<PAGE>

=============================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR

    THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

    For the transition period from ______________ to ________________

                                   0-27672
                           (Commission File Number)

                        NORTH CENTRAL BANCSHARES, INC.
            (Exact Name of Registrant as Specified in its Charter)

                IOWA                                    421449849
    (State or Other Jurisdiction                    (I.R.S. Employer
  of Incorporation or Organization)              Identification Number)

 c/o FIRST FEDERAL SAVINGS BANK OF IOWA
  825 CENTRAL AVENUE, FORT DODGE, IOWA                    50501
(Address of Principal Executive Offices)                (Zip Code)

                                (515) 576-7531
             (Registrant's Telephone Number including area code)

         Securities Registered Pursuant to Section 12(b) of the Act:
                                     NONE

         Securities Registered Pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $.01 PER SHARE
                               (Title of Class)

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
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
amendments to this Form 10-K.   [X]

    As of March 20, 1998, there were issued and outstanding 3,266,483 shares
of the Registrant's Common Stock.  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 February 28, 1998  $62,160,588.

                     DOCUMENTS INCORPORATED BY REFERENCE

1.  Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting
    of Shareholders are incorporated by reference into Items 10, 11, 12 and 13
    of Part III hereof.

=============================================================================
<PAGE>

                                    PART I

ITEM 1.  BUSINESS

GENERAL

         North Central Bancshares, Inc. (the "Holding Company"), an Iowa
corporation, is the holding company for First Federal Savings Bank of Iowa
(formerly known as First Federal Savings Bank of Fort Dodge) (the "Bank"), a
federally chartered savings bank. Collectively, the Holding Company and the
Bank are referred to herein as the "Company."  The Holding Company was
organized on December 5, 1995 at the direction of the Board of Directors of
the Bank for the purpose of acquiring all of the capital stock to be issued by
the Bank in connection with the conversion and reorganization of the Bank and
North Central Bancshares, M.H.C. (the "MHC") from the mutual to the stock
holding company structure (these transactions are collectively referred to as
the "Conversion").  On March 20, 1996, upon completion of the Conversion, the
Holding Company issued an aggregate of 4,011,057 shares of its Common Stock,
par value $0.01 per share, of which 1,385,590 shares were issued in exchange
for all of the Bank's issued and outstanding shares, except for shares owned
by the MHC which were cancelled, and 2,625,467 shares of which were sold in
Subscription and Community Offerings at a price of $10.00 per share, with
gross proceeds amounting to $26,254,670.  At this time, the Holding Company
conducts business as a unitary savings and loan holding company and the
principal business of the Holding Company consists of the operation of its
wholly- owned subsidiary, the Bank.

         The Holding Company's executive offices are located at the home
office of the Company at 825 Central Avenue, Fort Dodge, Iowa. The Holding
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 six branch
offices located in Iowa.  Three of the Bank's branches are located in north
central Iowa, in the cities of Fort Dodge, Nevada and Ames.  On January 30,
1998, the Bank completed the acquisition of Valley Financial Corp., an Iowa
corporation, and the holding company for Valley Savings Bank, FSB (the
"Acquisition").  See "Acquisition of Valley Financial Corp."  As a result of
the Acquisition, the Bank also has three branches in southeastern Iowa, in the
cities of Burlington and Mount Pleasant.  The Bank is the successor to First
Federal Savings and Loan Association of Fort Dodge, which was chartered
originally in 1954, and on May 7, 1987 became a federally chartered savings
bank.  The Bank adopted its present name on February 27, 1998.  The Bank is a
community-oriented savings institution that is primarily engaged in the
business of attracting deposits from the general public in the Bank's market
areas, and investing such deposits in one-to-four family residential real
estate mortgages and multifamily mortgages and, to a lesser extent, secured
and unsecured consumer loans, with emphasis on second mortgage loans.  The
Bank's deposits are insured by the FDIC under the SAIF. The Bank has been a
member of the Federal Home Loan Bank ("FHLB") System since 1954. At December
31, 1997, the Bank had total assets of $223.4 million, total deposits of
$141.7 million, and total shareholders' equity of $39.3 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.

ACQUISITION OF VALLEY FINANCIAL CORP.

         As of the close of business on January 30, 1998, the Bank completed
the Acquisition of Valley Financial Corp., ("Valley Financial"), pursuant to
an Agreement and Plan of Merger, dated as of September 18, 1997, (the "Merger
Agreement").  The Acquisition resulted in the merger of Valley Financial's
wholly owned subsidiary, Valley Savings Bank, FSB ("Valley Savings") with and
into the Bank, with the Bank as

                                      -2-
<PAGE>

the resulting financial institution (the "Bank Merger").  Valley Savings,
headquartered in Burlington, Iowa was a federally-chartered stock savings bank
with three branch offices located in southeastern Iowa.  The former offices of
Valley Savings are being operated as a division of the Bank.

         In connection with the Acquisition, each share of Valley Financial's
common stock, par value $1.00 per share, issued and outstanding (other than
shares held as treasury stock of Valley Financial) was cancelled and converted
automatically into the right to receive $525.00 per share in cash pursuant to
the terms and conditions of the Merger Agreement.  As a result of the
Acquisition, shareholders of Valley Financial were paid a total of $14,726,250
in cash.  The Acquisition is expected to be slightly accretive to earnings in
1998.  The source of funds for the Acquisition consisted of the Bank's
accumulation of its cash flow from the maturity of short-term liquid
investments, principal and interest on loans, sale of other investment
securities, other cash receipts, net of operating expenses and other projected
disbursements.

MARKET AREA AND COMPETITION

         The Company is an independent savings and loan company serving its
primary market area of Webster and Story Counties, which are located in the
central and north central part of the State of Iowa.  As a result of the
Acquisition, the Company also operates branch locations in Burlington and
Mount Pleasant, Iowa.  The Company's market area is influenced by agriculture
as well as gypsum mining, retail sales, professional services and public
education.  The Company is headquartered in Fort Dodge, the Webster County
seat, where it operates two Company locations.  The Company's Nevada branch
operates in the city of Nevada, Iowa, the county seat for Story County. Nevada
is located close to Ames, the location of Iowa State University, and is also
located 35 miles from Des Moines, the state capital.  The Company's Ames
branch operates in the city of Ames, Iowa and is also located 30 miles from
Des Moines.  Fort Dodge has become a strong retail center for North Central
Iowa and Nevada and Ames are significantly influenced by the proximity of Iowa
State University and certain Iowa state government agencies.  Burlington, the
county seat of Des Moines County, is a strong retail center for southeastern
Iowa.  Mount Pleasant is the county seat of Henry County.  Major employers and
industries within the Company's market area include Trinity Regional Hospital,
Iowa Central Community College, Iowa State University, Iowa Department of
Transportation, Fort Dodge Animal Health, Celotex, U.S. Gypsum and Goldbond
(gypsum mining companies), Decker Trucking Company, Smithway Trucking Company,
and Donnelley Marketing Company.  Construction is underway on a 700 bed prison
which will employ approximate 280 people in Fort Dodge, Iowa.

The unemployment rate for Webster County as of December 1997 was 3.5%,
compared to the national rate of 4.7% and the State of Iowa rate of 2.9%.  The
unemployment rate for Story County was 2.2%.

         The Nevada, Iowa and Ames, Iowa markets have been a source of loan
and depositor growth for the Company in recent periods, and the Company
expects to continue to pursue lending and deposit growth opportunities in
these markets, as well as the markets in Burlington, Iowa and Mount Pleasant,
Iowa.  However, due to the 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
multifamily 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, other
savings associations, 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

                                      -3-
<PAGE>

funds.  The Company competes for real estate loans primarily through the
interest rates and loan fees it charges and advertising, as well as by
offering high levels of personal service.


LENDING ACTIVITIES

         Loan Portfolio Composition.  The principal components of the
Company's loan portfolio are fixed- and adjustable-rate first mortgage loans
secured by one-to-four family owner-occupied residential real estate, fixed-
and adjustable-rate first mortgage loans secured by multifamily residential
real estate and, to a lesser extent, secured and unsecured consumer loans,
with emphasis on second mortgage loans.  At December 31, 1997, the Company's
loans receivable totalled $194.7 million, of which $115.8 million, or 59.5%
were one-to-four family residential real estate first mortgage loans, and
$55.1 million, or 28.3%, were other first mortgage loans, primarily purchased
multifamily and commercial real estate loans. Consumer loans, consisting
primarily of automobile loans and second mortgage loans, totalled $23.7
million, or 12.2% of the Company's  loan portfolio.

         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 and bullion, but generally does not include real estate.  For the
year ended December 31, 1997, it was the Company's policy to limit loans to
one borrower to $1.5 million.  Exceptions to this policy are made on a case by
case basis and only with approval of the Company's Board of Directors.  At
December 31, 1997, the Company's largest aggregate outstanding loan to one
borrower was $1.3 million and the second largest borrower had an aggregate
balance of $1.26 million, both of which were first mortgage multifamily
residential real estate loans and both were performing as of that date.

                                      -4-
<PAGE>

         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:

<TABLE>
<CAPTION>
                                                                      At December 31,
                                 -------------------------------------------------------------------------------------------------
                                        1997                1996                1995                1994               1993
                                 ------------------ ------------------- ------------------- ------------------- ------------------
                                          Percent             Percent             Percent             Percent             Percent
                                  Amount  of Total    Amount  of Total    Amount  of Total    Amount  of Total    Amount  of Total
                                 -------- --------- --------- --------- --------- --------- --------- --------- --------- --------
                                                                  (Dollars in thousands)
<S>                              <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
First mortgage loans:
  One-to-four family
  residential(1)                 $115,763   59.48%   $107,168   63.44%   $ 94,876   62.70%   $ 84,203   65.48%   $ 76,843   63.98%
Multifamily                        51,345   26.38      34,488   20.42      31,622   20.90      21,474   16.70      22,490   18.73
Commercial                          3,800    1.95       5,225    3.09       5,825    3.85       6,163    4.79       6,472    5.39
                                 --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
  Total first mortgage loans      170,908   87.81     146,881   86.95     132,323   87.45     111,840   86.97     105,805   88.10
                                 --------  ------    --------  ------    --------  ------    --------  ------    --------  ------

Consumer loans:
  Automobiles                    $  4,696    2.41%    $ 4,155    2.46%   $  2,967    1.96%   $  2,889    2.25%   $  1,993    1.66%
  Second mortgage(2)               16,226    8.34      15,303    9.06      13,284    8.78      10,735    8.35       8,481    7.06
  Other(3)                          2,796    1.44       2,582    1.53       2,736    1.81       3,127    2.43       3,818    3.18
                                 --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
    Total consumer loans           23,718   12.19      22,040   13.05      18,987   12.55      16,751   13.03      14,292   11.90
                                 --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
    Total loans receivable       $194,626  100.00%   $168,921  100.00%   $151,310  100.00%   $128,591  100.00%   $120,097  100.00%

Less:
  Undisbursed portion of
  construction loans             $    453    0.23%   $    371    0.22%   $    782    0.52%   $  1,048    0.81%   $    309    0.26%
Unearned loan discount                424    0.22         525    0.31         682    0.45       1,013    0.79       1,368    1.14
Net deferred loan origination
 fee                                  349    0.18         241    0.14         238    0.16         203    0.16         148    0.12
  Allowance for loan losses         2,151    1.11       1,953    1.16       1,736    1.14       1,543    1.20       1,305    1.09
                                 --------  ------    --------  ------    --------  ------    --------  ------    --------  ------
  Total loans receivable, net    $191,249   98.26%   $165,831   98.17%   $147,872   97.73%   $124,784   97.04%   $116,967   97.39%
                                 ========  ======    ========  ======    ========  ======    ========  ======    ========  ======
</TABLE>
_______________________

(1)      Includes interest-only construction loans that convert to permanent
         loans.
(2)      Second mortgage loans included $1.1 million, $862,000, $724,000,
         $403,000 and $362,000 (in actual dollars) of nonowner-occupied
         residential first mortgage loans at December 31, 1997, 1996, 1995,
         1994 and 1993 respectively.
(3)      Other consumer loans included $269,000, $213,000, $299,000, $499,000
         and $770,000 (in actual dollars) of commercial mortgage loans at
         December 31, 1997, 1996, 1995, 1994 and 1993 respectively.

                                      -5-
<PAGE>

         Loan Maturity Schedule.  The following table sets forth the maturity
or period to repricing of the Company's loan portfolio at December 31, 1997.
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.

