
      and Regulation O of the Federal Reserve Board, as made applicable to federal
      savings associations by the HOLA and the OTS regulations. Among other things,
      these provisions require that extensions of credit to insiders:




•
            be
                made on terms that are substantially the same as, and follow credit
                underwriting procedures that are not less stringent than, those prevailing
                for comparable transactions with third parties and that do not involve
                more that the normal risk of repayment or present other features
                that are
                unfavorable to the Bank; and




•
            not
                exceed certain limitations on the amount of credit extended to such
                persons, individually and in the aggregate, which limits are based,
                in
                part, on the amount of the Bank’s capital.




In
      addition, extensions for credit in excess of certain limits must be approved
      by
      the Bank’s Board of Directors.




*Enforcement.* The OTS
      has primary enforcement responsibility over savings associations, including
      the
      Bank. This enforcement authority includes, among other things, the ability
      to
      assess civil money penalties, to issue cease and desist orders and to remove
      directors and officers. In general, these enforcement actions may be initiated
      in response to violations of laws and regulations and to unsafe or unsound
      practices.




*Standards
      for Safety and Soundness* .
      Pursuant to the Federal Deposit Insurance Act, the OTS has adopted a set of
      guidelines prescribing safety and soundness standards. These guidelines
      establish general standards relating to internal controls, information systems,
      internal audit systems, loan documentation, credit underwriting, interest rate
      risk exposure, asset growth, asset quality, earnings standards, compensation,
      fees and benefits. In general, the guidelines require appropriate systems and
      practices to identify and manage the risks and exposures specified in the
      guidelines.




In
      addition, the OTS adopted regulations that authorize, but do not require, the
      OTS to order a savings association that has been given notice that it is not
      satisfying these safety and soundness standards to submit a compliance plan.
      If,
      after being notified, a savings association fails to submit an acceptable plan
      or fails in any material respect to implement an accepted plan, the OTS must
      issue an order directing action to correct the deficiency. Further, the OTS
      may
      issue an order directing corrective actions and may issue an order directing
      other actions of the types to which an undercapitalized association is subject
      under the “prompt corrective action” provisions of federal law. If a savings
      association fails to comply with such an order, the OTS may seek to enforce
      the
      order in judicial proceedings and to impose civil money penalties.




*Limitation
      on Capital Distributions.* The
      OTS
      imposes various restrictions or requirements on the Bank’s ability to make
      capital distributions, including the payment of cash dividends. A savings
      association that is the subsidiary of a savings and loan holding company must
      file a notice with the OTS at least 30 days before making a capital
      distribution. The Bank must file an application for prior approval if the total
      amount of its capital distributions, including the proposed distribution, for
      the applicable calendar year would exceed an amount equal to the Bank’s net
      income for that year plus the Bank’s retained net income for the previous two
      years.




The
      OTS
      may disapprove of a notice of application if:


•
              The
                  Bank would be undercapitalized following the
                  distribution;•
              the
                  proposed capital distribution raises safety and soundness concerns;
                  or•
              the
                  capital distribution would violate a prohibition contained in any
                  statute,
                  regulation or agreement.





*Liquidity* .
      The
      Bank is required to maintain a sufficient amount of liquid assets to ensure
      its
      safe and sound operation.




*Prompt
      Corrective Action Regulations.* Under
      the OTS “prompt corrective action” regulations, the OTS is required to take
      certain, and is authorized to take other, supervisory actions against
      undercapitalized savings associations. For this purpose, a savings association
      is placed in one of the following four categories based on the association’s
      capital:




•
              well
                  capitalized;•
              adequately
                  capitalized;•
              undercapitalized;
                  or•
              critically
                  undercapitalized.





At
      December 31, 2006, the Bank met the criteria for being considered
“well-capitalized.” When appropriate, the OTS can require corrective action by a
      savings association holding company under the “prompt corrective action”
provision of federal law.




*Insurance
      of Deposit Accounts* .
      The
      Bank is a member of the Deposit Insurance Fund (“DIF”) maintained by the FDIC,
      and pays its deposit insurance assessments to the DIF. The DIF was formed on
      March 31, 2006, following the merger of the Bank Insurance Fund and the Savings
      Association Insurance Fund in accordance with the Federal Deposit Insurance
      Reform Act of 2005 (“DIF Act”). In addition to merging the insurance funds, the
      DIF Act established a statutory minimum and maximum designated reserve ratio
      for
      the DIF and granted the FDIC greater flexibility in establishing the required
      reserve ratio. In its regulations implementing the DIF Act, the FDIC has set
      the
      current annual designated reserve ratio for the DIF at 1.25%.




In
      order
      to maintain the DIF, member institutions are assessed an insurance premium.
      The
      amount of each institution’s premium is currently based on the balance of
      insured deposits and the degree of risk the institution poses to the DIF. Under
      the assessment system, the FDIC assigns an institution to one of nine risk
      categories using a two-step process based first on capital ratios (the capital
      group assignment) and then on other relevant information (the supervisory
      subgroup assignment). Each risk category is assigned an assessment rate.
      Assessment rates currently range from 0% of deposits for an institution in
      the
      highest category (i.e., well-capitalized and financially sound, with no more
      than a few minor weaknesses) to 0.43% of deposits for an institution in the
      lowest category (i.e., undercapitalized and substantial supervisory concerns).
      The FDIC is authorized to raise the assessment rates as necessary to maintain
      the DIF. The Bank’s assessment rate at December 31, 2006 was 0%. Any increase in
      insurance assessments could have an adverse effect on the earnings of insured
      institutions, including the Bank.




