**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        DC 20549
 
 **FORM
        10-K**
 
 **(Mark
        One)**
 **x**
              **ANNUAL
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934:**
                **For
                  the fiscal year ended December 31,
                  2007**
 
 ** ̈**
              **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934:**
                **For
                  the transition period from ________****to 
                  ________**
 
 **Commission
        File No. 0-27672**
 
 **NORTH
        CENTRAL BANCSHARES, INC.**
 **(Exact
        name of registrant as specified in its charter)**
 
 **Iowa**
              **42-1449849****(State
                  of incorporation)**
              **(I.R.S.
                  Employer Identification
                  No.)**
  **825
                  Central Avenue**
              **(515)
                  576-7531****Fort
                  Dodge, Iowa 50501**
              **(Registrant’s
                  telephone number,****(Address
                  of principal executive offices)**
              **Including
                  area code)**
  **Securities
        registered pursuant to Section 12(b) of the Act:**
 **Title
                    of Class**
                
                **Name
                    of Exchange on Which Listed**Common
                    Stock, par value $0.01 per share
                
                The
                    NASDAQ Stock Market,
                    LLC


**Securities
        registered pursuant to Section 12(g) of the Act: N/A**
  Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.
 
 Yes  ̈ No
x
 
 Indicated
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.
  Yes  ̈ No
x
  Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x 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 amendment
        to this
        Form 10-K. x
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
 Large
                  Accelerated Filer  ̈
              Accelerated
                  Filer  ̈Non-Accelerated Filer  ̈ (Do not check if smaller reporting company)
              Smaller
                  Reporting Company x
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        2b-2
        of the Exchange Act).
  Yes  ̈ No
x
  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, 2007 was $46,205,961.
 
 As
        of
        March 3, 2008, there were issued and outstanding 1,340,948 shares of the
        registrant's common stock.
 
 **DOCUMENTS
        INCORPORATED BY REFERENCE**
 
 1.  Portions
        of the Proxy Statement for the registrant's 2008 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 2007 Annual Report to Shareholders are incorporated by reference to
        Items
        5, 6, 7, 7A and 8 of Part II hereof.
  
 
 Table
        of
        Contents
 
 PART
                  IItem
                  1
              Business
              2Item
                  1A
              Risk
                  Factors
              28Item
                  1B
              Unresolved
                  Staff Comments
              31Item
                  2
              Properties
              32Item
                  3
              Legal
                  Proceedings
              33Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              33PART
                  IIItem
                  5
              Market
                  For Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              33Item
                  6
              Selected
                  Financial Data
              33Item
                  7
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operation
              33Item
                  7A
              Quantitative
                  and Qualitative Disclosures About Market Risk
              34Item
                  8
              Financial
                  Statements and Supplementary Data
              34Item
                  9
              Changes
                  in and Disagreements With Accountants on Accounting and Financial
                  Disclosure
              34Item
                  9A(T)
              Controls
                  and Procedures
              34Item
                  9B
              Other
                  Information
              35PART
                  IIIItem
                  10
              Directors,
                  Executive Officers and Corporate Governance
              35Item
                  11
              Executive
                  Compensation
              35Item
                  12
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              35Item
                  13
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              36Item
                  14
              Principal
                  Accountant Fees and Services
              36PART
                  IVItem
                  15
              Exhibits,
                  Financial Statement Schedules
              37
  
  **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.”
  2
 
 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 originally chartered
        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, 2007, the Bank had total assets
        of $510.8 million, total deposits of $367.0 million, and total shareholders’
equity of $40.8 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 2007 for Webster County was 4.5%,
        for Story County 3.0%, for Dallas County 3.4%, for Polk County 3.8%, for
        Henry
        County 5.3% and for Des Moines County 5.7%. These compare to the national
        rate
        of 5.0% and the State of Iowa rate of 4.0%.
 
 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.
  3
 
 **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, 2007, the Company’s total loans receivable was
        $452.5 million, of which $195.6 million, or 43.2 %, were one- to four-family
        residential real estate first mortgage loans, $56.6 million, or 12.5%, were
        multifamily real estate first mortgage loans, primarily purchased by the
        Company, $109.2 million, or 24.1%, were commercial real estate first mortgage
        loans, primarily purchased by the Company, and $17.4 million, or 3.8% were
        construction real estate loans. Consumer loans, consisting primarily of second
        mortgage loans and automobile loans, totaled $73.7 million, or 16.3%, 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, 2007, it was the Company’s policy to limit
        loans to one borrower to $5.5 million, with higher limits subject to board
        approval. At December 31, 2007, it was the Company’s policy to limit loans to
        related entities, corporate groups, or common guarantors to $9.0 million.
        These
        limitations are less than regulatory requirements. At December 31, 2007,
        the
        Company’s largest aggregate outstanding loans to a single borrower or group of
        related borrowers totaled $6.4 million. The Company had three other lending
        relationships of over $4.0 million as of December 31, 2007. At December 31,
        2007, each of these loans were performing, pursuant to their respective terms.
  4
  *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****,****2007**
                    
                    **2006**
                    
                    **2005**
                    
                    **2004**
                    
                    **2003****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
                    
                    $
                    195,586
                    
                    
                    43.23
                    %
                    $
                    214,499
                    
                    
                    47.31
                    %
                    $
                    201,242
                    
                    
                    45.88
                    %
                    $
                    179,311
                    
                    
                    42.81
                    %
                    $
                    171,604
                    
                    
                    46.71
                    %Multifamily
                    
                    
                    56,587
                    
                    
                    12.51
                    
                    
                    65,807
                    
                    
                    14.52
                    
                    
                    73,946
                    
                    
                    16.86
                    
                    
                    78,428
                    
                    
                    18.73
                    
                    
                    69,963
                    
                    
                    19.04Commercial
                    
                    
                    109,186
                    
                    
                    24.13
                    
                    
                    95,508
                    
                    
                    21.07
                    
                    
                    81,255
                    
                    
                    18.52
                    
                    
                    90,907
                    
                    
                    21.70
                    
                    
                    69,609
                    
                    
                    18.95Construction
                    
                    
                    17,385
                    
                    
                    3.84
                    
                    
                    12,091
                    
                    
                    2.67
                    
                    
                    21,192
                    
                    
                    4.83
                    
                    
                    14,308
                    
                    
                    3.42
                    
                    
                    2,285
                    
                    
                    0.62Total
                        first mortgage loans
                    
                    
                    378,744
                    
                    
                    83.71
                    
                    
                    387,905
                    
                    
                    85.57
                    
                    
                    377,635
                    
                    
                    86.09
                    
                    
                    362,954
                    
                    
                    86.66
                    
                    
                    313,461
                    
                    
                    85.32Consumer
                        loans:Automobiles
                    
                    
                    12,667
                    
                    
                    2.80
                    
                    
                    10,459
                    
                    
                    2.31
                    
                    
                    9,252
                    
                    
                    2.11
                    %
                    
                    9,052
                    
                    
                    2.16
                    %
                    
                    9,801
                    
                    
                    2.67
                    %Second
                        mortgage(1)
                    