<TABLE>
<CAPTION>

                              AT DECEMBER 31, 1997
-------------------------------------------------------------------------------
 WITHIN       1-3         3-5        5-10       10-20     BEYOND 20
 1 YEAR      YEARS       YEARS       YEARS      YEARS       YEARS       TOTAL
-------     -------     -------     -------    -------     -------     --------
                                 (IN THOUSANDS)
<S>         <C>         <C>         <C>        <C>         <C>         <C>


$19,259     $14,695     $23,924     $47,194    $10,126     $   565     $115,763
 21,817       9,349      11,480       8,125        574           -       51,345
  1,918         613         792           -        477           -        3,800
  2,700       7,644      12,749         611         14           -       23,718
-------     -------     -------     -------    -------     -------     --------
$45,694     $32,301     $48,945     $55,930    $11,191     $   565     $194,626
=======     =======     =======     =======    =======     =======     ========
</TABLE>


________________________

(1)      One-to-four family loans include $77.5 million of 7 year fixed rate
         loans that convert to adjustable rates at the beginning of the eighth
         year and are annually adjustable thereafter.  $44.0 million of these
         loans with repricing periods greater than 5 years  have been
         classified as fixed rate loans.  $33.5 million of these loans with
         repricing periods less than 5 years have been classified as
         adjustable rate loans.
(2)      Includes second mortgage loans of $16.2 million at December 31, 1997.


         The following table sets forth the dollar amounts of all fixed rate
and adjustable rate loans in each loan category at December 31, 1997 due after
December 31, 1998.

<TABLE>
<CAPTION>
                               Due After December 31, 1998
                           ---------------------------------
                            Fixed     Adjustable       Total
                           -------      -------       -------
                                   (In thousands)
<S>                        <C>          <C>           <C>
First mortgage loans:
  One-to-four family       $58,413      $38,091       $96,504
   residential(1)
  Multifamily                7,098       22,430        29,528
  Commercial                   785        1,097         1,882
Consumer loans (2)          20,996           22        21,018
                           -------      -------       -------
    Total                  $87,292      $61,640      $148,932
                           =======      =======       =======
</TABLE>

(1)  One-to-four family loans include $77.1 million of 7 year fixed rate loans
     that convert to adjustable rates at the beginning of the eighth year and
     are annually adjustable thereafter.   $44.0 million of these loans with
     repricing periods greater than 5 years  have been classified as fixed
     rate loans.  $33.1 million of these loans with repricing periods less
     than 5 years have been classified as adjustable rate loans.
(2)  Includes second mortgage loans of $15.0 million at December 31, 1997.

         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 intends to pursue this strategy in
southeastern Iowa, which has been added to the Company's market area as a
result of the Acquisition.  See "Acquisition of Valley Financial Corp."  The
Company also originates one-to-four family, interest only construction loans
that convert to permanent loans after an initial construction period that
generally does not exceed nine months.  At December 1997, 50.5%  of the
Company's residential real estate loans had fixed rates, and 49.5% had
adjustable rates.

                                      -6-
<PAGE>

         The Company is a portfolio lender and generally does not sell loans
in the secondary mortgage market. However, the Company's one-to-four family,
fixed-rate, residential real estate loans generally are originated and
underwritten according to standards that qualify such loans to be included in
Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage
Association ("FNMA") purchase and guarantee programs and that otherwise permit
resale in the secondary mortgage market.  By action of the Board of Directors,
on a case-by-case basis, the Company has sold fixed-rate loans with maturities
equal to or in excess of 15 years, servicing retained, in the secondary
mortgage market.  For the year ended December 31, 1997, the Company sold
$815,000 of mortgage loans consisting of ten one-to-four family residential
mortgage loans.  One-to-four family loans are underwritten and originated
according to policies approved by the Board of Directors.

         Originations of one-to-four family fixed-rate first mortgage loans
are monitored on an ongoing basis and are affected significantly by the level
of market interest rates, the Company's interest rate gap position, and loan
products offered by the Company's competitors.  The Company's one-to-four
family fixed-rate first mortgage loans amortize on a monthly basis with
principal and interest due each month. To make the Company's fixed-rate loan
portfolio more interest rate sensitive, the Company currently emphasizes the
origination of fixed-rate loans with terms of 15 years or less to be held in
portfolio.  The Company also offers 7-year fixed-rate first mortgage loans
that convert to adjustable-rate loans that adjust on an annual basis after the
initial fixed rate term.  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. The Company establishes various annual and life-of-the-loan
caps on ARM loan interest rate adjustments. Currently, the Company offers ARM
loans with annual rate caps of 1.5% and maximum life-of-loan caps of 11.95%.
Prior to 1995, the Company's ARM loans originated for retention in its
portfolio generally were based on the 11th District Cost of Funds Index, a
lagging market index.  At present, the interest rate on its ARM loans is
calculated by using the weekly average yield on United States Treasury
Securities adjusted to a constant maturity of one year.  The Company currently
offers one-year ARM loans with initially discounted rates, often known as
"teaser rates."  The Company determines whether a borrower qualifies for an
ARM loan based on the fully indexed rate of the ARM loan at the time the loan
is originated, rather than the introductory or "teaser" rate or the maximum
life-of-the rate to which the loan could adjust.  In addition, the Company
establishes floors for each loan originated below which the loan may not
adjust.  One-to- four family residential ARM loans totalled $57.3 million, or
29.4%, of the Company's total net loan portfolio at December 31, 1997.

         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 Item 7A. "Discussion of Market Risk- Interest Rate
Sensitivity Analysis".

         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.

                                      -7-
<PAGE>

         Regulations limit the amount that a savings institution 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. See Item 1.
"Regulation-Regulation of Federal Savings Associations-Real Estate Lending
Standards."  The Company's lending policies limit the maximum loan-to-value
ratio on mortgage loans without private mortgage insurance to 80% of the
lesser of the appraised value or the purchase price of the property to serve
as collateral for the loan. The Company generally makes one-to-four family
first real estate loans with loan-to-value ratios of up to 90%; however, for
one-to-four family real estate loans with loan-to-value ratios greater than
80%, the Company requires the loan amount to be covered by private mortgage
insurance.  The Company requires fire and casualty insurance, flood insurance,
where applicable, an abstract of title, and a title opinion 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 $55.1 million, or
28.8%, of the Company's total net loan portfolio at December 31, 1997.  Of
such loans, $53.0 million, or 96.0%, were purchased or originated by the
Company and were secured by properties outside the State of Iowa (the "out of
state" properties).  There were no multifamily residential or commercial real
estate loans greater than 30 days past due at December 31, 1997.  These loans
are primarily secured by multifamily residences, such as apartment buildings
and by commercial facilities such as office buildings and retail buildings.
Multifamily residential 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 multifamily project.
Fixed rate loans generally amortize over 15 to 30 years, and generally contain
call provisions permitting the Company to require that the entire principal
balance be repaid at the end of five to fifteen years. Such loans are priced
as five to fifteen year loans with maximum loan-to-value ratios of 80%.
See "- Purchased or Out of State Originated Loans".

         All purchased or out of state originated loans in excess of $200,000
are approved by the Chief Executive Officer and the Board of Directors and are
subject to the same underwriting standards as for loans originated by the
Company.  All purchased or out of state originated loans less than $200,000
are approved by the Chief Executive 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 a
copy of the original loan application, certified rent rolls, the original
title insurance policy and personal financial statements of any guarantors of
the loan. An executive officer or director of the Company also makes a
personal inspection of the property securing the loan. Such purchases are made
without recourse to the seller. Generally, the originating financial
institution or mortgage banker continues to service the loans, remitting
principal and interest to the Company. The Company generally imposes a $1.5
million limit on the aggregate size of multifamily and commercial loans to any
one borrower.  Any exceptions to the limit must be specifically approved by
the Board of Directors on a loan-by-loan basis within the Company's legal
lending limit.  See "Regulation - Regulation of Federal Savings Associations -
Loans to One Borrower".

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

         Consumer Loans, Including Second Mortgage Loans. The Company also
originates consumer loans, primarily, second mortgage loans. As of December
31, 1997, second mortgage loans totalled $16.2 million, or 8.5%, of the
Company's net total loan portfolio. The Company's second mortgage loans have
fixed interest rates and are generally for terms of 3 to 5 years. The
Company's second mortgage loans are secured by the

                                      -8-
<PAGE>

borrower's principal residence generally with a maximum loan-to-value ratio,
including the principal balances of both the first and second mortgage loans,
of no more than 80%. The average principal amount of the Company's second
mortgage loans is approximately $11,000.

         To a lesser extent, the Company also originates loans secured by
automobiles, with fixed rates generally on a 80% loan-to-value basis for new
cars. All of the Company's automobile loans were originated by the Company,
and generally have terms up to five years.

         In addition, the Company also makes other types of consumer loans,
primarily unsecured signature loans for various purposes. The minimum loan
amount for such loans is $1,000, the maximum loan amount for such loans is
$7,500, and the average balance of such loans is approximately $1,812.

         The Company originates a limited number of commercial business loans,
which the Company includes with its consumer loan portfolio for reporting
purposes. Such loans may be unsecured and are originated for any business
purpose, such as for the purchase of computers and business equipment. The
maximum loan amount for such unsecured loans is $7,500.

         The Company's business plan calls for an increase in consumer lending
for the foreseeable future, particularly second mortgage lending. The Company
generally expects consumer loan demand will come from its mortgage loan
customers. 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, 1997, $25,000 or 0.11%, 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, attorneys, and walk-in
customers. Upon receiving a loan application, the Company obtains a credit
report and employment verification 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 checks the loan application file for accuracy and
completeness, and verifies the information provided. Pursuant to the Company's
written loan policies, all first mortgage loans originated during 1997 were
approved by the Chief Executive Officer.  Beginning in 1998, senior management
will approve all first mortgage loans greater than $100,000.  All first
mortgage loans less than $100,000 are approved by two loan officers.  The Loan
Committee of the Board of Directors meets monthly to review a sampling of all
loans originated in the month.

         After the 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, 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. An abstract of title along
with an attorney's title opinion is required on all first mortgage loans
secured by real property in Iowa. At December 31, 1997, the Company had
outstanding commitments to originate $804,000 of loans. This amount does not
include the undisbursed overdraft loan privileges or the unfunded portion of
loans in process.

         Purchased or Out of State Originated Loans. The Company's loan
portfolio contains $60.5 million of loan secured by out of state properties.
These loans represented 31.1% of the Company's total loan portfolio at
December 31, 1997.  Substantially all of the multifamily residential and
commercial real estate loans in the Company's loan portfolio are purchased or
originated out of state by the Company without recourse to the seller. At
December 31, 1997, approximately $13.4 million of these purchased loans
represented loans secured by real estate in the west coast states of
California, Oregon and Washington.  At

                                      -9-
<PAGE>

that date, the Company's investment in properties located in California
totalled $6.6 million and was distributed among two dozen cities.  Most of
these loans were originated from 1973 through 1987 and were purchased by the
Company between 1982 and 1988 generally under a 75% loan-to-value guideline.
Of the total purchased loans in the Company's portfolio as of December 31,
1997, $13.9 million were originated prior to January 1, 1990. The Company's
loans in California were purchased prior to December 31, 1988.  Concentrations
of California real estate loans exist in three areas, Los Angeles,
Lodi/Stockton and San Diego.  The downturn in California real estate markets
has not adversely impacted the Company.  The Company's investment in
properties located in Wisconsin totalled $20.4 million and was primarily
distributed between the Milwaukee and Madison areas.  These loans were
originated between 1985 and 1997 and were purchased by the Company between
1991 and 1997.  The remainder of the Company's purchased or out of state
originated loans are distributed in various states. At December 31, 1997, the
Company's multifamily residential and commercial real estate loans had an
average balance of $290,000 and the largest loan had a principal balance of
$1.3 million.  As of December 31, 1997 there were no purchased loans that were
on nonaccrual status.

         To supplement its origination of one-to-four family first mortgage
loans, the Company also purchases loans secured by one-to- four family
residences out of state. At December 31, 1997, $7.6 million or 3.9% of the
Company's total loan portfolio consisted of purchased one-to-four family
loans, of which $1.0 million were secured by properties located in California
and $3.7 million were secured by properties in Missouri.  As of December 31,
1997 there were no purchased one-to-four family first mortgage loans that were
on nonaccrual status, although there was one purchase loan included in
foreclosed real estate.

         Loans purchased by the Company entail certain risks not necessarily
associated with loans the Company originates.  The Company's purchased loans
are generally acquired without recourse with servicing retained by the seller
or originator of the loans. Although the Company reviews each purchased loan
using the Company's underwriting criteria for originations and a Company
officer or director performs an on-site inspection of each purchased 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 only 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 also
requires appropriate documentation, and personal inspections of the underlying
real estate collateral by an executive officer or director prior to purchase.
The servicers of the loans conduct annual inspections of the underlying real
estate collateral and copies of the reports of such inspections are provided
to the Company.