In
      addition, all FDIC-insured institutions are required to pay a pro rata portion
      of the interest due on obligations issued by the Financing Corporation to fund
      the closing and disposal of failed thrift institutions by the Resolution Trust
      Corporation. At December 31, 2006, the FDIC assessed DIF-insured deposits 1.24
      basis points per $100 of deposits to cover those obligations. The Financing
      Corporation rate is adjusted quarterly to reflect changes in assessment bases
      of
      the DIF. This obligation will continue until the Financing Corporation bonds
      mature in 2017.




*Federal
      Home Loan Bank System.* The Bank
      is a member of the Federal Home Loan Bank (“FHLB”) of Des Moines, which is one
      of the regional FHLBs composing the FHLB System. Each FHLB provides a central
      credit facility primarily for its member institutions. The Bank, as a member
      of
      the FHLB of Des Moines, is required to acquire and hold shares of capital stock
      in the FHLB of Des Moines in an amount at least equal to the greater of $10,000
      or 0.12% of the total assets of the Bank. The Bank is also required to own
      activity based stock, which is based on 4.45% of the Bank’s outstanding
      advances. These percentages are subject to change by the FHLB. The Bank was
      in
      compliance with this requirement with an investment in FHLB of Des Moines stock
      at December 31, 2006 of $5.48 million. Any advances from a FHLB must be secured
      by specified types of collateral, and all long-term advances may be obtained
      only for the purpose of providing funds for residential housing
      finance.




The
      FHLBs
      are required to provide funds for the resolution of insolvent thrifts and to
      contribute funds for affordable housing programs. These requirements could
      reduce the amount of earnings that the FHLBs can pay as dividends to their
      members and could also result in the FHLBs imposing a higher rate of interest
      on
      advances to their members. If dividends were reduced, or interest on future
      FHLB
      advances increased, the Bank’s net interest income would be
      affected.




*Federal
      Reserve System* .
      Under
      regulations of the FRB, the Bank is required to maintain noninterest-earning
      reserves against its transaction accounts (primarily NOW and regular checking
      accounts). The FRB regulations exempt $8.5 million of otherwise reservable
      balances from the reserve requirements. A 3% reserve is required for transaction
      account balances over $8.5 million and up to $45.8 million. Transaction account
      balances over $45.8 million are subject to a reserve requirement of $1,119,000
      plus 10% of any amount over $45.8 million. The Bank is in compliance with the
      foregoing reserve requirements. Because required reserves must be maintained
      in
      the form of vault cash, a noninterest-bearing account at a Federal Reserve
      Bank,
      or a pass-through account as defined by the FRB, the effect of this reserve
      requirement is to reduce the Bank’s interest-earning assets. The balances
      maintained to meet the reserve requirements imposed by the FRB may be used
      to
      satisfy liquidity requirements imposed by the OTS. FHLB System members are
      also
      authorized to borrow from the Federal Reserve discount window, but FRB
      regulations require such institutions to exhaust all FHLB sources before
      borrowing from a Federal Reserve Bank.




*Prohibitions
      Against Tying Arrangements.* Federal
      savings associations are subject to the prohibitions on certain tying
      arrangements. A depository institution is prohibited, subject to certain
      exceptions, from extending credit to or offering any other service, or fixing
      or
      varying the consideration for such extension of credit or service, on the
      condition that the customer obtain some additional product or service from
      the
      institution or its affiliates or not obtain services of a competitor of the
      institution.




*The
      Bank Secrecy Act* .
      The
      Company and the Bank are subject to the Bank Secrecy Act, as amended by the
      USA
      PATRIOT Act, which gives the federal government powers to address money
      laundering and terrorist threats through enhanced domestic security measures,
      expanded surveillance powers, and mandatory transaction reporting obligations.
      By way of example, the Bank Secrecy Act imposes an affirmative obligation on
      the
      Bank to report currency transactions that exceed certain thresholds and to
      report other transactions determined to be suspicious.




Title
      III
      of the USA PATRIOT Act takes measures intended to encourage information sharing
      among financial institutions, bank regulatory agencies and law enforcement
      bodies. Further, certain provisions of Title III impose affirmative obligations
      on a broad range of financial institutions, including banks, thrifts, brokers,
      dealers, credit unions, money transfer agents and parties registered under
      the
      Commodity Exchange Act. Among other requirements, the USA PATRIOT Act imposes
      the following obligations on financial institutions:




•
            financial
                institutions must establish anti-money laundering programs that include,
                at minimum: (i) internal policies, procedures, and controls, (ii)
                specific
                designation of an anti-money laundering compliance officer, (iii)
                ongoing
                employee training programs, and (iv) an independent audit function
                to test
                the anti-money laundering program;




•
            the
                financial institutions must establish and meet minimum standards
                for
                customer due diligence, identification and verification;




•
            financial
                institutions that establish, maintain, administer, or manage private
                banking accounts or correspondent accounts in the United States for
                non-United States persons or their representatives (including foreign
                individuals visiting the United States) must establish appropriate,
                specific, and, where necessary, enhanced due diligence policies,
                procedures, and controls designed to detect and report money laundering
                through those accounts;




•
            financial
                institutions are prohibited from establishing, maintaining, administering
                or managing correspondent accounts for foreign shell banks (foreign
                banks
                that do not have a physical presence in any country), and are subject
                to
                certain recordkeeping obligations with respect to correspondent accounts
                of foreign banks; and




•
            bank
                regulators are directed to consider a bank’s or holding company’s
                effectiveness in combating money laundering when ruling on Federal
                Reserve
                Act and Bank Merger Act
                applications.