                    
                    54,586
                    
                    
                    12.06
                    
                    
                    49,070
                    
                    
                    10.82
                    
                    
                    44,218
                    
                    
                    10.08
                    
                    
                    39,701
                    
                    
                    9.48
                    
                    
                    37,601
                    
                    
                    10.23Other(2)
                    
                    
                    6,460
                    
                    
                    1.43
                    
                    
                    5,901
                    
                    
                    1.30
                    
                    
                    7,545
                    
                    
                    1.72
                    
                    
                    7,134
                    
                    
                    1.70
                    
                    
                    6,533
                    
                    
                    1.78Total
                        consumer loans
                    
                    
                    73,713
                    
                    
                    16.29
                    
                    
                    65,430
                    
                    
                    14,43
                    
                    
                    61,015
                    
                    
                    13.91
                    
                    
                    55,887
                    
                    
                    13.34
                    
                    
                    53,935
                    
                    
                    14.68Total
                        loans receivable
                    
                    $
                    452,457
                    
                    
                    100.00
                    %
                    $
                    453,335
                    
                    
                    100.00
                    %
                    $
                    438,650
                    
                    
                    100.00
                    %
                    $
                    418,841
                    
                    
                    100.00
                    %
                    $
                    367,396
                    
                    
                    100.00
                    %Less:Undisbursed
                        portion of construction loans
                    
                    $
                    2,364
                    
                    
                    0.52
                    %
                    $
                    1,217
                    
                    
                    0.27
                    %
                    $
                    5,666
                    
                    
                    1.29
                    %
                    $
                    9,114
                    
                    
                    2.18
                    %
                    $
                    1,855
                    
                    
                    0.50
                    %Unearned
                        loan (premium) discount
                    
                    
                    (370
                    )
                    
                    (0.08
                    )
                    
                    (583
                    )
                    
                    (0.13
                    )
                    
                    (769
                    )
                    
                    (0.18
                    )
                    
                    (984
                    )
                    
                    (0.24
                    )
                    
                    (696
                    )
                    
                    (0.19
                    )Net
                        deferred loan origination fees (costs)
                    
                    
                    119
                    
                    
                    0.03
                    
                    
                    165
                    
                    
                    0.04
                    
                    
                    149
                    
                    
                    0.03
                    
                    
                    160
                    
                    
                    0.04
                    
                    
                    113
                    
                    
                    0.03Allowance
                        for loan losses
                    
                    
                    3,487
                    
                    
                    0.77
                    
                    
                    3,493
                    
                    
                    0.77
                    
                    
                    3,326
                    
                    
                    0.76
                    
                    
                    3,235
                    
                    
                    0.77
                    
                    
                    3,165
                    
                    
                    0.86Total
                        loans receivable, net
                    
                    $
                    446,857
                    
                    
                    98.76
                    %
                    $
                    449,043
                    
                    
                    99.05
                    %
                    $
                    430,278
                    
                    
                    98.10
                    %
                    $
                    407,316
                    
                    
                    97.25
                    %
                    $
                    362,959
                    
                    
                    98.80
                    %
 
 (1)
              Second
                  mortgage loans included $5.7 million, $5.4 million, $5.0 million,
                  $5.4
                  million, $4.9 million of nonowner-occupied residential first mortgage
                  loans at December 31, 2007, 2006, 2005, 2004, and 2003,
                  respectively.
 (2)
              Other
                  consumer loans included $1.9 million, $2.0 million, $2.3 million,
                  $2.8
                  million, and $2.1 million of commercial mortgage loans at December
                  31,
                  2007, 2006, 2005, 2004, and 2003,
                  respectively.
  5
 
 *Loan
        Maturity Schedule.* The
        following table sets forth the maturity or period to repricing of the Company’s
        loan portfolio at December 31, 2007. 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, 2007****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-family
                  Residential
              
              $
              44,336
              
              $
              50,924
              
              $
              54,131
              
              $
              22,488
              
              $
              26,636
              
              $$
              2,181
              
              $
              200,696Multifamily
              
              
              22,660
              
              
              18,781
              
              
              14,392
              
              
              754
              
              
              -
              
              
              -
              
              
              56,587Commercial
              
              
              53,994
              
              
              21,342
              
              
              24,658
              
              
              17,725
              
              
              3,742
              
              
              -
              
              
              121,461Consumer
                  loans (1)
              
              
              9,201
              
              
              24,198
              
              
              23,076
              
              
              11,664
              
              
              5,115
              
              
              459
              
              
              73,713Total
              
              $
              130,191
              
              $$
              115,245
              
              $
              116,257
              
              $
              52,631
              
              $
              35,493
              
              $$
              2,640
              
              $
              452,457
 
 (1)
              Includes
                  second mortgage loans of $54.6 million at December 31,
                  2007.
  The
        following table sets forth the dollar amounts of all fixed rate and adjustable
        rate loans in each loan category at December 31, 2007 due after December
        31,
        2008.
  **Due After December 31, 2008****Fixed**
                  
                  **Adjustable**
                  
                  **Total****(In
                      thousands)**First
                      mortgage loans:One-
                      to four-family residential(1)
                  
                  $
                  55,674
                  
                  $
                  100,686
                  
                  $
                  156,360Multifamily
                  
                  
                  6,054
                  
                  
                  27,873
                  
                  
                  33,927Commercial
                  
                  
                  34,332
                  
                  
                  33,135
                  
                  
                  67,467Consumer
                      loans (2)
                  
                  
                  58,955
                  
                  
                  5,557
                  
                  
                  64,512Total
                  
                  $
                  155,015
                  
                  $
                  167,251
                  
                  $
                  322,266
 
 (1)
              One-
                  to four-family loans include $17.0 million of loans with repricing
                  periods
                  greater than 5 years that have been classified as fixed rate loans.
                  $41.7
                  million of loans with repricing periods less than 5 years have
                  been
                  classified as adjustable rate
                  loans.
 (2)
              Includes
                  second mortgage loans of $47.9 million at December 31,
                  2007.
  *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 typically runs up to twelve
        months. At December 31, 2007, 28.5% of the Company’s residential real estate
        loans had fixed rates, and 71.5% 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, 2007, the Company sold $36.1 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.
  6
  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,
        2007, the Company generally offered ARM loans with annual rate caps of 2.00%
        and
        maximum life-of-loan caps of 6.00% above the initial interest rate. At present,
        the interest rate on the Company’s ARM loans are 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 $146.2 million, or 32.3%, of the Company’s total loan
        portfolio at December 31, 2007.
 