                                      -10-
<PAGE>

         Set forth below is a table of the Company's purchased or out of state
originated loans by state of origin (including multifamily residential,
commercial real estate and one-to-four family first mortgage loans) as of
December 31, 1997.

<TABLE>
<CAPTION>
                                                          Balance as of
                        State                          December 31, 1997
                        -----                          -----------------
                                                         (In thousands)
                      <S>                                  <C>
                      California                            $ 7,649
                       Colorado                              16,041
                         Georgia                                177
                         Indiana                                773
                          Kansas                              1,033
                       Minnesota                                313
                        Missouri                              4,856
                         Montana                                205
                        Nebraska                                553
                          Oregon                              5,966
                           Texas                                508
                            Utah                                100
                        Virginia                                127
                      Washington                              1,787
                       Wisconsin                             20,393
                           Other                                 39
                                                            -------
                           Total                            $60,520
                                                            =======
</TABLE>

                                      -11-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       FOR THE YEARS ENDED
                                                                           DECEMBER 31,
                                                        ---------------------------------------------------
                                                           1997                 1996                1995
                                                        ----------           ----------          ----------
                                                                          (IN THOUSANDS)
 <S>                                                    <C>                  <C>                 <C>
 Total loans receivable at beginning of period          $  168,921           $  151,310          $  128,591
 ORIGINATIONS:
 First mortgage loans:
    One-to-four family residential                          25,001               24,178              19,714
    Multifamily                                                  -                3,410                   -
    Commercial                                                  50                  235                  88
 Consumer loans:
    Automobile                                               3,698                3,962               2,248
    Second mortgage                                          9,642               10,060               9,411
    Other                                                    1,591                2,247               2,199
                                                        ----------           ----------          ----------
      Total originations:                                   39,982               44,092              33,660
 LOAN PURCHASES:
    First mortgage - one-to-four family                         51                3,133               1,848
    First mortgage - multifamily                            22,313                4,813              12,655
 LOAN SALES:
    First mortgage - one-to-four family                        815                    -                 105
    First mortgage - multifamily                                 -                  380                   -
    Consumer loan                                                -                   67                   -
 Transfer of mortgage loans to
    foreclosed real estate                                     175                  148                 288
 Repayments                                                 35,651               33,832              25,051
                                                        ----------           ----------          ----------
 Net loan activity                                          25,705               17,611              22,719
                                                        ----------           ----------          ----------
      Total loans receivable at end of period           $  194,626           $  168,921          $  151,310
                                                        ==========           ==========          ==========
</TABLE>

         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. Fees deferred are recognized into income immediately upon prepayment
of the related loan. At December 31, 1997, the Company had $349,000 of
deferred loan origination fees, net. Such fees vary with the type of loans and
commitments made. The Company typically charges an origination 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 and late charges. The Company recognized fees and service
charges of $657,000, $580,000 and $445,000 for the fiscal years ended December
31, 1997, 1996 and 1995 respectively.

                                      -12-
<PAGE>

INVESTMENT ACTIVITIES

         At December 31, 1997, the Company's investment portfolio is comprised
of United States Treasury securities, virtually all of which were purchased
with 2-year maturities, equity securities consisting of FHLMC preferred
stocks, FNMA preferred stock, FHLB stock, other common and preferred stocks
and interest-earning deposits.  At December 31, 1997, $9.0 million, or 81.6%,
of the Company's investment portfolio, excluding equity securities, was
scheduled to mature in one year or less, and $2.0 million, or 18.4% was
scheduled to mature within one to five years.

         The Company is required under federal regulations to maintain a
minimum amount of liquid assets that may be invested in specified short term
securities and certain other investments. The Company generally has maintained
a portfolio of liquid assets that exceeds regulatory requirements. 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.

<TABLE>
<CAPTION>
                                                      AT DECEMBER 31,
                                             -------------------------------
                                               1997        1996        1995
                                             --------   ----------  --------
                                                       (IN THOUSANDS)
 <S>                                         <C>         <C>         <C>
 Investment securities:
    U.S. Treasury securities                 $11,046     $16,518     $19,561
    FHLB stock                                 1,550       1,374       1,160
    Equity securities                          7,220       8,711       3,073
                                             -------     -------     -------
      Total investment securities             19,816      26,603      23,794
    Interest-earning deposits                  2,463       2,973       2,362
                                             -------     -------     -------
      Total investments                      $22,279     $29,576     $26,156
                                             =======     =======     =======
</TABLE>

         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, 1997.

<TABLE>
<CAPTION>
                                                              AT DECEMBER 31, 1997
                          ----------------------------------------------------------------------------------------------
                             ONE YEAR OR LESS       ONE TO FIVE YEARS                         TOTAL
                          ---------------------- ------------------------ ----------------------------------------------
                                     ANNUALIZED               ANNUALIZED                                     ANNUALIZED
                                      WEIGHTED                 WEIGHTED                            AVERAGE     WEIGHTED
                          CARRYING     AVERAGE    CARRYING     AVERAGE    CARRYING      MARKET     LIFE IN     AVERAGE
                            VALUE       YIELD       VALUE       YIELD       VALUE       VALUE       YEARS       YIELD
                          ---------  ----------  ----------  ------------ ---------  ------------  -------  ------------
                                                              (DOLLARS IN THOUSANDS)
 <S>                      <C>            <C>       <C>           <C>       <C>         <C>               <C>      <C>
 Investment securities:
  U.S. Treasury
 securities               $ 9,015        5.94%     $ 2,031       6.54%     $11,046     $11,046           1        6.05%
  FHLB Stock                    -           -            -          -        1,550       1,550                    7.00
  Common Stock.                 -           -            -          -          545         545                    2.66
  Preferred Stock-other         -           -            -          -          274         274                    7.01
  Preferred Stock-FNMA          -           -            -          -        5,400       5,400                    6.49
  Preferred Stock-FHLMC         -           -            -          -        1,001       1,001                    6.53
                          -------        ----      -------       ----      -------     -------                    ----
    Total                 $ 9,015        5.94%     $ 2,031       6.54%     $19,816     $19,816                    6.22%
 Interest-bearing
 deposits
  at the FHLB               2,463        5.37            -          -        2,463       2,463                    5.37
                          -------        ----      -------       ----      -------     -------                    ----
    Total investments     $11,478        5.82%     $ 2,031       6.54%     $22,279     $22,279                    6.12%
                          =======        ====      =======       ====      =======     =======                    ====
</TABLE>

                                      -13-
<PAGE>

SOURCES OF FUNDS

         General. Deposits are the major 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 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 may use borrowings
on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer term basis for general business
purposes.

         Deposits.  During 1997, 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 NOW accounts,
passbook savings, statement savings, money market savings, certificates of
deposit and individual retirement accounts.  The Company also offers these
products in its new market area which it now serves as a result of the
Acquisition.  See "Acquisition of Valley Financial Corp."  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. The Company has sought to
decrease the risk associated with changes in interest rates by offering
competitive rates on deposit accounts and by pricing certificates of deposit
to provide customers with incentives to choose certificates of deposit with
longer terms. The Company does not obtain funds through brokers through a
solicitation of funds outside its market area, nor by offering negotiated
rates on certificates of deposit in excess of $100,000.

         Deposit Portfolio.  Deposits with the Company as of December 31,
1997, were represented by the various types of deposit programs described
below.

<TABLE>
<CAPTION>

 WEIGHTED
 AVERAGE               CHECKING AND                             PERCENTAGE
 INTEREST  ORIGINAL      SAVINGS                                 OF TOTAL
  RATE       TERM        DEPOSITS    MINIMUM BALANCE  BALANCES   DEPOSITS
 --------  --------    ------------  ---------------  --------  ----------
                                                    (Dollars in
                                                    thousands)
 <S>      <C>          <C>                 <C>        <C>         <C>
 0.00%    None         Noninterest-        $   50     $  3,145     2.23%
                       bearing
                       demand
 2.00%    None         NOW accounts            50       14,457    10.24

 2.25%    None         Passbook                25       17,120    12.13
                       savings
 4.35%    None         Money Market
                       savings              2,500        8,958     6.35



                       CERTIFICATES
                       OF DEPOSIT
                     -----------------
 3.02%    1-3 months   Fixed term,
                       fixed rate           1,000           34     0.02
 4.27%    4-6 months   Fixed term,
                       fixed rate           1,000        1,074     0.76
 5.57%    7-9 months   Fixed term,
                       fixed rate           1,000        1,002     0.71
 5.57%    10-12 months Fixed term,
                       fixed rate           1,000        7,872     5.58
 5.69%    13-24 months Fixed term,
                       fixed rate           1,000       27,298    19.35
 5.75%    25-36 months Fixed term,
                       fixed rate           1,000       12,150     8.61
 6.33%    37-48 months Fixed term,
                       fixed rate           1,000          599     0.42
 6.24%    49-60 months Fixed term,
                       fixed rate           1,000       47,183    33.44
 6.35%    61 months or Fixed term,
          greater      fixed rate           1,000          176     0.12
 3.50%    Various      Variable
                       rate                   100           56     0.04
                                                      --------   ------
                       Total certificates
                       of deposit                       97,444    69.05
                                                      --------   ------
                                                      $141,124   100.00%
                                                      ========   ======
</TABLE>

                                      -14-
<PAGE>

         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.

<TABLE>
<CAPTION>
                                              INCREASE      INCREASE                  INCREASE      INCREASE
                                 BALANCE     (DECREASE)    (DECREASE)   BALANCE      (DECREASE)    (DECREASE)    BALANCE
                                 12/31/97         %            $        12/31/96          %            $         12/31/95
                                 ----------------------------------------------------------------------------------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                             <C>           <C>          <C>         <C>             <C>         <C>          <C>
Noninterest bearing demand      $  3,145       38.24%      $   870     $  2,275         0.04%      $     8      $  2,267
NOW                               14,457       22.27         2,633       11,824         3.39           388        11,436
Passbook savings                  17,120       (3.58)         (636)      17,756        (5.85)       (1,104)       18,860
Money market savings               8,958       23.05         1,678        7,280        29.38         1,653         5,627
Certificates of deposit
  that mature:
    within 12 months              40,762       10.25         3,790       36,972        22.37         6,759        30,213
    within 12-36 months           42,404       33.24        10,578       31,826        (6.77)       (2,311)       34,137
    beyond 36 months              14,278      (34.47)       (7,511)      21,789        (9.71)       (2,343)       24,132
                                --------      ------       -------     --------        -----       -------      --------
       Total                    $141,124        8.79%      $11,402     $129,722         2.41%      $ 3,050      $126,672
                                ========      ======       =======     ========        =====       =======      ========

</TABLE>
<TABLE>
<CAPTION>
                                              INCREASE      INCREASE                  INCREASE      INCREASE
                                 BALANCE     (DECREASE)    (DECREASE)   BALANCE      (DECREASE)    (DECREASE)    BALANCE
                                 12/31/97         %            $        12/31/96          %            $         12/31/95
                                 ----------------------------------------------------------------------------------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                             <C>           <C>          <C>         <C>             <C>         <C>          <C>
Noninterest bearing demand      $  2,267        1.93%      $    43     $  2,224        (8.14)%     $  (197)     $  2,421
NOW                               11,436        6.20           668       10,768         6.25           633        10,135
Passbook savings                  18,860      (14.17)       (3,114)      21,974       (11.67)       (2,903)       24,877
Money market savings               5,627      169.62         3,540        2,087       (14.85)         (364)        2,451
Certificates of deposit
  that mature:
    within 12 months              30,213      (21.32)       (8,185)      38,398       (16.56)       (7,620)       46,018
    within 12-36 months           34,137       19.54         5,580       28,557        (8.22)       (2,557)       31,114
    beyond 36 months              24,132       19.58         3,951       20,181        42.83         6,052        14,129
                                --------      ------       -------     --------       ------       -------      --------
       Total                    $126,672        2.00%      $ 2,483     $124,189        (5.30)%     $(6,956)     $131,145
                                ========      ======       =======     ========       ======       =======      ========
</TABLE>

                                      -15-
<PAGE>

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

<TABLE>
<CAPTION>
                                       AT DECEMBER 31,
                               -----------------------------
                                 1997       1996       1995
                               -------    -------    -------
                                       (IN THOUSANDS)
        RATE
        ----
        <S>                    <C>        <C>        <C>
        3.99% or less          $    91    $   140    $ 1,028
        4.00-5.99%              45,749     45,481     35,172
        6.00-7.99%              51,585     44,913     51,212
        8.00 or greater             19         53      1,070
                               -------    -------    -------
                               $97,444    $90,587    $88,482
                               =======    =======    =======
</TABLE>

         The following table sets forth the amount and maturities of
certificates of deposit at December 31, 1997.