*Office
      of Foreign Asset Control* .
      The
      Bank and the Company, like all United States companies and individuals, are
      prohibited from transacting business with certain individuals and entities
      named
      on the Office of Foreign Asset Control’s list of Specially Designated Nationals
      and Blocked Persons. Failure to comply may result in fines and other penalties.
      The Office of Foreign Asset Control has issued guidance directed at financial
      institutions in which it asserted that it may, in its discretion, examine
      institutions determined to be high-risk or to be lacking in their efforts to
      comply with these prohibitions.




**Regulation
      of Savings and Loan Holding Companies**




The
      Company is registered as a unitary savings and loan holding company and is
      subject to OTS regulations, examinations, supervision and reporting
      requirements. In addition, the OTS has enforcement authority over the Company
      and any of its non-savings association subsidiaries. Among other things, this
      authority permits the OTS to restrict or prohibit activities that are determined
      to be a serious risk to the financial safety, soundness or stability of a
      subsidiary savings association. Unlike bank holding companies, federal savings
      and loan holding companies are not subject to any regulatory capital
      requirements. Federal savings and loan holding companies are subject to
      supervision by the OTS rather than the FRB.




The
      HOLA
      prohibits a savings and loan holding company, directly or indirectly, or through
      one or more subsidiaries, from acquiring control (as defined under the HOLA)
      of
      another savings association without prior OTS approval. In addition, a savings
      and loan holding company is prohibited from directly or indirectly acquiring
      (i) through mergers, consolidation or purchase of assets, another savings
      association or a holding company thereof, or acquiring all or substantially
      all
      of the assets of such association or company without prior OTS approval; and
      (ii) control of any depository institution not insured by the FDIC (except
      through a merger with and into the holding company’s savings association
      subsidiary that is approved by the OTS).




A
      savings
      and loan holding company may not acquire as a separate subsidiary a savings
      association that has a principal office outside of the state where the principal
      office of its subsidiary savings association in located, except, (i) in the
      case
      of certain emergency acquisitions approved by the FDIC; (ii) if such holding
      company controls a savings association subsidiary that operated a home or branch
      office in such additional state as of March 5, 1987; or (iii) if the laws of
      the
      home state of the savings institution to be acquired specifically authorize
      a
      savings institution chartered by that state to be acquired by a savings
      institution chartered by the state where the acquiring savings association
      or
      savings and loan holding company is located or by a holding company that
      controls such a state chartered association.




As
      a
      grandfathered unitary savings and loan holding company, the Company generally
      is
      not restricted under existing laws as to the types of business activities in
      which it may engage, provided that the Bank continues to satisfy the QTL test.
      See “-Regulation of Federal Savings Associations - QTL Test” for a discussion of
      the QTL requirements. In addition, the GLB Act prohibits the sale of
      grandfathered savings and loan holding companies to nonfinancial companies.
      This
      prohibition is intended to restrict the transfer of grandfathered rights to
      other entities and, thereby, prevent evasion of the limitation on the creation
      of new unitary savings and loan holding companies.




Transactions
      between the Bank and the Company and its other subsidiaries are subject to
      various conditions and limitations. See “-Regulation of Federal Savings
      Associations - Transactions with Affiliates” and “-Regulation of Federal Savings
      Associations - Limitation on Capital Distributions.”




*Federal
      Securities Laws* .
      The
      Company’s common stock is registered with the SEC under Section 12(g) of the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is
      subject to information, proxy solicitation, insider trading restrictions and
      other requirements under the Exchange Act.




*Quotation
      on Nasdaq* **.** The
      Company’s common stock is quoted on the Nasdaq Global Market. In order to
      maintain such quotation, the Company is subject to certain corporate governance
      requirements, including:




•
            a
                majority of its board must be composed of independent
                directors;




•
            it
                is required to have an audit committee composed of at least three
                directors, each of whom is an independent director, as such term
                is
                defined by both the rules of the National Association of Securities
                Dealers (“NASD”) and by Securities Exchange Act
                regulations;




•
            its
                nominating committee and compensation committee must also be composed
                entirely of independent directors;
                and




•
            each
                of its audit committee and nominating committee must have a publicly
                available written charter.




*Sarbanes-Oxley
      Act* .
      As a
      public company, the Company is subject to the Sarbanes-Oxley Act, which
      implements a broad range of corporate governance and accounting measures for
      public companies designed to promote honesty and transparency in corporate
      America and better protect investors from corporate wrongdoing. The
      Sarbanes-Oxley Act’s principal legislation and the derivative regulation and
      rule making promulgated by the SEC includes:




•
            the
                creation of an independent accounting oversight
                board;




•
            auditor
                independence provisions which restrict non-audit services that accountants
                may provide to their audit clients;




•
            additional
                corporate governance and responsibility measures, including the
                requirement that the chief executive officer and chief financial
                officer
                certify financial statements;




•
            a
                requirement that companies establish and maintain a system of internal
                control over financial reporting and that a company’s management provide
                an annual report regarding its assessment of the effectiveness of
                such
                internal control over financial reporting to the company’s independent
                accountants and that such accountants provide an attestation report
                with
                respect to management’s assessment of the effectiveness of the company’s
                internal control over financial reporting. The Company, as a
                non-accelerated filer, is not subject to this provision until the
                year
                ending December 31, 2007;




•
            the
                forfeiture of bonuses or other incentive-based compensation and profits
                from the sale of an issuer’s securities by directors and senior officers
                in the twelve month period following initial publication of any financial
                statements that later require
                restatement;