 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 2007
        Annual Report to Shareholders, which is included as Exhibit 13.1 to this
        Form
        10-K 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 100% 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 $178.0 million,
        or
        39.4%, of the Company’s total loan portfolio at December 31, 2007. Of such
        loans, $119.4 million, or 67.1%, were purchased or originated by the Company
        and
        were secured by properties outside the State of Iowa. 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 Company’s 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, title insurance policy, appraisal and personal
        financial statements of any guarantors of the loan, and certified rent rolls.
        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. At December 31, 2007, $22.0 million, or 19.5%, of out of state
        multifamily and commercial real estate loans were serviced by the Bank. At
        December 31, 2007, $90.7 million, or 80.5%, of the out of state multifamily
        and
        commercial real estate loans were serviced by the originating financial
        institution or mortgage company. The Company imposes 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 and 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.”
  7
  Loans
        secured by multifamily and commercial real estate generally involve a greater
        degree of credit risk than single-family residential mortgage loans and such
        loans also typically 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, 2007,
        the
        Company’s construction loan portfolio totaled $17.4 million, or 3.8%, 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, 2007, the Company had $5.1
        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, 2007, the Company had approximately $6.5 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.
  8
  *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, 2007, consumer loans totaled $73.7 million, of which second
        mortgage loans totaled $54.6 million, or 12.1%, 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. Effective first
        quarter 2008, the loan-to-value requirement was changed to 85%. The average
        principal amount of the Company’s second mortgage loans is approximately
        $22,000.
 
 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, 2007, automobile loans totaled
        $12.7
        million, or 2.8%, 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, 2007, other
        consumer loans totaled $6.5 million, or 1.4%, of the Company’s total loan
        portfolio. Included in other consumer loans are unsecured consumer loans
        which
        totaled $1.1 million, or 0.24 %, 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 $2,700.
 
 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, 2007, $250,000, or 0.34%, 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, 2007, the Company had outstanding commitments
        to
        originate $1.1 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.* At
        December 31, 2007, the Company's loan portfolio contained $133.8  million
        of loans secured by out of state properties. These loans represented 29.6%
        of
        the Company's total loan portfolio at December 31, 2007. 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, 2007, the Company's
        out of state multifamily residential and commercial real estate loans had
        an
        average balance of $685,000 and the largest loan had a principal balance
        of $3.0
        million. As of December 31, 2007, there were two out of state
        commercial real estate loans totaling $302,000 that were more than 90 days
        past
        due.
  9
  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, 2007, $14.3 million, or 3.2%, of
        the
        Company's total loan portfolio consisted of out of state one- to four-family
        loans. As of December 31, 2007, there were no out of state one- to
        four-family first mortgage loans that were more than 90 days past
        due.
 
 There
        are
        certain risks with loans purchased by the Company that are not associated
        with
        loans the Company originates. At December 31, 2007, $18.7 million, or 13.9%,
        of
        purchased loans were serviced by the Bank. At December 31, 2007, $116.5 million,
        or 86.1%, of purchased loans were 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, 2007.
 
 **State**
              
              **Balance as of**
                **December 31, 2007**
              
              **Percentage as of**
                **December 31, 2007****(In
                  thousands)**California
              
              $
              25,182
              
              
              18.8
              %Washington
              
              
              13,573
              
              
              10.1Wisconsin
              
              
              10,333
              
              
              7.7South
                  Carolina
              
              
              10,250
              
              
              7.7Utah
              
              
              9,047
              
              
              6.8Colorado
              
              
              8,578
              
              
              6.4Nebraska
              
              
              6,804
              
              
              5.1Missouri
              
              
              6,799
              
              
              5.1Oregon
              
              
              6,506
              
              
              4.9Florida
              
              
              4,879
              
              
              3.6Minnesota
              
              
              4,149
              
              
              3.1Arizona
              
              
              4,124
              
              
              3.1Arkansas
              
              
              3,314
              
              
              2.5Indiana
              
              
              3,000
              
              
              2.2South
                  Dakota
              
              
              2,938
              
              
              2.2Illinois
              
              
              2,287
              
              
              1.7Michigan
              
              
              2,250
              
              
              1.7Ohio
              
              
              2,079
              
              
              1.6Virginia
              
              
              1,677
              
              
              1.3District
                  of Columbia
              
              
              1,500
              
              
              1.1Texas
              
              
              1,493
              
              
              1.1Nevada
              
              
              1,480
              
              
              1.0Kansas
              
              
              1,180
              
              
              0.9North
                  Carolina
              
              
              337
              
              
              0.3Total
              
              $
              133,759
              
              
              100.0
              %
  10
  *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,****2007**
              
              **2006**
              
              **2005****(In
                  thousands)**Total
                  loans receivable at beginning of period
              
              $
              453,335
              
              $
              438,650
              
              $
              418,841**Originations:**First
                  mortgage loans:One-
                  to four-family residential
              
              
              55,106
              
              
              46,247
              
              
              74,583Multifamily
              
              
              2,104
              
              
              9,702
              
              
              -Commercial
              
              
              21,291
              
              
              16,281
              
              
              8,455Consumer
                  loans:Automobile
              
              
              10,518
              
              
              8,406
              
              
              7,095Second
                  mortgage
              
              
              31,559
              
              
              28,830
              
              
              24,779Other
              
              
              5,001
              
              
              3,435
              
              
              4,208Total
                  originations:
              
              
              125,579
              
              
              112,901
              
              
              119,120**Loan
                  Purchases:**First
                  mortgage one- to four-family
              
              
              6,293
              
              
              11,269
              
              
              1,579First
                  mortgage multifamily
              
              
              1,707
              
              
              8,763
              
              
              9,983First
                  mortgage commercial
              
              
              32,591
              
              
              20,370
              
              
              12,462**Loan
                  Sales:**First
                  mortgage one- to four-family
              
              
              (36,072
              )
              
              (19,188
              )
              
              (19,488
              )First
                  mortgage commercial
              
              
              (2,000
              )
              
              -
              
              
              -Transfer
                  of mortgage loans to foreclosed real estate
              
              
              (2,360
              )
              
              (267
              )
              
              (840
              )Repayments
              
              
              (126,616
              )
              
              (119,163
              )
              
              (103,007
              )Net
                  loan activity
              
              
              (878
              )
              
              14,685
              
              
              19,809Total
                  loans receivable at end of period
              
              $
              452,457
              
              $
              453,335
              
              $
              438,650
  *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, 2007,
        the Company had $119,000 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 $4.6 million, $4.4
        million and $4.5 million for the fiscal years ended December 31, 2007, 2006
        and
        2005, respectively.
 