<TABLE>
<CAPTION>
                                                  Amount Due
                     ---------------------------------------------------------------
                       Less                                 After
                      Than 1     1-2      2-3      3-4       4-5        5
                       Year     Years    Years    Years     Years     Years   Total
                     -------   -------  -------   ------   -------    -----  -------
                                       (In thousands)
        Rate
        ----
        <S>          <C>       <C>      <C>       <C>      <C>        <C>    <C>
        3.99% or
        less         $    91   $     -  $     -   $    -   $     -    $  -   $    91
        4.00-5.99%    26,277    12,430    4,667    2,264       111       -    45,749
        6.00-7.99%    14,377    12,211   13,094    5,567     6,325      11    51,585
        8.00% or
        greater           17         2        -        -         -       -        19
                     -------   -------  -------   ------   -------    ----   -------
                     $40,762   $24,643  $17,761   $7,831   $ 6,436    $ 11   $97,444
                     =======   =======  =======   ======   =======    ====   =======
</TABLE>

         The following table indicates the amount of the Company's
certificates of deposit of $100,000 or more by time remaining until maturity
at December 31, 1997.  This amount does not include passbook savings accounts
of greater than $100,000, which totalled approximately $585,000 at December
31, 1997.
<TABLE>
<CAPTION>

                                                              Certificates
                                                             of Deposit over
                     Remaining Maturity                         $100,000
            ---------------------------------                ---------------
                                                              (In thousands)
            <S>                                                      <C>
            Three months or less                                     $  219
            Three through six months                                    818
            Six through twelve months                                 1,513
            Over twelve months                                        3,232
                                                                     ------
              Total                                                  $5,782
                                                                     ======
</TABLE>

                                      -16-
<PAGE>

         The following table sets forth the savings activities of the Company
for the periods indicated:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                -------------------------------
                                                  1997        1996       1995
                                                --------    --------   --------
                                                         (IN THOUSANDS)
 <S>                                            <C>         <C>        <C>
 Net increase (decrease) before interest
    credited                                    $ 6,132     $(1,751)   $(2,502)
 Interest credited                                5,270       4,801      4,985
                                                -------     -------    -------
     Net increase in deposits                   $11,402     $ 3,050    $ 2,483
                                                =======     =======    =======
</TABLE>

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 OTS and
the FHLB. The maximum amount of FHLB advances to a member institution
generally is reduced by borrowings from any other source.

         In conjunction with the Bank's conversion from mutual to stock form
in 1994,  the Bank established an Employee Stock Ownership Plan (the "ESOP")
for eligible employees. The ESOP borrowed $960,000 from an unrelated third
party lender to finance the purchase of 96,000 shares of the Bank's common
stock.  Collateral for such loan consisted of the common stock held by the
ESOP, as well as $100,000 in cash pledged by North Central Bancshares, MHC.
The term of the loan was 10 years.  The ESOP also borrowed funds in the amount
of $840,000 from the Holding Company to purchase 84,000 shares of the Holding
Company's Common Stock issued in the reorganization of the Bank and the MHC to
the stock holding company form in 1996.  In September 1996, these two loans
were consolidated into a single loan from the Holding Company to the ESOP.

<TABLE>
<CAPTION>
                                                                       FOR THE
                                                               YEAR ENDED DECEMBER 31,
                                                     -----------------------------------------
                                                       1997             1996            1995
                                                     --------         --------        --------
                                                               (DOLLARS IN THOUSANDS)
  <S>                                                <C>              <C>             <C>
  Weighted average rate paid on: (1)
      FHLB advances                                     5.94%            5.76%           5.63%
   FHLB advances:
      Maximum balance                                $29,800          $24,300         $21,000
      Average balance                                 23,672           11,503          12,734
   Weighted average rate paid on:
      ESOP advances                                      N/A             8.03%           8.70%
   ESOP advances:
      Maximum balance                                    N/A              790             886
      Average balance                                    N/A              513             850
   Weighted average rate paid on:
   Other borrowings                                     9.00%            7.00%           7.00%
   Other borrowings:
      Maximum balance                                    $35             $130            $150
      Average balance                                      7               98             150
</TABLE>
________________________

(1)      Calculated using monthly weighted average interest rates.

                                      -17-
<PAGE>

TITLE ABSTRACT BUSINESS

         A component of the Company's operating strategy is to increase
non-interest income, primarily through the expansion of the abstract company
business conducted through a wholly owned subsidiary, First Iowa Title
Services Inc. ("First Iowa").  On December 28, 1996, First Iowa purchased the
assets of two abstract companies located in Webster and Calhoun Counties in
Iowa.  The abstract company in Calhoun County was subsequently sold on March
30, 1997.  First Iowa currently provides real estate title abstracting
services in Webster, Boone and Jasper counties.  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, but the cost of this
insurance may not be passed on to the borrower.  First Iowa had 18 employees
as of December 31, 1997.

INSURANCE AND ANNUITY BUSINESS

         The Company has another wholly-owned subsidiary, First Financial
Service Corporation ("First Financial"), which it began in 1971.  First
Financial's activities include the sale of life insurance on mortgage loans,
and credit life and accident and health insurance on consumer loans made by
the Company. In addition, First Financial sells life insurance annuity
products.  In connection with the Acquisition, the Bank acquired Valley
Services, Inc., which was merged into First Financial.  First Financial also
originates leases for equipment such as computers, office equipment, light
industrial equipment and commercial cleaning equipment.  First Financial has
no employees.  The subsidiary has executed a management agreement with the
Company which provides its management and staff.

MORTGAGE COMPANY BUSINESS

         First Iowa Mortgage Corp. (formerly known as Hearthstone Mortgage
Company, Inc.) was acquired as a part of the Acquisition of Valley Financial
and is a wholly-owned subsidiary of the Bank.  First Iowa Mortgage Corp.
originates and buys first mortgage loans and subsequently sells these loans to
investors.

MULTIFAMILY APARTMENT BUILDING

         On July 13, 1995, the Company formed the Northridge Apartments
Limited Partnership with the Fort Dodge Housing Corporation ("FDHC"), a
non-profit Iowa corporation formed to acquire, develop and manage low- and
moderate-income housing for residents of the Fort Dodge area.  The FDHC is
controlled by the Fort Dodge Municipal Housing Agency, an agency chartered by
the city of Fort Dodge. The Northridge Partnership is a low-income housing tax
credit project for certain federal tax purposes.  A 44-unit apartment complex
was completed on February 1, 1997.  The tax credits for the year ended
December 31, 1997 are approximately $100,000.  The tax credits will amount to
approximately $150,000 for each year during the nine-year period commencing
with the year ended December 31, 1998.

PERSONNEL

         At December 31, 1997, the Company had 58 full-time and 23 part-time
employees (including the 18 employees of First Iowa).  In connection with the
Acquisition, the Company added 35 full-time and 3 part-time employees.  None
of the Company's employees is represented by a collective bargaining group.
The Company believes its relationship with its employees to be good.

                                      -18-
<PAGE>

                          FEDERAL AND STATE TAXATION


FEDERAL TAXATION

         General. The following is a general discussion of material tax
matters and does not purport to be a comprehensive description of the tax
rules applicable to the Holding Company or the Bank. The Bank was last audited
for its taxable year ended December 31, 1985. For federal income tax purposes,
the Holding Company and the Bank 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 will be 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.

         Recent Tax Legislation Regarding Tax Bad Debt Reserves.  Prior to the
enactment, on August 20, 1996, of the Small Business Job Protection Act of
1996 (the "Small Business Act"), for federal income tax purposes, thrift
institutions such as the Bank, which met certain definitional tests primarily
relating to their assets and the nature of their business, were permitted to
establish tax reserves for bad debts and to make annual additions thereto,
which additions could, within specified limitations, be deducted in arriving
at their taxable income.  The Company's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real
property, could be computed using an amount based on a six-year moving average
of the Company's actual loss experience (the "Experience Method"), or a
percentage equal to 8.0% of the Company's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications
and reduced by the amount of any permitted addition to the non- qualifying
reserve.

         Under the Small Business Act, the PTI Method was repealed and the
Bank, as a "small bank" (one with assets having an adjusted basis of $500
million or less) is required to use the Experience Method of computing
additions to its bad debt reserve for taxable years beginning with the
Company's taxable year beginning January 1, 1996. In addition, the Company is
required to recapture (i.e., take into taxable income) over a six-year period,
beginning with the Company's taxable year beginning January 1, 1996, the
excess of the balance of its bad debt reserves (other than the supplemental
reserve) as of December 31, 1995 over the greater of (a) the balance of its
"base year reserve," i.e., its reserves as of December 31, 1987 or (b) an
amount that would have been the balance of such reserves as of December 31,
1995 had the Company always computed the additions to its reserves using the
Experience Method.  However, under the Small Business Act such recapture
requirements is suspended for each of the two successive taxable years
beginning January 1, 1996 in which the Company originates a minimum amount of
certain residential loans during such years that is not less than the average
of the principal amounts of such loans made by the Company during its six
taxable years preceding January 1, 1996.   Thus, the Bank will begin this
recapture in its 1998 taxable year.

         Distributions. To the extent that the Company makes "nondividend
distributions" to shareholders, such distributions will be considered to
result in distributions from the Company's base year reserve 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 Company's
taxable income.  Nondividend distributions include distributions in excess of
the Company'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 Company'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 Company'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, approximately one
and one-half times the nondividend distribution would be includable in gross
income for federal income tax purposes, assuming a 34% federal corporate
income tax rate.

                                      -19-
<PAGE>

         Corporate Alternative Maximum 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 net operating losses. 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. Thus, the Company's AMTI is increased by an amount equal to 75%
of the amount by which the Company's adjusted current earnings exceeds its
AMTI (determined without regard to this adjustment and prior to reduction for
net operating losses).  In addition, for taxable years beginning before
January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with
certain modifications) over $2.0 million was imposed on corporations,
including the Company, whether or not an Alternative Maximum Tax ("AMT") is
paid.  Under President Clinton's fiscal year 1999 budget proposal ("President
Clinton's Proposal"), the corporate environmental income tax would be
reinstated for taxable years beginning after December 31, 1997 and before
January 1, 2009. The Company does not expect to be subject to the AMT, but
would be subject to the environmental tax liability.

         Dividends-Received Deduction.  The Holding Company may exclude from
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations.  The corporate dividends-received deduction
is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80%
of any dividends received may be deducted.

STATE AND LOCAL TAXATION

         Iowa Taxation.  The Holding Company and the Bank's subsidiaries will
file Iowa corporation tax returns and the Bank will file an Iowa franchise tax
return.  The Bank currently files an Iowa franchise tax return, and the
Holding Company and the Bank's subsidiaries file an Iowa corporation tax
return, on a calendar year basis.

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

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


                                  REGULATION

GENERAL

         The Bank is a federal savings bank subject to the regulation,
examination and supervision by the OTS and is subject to the examination and
supervision of the Federal Deposit Insurance Corporation ("FDIC") as its
deposit insurer. The Bank is a member of the SAIF, and its deposit accounts
are insured up to applicable limits by the FDIC.  All of the deposit premiums
paid by the Bank to the FDIC for deposit insurance are currently paid to the
SAIF.  The Bank is also a member of the FHLB of Des Moines, which is one of
the 12 regional FHLBs.  The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain
regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions.  The OTS and
the FDIC conduct periodic examinations to assess the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings association can
engage and is intended primarily for the protection of the insurance fund and
depositors.  The Holding Company, as a

                                      -20-
<PAGE>

savings and loan holding company, files certain reports with, and otherwise
complies with, the rules and regulations of the OTS and of the Commission
under the federal securities laws.

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

         Legislative proposals to restructure the organization and regulation
of the financial services industry have been submitted to Congress in recent
years.  In addition, the Deposit Insurance Funds Act of 1996 (the "1996 Funds
Act") requires the Secretary of the Treasury to conduct a study of the
relevant factors with respect to the development of a common charter for all
insured depository institutions and to the abolition of separate charters for
banks and thrifts, and the Secretary of the Treasury is to report his
conclusions and findings to the Congress.  The Secretary of the Treasury has
recommended to the Congress that the separate charter for thrifts be
eliminated only if other legislation is adopted that permits bank holding
companies to engage in certain non-financial activities.  Absent legislation
permitting bank holding companies to engage in such non-financial activities,
the Secretary of the Treasury recommended that the thrift charter be retained.
Proposed legislation agreed to in March 1998 by the House Committee on Banking
and Financial Services and the House Committee on Commerce provides for the
retention of the thrift charter, subject to a requirement that a thrift invest
at least 10% of its assets in home mortgages.  Existing thrift holding
companies, such as the Holding Company, would be grandfathered and continue to
be able, in the absence of certain events, to engage in the same activities as
were permissible for it before the enactment of the new law.  The House
Committees also agreed that the BIF and the SAIF would be merged on January 1,
2000 and that the OTS would be made a division of the Office of the
Comptroller of the Currency.  The outcome of this legislation is uncertain.
Therefore, the Company is unable to determine the extent to which any such
legislation, if enacted, would affect the Company's business.