•
            an
                increase in the oversight of, and enhancement of certain requirements
                relating to audit committees of public companies and how they interact
                with the company’s independent
                auditors;




•
            the
                requirement that audit committee members must be independent and
                are
                absolutely barred from accepting consulting, advisory or other
                compensatory fees from the issuer;




•
            the
                requirement that companies disclose whether at least one member of
                the
                committee is a “financial expert” (as such term is defined by the
                Securities and Exchange Commission) and if not, why
                not;




•
            expanded
                disclosure requirements for corporate insiders, including accelerated
                reporting of stock transactions by insiders and a prohibition on
                insider
                trading during pension blackout
                periods;




•
            a
                prohibition on personal loans to directors and officers, except certain
                loans made by insured financial
                institutions;




•
            disclosure
                of a code of ethics and filing a Form 8-K for a change or waiver
                of such
                code;




• mandatory
      disclosure by analysts of potential conflicts of interest; and




• a
      range
      of enhanced penalties for fraud and other violations.




Section
      402 of the Sarbanes-Oxley Act of 2002 prohibits the extension of personal loans
      to directors and executive officers of issuers. The prohibition, however, does
      not apply to mortgages advanced by an insured depository institution, such
      as
      the Bank, that are subject to the insider lending restrictions of Section 22(h)
      of the Federal Reserve Act.




Although
      we anticipate that we will incur additional expense in complying with the
      provisions of the Sarbanes-Oxley Act and the resulting regulations, management
      does not expect that such compliance will have a material impact on our results
      of operations or financial condition.




**ITEM
      1A.**  **RISK
      FACTORS**





***Our
      loan portfolio includes loans with a higher risk of loss.*** We
      originate commercial mortgage loans, including multifamily residential loans,
      commercial business loans, consumer loans, and residential mortgage loans
      primarily within our market area. We also purchase commercial mortgage loans,
      including multifamily residential loans, and residential mortgage loans,
      primarily secured by out of state properties, which entail certain risks not
      necessarily associated with loans the Company originates. Commercial mortgage,
      commercial business, and consumer loans may expose a lender to greater credit
      risk than loans secured by residential real estate because the collateral
      securing these loans may not be sold as easily as residential real estate.
      In
      addition, commercial real estate and commercial business loans may also involve
      relatively large loan balances to individual borrowers or groups of borrowers.
      These loans also have greater credit risk than residential real estate for
      the
      following reasons:


•
              Commercial
                  Mortgage Loans. Repayment is dependent upon income being generated
                  in
                  amounts sufficient to cover operating expenses and debt
                  service.•
              Commercial
                  Loans. Repayment is generally dependent upon the successful operation
                  of
                  the borrower’s business.•
              Consumer
                  Loans. Consumer loans (such as personal lines of credit) may or
                  may not be
                  collateralized with assets that provide an adequate source of payment
                  of
                  the loan due to depreciation, damage, or
                  loss.




Any
      downturn in the real estate market or local economy could adversely affect
      the
      value of the properties securing the loans or revenues from the borrower’s
      business thereby increasing the risk of non-performing loans.




***If
      our allowance for loan losses is not sufficient to cover actual loan losses,
      our
      earnings could decrease.*** Our loan
      customers may not repay their loans according to their terms and the collateral
      securing the payment of these loans may be insufficient to pay any remaining
      loan balance. We therefore may experience significant loan losses, which could
      have a material adverse effect on our operating results.




Material
      additions to our allowance for loan losses also would materially decrease our
      net income, and the charge-off of loans may cause us to increase the allowance.
      We make various assumptions and judgments about the collectibility of our loan
      portfolio, including the creditworthiness of our borrowers and the value of
      the
      real estate and other assets serving as collateral for the repayment of many
      of
      our loans. We rely on our loan quality reviews, our experience and our
      evaluation of economic conditions, among other factors, in determining the
      amount of the allowance for loan losses. If our assumptions prove to be
      incorrect, our allowance for loan losses may not be sufficient to cover losses
      inherent in our loan portfolio, resulting in additions to our allowance.




***Changes
      in interest rates could adversely affect our results of operations and financial
      condition.*** Our
      profitability, like that of most financial institutions, depends substantially
      on our net interest income, which is the difference between the interest income
      earned on our interest-earning assets and the interest expense paid on our
      interest-bearing liabilities. Increases in interest rates may decrease loan
      demand and make it more difficult for borrowers to repay adjustable rate loans.
      In addition, as market interest rates rise, we will have competitive pressures
      to increase the rates we pay on deposits, which will result in a decrease of
      our
      net interest income.




We
      also
      are subject to reinvestment risk associated with changes in interest rates.
      Changes in interest rates may affect the average life of loans and
      mortgage-related securities. Decreases in interest rates can result in increased
      prepayments of loans and mortgage-related securities as borrowers refinance
      to
      reduce borrowing costs. Under these circumstances, we are subject to
      reinvestment risk to the extent that we are unable to reinvest the cash received
      from such prepayments at rates that are comparable to the rates on existing
      loans and securities.




Our
      earnings may be adversely impacted by an increase in interest rates because
      a
      significant portion of our interest-earning assets are long-term, fixed rate
      mortgage-related assets that will not reprice as long-term interest rates
      increase while a majority of our interest-bearing liabilities are expected
      to
      reprice as interest rates increase. Therefore, in an increasing interest rate
      environment, our cost of funds is expected to increase more rapidly than the
      yields earned on our loan portfolio and securities portfolio. An increasing
      rate
      environment is expected to cause a narrowing of our net interest rate spread
      and
      a decrease in our net interest income.