 **Investment
        Activities**
 
 At
        December 31, 2007, the Company's investment portfolio was 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, 2007, $967,000, or 34.9%, of the Company's investment portfolio,
        excluding mortgage-backed securities, mutual funds and equity securities,
        was
        scheduled to mature in one year or less, $831,000 million, or 30.0%, was
        scheduled to mature within one to five years, and $972,000, or 35.1%, was
        scheduled to mature in more than five years.
  11
  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,****2007**
              
              **2006**
              
              **2005****(In
                  thousands)**Investment
                  securities:Mortgage-backed
                  securities
              
              $
              2,191
              
              $
              2,881
              
              $
              4,255State
                  and local obligations
              
              
              2,770
              
              
              3,674
              
              
              3,366FHLB
                  stock
              
              
              5,064
              
              
              5,476
              
              
              5,250Mutual
                  funds
              
              
              1,938
              
              
              1,946
              
              
              1,950Equity
                  securities
              
              
              4,636
              
              
              6,053
              
              
              5,887Total
                  investment securities
              
              
              16,599
              
              
              20,030
              
              
              20,708Interest-earning
                  deposits
              
              
              3,132
              
              
              12,431
              
              
              552Total
                  investments
              
              $
              19,731
              
              $
              32,461
              
              $
              21,260
  12
  *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, 2007.
  **At December 31, 2007****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
                  
                  $
                  -
                  
                  
                  -
                  
                  $
                  183
                  
                  
                  5.75
                  %
                  $
                  77
                  
                  
                  6.43
                  %
                  $
                  1,931
                  
                  
                  3.95
                  %
                  $
                  2,191
                  
                  $
                  2,191
                  
                  
                  2
                  
                  
                  4.18
                  %State
                      and local
                      obligations(1)
                  
                  
                  967
                  
                  
                  3.71
                  
                  
                  831
                  
                  
                  4.25
                  
                  
                  972
                  
                  
                  5.95
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,770
                  
                  
                  2,770
                  
                  
                  2
                  
                  
                  4.66Mutual
                      funds
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,938
                  
                  
                  1,938
                  
                  
                  
                  
                  
                  5.02FHLB
                      stock
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,064
                  
                  
                  5,064
                  
                  
                  
                  
                  
                  4.50Preferred
                      stock-Fannie
                      Mae(2)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  781
                  
                  
                  781
                  
                  
                  
                  
                  
                  5.81Preferred
                      stock-Freddie
                      Mac(2)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,855
                  
                  
                  3,855
                  
                  
                  
                  
                  
                  5.71Total
                      securities
                      available-for-sale
                  
                  $
                  967
                  
                  
                  3.71
                  %
                  $
                  1,014
                  
                  
                  4.52
                  %
                  $
                  1,049
                  
                  
                  5.99
                  %
                  $
                  1,931
                  
                  
                  3.95
                  %
                  $
                  16,599
                  
                  $
                  16,599
                  
                  
                  
                  
                  
                  4.89
                  %Interest-bearing
                      deposits
                  
                  
                  3,132
                  
                  
                  3.84
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,132
                  
                  
                  3,132
                  
                  
                  
                  
                  
                  3.84Total
                      investments
                  
                  $
                  4,099
                  
                  
                  3.81
                  %
                  $
                  1,014
                  
                  
                  4.52
                  %
                  $
                  1.049
                  
                  
                  5.99
                  %
                  $
                  1,931
                  
                  
                  3.95
                  %
                  $
                  19,731
                  
                  $
                  19,731
                  
                  
                  
                  
                  
                  4.72
                  %
  (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.
  13
  **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
        2007, 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, 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 $6.7 million at December 31, 2007, an increase of $5.0 million
        from December 31, 2006. Beginning fiscal year 2005, the Company began utilizing
        brokered certificates of deposit as an alternative wholesale funding source.
        As
        of December 31, 2007, the Company had $23.6 million in brokered certificates
        of
        deposit, a decrease of $6.8 million from December 31, 2006.
 
 *Deposit
        Portfolio* .
        Deposits with the Company as of December 31, 2007, 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
              
              $
              13,673
              
              
              3.8
              %0.61
              
              
              None
              
              
              NOW
                  accounts
              
              
              50
              
              
              54,180
              
              
              14.80.40
              
              
              None
              
              
              Savings
                  accounts
              
              
              25
              
              
              24,533
              
              
              6.72.46
              
              
              None
              
              
              Money
                  market savings
              
              
              2,500
              
              
              33,051
              
              
              9.0Total
                  non-maturing deposits
              
              
              
              
              
              125,437
              
              
              34.3Certificates
                  of Deposit2.49
              
              
              1-3
                  months
              
              
              Fixed
                  term, fixed rate
              
              $
              1,000
              
              $
              180
              
              
              0.1
              %4.60
              
              
              4-6
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              5,219
              
              
              1.44.62
              
              
              7-9
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              18,040
              
              
              4.94.92
              
              
              10-12
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              55,382
              
              
              15.15.01
              
              
              13-24
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              76,884
              
              
              21.05.02
              
              
              25-36
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              29,591
              
              
              8.14.52
              
              
              37-48
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              1,219
              
              
              0.34.44
              
              
              49-60
                  months
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              51,281
              
              
              14.05.07
              
              
              61
                  months or greater
              
              
              Fixed
                  term, fixed rate
              
              
              1,000
              
              
              2,715
              
              
              0.8Total
                  certificate of deposits
              
              240,511
              
              
              65.7Total
                  deposits
              $
              365,948
              
              
              100.0
              %
  14
  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**
                **12/31/07**
              
              **(Decrease)**
                **%**
              
              (**Decrease)**
                **$**
              
              **Balance**
                **12/31/06**
              
              **(Decrease)**
                **%**
              
              (**Decrease)**
                **$**
              
              **Balance**
                **12/31/05****(Dollars
                  in thousands)**Noninterest
                  bearing demand
              
              $
              13,673
              
              
              6.92
              %
              $
              885
              
              $
              12,788
              
              
              4.94
              %
              $
              602
              
              $
              12,186NOW
              
              
              54,180
              
              
              9.15
              
              
              4,544
              
              
              49,636
              
              
              0.80
              
              
              394
              
              
              49,242Savings
                  account
              
              
              24,533
              
              
              (2.49
              )
              
              (627
              )
              
              25,160
              
              
              (6.98
              )
              
              (1,888
              )
              
              27,048Money
                  market savings
              
              
              33,051
              
              
              (4.72
              )
              
              (1,637
              )
              
              34,688
              
              
              (22.64
              )
              
              (10,153
              )
              
              44,841Certificates of
                  deposit that mature:within
                  12 months
              
              
              143,970
              
              
              7.15
              
              
              9,601
              
              
              134,369
              
              
              25.91
              
              
              27,652
              
              
              106,717within
                  12-36 months
              
              
              70,749
              
              
              (14.54
              )
              
              (12,035
              )
              
              82,784
              
              
              15.02
              
              
              10,811
              
              
              71,973beyond
                  36 months
              
              
              25,792
              
              
              23.38
              
              
              4,887
              
              
              20,905
              
              
              6.39
              
              
              (1,426
              )
              
              22,331Total
              
              $
              365,948
              
              
              1.56
              %
              $
              5,618
              
              $
              360,330
              
              
              7.77
              %
              $
              25,992
              
              $
              334,338
 **Increase**
                    
                    **Increase**
                    
                    
                    