         The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all
such statutes and regulations.

REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES

         The Holding Company is a 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 Holding
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.

         The Home Owner and Loan Act ("HOLA"), as amended, prohibits a savings
and loan holding company, directly or indirectly, or through one or more
subsidiaries, from acquiring another savings association or holding company
thereof, without prior written approval of the OTS; acquiring or retaining,
with certain exceptions, more than 5.0% of a non-subsidiary savings
association, a non-subsidiary holding company or a non-subsidiary company
engaged in activities other than those permitted by HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating an application by a holding company to acquire a savings
association, the OTS must consider the financial and managerial resources and
future prospects of the company and savings association involved, the effect
of the acquisition on the risk to the insurance funds, the convenience and
needs of the community and competitive factors.

         As a unitary savings and loan holding company, the Holding 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.  Upon any nonsupervisory acquisition
by the Company of another savings

                                      -21-
<PAGE>

association or savings bank that meets the QTL test and is deemed to be a
savings association by the OTS and that will be held as a separate subsidiary,
the Holding Company would become a multiple savings and loan holding company
and would be subject to limitations on the types of business activities in
which it could engage.  HOLA limits the activities of a multiple savings and
loan holding company and its non-insured association subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act (the "BHC Act"), subject to the prior approval of the
OTS, and to other activities authorized by OTS regulation.

         The OTS is prohibited from approving any acquisition that would
result in a multiple savings and loan holding company controlling savings
associations in more than one state, subject to two exceptions: an acquisition
of a savings association in another state (i) in a supervisory transaction,
and (ii) pursuant to authority under the laws of the state of the association
to be acquired that specifically permit such acquisitions.  The conditions
imposed upon interstate acquisitions by those states that have enacted
authorizing legislation vary.  Some states impose conditions of reciprocity,
which have the effect of requiring that the laws of both the state in which
the acquiring holding company is located (as determined by the location of its
subsidiary savings association) and the state in which the association to be
acquired is located, have each enacted legislation allowing its savings
associations to be acquired by out-of-state holding companies on the condition
that the laws of the other state authorize such transactions on terms no more
restrictive than those imposed on the acquiror by the state of the target
association.  Some of these states also impose regional limitations, which
restrict such acquisitions to states within a defined geographic region.
Other states allow full nationwide banking without any condition of
reciprocity.  Some states do not authorize interstate acquisitions of savings
associations.

         Transactions between the Bank and the Holding Company and its other
subsidiaries would be subject to various conditions and limitations.  See "-
Regulation of Federal Savings Associations - Transactions with Related
Parties."  The Bank would have to give 30- days written notice to the OTS
prior to any declaration of the payment of any dividends or other capital
distributions to the Holding Company.  See "- Regulation of Federal Savings
Associations - Limitation on Capital Distributions."

REGULATION OF FEDERAL SAVINGS ASSOCIATIONS

         Business Activities.  The Bank derives its lending and investment
powers from the HOLA and the regulations of the OTS 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.  These investment powers are subject to
various limitations, including: (i) a prohibition against the acquisition of
any corporate debt security that is not rated in one of the four highest
rating categories; (ii) a limit of 400% of an association's capital on the
aggregate amount of loans secured by nonresidential real estate property;
(iii) a limit of 20% of an association's assets on commercial loans with the
amount of commercial loans in excess of 10% of assets being limited to small
business loans; (iv) a limit of 35% of an association's assets on the
aggregate amount of consumer loans and acquisitions of certain debt
securities; (v) a limit of 5.0% of assets on non-conforming loans (loans in
excess of the specific limitations of HOLA); and (vi) a limit of the greater
of 5.0% of assets or an association's capital on certain construction loans
made for the purpose of financing what is or is expected to become residential
property.

         Loans to One Borrower. Under HOLA, savings associations 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 and bullion, but generally does not include real
estate.  For the year ended December 31, 1997, the Bank generally imposed a
$1.5 million limit on the aggregate size of loans to any one borrower.  Any
exception to the limit

                                      -22-
<PAGE>

must be specifically approved by the Board of Directors on a loan-by-loan
basis within the Bank's legal lending limit.  At December 31, 1997, the Bank's
largest aggregate amount of loans to one borrower was $1.3 million, and the
second largest borrower had an aggregate balance of $1.26 million.  See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

         QTL Test.  HOLA requires a savings association to meet a QTL test.
Under the QTL test, a savings association is required to maintain at least 65%
of its "portfolio assets" in certain "qualified thrift investments" in at
least 9 months of the most recent 12- month period.  "Portfolio assets" means,
in general, an association's total assets less the sum of (i) specified liquid
assets up to 20% of total assets, (ii) goodwill and other intangible assets,
and (iii) the value of property used to conduct the association's business.
"Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
an association's portfolio assets.  Recent legislation broadened the scope of
"qualified thrift investments" to include 100% of an institution's credit card
loans, education loans, and small business loans.  A savings association may
also satisfy the QTL test by qualifying as a "domestic building and loan
association" as defined in the Internal Revenue Code of 1986. At December 31,
1997, the Bank maintained 97.2% of its portfolio assets in qualified thrift
investments, and it had more than 65% of its portfolio assets in qualified
thrift investments in the requisite number of the prior 12 months.

         A savings association that fails the QTL test must either operate
under certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (i) engaging in any new
activity not permissible for a national bank, (ii) paying dividends not
permissible under national bank regulations, (iii) obtaining new advances from
any FHLB, and (iv) establishing any new branch office in a location not
permissible for a national bank in the association's home state.  In addition,
within one year of the date a savings association ceases to meet the QTL test,
any company controlling the association would have to register under, and
become subject to the requirements of, the BHC Act.  If the savings
association does not requalify under the QTL test within the three-year period
after it failed the QTL test, it would be required to terminate any activity
and to dispose of any investment not permissible for a national bank and would
have to repay as promptly as possible any outstanding advances from an FHLB. A
savings association that has failed the QTL test may requalify under the QTL
test and be free of such limitations, but it may do so only once.

         Capital Requirements.  The OTS regulations require savings
associations to meet three minimum capital standards: a tangible capital ratio
requirement of 1.5% of total assets as adjusted under the OTS regulations, a
leverage ratio requirement of 3.0% of core capital to such adjusted total
assets, and a risk-based capital ratio requirement of 8.0% of core and
supplementary capital to total risk-based assets.  The 3.0% core capital
requirement has been effectively superseded by the OTS' prompt corrective
action regulations, which impose a 4.0% core capital requirement for
"adequately capitalized" thrifts and a 5.0% core capital requirement for "well
capitalized" thrifts.  See "- Prompt Corrective Regulatory Action."  The OTS
and the federal banking regulators have proposed amendments to their minimum
capital regulations to provide that the minimum leverage capital ratio for a
depository institution that has been assigned the highest composite rating of
1 under the Uniform Financial Institutions Ratings System will be 3% and that
the minimum leverage capital ratio for any other depository institution 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 to 100% for consumer and commercial loans, as
assigned by the OTS capital regulation 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

                                      -23-
<PAGE>

fully consolidated subsidiaries, less intangibles other than certain mortgage
servicing rights and investments in and loans to subsidiaries engaged in
activities not permissible for a national bank.  Core capital is defined
similarly to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships.  Supplementary capital currently includes cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and the allowance for loan
and lease losses.  The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted
assets, and the amount of supplementary capital that may be included as total
capital cannot exceed the amount of core capital.

         The OTS and the other federal banking agencies are required to take
into account interest rate risk ("IRR") in their risk- based capital
standards.  The OTS adopted regulations, effective January 1, 1994, that set
forth the methodology for calculating an IRR component to be incorporated into
the OTS risk-based capital regulations.  The OTS has indefinitely deferred the
implementation of the IRR component in the computation of an institution's
risk-based capital requirement.  The OTS continues to monitor the IRR of
individual institutions and retains the right to impose additional capital on
individual institutions.  At December 31, 1997, the Bank was not required to
maintain any additional risk-based capital under this regulation.

         At December 31, 1997, the Bank met each of its capital requirements,
in each case on a fully phased-in basis.  The table below presents the Bank's
regulatory capital as compared to the OTS regulatory capital requirements at
December 31, 1997:

<TABLE>
<CAPTION>
                                                  CAPITAL      EXCESS
                                       BANK     REQUIREMENTS   CAPITAL
                                    ---------   ------------   -------
                                               (IN THOUSANDS)
 <S>                                 <C>           <C>         <C>
 Tangible capital                    $37,935       $3,298      $34,637
 Core capital                         37,935        6,595       31,340
 Risk-based capital                   39,478        9,830       29,648
</TABLE>

         A reconciliation between regulatory capital and GAAP capital at
December 31, 1997 in the accompanying financial statements is presented below:

<TABLE>
<CAPTION>
                                   TANGIBLE     CORE     RISK-BASED
                                   CAPITAL     CAPITAL    CAPITAL
                                   --------    -------   ----------
                                            (IN THOUSANDS)
 <S>                               <C>         <C>        <C>
 GAAP capital                      $39,251     $39,251    $39,251
 Intangible assets                  (1,121)     (1,121)    (1,121)
 Unrealized (gain) on
 certain available for
  sale assets                         (195)       (195)      (195)
 Allowance for loan losses
  includable in supplementary
  capital                                -           -      1,543
                                   -------     -------    -------
 Regulatory capital                $37,935     $37,935    $39,478
                                   =======     =======    =======
</TABLE>

         Limitation on Capital Distributions.  OTS regulations currently
impose limitations upon capital distributions by savings associations, such as
cash dividends, payments to repurchase or otherwise acquire its shares,
payments to stockholders of another institution in a cash-out merger, and
other distributions charged against capital.  At least 30-days written notice
must be given to the OTS of a proposed capital distribution by a savings
association, and capital distributions in excess of specified earnings or by
certain institutions are subject to approval by the OTS.  An association that
has capital in excess of all fully phased-in regulatory capital requirements
before and after a proposed capital distribution and that is not otherwise
restricted in making capital distributions, could, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (ii) 75% of its net
earnings for the previous four quarters.  Any additional capital distributions
would require prior OTS approval. In addition, the OTS can prohibit a proposed
capital distribution, otherwise permissible under the regulation, if

                                      -24-
<PAGE>

the OTS has determined that the association is in need of more than normal
supervision or if it determines that a proposed distribution by an association
would constitute an unsafe or unsound practice. Furthermore, under the OTS
prompt corrective action regulations, the Bank would be prohibited from making
any capital distribution if, after the distribution, the Bank failed to meet its
minimum capital requirements, as described above. See "- Prompt Corrective
Regulatory Action." The OTS has proposed amendments of its capital distribution
regulations to reduce regulatory burdens on savings associations. If adopted as
proposed, certain savings associations will be permitted to pay capital
distributions within the amounts described above for Tier 1 institutions without
notice to, or the approval of, the OTS. However, a savings association
subsidiary of a savings and loan holding company, such as the Association, will
continue to have to file a notice unless the specific capital distribution
requires an application.

         Liquidity.  The Bank is required to maintain an average daily balance
of liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings.  This
liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4.0% to 10% depending upon economic conditions and
the savings flows of member institutions, and is currently 4.0%.  Monetary
penalties may be imposed for failure to meet these liquidity requirements.  At
December 31, 1997, the Bank's liquidity position was $14.0 million or 9.28% of
liquid  assets, compared to $13.1 million or 9.11% at December 31, 1996.
During the fourth quarter of 1997, the OTS revised its  liquidity requirements
by reducing the minimum liquidity requirements from 5% to 4% and eliminating
the short term liquidity requirement.

         Assessments.  Savings associations are required by OTS regulation to
pay assessments to the OTS to fund the operations of the OTS.  The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported
in the association's latest quarterly Thrift Financial Report.

         Branching.  Subject to certain limitations, HOLA and the OTS
regulations permit federally chartered savings associations to establish
branches in any state of the United States.  The authority to establish such a
branch is available (i) in states that expressly authorize branches of savings
associations located in another state and (ii) to an association that
qualifies as a "domestic building and loan association" under the Code, which
imposes qualification requirements similar to those for a "qualified thrift
lender" under HOLA.  See "- QTL Test."  The authority for a federal savings
association to establish an interstate branch network would facilitate a
geographic diversification of the association's activities.  This authority
under HOLA and the OTS regulations preempts any state law purporting to
regulate branching by federal savings associations.  Branch applications for
Boone, Iowa and Perry, Iowa have been submitted and approved by the Office of
Thrift Supervision.