***Our
      local economy may affect our future growth possibilities.*** Our
      current market area is principally located in Webster, Story, Dallas, Polk,
      Henry and Des Moines Counties, which are located in the central, north central
      and southeastern parts of the State of Iowa. Our future growth opportunities
      depend on the growth and stability of our regional economy and our ability
      to
      expand our market area. A downturn in our local economy may limit funds
      available for deposit and may negatively affect our borrowers’ ability to repay
      their loans on a timely basis, both of which could have an impact on our
      profitability.




***We
      depend on our executive officers and key personnel to continue the
      implementation of our long-term business strategy and could be harmed by the
      loss of their services.*** We
      believe that our continued growth and future success will depend in large part
      upon the skills of our management team. The competition for qualified personnel
      in the financial services industry is intense, and the loss of our key personnel
      or an inability to continue to attract, retain and motivate key personnel could
      adversely affect our business. We cannot assure you that we will be able to
      retain our existing key personnel or attract additional qualified personnel.
      Although we have employment agreements with our chief executive officer and
      president and our executive vice president (and the Bank’s chief operating
      officer) that each contain a non-compete provision, the loss of the services
      of
      one or more of our executive officers and key personnel could impair our ability
      to continue to develop our business strategy.




***We
      operate in a highly regulated environment, and changes in laws and regulations
      to which we are subject may adversely affect our results of operations.*** We
      are
      subject to extensive regulation, supervision and examination by the OTS, as
      the
      Bank’s chartering authority, and by the FDIC as the insurer of our deposits up
      to certain limits. In addition, the OTS regulates and oversees the Company
      as a
      savings and loan holding company. **** We
      also
      belong to the Federal Home Loan Bank System and, as a member of such system;
      we
      are subject to certain limited regulations promulgated by the FHLB of Des
      Moines. This regulation and supervision limits the activities in which we may
      engage. The purpose of regulation and supervision is primarily to protect our
      depositors and borrowers and, in the case of FDIC regulation, the FDIC’s
      insurance fund. Regulatory authorities have extensive discretion in the exercise
      of their supervisory and enforcement powers. They may, among other things,
      impose restrictions on the operation of a banking institution, the
      classification of assets by such institution and such institution’s allowance
      for loan losses. Regulatory and law enforcement authorities also have wide
      discretion and extensive enforcement powers under various consumer protection
      and civil rights laws, including the Truth-in-Lending Act, the Equal Credit
      Opportunity Act, the Fair Housing Act, and the Real Estate Settlement Procedures
      Act. Any change in the laws or regulations applicable to us, or in banking
      regulators’ supervisory policies or examination procedures, whether by the OTS,
      the FDIC, other state or federal regulators, the United States Congress or
      the
      Iowa legislature could have a material adverse effect on our business, financial
      condition, results of operations and cash flows.




***Competition
      in our primary market area may reduce our ability to attract and retain deposits
      and originate loans.*** We
      operate in a competitive market for both attracting deposits, which is our
      primary source of funds, and originating loans. Historically, our most direct
      competition for savings deposits has come from credit unions, community banks,
      large commercial banks and thrift institutions in our primary market area.
      Particularly in times of extremely low or extremely high interest rates, we
      have
      faced additional significant competition for investors’ funds from brokerage
      firms and other firms’ short-term money market securities and corporate and
      government securities. Our competition for loans comes principally from mortgage
      brokers, commercial banks, other thrift institutions, and insurance companies.
      Such competition for the origination of loans may limit our future growth and
      earnings prospects. Competition for loan originations and deposits may limit
      our
      future growth and earnings prospects.




***Our
      branch expansion strategy may reduce our short-term profitability due to
      one-time fixed expenses coupled with low levels of income earned by the branch
      until its customer base is built.*** We
      opened
      a new branch in West Des Moines, Iowa in 2006. The expense associated with
      building and staffing the new branch will significantly increase our noninterest
      expense, with compensation and occupancy costs constituting the largest amount
      of increased costs. Losses are expected from the proposed new branch for some
      time as the expenses associated with it are largely fixed and is typically
      greater than the income earned as a branch builds up its customer base. There
      can be no assurance that our branch expansion strategy will result in increased
      earnings, or that it will result in increased earnings within a reasonable
      period of time. We expect that the success of our branching strategy will depend
      largely on the ability of our staff to market the deposit and loan products
      offered by us.




***If
      we fail to maintain an effective system of internal control over financial
      reporting, we may not be able to accurately report our financial results or
      prevent fraud, and, as a result, investors and depositors could lose confidence
      in our financial reporting, which could adversely affect our business, the
      trading price of our stock and our ability to attract additional
      deposits.*** Beginning with our annual report for the fiscal year ending December 31, 2007,
      we will have to include in our annual reports filed with the Securities and
      Exchange Commission (the “SEC”) a report of our management regarding internal
      control over financial reporting. As a result, we recently have begun to
      document and evaluate our internal control over financial reporting in order
      to
      satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the
      “Sarbanes-Oxley Act”) and SEC rules and regulations, which require an annual
      management report on our internal control over financial reporting, including,
      among other matters, management’s assessment of the effectiveness of internal
      control over financial reporting and an attestation report by our independent
      auditors addressing these assessments. Accordingly, management has retained
      outside consultants to assist us in (i) assessing and documenting the adequacy
      of our internal control over financial reporting, (ii) improving control
      processes, where appropriate, and (iii) verifying through testing that controls
      are functioning as documented. If we fail to identify and correct any
      significant deficiencies in the design or operating effectiveness of our
      internal control over financial reporting or fail to prevent fraud, current
      and
      potential stockholders and depositors could lose confidence in our financial
      reporting, which could adversely affect our business, financial condition and
      results of operations, the trading price of our stock and our ability to attract
      additional deposits.