                    **Increase**
                    
                    **Increase****Balance**
                      **12/31/05**
                    
                    **(Decrease)**
                      **%**
                    
                    (**Decrease)**
                      **$**
                    
                    **Balance**
                      **12/31/04**
                    
                    **(Decrease)**
                      **%**
                    
                    (**Decrease)**
                      **$**
                    
                    **Balance**
                      **12/31/03****(Dollars
                        in thousands)**Noninterest
                        bearing demand
                    
                    $
                    12,186
                    
                    
                    11.35
                    %
                    $
                    1,242
                    
                    $
                    10,944
                    
                    
                    19.46
                    %
                    $
                    1,783
                    
                    $
                    9,161NOW
                    
                    
                    49,242
                    
                    
                    4.15
                    
                    
                    1,960
                    
                    
                    47,282
                    
                    
                    13.65
                    
                    
                    5,680
                    
                    
                    41,602Passbook
                        savings
                    
                    
                    27,048
                    
                    
                    (5.38
                    )
                    
                    (1,538
                    )
                    
                    28,586
                    
                    
                    2.96
                    
                    
                    821
                    
                    
                    27,765Money
                        market savings
                    
                    
                    44,841
                    
                    
                    (2.51
                    )
                    
                    (1,153
                    )
                    
                    45,994
                    
                    
                    78.38
                    
                    
                    20,209
                    
                    
                    25,785Certificates
                        of deposit that mature:within
                        12 months
                    
                    
                    106,717
                    
                    
                    33.54
                    
                    
                    26,805
                    
                    
                    79,912
                    
                    
                    (13.76
                    )
                    
                    (12,748
                    )
                    
                    92,660within
                        12-36 months
                    
                    
                    71,973
                    
                    
                    (9.53
                    )
                    
                    (7,582
                    )
                    
                    79,555
                    
                    
                    41.39
                    
                    
                    23,287
                    
                    
                    56,268beyond
                        36 months
                    
                    
                    22,331
                    
                    
                    (7.19
                    )
                    
                    (1,730
                    )
                    
                    24,061
                    
                    
                    (21.68
                    )
                    
                    (6,662
                    )
                    
                    30,723Total
                    
                    $
                    334,338
                    
                    
                    5.69
                    %
                    $
                    18,004
                    
                    $
                    316,334
                    
                    
                    11.40
                    %
                    $
                    32,370
                    
                    $
                    283,964
  15
  The
        following table sets forth the certificates of deposit in the Company classified
        by rates as of the dates indicated:
 
 **At
                  December 31,****2007**
              
              **2006**
              
              **2005****(In
                  thousands)****Rate**1.99%
                  or less
              
              $
              33
              
              $
              347
              
              $
              3,7472.00-2.99%
              
              
              1,697
              
              
              11,233
              
              
              50,2573.00-3.99%
              
              
              23,788
              
              
              38,326
              
              
              72,5084.00-5.99%
              
              
              214,983
              
              
              188,062
              
              
              69,9996.00-7.99%
              
              
              -
              
              
              90
              
              
              4,5108.00%
                  or greater
              
              
              10
              
              
              -
              
              
              -$
              240,511
              
              $
              238,058
              
              $
              201,021
 
 The
        following table sets forth the amount and maturities of certificates of deposit
        at December 31, 2007.
 
 **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
              
              $
              33
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              332.00-2.99%
              
              
              1,459
              
              
              238
              
              
              -
              
              
              -
              
              
              -507
              
              
              -
              
              
              1,6973.00-3.99%
              
              
              11,860
              
              
              8,754
              
              
              3,174
              
              
              -
              
              
              -
              
              
              -
              
              
              23,7884.00-5.99%
              
              
              130,608
              
              
              46,515
              
              
              12,068
              
              
              12,172
              
              
              13,620
              
              
              -
              
              
              214,9836.00-7.99%
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -8.00%
                  or greater
              
              
              10
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10$
              143,970
              
              $
              55,507
              
              $
              15,242
              
              $
              12,172
              
              $
              13,620
              
              $
              -
              
              $
              240,511
 
 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, 2007.
  **Remaining
                    Maturity**
                
                **Certificates**
                  **of Deposit over**
                  **$100,000****(In
                    thousands)**Three
                    months or less
                
                $
                7,610Three
                    through six months
                
                
                11,463Six
                    through twelve months
                
                
                7,096Over
                    twelve months
                
                
                28,791Total
                
                $
                54,960
  16
  The
        following table sets forth the changes in deposits of the Company for the
        periods indicated:
 
 **Year Ended December 31,****2007**
              
              **2006**
              
              **2005****(In
                  thousands)**Net
                  increase (decrease) before interestcredited
              
              $
              (5,199
              )
              $
              17,816
              
              $
              11,330Interest
                  credited
              
              
              10,817
              
              
              8,176
              
              
              6,674Net
                  increase in deposits
              
              $
              5,618
              
              $
              25,992
              
              $
              18,004
  **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,****2007**
              
              **2006**
              
              **2005****(Dollars
                  in thousands)**Weighted
                  average rate paid on:FHLB
                  advances
              
              
              4.94
              %
              
              4.75
              %
              
              4.59
              %FHLB
                  advances:Maximum
                  balance
              
              $
              114,398
              
              $
              115,424
              
              $
              111,446Average
                  balance
              
              
              106,527
              
              
              108,749
              
              
              102,223Weighted
                  average rate paid on:Other
                  borrowings
              
              
              7.08
              %
              
              1.00
              %
              
              1.00
              %Other
                  borrowings:Maximum
                  balance
              
              $
              700
              
              $
              8
              
              $
              13Average
                  balance
              
              
              64
              
              
              5
              
              
              11
 
 **Title
        Abstract Business**
 
 A
        component of the Company's operating strategy to increase non-interest income
        is
        through the abstract company business conducted by 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 11
        employees as of December 31, 2007.
 
 **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, 2007.
  17
  **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
        (“Northridge 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. 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, 2007 were approximately $53,000. The final federal
        income tax credits of approximately $49,000 associated with this project
        will be
        recognized over the next 4 years.
 
 On
        October 24, 1996, the Company formed the Northridge Apartments Limited
        Partnership II (“Northridge 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, 2007 were
        approximately $127,000. The tax credits will continue for an additional 5.3
        year
        period.
 
 **Personnel**
 
 At
        December 31, 2007, the Company had 123 full-time and 33 part-time employees
        (including the 11 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.
  18
  **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,
        is a “large bank” as of December 31, 2007 (one with assets having an adjusted
        tax basis greater than $500 million) is no longer permitted to maintain a
        reserve for bad debts with respect to loans. The Bank instead utilizes the
        tax
        charge-off method for tax bad debt deductions.
 
 *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 35% 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
        Iowa
        corporate income tax rate ranges from 6% to 12% depending upon Iowa taxable
        income. Interest from federal securities is not taxable for purposes of the
        Iowa
        corporate income tax.
 
 Iowa
        imposes a financial institution franchise tax, in lieu of the corporate income
        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.
 