         Community Reinvestment.  Under the Community Reinvestment Act
("CRA"), as implemented by OTS regulations, a savings association 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 financial institutions nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular community, consistent with the
CRA.  The CRA requires the OTS, in connection with its examination of a
savings association, 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 such association.  The CRA also requires all
institutions to make public disclosure of their CRA ratings.  The Bank
received an "Outstanding" CRA rating in its most recent examination.

         In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations.  Among other things, the amended
CRA regulations substitute for the prior process-based assessment factors a
new evaluation system that would rate an institution based on its actual
performance in meeting community needs.  In particular, the proposed system
would focus on three tests: (i) a lending test,

                                      -25-
<PAGE>

to evaluate the institution's record of making loans in its service areas;
(ii) 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; and (iii) a service test, to
evaluate the institution's delivery of services through its branches, ATMs and
other offices.  Small savings associations are to be assessed pursuant to a
streamlined approach focusing on a lesser range of information and performance
standards.  The term "small savings association" is defined as including
associations with less than $250 million in assets or an affiliate of a
holding company with banking and thrift assets of less than $1.0 billion,
which would include the Bank. The amended CRA regulations also clarify how an
institution's CRA performance would be considered in the application process.

         Transactions with Related Parties.  The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act ("FRA").  In general, an
affiliate of the Bank is any company that controls the Bank or any other
company that is controlled by a company that controls the Bank, excluding the
Bank's subsidiaries other than those that are insured depository institutions.
The OTS regulations prohibit a savings association (i) from lending to any of
its affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the BHC Act and (ii) from purchasing
the securities of any affiliate other than a subsidiary.  Section 23A limits
the aggregate amount of transactions with any individual affiliate to 10% of
the capital and surplus of the savings association and also limits the
aggregate amount of transactions with all affiliates to 20% of the savings
association's capital and surplus.  Extensions of credit to affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A, and the purchase of low quality assets from affiliates is
generally prohibited.  Section 23B provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the association as those prevailing at the time for
comparable transactions with nonaffiliated companies.  In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to nonaffiliated companies.

         The Bank's authority to extend credit to its directors, executive
officers and 10% stockholders, 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 (the "FRB")
thereunder.  Among other things, these provisions require that extensions of
credit to insiders (i) 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 unaffiliated persons and
that do not involve more than the normal risk of repayment or present other
unfavorable features and (ii) 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 association's capital.  In
addition, extensions of credit in excess of certain limits must be approved by
the association's board of directors.

         Enforcement.  Under the Federal Deposit Insurance Act (the "FDI
Act"), the OTS has primary enforcement responsibility over savings
associations and has the authority to bring enforcement action against all
"institution-affiliated parties," including any controlling stockholder or any
stockholder, attorney, appraiser and accountant who knowingly or recklessly
participates in any violation of applicable law or regulation or breach of
fiduciary duty or certain other wrongful actions that causes or is likely to
cause a more than a minimal loss or other significant adverse effect on an
insured savings association.  Civil penalties cover a wide range of violations
and actions and range from $5,000 for each day during which violations of law,
regulations, orders and certain written agreements and conditions continue, up
to $1,000,000 per day for such violations if the person obtained a substantial
pecuniary gain as a result of such violation or knowingly or recklessly caused
a substantial loss to the institution.  Criminal penalties for certain
financial institution crimes include fines of up to $10 million and
imprisonment for up to 30 years.  In addition, regulators have substantial
discretion to take enforcement action against an institution that fails to
comply with its regulatory requirements, particularly with respect to its
capital requirements.  Possible enforcement actions range from the imposition
of a capital plan and capital directive to receivership, conservatorship or
the termination of deposit insurance.  Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS that

                                      -26-
<PAGE>

enforcement action be taken with respect to a particular savings association.
If action is not taken by the Director of the OTS, the FDIC has authority to
take such action under certain circumstances.

         Standards for Safety and Soundness.  Pursuant to the FDI Act, as
amended by Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") and the Riegle Community Development and Regulatory Improvement Act
of 1994 (the "Community Development Act"), the OTS and the federal bank
regulatory agencies adopted, effective August 9, 1995, a set of guidelines
prescribing safety and soundness standards.  The guidelines establish general
standards relating to internal controls and information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings, and compensation, fees and
benefits.  In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines.  The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal stockholder.  In
addition, the OTS adopted regulations that authorize, but do not require, the
OTS to order an institution that has been given notice by the OTS that it is
not satisfying any of such safety and soundness standards to submit a
compliance plan.  If, after being so notified, an institution fails to submit
an acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the OTS must issue an order directing action to
correct the deficiency 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 FDICIA.  See "- Prompt Corrective Regulatory
Action."  If an institution fails to comply with such an order, the OTS may
seek to enforce such order in judicial proceedings and to impose civil money
penalties.

         Real Estate Lending Standards.  The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction of improvements on real estate.  The OTS
regulations require each savings association to establish and maintain written
internal real estate lending standards that are consistent with safe and sound
banking practices and appropriate to the size of the association and the
nature and scope of its real estate lending activities.  The standards also
must be consistent with accompanying OTS guidelines, which include
loan-to-value ratios for the different types of real estate loans.
Associations are also permitted to make a limited amount of loans that do not
conform to the proposed loan-to-value limitations so long as such exceptions
are reviewed and justified appropriately.  The guidelines also list a number
of lending situations in which exceptions to the loan-to-value standards are
justified.

         Prompt Corrective Regulatory Action. FDICIA establishes a system of
prompt corrective action to resolve the problems of undercapitalized
institutions.  Under this system, the banking regulators are required to take
certain supervisory actions against undercapitalized institutions, based upon
the five categories of institutions established by FDICIA: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized," which are categories
defined by the institution's regulatory capital ratios.  Generally, a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." In addition, various
mandatory supervisory actions become immediately applicable to any
undercapitalized institution, including restrictions on growth of assets and
other forms of expansion.  The OTS could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
Generally, subject to a narrow exception, FDICIA requires the applicable
banking regulator to appoint a receiver or conservator for an institution that
is critically undercapitalized.  Under the OTS regulations, generally, a
federally chartered savings association is treated as well capitalized if its
total risk-based capital ratio is 10% or greater, its Tier 1 risk-based
capital ratio is 6% or greater, and its leverage ratio is 5% or greater, and
it is not subject to any order or directive by the OTS to meet a specific
capital level.  As of December 31, 1997, the Association met the criteria for
being considered "well capitalized" by the OTS.

         Where appropriate, the OTS can impose corrective action by a savings
and loan holding company under the "prompt corrective action" provisions of
FDICIA.

                                      -27-
<PAGE>

         Insurance of Deposit Accounts.  Pursuant to FDICIA, the FDIC
established a new risk-based assessment system for determining the deposit
insurance assessments to be paid by insured depositary institutions.  Under
the new assessment system, which began in 1993, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information as of the reporting period ending seven months before
the assessment period.  The three capital categories consist of (i) well
capitalized, (ii) adequately capitalized, or (iii) undercapitalized.  The FDIC
also assigns an institution to one of three supervisory subcategories within
each capital group.  The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC
determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds.  An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned.  Under the regulation, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied.  Assessment rates
currently range from 0.0% of deposits for an institution in the highest
category (i.e., well-capitalized and financially sound, with no more than a
few minor weaknesses) to 0.27% of deposits for an institution in the lowest
category (i.e., undercapitalized and substantial supervisory concern).  The
FDIC is authorized to raise the assessment rates as necessary to maintain the
required reserve ratio of 1.25%.  As a result of the Deposit Insurance Funds
Act of 1996 (the "1996 Funds Act"), both the BIF and the SAIF currently
satisfy the reserve ratio requirement.  If the FDIC determines that assessment
rates should be increased, institutions in all risk categories could be
affected. The FDIC has exercised this authority several times in the past and
could raise insurance assessment rates in the future.  If such action is taken
by the FDIC, it could have an adverse effect on the earnings of the Bank.

         In addition, the 1996 Funds Act expanded the assessment base for the
payments on the FICO bonds.  Beginning January 1, 1997, the deposits of both
BIF- and SAIF-insured institutions were assessed for the payments on the FICO
bonds.  Until December 31, 1999, or such earlier date on which the last
savings association ceases to exist, the rate of assessment for BIF-assessable
deposits shall be one-fifth of the rate imposed on SAIF-assessable deposits.
The annual rate of assessments for the payments on the FICO bonds for the
semi-annual period beginning on January 1, 1997 was set at 0.0130% for
BIF-assessable deposits and 0.0648% for SAIF-assessable deposits.  For the
semi-annual period beginning on July 1, 1997, the rates of assessment for the
FICO bonds was 0.0126% for BIF- assessable deposits and 0.0630% for
SAIF-assessable deposits.

         Under the FDI Act, insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or the OTS.  The management of the Bank does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.

         Federal Home Loan Bank System.  The Bank is a member of the 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 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year or 1/20 of its advances (borrowings) from the FHLB of Des Moines.  The
Bank was in compliance with this requirement with an investment in FHLB of Des
Moines stock at December 31, 1997 of $1.5 million.  Any advances from a FHLB
must be secured by specified types of collateral, and all long-term advances
may be obtained only for the purpose of providing funds for residential
housing finance.

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

                                      -28-
<PAGE>

         Federal Reserve System.  The Bank is subject to provisions of the FRA
and the FRB's regulations pursuant to which depositary institutions may be
required to maintain non-interest-earning reserves against their deposit
accounts and certain other liabilities. Currently, reserves must be maintained
against transaction accounts (primarily NOW and regular checking accounts).
The FRB regulations generally require that reserves be maintained in the
amount of 3.0% of the aggregate of transaction accounts up to $47.8 million.
The amount of aggregate transaction accounts in excess of $47.8 million are
currently subject to a reserve ratio of 10.0%, which ratio the FRB may adjust
between 8.0% and 12%.  The FRB regulations currently exempt $4.7 million of
otherwise reservable balances from the reserve requirements, which exemption
is adjusted by the FRB at the end of each year.  The Bank is in compliance
with the foregoing reserve requirements.  Because required reserves must be
maintained in the form of either vault cash, a non-interest-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.

                                      -29-
<PAGE>

                  EXECUTIVE OFFICERS OF THE HOLDING COMPANY


         The name, age, position, term of office as officer and period during
which he or she has served as an officer is provided below for each executive
officer of the Holding Company.  David M. Bradley, Jean L. Lake, C. Thomas
Chalstrom and John L. Pierschbacher are executive officers of the Holding
Company and the Bank.  Kirk A. Yung is an executive officer of the Bank, and
as such, is deemed to be executive officer of the Holding Company pursuant to
SEC regulations.

         David M. Bradley, CPA has been President of the Bank since 1990,
Chief Executive Officer of the Bank since 1992 and was named Chairman of the
Board in January 1997.  He has been affiliated with the Bank for 15 years.
Mr. Bradley is 45 years of age.

         Jean L. Lake has been employed with the Bank since 1972 and was named
Secretary in 1987.  Ms. Lake serves as Board Secretary and is in charge of
marketing.  Ms. Lake is 55 years of age.

         John L. Pierschbacher, CPA has been employed with the Bank since
1992.  Mr. Pierschbacher was named Treasurer in January 1994. He is the Bank's
chief financial officer and is in charge of the accounting functions of the
Bank.  Mr. Pierschbacher was employed in public accounting for nine years at
the public accounting firm of McGladrey & Pullen, LLP prior to joining the
Bank.  Mr. Pierschbacher is 38 years of age.

         C. Thomas Chalstrom has been employed with the Bank since 1985, was
named Executive Vice President of the Bank in January 1995 and Executive Vice
President of the Holding Company in January, 1998.  Mr. Chalstrom is in charge
of real estate mortgage lending.  Mr. Chalstrom is 33 years of age.

         Kirk A. Yung has been employed with the Bank since 1990, was named
Senior Vice President in January 1995, and is in charge of consumer lending.
Mr. Yung had five years of prior experience in various positions in financial
institutions before joining the Bank. Mr. Yung is 35 years of age.

ITEM 2.  PROPERTIES

         The Company conducts its business through its main office located in
Fort Dodge, Iowa and six full-service offices located in Fort Dodge, Nevada,
Ames, 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 at December 31, 1997.  All of the
offices of the Company are owned.  In addition to the properties listed below,
First Financial owns land in Fort Dodge, Iowa with a net book value of $99,000
and Northridge Apartments Limited Partnership owns a multifamily apartment
building with a net book value of $2.1 million at December 31, 1997.  The
aggregate net book value of the Company's premises and equipment, on a
consolidated basis was $2.1 million at December 31, 1997.