***Our
      Articles of Incorporation and bylaws may prevent a transaction you may favor
      or
      limit our growth opportunities, which could cause the market price of our common
      stock to decline.*** Certain
      provisions of our Articles of Incorporation and bylaws and applicable provisions
      of Iowa and federal law and regulations may delay, inhibit or prevent an
      organization or person from gaining control of the Company though a tender
      offer, business combination, proxy contest or some other method, even though
      you
      might be in favor of the transaction.




***We
      may not be able to pay dividends in the future in accordance with past practice.*** We
      pay a
      quarterly dividend to stockholders. However, we are dependent primarily upon
      the
      Bank for our earnings and funds to pay dividends on our common stock. The
      payment of dividends also is subject to legal and regulatory restrictions.
      Any
      payment of dividends in the future will depend, in large part, on the Bank’s
      earnings, capital requirements, financial condition and other factors considered
      relevant by our Board of Directors.




**ITEM
      1B.**  **UNRESOLVED
      STAFF COMMENTS**




Not
      applicable.







**ITEM
      2.**  **PROPERTIES**





The
      Company conducts its business through its main office located in Fort Dodge,
      Iowa and ten full-service offices located in Fort Dodge, Nevada, Ames, Perry,
      Ankeny, Clive, West Des Moines, Burlington and Mount Pleasant, Iowa. The
      following table sets forth certain information concerning the main office and
      each branch office of the Company and the offices of First Iowa Title Services
      at December 31, 2006. In addition to the properties listed below, First Federal
      Investments owned land and an office building in Fort Dodge, Iowa, Northridge
      Apartments Limited Partnership owned a multifamily apartment building in Fort
      Dodge, Iowa and Northridge Apartment Limited Partnership II owned a multifamily
      apartment building in Fort Dodge, Iowa at December 31, 2006.





**Location**
            **Opening
                Date**
            **Lease
                Expiration Date****Main
                Office:**825
                Central Avenue
            1973
            N/AFort
                Dodge, Iowa**Branch
                Offices:**201
                South 25th Street
            1977
            N/AFort
                Dodge, Iowa404
                Lincolnway
            1977
            N/ANevada,
                Iowa316
                South Duff
            1995
            N/AAmes,
                Iowa1111-141stStreet
            1999
            N/APerry,
                Iowa321
                North Third Street
            1953
            N/ABurlington,
                Iowa1010
                North Roosevelt
            1975
            N/ABurlington,
                Iowa102
                South Main
            1991
            N/AMount
                Pleasant, Iowa2110
                SE Delaware
            2003
            N/AAnkeny,
                Iowa13150
                Hickman Road
            2004
            N/AClive,
                Iowa120
                South 68thStreet
            2006
            N/AWest
                Des Moines, Iowa**First
                Iowa Title Offices:**628
                Central Avenue
            1982
            N/AFort
                Dodge, Iowa814
                8th Street
            1994
            2008Boone,
                Iowa




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**





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





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of the year ended December 31, 2006.







**PART
      II**





**ITEM
      5.**  **MARKET
      FOR THE REGISTRANT’S COMMON EQUITY RELATED SHAREHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**





The
      information required by this Item is incorporated herein by reference to page
      69
      of the Company’s 2006 Annual Report to Shareholders under the heading
“Shareholder Information,” incorporated by reference to Exhibit 13.1 to this
      Annual Report on Form 10-K.





The
      following table provides information with respect to purchases made by or on
      behalf of the Company or any “affiliated purchases” (as defined in rule
      10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common
      stock during the three months ended December 31, 2006.




Period
            
            Total
                Number of
              Shares
                Purchased
            
            Average
                Price Paid
              Per
                Share
            
            Total
                Number of
              Shares
                Purchased as
              Part
                of Publicly
              Announced
                Plans
            
            Maximum
                Number of
              Shares
                that May Yet
              Be
                Purchased Under
              The
                PlanOctober
                1, 2006 toOctober
                31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            84,750November
                1, 2006 toNovember
                30, 2006
            
            
            36,000
            
            $
            40.30
            
            
            36,000
            
            
            48,750December
                1, 2006 toDecember
                31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            48,750Total
            
            
            36,000
            
            
            
            
            
            36,000




**ITEM
      6.**  **SELECTED
      FINANCIAL DATA**





The
      information required by this Item is incorporated herein by reference to page
      4
      of the Company’s 2006 Annual Report to Shareholders under the heading “Selected
      Financial Data,” incorporated by reference to Exhibit 13.1 to this Annual Report
      on Form 10-K.





**ITEM
      7.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





The
      information required by this Item is incorporated herein by reference to pages
      7
      through 26 of the Company’s 2006 Annual Report to Shareholders under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” incorporated by reference to Exhibit 13.1 to this Annual Report on
      Form 10-K.





**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      information required by this Item is incorporated herein by reference to pages
      12 through 14 of the Company’s 2006 Annual Report to Shareholders under the
      heading “Management’s Discussion and Analysis of Financial Condition and Results
      of Operations - Discussion of Market Risk-Interest Rate Sensitivity Analysis,”
incorporated by reference to Exhibit 13.1 to this Annual Report on Form
      10-K.