 Colorado’s
        corporate income tax is imposed on domestic and foreign corporations at a
        flat
        rate of 4.63% on net income derived from Colorado sources.
  19
  **REGULATION**
 **General**
  North
        Central Bancshares, Inc. is regulated as a savings and loan holding company
        by
        the OTS. The Company is 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.
  First
        Federal Savings Bank of Iowa, a wholly owned subsidiary of the Company, is
        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 files
        reports with the OTS concerning its activities and financial condition. 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.
  **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, savings and
        loan
        holding companies are not subject to formal regulatory capital requirements.
  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.
 
 The
        Home
        Owners’ Loan Act, as amended (the “HOLA”) prohibits a savings and loan holding
        company, directly or indirectly, or through one or more subsidiaries, from
        acquiring control (as defined under OTS Regulations) 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 also 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.
  The
        OTS
        recently amended its regulations to prohibit service at a savings and loan
        holding company by any person convicted of certain criminal offenses or who
        agreed to enter into a pre-trial diversion. The regulation implements a recently
        added provision of the Federal Deposit Insurance Act, the purpose of which
        was
        to prevent persons who are currently prohibited from serving at an insured
        institution from serving at a holding company controlling such institution.
        In
        general, persons convicted of criminal offenses involving dishonesty, breach
        of
        trust or money laundering are prohibited from serving at a bank or its holding
        company. OTS has the authority to review proposed appointments on a case-by-case
        basis, and by regulation has exempted categories of employees of certain
        savings
        and loan holding companies engaged in activities that the Holding Company
        is not
        permitted to not engage in.
  Transactions
        between the Company or its subsidiaries and the Bank 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.”
  20
  *Change
        of Control* .
        Federal
        law requires, with few exceptions, OTS approval (or, in some cases, notice
        and
        effective clearance) prior to any acquisition of control of the company.
        Among
        other criteria, under the HOLA, Change in Bank Control Act and OTS regulations,
        “control” is conclusively presumed to exist if a person or company acquires,
        directly or indirectly, more than 25% of any class of voting stock of the
        savings association or holding company. Under OTS regulations, control is
        also
        presumed to exist, subject to rebuttal, if an acquiror acquires more than
        10% of
        any class of voting stock (or more than 25% of any class of stock) and is
        subject to any of several “control factors,” including, among other matters, the
        relative ownership position of a person, the existence of control agreements
        and
        board composition.
 
 **Regulation
        of Federal Savings Associations**
  *Business
        Activities* .
        The
        Bank derives its lending and investment powers from the HOLA and OTS regulations
        promulgated thereunder. 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.
  *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, 2007, 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, 2007:
  **Bank**
              
              **Capital**
                **Requirements**
              
              **Excess Capital****(In
                  thousands)**Tangible
                  capital
              
              $
              35,176
              
              $
              7,580
              
              $
              27,596Core
                  capital
              
              
              35,176
              
              
              15,160
              
              
              20,016Risk-based
                  capital
              
              
              38,582
              
              
              30,046
              
              
              8,536
  21


*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, 2007, 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.




*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 or application with the OTS at least 30 days before making a
      capital distribution. An application is required if the total amount of an
      institution’s 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 a notice of application if the:




•
            Bank
                would be undercapitalized following the
                distribution;




•
            proposed
                capital distribution raises safety and soundness concerns;
                or




•
            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.




*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 four 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 0.05% 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, 2007 was 0.06%. A material
      increase in insurance assessments could have an adverse effect on the earnings
      of 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, 2007, the FDIC assessed DIF-insured deposits 1.14
      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 2019.


22


*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.




*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, 2007, 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, which
      would
      cause the Company to be regulated as a bank holding company, subject to the
      Bank
      Holding Company Act of 1956, as amended and the rules and regulations of the
      Board of Governors of the Federal Reserve System.




*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.


23


*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.




*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.




*Consumer
      Protection and Other Laws and Regulations* .
      The
      Bank is subject to various laws and regulations dealing generally with consumer
      protection matters. The Bank may be subject to potential liability under these
      laws and regulations for material violations. The Bank’s lending operations are
      also subject to federal laws applicable to credit transactions, such as
      the:





•
            Federal
                Truth-In-Lending Act, governing disclosures of credit terms to consumer
                borrowers;


•
            Home
                Mortgage Disclosure Act of 1975, requiring financial institutions
                to
                provide information to enable the public and public officials to
                determine
                whether a financial institution is fulfilling its obligation to help
                meet
                the housing needs of the community it serves;


•
            Equal
                Credit Opportunity Act, prohibiting discrimination on the basis of
                race,
                creed or other prohibited factors in extending
                credit;


•
            Fair
                Credit Reporting Act of 1978, as amended by the Fair and Accurate
                Credit
                Transactions Act, governing the use and provision of information
                to credit
                reporting agencies, certain identity theft protections and certain
                credit
                and other disclosures;


•
            Fair
                Debt Collection Act, governing the manner in which consumer debts
                may be
                collected by collection agencies;


•
            Servicemembers’
                Civil Relief Act; and


•
            Rules
                and regulations of the various federal agencies charged with the
                responsibility of implementing these federal
                laws.


24


To
      address current issues in the subprime mortgage market, the Board of Governors
      of the Federal Reserve has proposed amending Regulation Z, implementing the
      Truth in Lending Act and Home Ownership and Equity Protection Act, to protect
      consumers in the mortgage market from unfair, abusive or deceptive lending
      and
      servicing practices. These amendments would also address advertisements for
      mortgages loans, and require enhanced and earlier disclosures for consumers
      of
      higher-priced mortgage loans secured by the consumer’s principal dwelling. For
      purposes of the proposed regulation, a higher-priced mortgage would be a loan
      secured by a consumer’s principal dwelling having an annual percentage rate
      exceeding comparable Treasury security by three or more percentage points for
      first-lien loans or five or more percentage points for second mortgage. The
      proposed regulations would also prohibit a creditor from engaging in a pattern
      or practice of extending credit without regard to a borrower’s ability to repay
      from sources other that then collateral itself; require that creditors verify
      income and assets relied upon in making a loan; prohibit repayment payments,
      absent certain conditions; and require escrow accounts for taxes and insurance.
      While the Bank’s subprime activities are relatively limited, most mortgage loans
      originated by the Bank will be unaffected by these new regulations. However,
      until final regulations are promulgated, we cannot predict whether the proposed
      regulation will be adopted or the extent to which our business may be
      affected.





The
      Bank’s deposit operations are subject to federal laws applicable to deposit
      transactions, such as the:





•
            Truth
                in Savings Act, which imposes disclosure obligations to enable consumers
                to make informed decisions about accounts at depository institutions;


•
            Electronic
                Funds Transfer Act and Regulation E issued by the Federal Reserve
                to
                implement that Act, which govern automatic deposits to and withdrawals
                from deposit accounts and customers’ rights and liabilities arising from
                the use of automated teller machines and other electronic banking
                services; and


•
            Rules
                and regulations of the various federal agencies charged with the
                responsibility of implementing these federal
                laws.