                                      -30-
<PAGE>

<TABLE>
<CAPTION>
                                                                         LEASE
      LOCATION                                   OPENING DATE       EXPIRATION DATE            NET BOOK VALUE
      --------                                   ------------       ---------------            --------------
      <S>                                             <C>                 <C>                    <C>
      MAIN OFFICE:
      825 Central Avenue                              1973                N/A                    $746,299
      Fort Dodge, Iowa

      BRANCH OFFICES:
      201 South 25th Street                           1977                N/A                    $233,512
      Fort Dodge, Iowa

      404 Lincolnway                                  1977                N/A                    $582,644
      Nevada, Iowa

      107 Main Street                                 1977                N/A                    $394,409
      Ames, Iowa

      321 North Third Street                          1953                N/A                    $776,494(3)
      Burlington, Iowa

      1010 North Roosevelt                            1975                N/A                    $214,980(3)
      Burlington, Iowa

      102 South Main                                  1991                N/A                    $ 82,886(3)
      Mount Pleasant, Iowa

      FIRST IOWA OFFICES:
      805 Central Avenue                              1982                1998 (1)               $ 14.975
      Fort Dodge, Iowa

      814 8th Street                                  1996                1998                   $  8,486
      Boone, Iowa

      200 1st Street South                            1996                1998 (2)               $ 12,722
      Newton, Iowa

      REAL PROPERTY:
      1st Avenue and Hwy 141                          N/A                 N/A                    $149,969
      Perry, Iowa
</TABLE>
      _________________________

(1)  Does not include option to renew for an additional 3 years.
(2)  Does not include option to renew for an additional 5 years.
(3)  Acquired on January 30, 1998 in connection with the Acquisition.

ITEM 3.  LEGAL PROCEEDINGS

         The Registrant 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 Registrant'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, 1997.

                                      -31-
<PAGE>

                                   PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS

PRICE RANGE OF THE COMPANY'S COMMON STOCK

            The Company's Common Stock trades on The Nasdaq National Market
System under the symbol "FFFD." The following table shows the high and low per
share sales prices of the Company's Common Stock as reported by Nasdaq and the
dividends declared per share during the periods indicated. Such quotations
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                           Price Range
                        -----------------
                                              Dividends
                                              Declared
      Quarter Ended      High       Low       Per Share
      -------------      ----       ---       ---------
 1996 (1)
 ----
   <S>                  <C>        <C>          <C>
   First Quarter        11.293     10.625       0.0922
   Second Quarter       11.375     10.000       0.0625
   Third Quarter        12.750     10.125       0.0625
   Fourth Quarter       14.125     12.375       0.0625
 1997
 ----
   First Quarter        16.750     13.375       0.0625
   Second Quarter       16.125     15.000       0.0625
   Third Quarter        18.250     15.625       0.0625
   Fourth Quarter       20.125     17.188       0.0625
</TABLE>
______________

(1)   From August 31, 1994 to March 20, 1996, the prices indicated have
      been adjusted for the retroactive effect of the Conversion.

INFORMATION RELATING TO THE COMPANY'S COMMON STOCK

         As of March 19, 1998, the Company had 714 shareholders of record,
which does not reflect the number of persons or entities who hold their Common
Stock in nominee or "street" name through various brokerage firms.  As of such
date 3,266,483 shares of the Common Stock were outstanding.

         The Company's current quarterly dividend is $0.08 per share.  The
Board of Directors of the Company plans to maintain a regular quarterly
dividend in the future and will continue to review the dividend payment amount
in relation to the Company's earnings, financial condition and other relevant
factors (such as regulatory requirements).

         The Bank will not be permitted to pay dividends to the Holding
Company on its capital stock if its shareholders' equity would be reduced
below the amount required for the liquidation account.  For information
concerning federal regulations which apply to the Bank in determining the
amount of proceeds which may be retained by the Company and regarding a
savings institution's ability to make capital distributions including payment
of dividends to its holding company, see Note 11 to the Consolidated Financial
Statements.

         Unlike the Bank, the Holding Company is not subject to OTS regulatory
restrictions on the payment of dividends to its shareholders, although the
source of such dividends will be dependent on the net proceeds retained by the
Holding Company and earnings thereon and may be dependent, in part, upon
dividends from the Bank. The Holding Company is subject to the requirements of
Iowa law, which prohibit the Holding Company from paying a dividend if, after
giving it effect, either of the following would result:  (a) the Holding
Company would not be able to pay its debts as they become due in the usual
course of business; or (b) the Holding Company's total assets would be less
than the sum of its total liabilities plus the amount that would be needed, if
the Holding Company were to be dissolved at the time of the distribution, to
satisfy the

                                      -32-
<PAGE>

preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution.


ITEM 6.  SELECTED FINANCIAL DATA

         The selected consolidated financial and other data of the Company set
forth below is derived in part from, and should be read in conjunction with,
the Consolidated Financial Statements of the Company and Notes thereto
presented elsewhere in this Annual Report on Form 10-K.

                                      -33-
<PAGE>

<TABLE>
<CAPTION>

                                                                 AT DECEMBER 31,
                                       ------------------------------------------------------------------
                                         1997           1996          1995           1994          1993
                                       --------       --------      --------       --------      --------
                                                                 (IN THOUSANDS)
<S>                                    <C>            <C>           <C>            <C>           <C>
SELECTED CONSOLIDATED FINANCIAL
  CONDITION DATA:
Total assets                           $221,954       $203,093      $179,930       $157,153      $147,130

Cash (noninterest bearing)                  982            963           709            719           602
Loans receivable, net:(1)
  First mortgage loans secured
    by one-to-four family
    residences                          114,286        106,053        93,438         82,523        76,112
  First mortgage loans secured
    by multifamily properties            49,895         33,015        30,070         19,815        20,476
  First mortgage loans secured
    by commercial properties              3,724          5,068         5,650          5,974         6,291
  Consumer loans                         23,344         21,695        18,714         16,472        14,088
                                       --------       --------      --------       --------      --------

    Total loans receivable, net         191,249        165,831       147,872        124,784       116,967
Investment securities(2)                 22,279         29,577        26,156         28,389        26,830
Deposits                                141,124        129,722       126,672        124,189       131,145
Borrowed funds                           28,550         22,335        21,940          3,886             -
Total shareholders' equity               50,417         49,235        29,900         27,813        14,761

</TABLE>
<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31,
                                       ------------------------------------------------------------------
                                         1997           1996          1995           1994          1993
                                       --------       --------      --------       --------      --------
                                                                   (IN THOUSANDS)
<S>                                    <C>            <C>           <C>            <C>           <C>
Selected Operating Data:
Interest income                        $ 16,205       $ 15,090      $ 13,148       $ 11,592      $ 11,668
Interest expense                          7,900          6,929         7,079          6,048         6,614
                                       --------       --------      --------       --------      --------
   Net interest income before
     provision for loan losses            8,305          8,161         6,069          5,544         5,054
Provision for loan losses                   240            240           250            242           248
                                       --------       --------      --------       --------      --------
   Net interest income after
     provision for loan losses            8,065          7,921         5,819          5,302         4,806
                                       --------       --------      --------       --------      --------
Noninterest income:
     Fees and service charges               657            580           445            430           461
     Abstract fees                        1,222            931           794            332           365
     Other income                           658            382           463            286           232
                                       --------       --------      --------       --------      --------
       Total noninterest income           2,537          1,893         1,702          1,048         1,058
                                       --------       --------      --------       --------      --------
Noninterest expense:
     Salaries and employee benefits       2,209          2,004         1,681          1,282         1,103
     Premises and equipment                 444            421           382            326           321
     Data processing                        258            244           236            248           284
     One-time SAIF special
assessment                                    -            817             -              -             -
     SAIF deposit insurance
       premiums                              85            279           287            306           248
     Other expenses                       1,581          1,173         1,072            761           618
                                       --------       --------      --------       --------      --------
       Total noninterest expense          4,577          4,938         3,658          2,923         2,574
                                       --------       --------      --------       --------      --------
Income before income taxes                6,025          4,876         3,863          3,427         3,290
Income tax expense                        2,108          1,744         1,403          1,247         1,223
                                       --------       --------      --------       --------      --------
Income before cumulative effect
   of change in accounting
   principle                              3,917          3,132         2,460          2,180         2,067
Change in accounting principle                -              -             -              -           135
                                       --------       --------      --------       --------      --------
   Net income                          $  3,917       $  3,132      $  2,460       $  2,180      $  2,202
                                       ========       ========      ========       ========      ========
</TABLE>

                                      -34-
<PAGE>

<TABLE>
<CAPTION>

                                                       AT OR FOR THE YEAR ENDED DECEMBER 31,
                                            -------------------------------------------------------
                                              1997        1996        1995       1994        1993
                                            --------    --------    --------   --------    --------
<S>                                         <C>          <C>          <C>      <C>          <C>
KEY FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS: (%)
Net interest rate spread (difference
between average yield on
  interest-earning assets and average
  cost of interest-bearing liabilities)       2.87%       3.01%       2.75%      3.02%       2.94%
Net interest margin (net interest income
  as a percentage of average interest-
  earning assets)                             4.06        4.33        3.66       3.70        3.50
Return on average assets (net income
  divided by average total assets)            1.86        1.62        1.45       1.43        1.50
Return on average equity (net income
  divided by average equity)                  7.94        6.30        8.54      11.19       16.06
Noninterest income to average assets          1.20        0.98        1.00       0.69        0.72
Efficiency ratio(3)                          42.21       49.11       47.07      44.35       42.11
Noninterest expense to average assets         2.17        2.56        2.16       1.92        1.76
Net interest income after provision for
  loan losses to noninterest expenses       176.22      160.40      159.07     181.41      186.71
FINANCIAL CONDITION RATIOS:(4) (%)
Equity to assets at period end               22.72       24.24       16.62      17.70       10.02
Average shareholders' equity divided by
  average total assets                       23.38       25.73       16.99      12.82        9.37
Average interest-earning assets to
average interest-bearing liabilities        130.97      136.02      121.37     116.87      112.23
ASSET QUALITY RATIOS:(4) (%)
Nonaccrual loans to total net loans           0.08        0.11        0.12       0.26        0.09
Nonperforming assets to total assets(5)       0.10        0.15        0.23       0.21        0.08
Allowance for loan losses as a percent
  of total loans receivable at end of
  period                                      1.10        1.16        1.15       1.20        1.09
Allowance for loan losses to nonaccrual
  loans                                   1,468.33    1,059.35      960.20     476.23    1,279.41
PER SHARE DATA:
Book value per share                        $15.43      $14.36       $8.72      $8.11        N/A
Basic earnings per share (6)                  1.23        0.82        0.63       0.21        N/A
Diluted earnings per share (7)                1.21        0.82        0.63       0.21        N/A
Dividends declared per share                  0.25        0.28        0.60       0.12        N/A
Dividend payout ratio                         0.20        0.34        0.95       0.57        N/A

KEY FINANCIAL RATIOS EXCLUDING
SAIF ASSESSMENT: (%) (8)
Return on average assets (net income
divided by average total assets)              1.86%       1.89%       1.45%      1.43%       1.50%
Return on average equity (net income
  divided by average equity)                  7.94        7.34        8.54      11.19       16.06
Efficiency ratio (3)                         42.21       40.99       47.07      44.35       42.11
Noninterest expense to average assets         2.17        2.13        2.16       1.92        1.76
Net interest income after provision for
 loan losses to noninterest expenses        176.22      192.21      159.07     181.41      186.71
</TABLE>
_______________________
                                                  (Notes on following page)

                                      -35-
<PAGE>

(1)      Loans receivable, net represents total loans less discounts, loans in
         process, net deferred loan fees and allowance for loan losses.  The
         allowance for loan losses at December 31, 1997, 1996, 1995, 1994 and
         1993 was $2.2 million, $2.0 million, $1.7 million, $1.5 million and
         $1.3 million, respectively.

(2)      Includes interest-bearing deposits with the Federal Home Loan Bank of
         Des Moines (the "FHLB").  The Company has classified its securities
         as "held-to-maturity" or "available-for-sale" since January 1, 1994,
         when it adopted Statement of Financial Accounting Standards ("SFAS")
         No. 115, "Accounting for Certain Investments in Debt and Equity
         Securities."

(3)      Efficiency ratio represents noninterest expense divided by the sum of
         net interest income before provision for loan losses plus noninterest
         income.

(4)      Asset Quality Ratios are end of period ratios.  With the exception of
         end of period ratios, all ratios are based on average monthly
         balances during the indicated periods and are annualized where
         appropriate.

(5)      Nonperforming assets consists of nonaccrual loans, foreclosed real
         estate and other nonperforming assets.