**ITEM
      8.**  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





The
      information required by this Item is incorporated herein by reference to pages
      27 through 67 of the Company’s 2006 Annual Report to Shareholders under the
      headings “Independent Auditor’s Report,” “Consolidated Financial Statements” and
“Notes to Consolidated Financial Statements,” incorporated by reference to
      Exhibit 13.1 to this Annual Report on Form 10-K.





**ITEM
      9.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.





**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**




Management,
      including the Company’s President and Chief Executive Officer and Chief
      Financial Officer and Treasurer, has evaluated the effectiveness of the
      Company’s disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.
      Based upon that evaluation, the Company’s President and Chief Executive Officer
      and Chief Financial Officer and Treasurer concluded that the disclosure controls
      and procedures were effective to ensure that information required to be
      disclosed in the reports the Company files and submits under the Exchange Act
      is
      (i) recorded, processed, summarized and reported as and when required and (ii)
      accumulated and communicated to the Company’s management, including the
      Company’s President and Chief Executive Officer and Chief Financial Officer and
      Treasurer, as appropriate to allow timely decisions regarding required
      disclosure.




There
      have been no changes in the Company’s internal control over financial reporting
      identified in connection with the evaluation that occurred during the Company’s
      last fiscal quarter that has materially affected, or that is reasonably likely
      to materially affect, the Company’s internal control over financial
      reporting.




**ITEM
      9B.**  **OTHER
      INFORMATION**




None.




**PART
      III**





**ITEM
      10.**  **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





Information
      regarding directors and executive officers of the Registrant is included under
      the headings “Information with Respect to Nominees and Continuing Directors,”
“Nominees for Election as Directors,” “Continuing Directors,” “Executive
      Officers Who Are Not Directors or Nominees,” “Board and Committee Meetings,” and
“Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy
      Statement for its Annual Meeting of Shareholders to be held on April 27, 2007,
      which has been filed with the SEC and is incorporated herein by
      reference.





The
      Company and the Bank have adopted a Code of Conduct and Ethics which applies
      to
      all employees, officers and directors of the Company. The Company has also
      adopted a Code of Ethics for Senior Financial Officers of North Central
      Bancshares, Inc., which applies to the Company’s principal executive officer,
      principal financial officer, principal accounting officer or controller or
      person performing similar functions for the Company. The Code of Ethics for
      Senior Financial Officers of the Company meets the requirements of a “code of
      ethics” as defined by Item 406 of Regulation S-K.




**ITEM
      11.**  **EXECUTIVE
      COMPENSATION**





Information
      relating to executive compensation is included under the heading “Compensation”
in the Company’s Proxy Statement for its Annual Meeting of Shareholders to be
      held on April 27, 2007, which has been filed with the SEC and is incorporated
      herein by reference.





**ITEM
      12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**





Information
      relating to security ownership of certain beneficial owners and management
      is
      included under the headings “Principal Shareholders of the Company” and
“Security Ownership of Management” in the Company's Proxy Statement for its
      Annual Meeting of Shareholders to be held on April 27, 2007, which has been
      filed with the SEC and is incorporated herein by reference.





The
      following table sets forth the aggregate information of our equity compensation
      plans in effect as of December 31, 2006.





**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding****options******
            
            **Weighted-average
                exercise price of****outstanding
                options**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected****in
                column (a))**(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            73,505
            
            $
            27.54
            
            
            125,000Equity
                compensation plans not approved by security holders(1)
            
            
            27,895
            
            $
            38.35
            
            
            -Total
            
            
            101,400
            
            $
            30.51
            
            
            125,000




(1) The
      equity compensation plan not approved by shareholders is that portion of the
      1996 Stock Option Plan which granted nonqualified options to directors and
      officers out of a pool of 40,000 shares reserved to the plan without shareholder
      approval.





**ITEM
      13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





Information
      regarding certain relationships and related transactions is included under
      the
      heading "Transactions with Certain Related Persons" and “Board and Committee
      Meetings” in the Company's Proxy Statement for its Annual Meeting of
      Shareholders to be held on April 27, 2007, which has been filed with the SEC
      and
      is incorporated herein by reference.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Information
      regarding the aggregate fees billed for each of the last two fiscal years by
      the
      Company’s principal accountant is included under the heading “Principal
      Accountant Fees and Services” and “Audit Committee Preapproval Policy” in the
      Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on
      April 27, 2007, which has been filed with the SEC and is incorporated herein
      by
      reference.





**PART
      IV**





**ITEM
      15.**  **EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES**





**(a)** **Financial
      Statements, Schedules and Exhibits**





1.
            The
                consolidated statements of financial condition of North Central
                Bancshares, Inc. and subsidiaries as of December 31, 2006 and 2005,
                and
                the related consolidated statements of income, stockholders’ equity and
                cash flows for the years ended December 31, 2006, 2005 and 2004,
                together
                with the related notes and the report of the independent registered
                public
                accounting firm of McGladrey & Pullen, LLP are incorporated by
                reference to Exhibit 13.1 to this Annual Report on Form
                10-K.





2.
            Financial
                Statement Schedules have been omitted because they are not applicable
                or
                the required information is shown in the Consolidated Financial Statements
                or Notes thereto.





3.
            See
                Exhibit Index on following page.








**(b)**  **Exhibits**





**Exhibit
                No.**
            
            **Description**
            
            **Reference
                No.**3.1
            
            Articles
                of Incorporation of North Central Bancshares, Inc.
            
            (1)3.2
            
            Bylaws
                of North Central Bancshares, Inc.
            