*Prohibitions
      against Tying Arrangements.* As a
      federal savings association, the Bank is subject to the prohibitions on certain
      tying arrangements. The Bank 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.




*Privacy
      Provisions.* The Bank
      is required to disclose its policies for collecting and protecting nonpublic
      customer information. Customers generally may prevent the Bank from sharing
      their nonpublic personal information with nonaffiliated third parties except
      under narrow circumstances, such as the processing of transactions requested
      by
      the consumer or when the financial institution is jointly sponsoring a product
      or service with a nonaffiliated third party. Additionally, financial
      institutions generally may not disclose consumer account numbers to any
      nonaffiliated third party for use in telemarketing, direct mail marketing or
      other marketing to consumers.





*Affiliate
      Marketing.* The
      federal banking agencies, including the OTS recently
      finalized, a joint rule implementing Section 214 of
      the FACT
      Act ,
      which
      provides consumers with the ability to restrict companies from using certain
      information obtained from affiliates to make marketing solicitations. In
      general, a
      person
      is prohibited from using information received from an affiliate to make a
      solicitation for marketing purposes to a consumer, unless the consumer is given
      notice and had a reasonable opportunity to opt out of such solicitations. The
      rule
      permits opt-out notices to be given by any affiliate that has a preexisting
      business relationship with the consumer and permits a joint notice from two
      or
      more affiliates. Moreover, such notice would not be applicable to the company using
      the
      information if it has a pre-existing business relationship with the consumer.
      Moreover, this notice may be combined with other required disclosures to be
      provided under other provisions of law, including notices required under the
      privacy provisions of the Gramm-Leach-Bliley
      Act .





*Identity* *Theft.* The
      federal banking agencies, including the OTS recently
      finalized, a joint rule implementing Section 315 of
      the FACT
      Act , requiring that each financial institution or creditor to develop and implement
      a
      written Identity Theft Prevention Program to detect, prevent, and mitigate
      identity theft in connection with the opening of certain accounts or certain
      existing accounts. The rule became effective January 1, 2008 and mandatory
      compliance commences on November 1, 2008.





Among
      the
      requirements under the new rule, the Bank is required to adopt ‘‘reasonable
      policies and procedures’’ to:


25


·
            Identify
                relevant red flags for covered accounts and incorporate those Red
                Flags
                into the Program;


·
            Detect
                Red Flags that have been incorporated into the
                Program;


·
            Respond
                appropriately to any Red Flags that are detected to prevent and mitigate
                identity theft; and


·
            Ensure
                the Program is updated periodically, to reflect changes in risks
                to
                customers or to the safety and soundness of the financial institution
                or
                creditor from identity theft.





The
      Bank
      will be required to implement its plan no later than November 1,
      2008.





*Anti-Money
      Laundering/Terrorist Financing Requirements* .
      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.




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.




*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.




*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, 2007 of $5.1 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.


26


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.





*Effect
      of Governmental Monetary Polices.* Our
      earnings will be affected by domestic economic conditions and the monetary
      and
      fiscal policies of the United States government and its agencies. The Federal
      Reserve has, and is likely to continue to have, an important impact on the
      operating results of commercial banks through its power to implement national
      monetary policy, among other things, in order to curb inflation or combat a
      recession. The Federal Reserve affects the levels of bank loans, investments
      and
      deposits through its control over the issuance of United States government
      securities, its regulation of the discount rate applicable to member banks
      and
      its influence over reserve requirements to which member banks are subject.
      We
      cannot predict the nature or impact of future changes in monetary and fiscal
      policies.





*Federal
      Securities Laws* .
      The
      Company’s common stock is registered with the SEC under Section 12(b) 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 including:




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


27


•
            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 regulator and
                the FDIC. The Company’s assessment of internal control over financial
                reports is included in Part III, Item 9A(T) of this 10-K.




•
            The
                Company’s independent accountants are also required to 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 smaller reporting company, is not subject to attestation
                provision until the year ending December 31,
                2008;




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




•
            a
                range of enhanced disclosure requirements as well as 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.





*Legislative
      and Regulatory Action.* New
      statutes, regulations and guidance are regularly proposed and promulgated that
      potentially contain wide-ranging changes to the statutes, regulations and
      guidance impacting the competitive relationships of financial institutions
      operating and doing business in the United States. We cannot predict whether
      or
      in what form any proposed statute, regulation or other guidance will be adopted
      or promulgated, or the extent to which the business of either the Company or
      the
      Bank may be affected.





**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.


28


***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 president and chief executive
      officer, chief financial officer, and our executive vice president 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.


29


***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 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 this annual report on Form 10-K for the fiscal year ended
      December 31, 2007, we have to include a report of our management regarding
      internal control over financial reporting. 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 through 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.


30


**ITEM
        1B.**  **UNRESOLVED
        STAFF COMMENTS**
  Not
        applicable.
   31


**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, 2007. In addition to the properties listed below, First Federal
      Investments owned land and an office building in Fort Dodge, Iowa, Northridge
      Partnership owned a multifamily apartment building in Fort Dodge, Iowa and
      Northridge Partnership II owned a multifamily apartment building in Fort Dodge,
      Iowa at December 31, 2007.





**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


32


**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, 2007.





**PART
      II**





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





Information
      required by this Item is incorporated herein by reference to page 15 of the
      Company’s 2007 Annual Report to Shareholders under the heading “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Liquidity and Capital Resources” and page 27 “Shareholder Information,”
incorporated by reference to Exhibit 13.1 to this Annual Report on Form 10-K.
      See Part II, Item 12, for the equity compensation plan information required
      by
      this Item.





There
      were no 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,
      2007. As of December 31, 2007, there were 64,250 shares of common stock that
      may
      yet be purchased as part of the Company’s previously publicly announced
      repurchase plan.





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





The
      information required by this Item is incorporated herein by reference to page
      4
      of the Company’s 2007 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 25 of the Company’s 2007 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.


33


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





The
      information required by this Item is incorporated herein by reference to pages
      17 through 25 of the Company’s 2007 Annual Report to Shareholders under the
      heading “Quantitative and Qualitative Disclosures about Market Risk,”
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
      29 through 68 of the Company’s 2007 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(T).**  **CONTROLS AND PROCEDURES**




**Management’s
      Report on Internal Control Over Financial Reporting**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting for the Company. Internal control over the Company’s
      financial reporting is a process designed under the supervision of the Chief
      Executive Officer and Chief Financial Officer to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of the
      Company’s financial statements for external purposes in accordance with U.S.
      generally accepted accounting principles.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





Management
      has made a comprehensive review, evaluation, and assessment of the Company’s
      internal control over financial reporting as of December 31, 2007. In making
      its
      assessment of internal control over financial reporting, management used the
      criteria issued by the Committee of Sponsoring Organizations of the Treadway
      Commission in Internal Control-Integrated Framework. Based on that assessment,
      management concluded that, as of December 31, 2007, the internal control over
      financial reporting was effective.