            (1)3.3
            
            Bylaws
                of North Central Bancshares, Inc., as amended
            
            (2)4.1
            
            Federal
                Stock Charter of First Federal Savings Bank of Iowa (formerly known
                as
                First Federal Savings Bank of Fort Dodge)
            
            (1)4.2
            
            Bylaws
                of First Federal Savings Bank of Iowa (formerly known as First Federal
                Savings Bank of Fort Dodge).
            
            (1)4.3
            
            Specimen
                Stock Certificate of North Central Bancshares, Inc.
            
            (1)4.4
            
            Bylaws
                of First Federal Savings Bank of Iowa, as amended
            
            (2)10.1
            
            Employee
                Stock Ownership Plan of First Federal Savings Bank of Iowa (formerly
                known
                as First Federal Savings Bank of Fort Dodge) and ESOP Trust Agreement
                (incorporating Amendments 1 and 2)
            
            (6)10.1A
            
            Amendment
                #1 to Employee Stock Ownership Plan of First Federal Savings Bank
                of Iowa
                (formerly known as First Federal Savings Bank of Fort Dodge) and
                ESOP
                Trust Agreement
            
            (7)10.1B
            
            Amendment
                #2 to Employee Stock Ownership Plan of First Federal Savings Bank
                of Iowa
                (formerly known as First Federal Savings Bank of Fort Dodge) and
                ESOP
                Trust Agreement
            
            (7)10.2
            
            ESOP
                Loan Documents, dated September 3, 1996
            
            (5)10.3
            
            Amended
                and Restated Employee Retention Agreements between First Federal
                Savings
                Bank of Fort Dodge and certain executive officers
            
            (3)10.4
            
            Employment
                Agreement between First Federal Savings Bank of Iowa (formerly known
                as
                First Federal Savings Bank of Fort Dodge) and David M. Bradley, effective
                as of August 31, 1994
            
            (1)10.6
            
            Form
                of Employment Agreement between North Central Bancshares, Inc. and
                David
                M. Bradley
            
            (1)10.8
            
            North
                Central Bancshares, Inc. 1996 Stock Option Plan
            
            (4)10.9
            
            Amendment
                No. 1 to the North Central Bancshares, Inc. 1996 Stock Option
                Plan
            
            (6)10.10
            
            Supplemental
                Retirement and Deferred Compensation Plan of First Federal Savings
                Bank of
                Iowa
            
            (7)10.11
            
            Form
                of Employment Agreement between First Federal Savings Bank of Iowa
                and C.
                Thomas Chalstrom
            
            (8)10.12
            
            Tax
                Allocation Agreement between North Central Bancshares, Inc. and
                Subsidiaries
            
            (2)10.13
            
            Form
                of Employment Agreement North Central Bancshares, Inc. and C. Thomas
                Chalstrom
            
            (8)10.14
            
            North
                Central Bancshares, Inc. 2006 Stock Incentive Plan
            
            (9)10.15
            
            North
                Central Bancshares, Inc. 2006 Incentive Award Plan
            
            (10)13.1
            
            Annual
                Report to Shareholders14.1
            
            Code
                of Ethics for Senior Financial Officers of North Central Bancshares,
                Inc.
            
            (2)21.1
            
            Subsidiaries
                of the Registrant
            
            (1)23.1
            
            Consent
                of McGladrey & Pullen, LLP31.1
            
            Rule
                13a-14(a)/15d-14(a) Certifications32.1
            
            Section
                1350 Certifications





(1)
            Incorporated
                herein by reference to Registration Statement No. 33-80493 on Form
                S-1
                filed with the SEC on December 18, 1995, as
                amended.





(2)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 29, 2004.





(3)
            Incorporated
                herein by reference to the Quarterly Report on Form 10-Q filed with
                the
                SEC on August 13, 1998.





(4)
            Incorporated
                herein by reference to the Amended Schedule 14A filed with the SEC
                on
                August 14, 1996.





(5)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 31, 1997.





(6)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 31, 1998.





(7)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 29, 2002.





(8)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 31, 2006.





(9)
            Incorporated
                herein by reference to the Schedule 14A filed with the SEC on March
                20,
                2006.





(10)
            Incorporated
                herein by reference to the Quarterly Report on Form 10-Q filed with
                the
                SEC on August 11, 1006.






**SIGNATURES**





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




North
              Central
              Bancshares, Inc.Date:
              March 30, 2007
            
            /s/ David
              M.
              BradleyBy: David
              M. BradleyChairman,
              President and Chief Executive Officer





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




Name
              
              Title
              
              Date/s/
                  David M. Bradley
              
              President,
                  Chief Executive Officer, Director,
              
              03/30/07David
                  M. Bradley
              
              and
                      Chairman of the Board(Principal
                      Executive Officer)/s/
                  David W. Edge
              
              Chief
                  Financial Officer, Treasurer
              
              03/30/07David
                  W. Edge
              
              (Principal
                  Accounting andFinancial
                  Officer)/s/
                  Robert H. Singer, Jr.
              
              Director
              
              03/30/07Robert
                  H. Singer, Jr./s/
                  Melvin R. Schroeder
              
              Director
              
              03/30/07Melvin
                  R. Schroeder/s/
                  Mark M. Thompson
              
              Director
              
              03/30/07Mark
                  M. Thompson/s/
                  Randall L. Minear
              
              Director
              
              03/30/07Randall
                  L. Minear/s/
                  Paul F. Bognanno
              
              Director
              
              03/30/07Paul
                  F. Bognanno/s/
                  C. Thomas Chalstrom
              
              Director
              
              03/30/07C.
                  Thomas Chalstrom