This
      Annual Report on Form 10-K does not include an attestation report of the
      Company’s registered public accounting firm regarding internal control over
      financial reporting. Management’s report was not subject to attestation by the
      registered public accounting firm pursuant to temporary rules of the Securities
      and Exchange Commission that permit the Company to provide only management’s
      report in this Annual Report on Form 10-K.





**Evaluation
      of Disclosure Controls and Procedures**





Management
      conducted an evaluation, with the participation of the Chief Executive Officer
      and Chief Financial Officer, of 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 December 31, 2007. The disclosure controls and procedures
      are
      designed to ensure that information required to be disclosed by the Company
      in
      the reports that we file or submit under the Securities Exchange Act of 1934
      is
      recorded, processed, summarized, and reported on a timely basis.





Based
      upon that evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded, as of December 31, 2007, that the Company’s disclosure controls and
      procedures were effective in recording, processing, summarizing, and reporting
      information required to be disclosed by the Company, within the time periods
      specified in the SEC’s rules and forms, and such information is accumulated and
      communicated to management to allow timely decisions regarding required
      disclosures.


34


**Changes
      in Internal Control Over Financial Reporting**





There
      has
      been no change 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 25, 2008,
      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 “Executive
      Compensation” in the Company’s Proxy Statement for its Annual Meeting of
      Shareholders to be held on April 25, 2008, 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 25, 2008, which has been
      filed with the SEC and is incorporated herein by reference.


35


The
      following table sets forth the aggregate information of our equity compensation
      plans in effect as of December 31, 2007.





**Plan
                category**
            
            **Number of securities**
              **to be issued upon**
              **exercise of outstanding**
              **options**
              (a)
            
            **Weighted-average**
              **exercise price of**
              **outstanding options**
              (b)
            
            **Number of securities**
              **remaining available for future**
              **issuance under equity**
              **compensation plans**
              **(excluding securities reflected**
              **in column (a))**
              (c)Equity
                compensation plans approved by security holders
            
            
            55,305
            
            $
            29.00
            
            
            115,905(2
            )Equity
                compensation plans not approved by security holders(1)
            
            
            23,895
            
            $
            38.43
            
            
            -Total
            
            
            79,200
            
            $
            31.89
            
            
            115,905




(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.


(2)
            Shares
                remaining from North Central Bancshares, Inc. 2006 Stock Incentive
                Plan
                approved by shareholders on April 28, 2006. See Note 11 included
                with the
                financial statements of the annual report to the
                shareholders.





**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 of Directors and
      Management” in the Company's Proxy Statement for its Annual Meeting of
      Shareholders to be held on April 25, 2008, 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 25, 2008, which has been filed with the SEC and is incorporated herein
      by
      reference.


36


**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, 2007 and 2006,
                and
                the related consolidated statements of income, stockholders’ equity and
                cash flows for the years ended December 31, 2007, 2006 and 2005,
                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.


37


**(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, amended
                and restated as of December 14, 2007
            
            (13)10.6
            
            Form
                of Employment Agreement between North Central Bancshares, Inc. and
                David
                M. Bradley, amended and restated as of December 14, 2007
            
            (13)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
            
            Employment
                Agreement between First Federal Savings Bank of Iowa and C. Thomas
                Chalstrom, amended and restated as of December 14, 2007
            
            (13)10.12
            
            Tax
                Allocation Agreement between North Central Bancshares, Inc. and
                Subsidiaries
            
            (2)10.13
            
            Employment
                Agreement North Central Bancshares, Inc. and C. Thomas Chalstrom,
                amended
                and restated as of December 14, 2007
            
            (13)10.14
            
            North
                Central Bancshares, Inc. 2006 Stock Incentive Plan
            
            (9)10.15
            
            North
                Central Bancshares, Inc. 2006 Incentive Award Plan
            
            (10)10.16
            
            Form
                of Restricted Stock Award Notice
            
            (11)10.17
            
            Form
                of Stock Option Agreement
            
            (12)10.18
            
            Novation
                of Employment Agreements
            
            (8)10.19
            
            Amended
                and Restated Retention Agreement between First Federal Savings Bank
                of
                Iowa and Kirk A. Yung
            
            (13)10.20
            
            Employment
                Agreement between First Federal Savings Bank of Iowa and Kyle C.
                Cook
            
            (13)10.21
            
            Employment
                Agreement between North Central Bancshares, Inc. and Kyle C.
                Cook
            
            (13)13.1
            
            North
                Central Bancshares, Inc. 2007 Annual Report to
                Shareholders
            
            (14)14.1
            
            Code
                of Ethics for Senior Financial Officers of North Central Bancshares,
                Inc.
            
            (2)21.1
            
            Subsidiaries
                of the Registrant
            
            (1)


38





**Exhibit
                No.**
            
            **Description**
            
            **Reference No.**23.1
            
            Consent
                of McGladrey & Pullen, LLP
            
            *31.1
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer
            
            *31.2
            
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Financial
                Officer
            
            *32.1
            
            Section
                1350 Certification of Chief Executive Officer
            
            *32.2
            
            Section
                1350 Certification of Chief Financial Officer
            
            *





(*)
            Filed
                herein.





(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 Quarterly Report on Form 10-Q filed with
                the
                SEC on November 13, 2007.





(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, 2006.





(11)
            Incorporated
                herein by reference to the Current Report on Form 8-K filed with
                the SEC
                on May 3, 2007.





(12)
            Incorporated
                herein by reference to the Current Report on Form 8-K filed with
                the SEC
                on July 3, 2007.





(13)
            Incorporated
                herein by reference to the Current Report on Form 8-K filed with
                the SEC
                on December 20,2007.





(14)
            Incorporated
                herein by reference to the Annual Report on Form ARS filed with the
                SEC on
                March 17, 2008.


39





**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 28, 2008
            /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,
            
            03/28/08David
                M. Bradley
            
            and
                Chairman of the Board
              (Principal
                Executive Officer)/s/
                Kyle C. Cook
            
            Chief
                Financial Officer, Treasurer
            
            03/28/08Kyle
                C. Cook
            
            (Principal
                Accounting and
              Financial
                Officer)/s/
                Robert H. Singer, Jr.
            
            Director
            
            03/28/08Robert
                H. Singer, Jr./s/
                Melvin R. Schroeder
            
            Director
            
            03/28/08Melvin
                R. Schroeder/s/
                Mark M. Thompson
            
            Director
            
            03/28/08Mark
                M. Thompson/s/
                Randall L. Minear
            
            Director
            
            03/28/08Randall
                L. Minear/s/
                Paul F. Bognanno
            
            Director
            
            03/28/08Paul
                F. Bognanno/s/
                C. Thomas Chalstrom
            
            Director
            
            03/28/08C.
                Thomas Chalstrom


40