(6)      Basic earnings per share information is calculated by dividing net
         income by the weighted average number of shares outstanding.  Basic
         earnings per share information for the year ended December 31, 1994
         is calculated by dividing net income subsequent to the conversion of
         the Bank from mutual to stock form in 1994 by the weighted average
         number of shares outstanding.  The weighted average number of shares
         outstanding for basic earnings per share computation for 1997, 1996,
         1995 and 1994 were 3,184,269, 3,818,273, 3,919,488 and 3,906,980,
         respectively.  Net income subsequent to such conversion was $810,000
         for the period ended December 31, 1994.  See Note 18 to the
         Consolidated Financial Statements.

(7)      Diluted earnings per share information is calculated by dividing net
         income by the weighted average number of shares outstanding, adjusted
         for the effect of dilutive potential common shares outstanding which
         consists of stock options granted. Diluted earnings per share
         information for the year ended December 31, 1994 is calculated by
         dividing net income subsequent to the conversion of the Bank from
         mutual to stock form in 1994 by the weighted average number of shares
         outstanding.  The weighted average number of shares outstanding for
         diluted earnings per share computation for 1997, 1996, 1995 and 1994
         were 3,241,069, 3,818,273, 3,919,488 and 3,906,980, respectively. Net
         income subsequent to such conversion was $810,000 for the period
         ended December 31, 1994.  See Note 18 to the Consolidated Financial
         Statements.

(8)      For 1996, excludes the one-time $817,000 (pre-tax) special assessment
         for the recapitalization of the Savings Association Insurance Fund
         ("SAIF").

                                      -36-
<PAGE>

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

GENERAL

         North Central Bancshares, Inc. (the "Holding Company"), an Iowa
corporation, is the holding company for First Federal Savings Bank of Iowa
(formerly known as First Federal Savings Bank of Fort Dodge) (the "Bank"), a
federally chartered savings bank. Collectively, the Holding Company and the
Bank are referred to herein as the "Company."  The Holding Company was
organized on December 5, 1995 at the direction of the Board of Directors of
the Bank for the purpose of acquiring all of the capital stock to be issued by
the Bank in connection with the conversion and reorganization of the Bank and
North Central Bancshares, M.H.C. (the "MHC") from the mutual to the stock
holding company structure (these transactions are collectively referred to as
the "Conversion"). On March 20, 1996, upon completion of the Conversion, the
Holding Company issued an aggregate of 4,011,057 shares of its Common Stock,
par value $0.01 per share, of which 1,385,590 shares were issued in exchange
for all of the Bank's issued and outstanding shares, except for shares owned
by the MHC which were cancelled, and 2,625,467 shares of which were sold in
Subscription and Community Offerings at a price of $10.00 per share, with
gross proceeds amounting to $26,254,670.   At this time, the Holding Company
conducts business as a unitary savings and loan holding company and the
principal business of the Holding Company consists of the operation of its
wholly-owned subsidiary, the Bank.

         The profitability of the Company depends primarily on its level of
net interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of loans and
investment securities, and the interest paid on interest-bearing liabilities,
which primarily consist of deposits and advances from the FHLB. Net interest
income is a function of the Company's interest rate spread, which is the
difference between the average yield on interest-earning assets and the
average rate paid on interest-bearing liabilities, as well as a function of
the average balance of interest-earning assets as compared to interest-bearing
liabilities. The Company's net income is affected by its level of noninterest
income which primarily consists of service fees and charges and abstract fees,
and noninterest expense, which primarily consists of compensation and employee
benefit expenses, premises and equipment and data processing.  Net income also
is affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities, which events are beyond the control of the Company.

ACQUISITION OF VALLEY FINANCIAL CORP.

         As of the close of business on January 30, 1998 (the "Effective
Time"), the Bank completed the acquisition (the "Acquisition") of Valley
Financial Corp., an Iowa corporation ("Valley Financial"), pursuant to an
Agreement and Plan of Merger, dated as of September 18, 1997, (the "Merger
Agreement").  The Acquisition resulted in the merger of Valley Financial's
wholly owned subsidiary, Valley Savings Bank, FSB ("Valley Savings") with and
into the Bank, with the Bank as the resulting financial institution (the "Bank
Merger"). Valley Savings, headquartered in Burlington, Iowa was a
federally-chartered stock savings bank with three branch offices located in
southeastern Iowa.  The former offices of Valley Savings are being operated as
a division of the Bank.

         In connection with the Acquisition, each share of Valley Financial's
common stock, par value $1.00 per share, issued and outstanding (other than
shares held as treasury stock of Valley Financial) was cancelled and converted
automatically into the right to receive $525.00 per share in cash pursuant to
the terms and conditions of the Merger Agreement.  As a result of the
Acquisition, shareholders of Valley Financial were paid $14,726,250 in cash.
The Acquisition is expected to be slightly accretive to earnings in 1998.  The
source of funds for the Acquisition consisted of the Bank's accumulation of
its cash flow from the maturity of short-term liquid investments, principal
and interest on loans, sale of other investment securities, other cash

                                      -37-
<PAGE>

receipts, net of operating expenses and other projected disbursements.  The
Acquisition was consummated after the receipt of regulatory and Valley
shareholder approvals.

SAIF RECAPITALIZATION

         In response to the disparity in deposit insurance assessment rates
that existed between banks insured by the Bank Insurance Fund ("BIF") and
thrifts insured by the SAIF, the Deposits Funds Insurance Act of 1996 (the
"Funds Act") was enacted on September 30, 1996.  The Funds Act authorized the
Federal Deposit Insurance Corporation ("FDIC") to impose a special assessment
on all institutions with SAIF-assessable deposits in the amount necessary to
recapitalize the SAIF.  The Company's special SAIF assessment of $817,000
before taxes (and $512,000 net of taxes) was charged against income in the
third quarter of 1996 and paid in November 1996 (the "SAIF Assessment").  In
view of the recapitalization of the SAIF, the FDIC reduced the assessment
rates for SAIF-assessable deposits.  For the fiscal year ended December 31,
1997, the Bank incurred $85,000 in deposit insurance premiums and for the
interest payments on the FICO bonds issued by the Financing Corporation to
recapitalize the now defunct Federal Savings and Loan Insurance Corporation.

BUSINESS STRATEGY

         The Company's current business strategy is to operate the Bank as a
well-capitalized, profitable and independent community-oriented savings bank
dedicated to providing quality customer service. Generally, the Company has
sought to implement this strategy by primarily using deposits and advances
from the FHLB, as its source of funds and maintaining a substantial part of
its assets in loans secured by one- to four-family residential real estate
located both inside and outside the Company's market area, multifamily loans,
consumer and other loans and in other liquid investment securities.
Specifically, the Company's business strategy incorporates the following
elements: (1) operating as a community-oriented financial institution,
maintaining a strong core customer base by providing quality service and
offering customers the access to senior management and services that a
locally-headquartered institution can offer; (2) maintaining high asset
quality by emphasizing investment in residential mortgage loans (including the
purchase of qualifying multifamily loans) and securities issued or guaranteed
by the United States Government or agencies thereof; (3) maintaining capital
in excess of regulatory requirements and growing only to the extent that
adequate capital levels can be maintained; (4) controlling noninterest
expenses; (5) managing interest rate risk exposure while achieving desirable
levels of profitability; and (6) increasing noninterest income, primarily
through the expansion of the abstract company business conducted through a
wholly owned subsidiary.

         Highlights of the Company's business strategy are as follows:

         Community-Oriented Institution. The Company is committed to meeting
the financial needs of the community in which it operates. Based in part on
its participation in several different programs designed to facilitate
residential lending to low- and moderate-income households, the Bank has
received an "Outstanding" Community Reinvestment Act rating. The Company
believes it is large enough to provide a full range of personal and business
financial services and yet is small enough to be able to provide such services
on a personalized and efficient basis. Management believes that the Company
can be more effective in servicing its customers than many of its competitors
which are not headquartered locally, because senior management of the Bank
quickly and personally responds to customer needs and inquiries.

         Strong Retail Deposit Base. In 1997, the Company had a relatively
strong and stable retail deposit base drawn from its offices located in Fort
Dodge, Ames  and Nevada, Iowa.  In recent years, the stability of the
Company's deposit base has been enhanced by the Company's offering of 5-year
certificates of deposit (which comprises $47.2 million, or 33.4%, of total
deposits at December 31, 1997) at attractive interest rates, and programs
tying low-cost checking account services to the maintenance of specified
certificate of deposit balances or loan balances.  At December 31, 1997, 31.0%
of the deposit base or $43.7 million consisted of core deposits, which
included money market accounts, passbook savings accounts, NOW accounts, and
noninterest-bearing demand accounts. Core deposits are considered to be a more
stable and lower cost source of funds than certificates of deposit or outside
borrowings. The Company will continue to emphasize retail

                                      -38-
<PAGE>

deposits by providing quality customer service, offering competitive rates on
deposit accounts, and providing depositors with a full range of accounts. With
the addition of the three branches of Valley Savings, the Company has sought
to strengthen its deposit base.

         Asset Quality and Emphasis on Residential Mortgage Lending.  The
Company has historically emphasized residential real estate financing, and has
been primarily a portfolio lender. The Company expects to continue its
commitment to financing the purchase or improvement of residential real estate
in its market area.  At December 31, 1997, 51.5% of the Company's total assets
consisted of one- to-four family residential first mortgage loans.  To
supplement local mortgage loan originations and to diversify its mortgage loan
portfolio geographically, the Company has purchased loans in the secondary
mortgage market, with an emphasis on adjustable-rate multifamily loans secured
by properties outside the State of Iowa (the "out of state properties").  At
December 31, 1997, the Company's portfolio of loans which were either
originated or purchased by the Company and secured by out of state properties
consisted of $7.6 million of one-to-four family residential mortgage loans, or
3.9% of the Company's total loan portfolio, and $52.9 million of multifamily
and commercial loans, or 27.2% of the Company's total loan portfolio.   At
December 31, 1997, the Company's ratio of nonperforming assets to total assets
was 0.10%.  The Company also invests in United States Treasury securities,
interest-earning deposits, equity securities and FHLB stock.

         Generally, the yield on mortgage loans originated and purchased by
the Company is greater than that of securities purchased by the Company.
Future economic conditions and continued strong banking competition could
result in diminished lending opportunities. If new loan originations are
reduced in the future, the Company may increase its investment in securities
and in purchased mortgage loans outside its market area.

         Capital Strength and Controlled Internal Growth.  Total equity
increased from $14.8 million at December 31, 1993, to $50.4 million at
December 31, 1997, an increase of 241.6%.  Total assets have increased by
$74.8 million, or 50.9%, since December 31, 1993. As a result, the ratio of
total equity to total assets has improved from 10.02% at December 31, 1993 to
22.7% at December 31, 1997. The Company's growth has been produced from its
emphasis on the origination and purchase of residential mortgage loans and
purchases of primarily multifamily mortgage loans.  The Company's growth has
been funded through a combination of the use of proceeds from the stock
offerings held in 1994 and 1996 and a combination of FHLB advances and deposit
growth.  The Company intends to maintain strong levels of total equity and
capital ratios by controlling growth to the extent that adequate capital
levels can be maintained.

         Acquisition Strategy.  With the consummation of the Acquisition in
1998, the Company has grown through the purchase of another financial
institution.  The Acquisition resulted in an increase in total assets of
approximately 42%, making effective use of the Company's excess capital.  The
Company intends to continue evaluating the possibility of acquiring branch
offices and other financial institutions, including the execution of
confidentiality agreements and conducting due diligence.  Such evaluations by
the Company provide no indication of the likelihood that the Company will
enter into any agreement to engage in an acquisition transaction, as in many
instances such transactions are subject to competitive bidding and in every
instance are subject to extensive arm's length negotiations once such
evaluation by the Company is complete.

         Controlled Noninterest Expense. The Company has managed to control
noninterest expense by limiting the overall number of its employees and
managing operating expenses.  Noninterest expense (excluding the SAIF
Assessment incurred in 1996) as a percentage of average total assets did not
exceed 2.17% for any year from the fiscal year ended December 31, 1993 through
December 31, 1997.  The Company's efficiency ratio (excluding the SAIF
Assessment) did not exceed 48% for any year from the fiscal year ended
December 31, 1993 through December 31, 1997.

         Increasing Noninterest Income.  The Company has attempted to increase
its level of noninterest income from both new and traditional lines of
business to supplement net interest income.  The Company currently owns
abstract companies in Webster, Boone and Jasper counties in Iowa.  The
abstract companies are operated by First Iowa Title Services, Inc. ("First
Iowa"), the Bank's wholly owned subsidiary. On

                                      -39-
<PAGE>

December 28, 1996, First Iowa purchased the assets of two abstract companies
located in Webster and Calhoun County, Iowa. The abstract company in Calhoun
County was subsequently sold March 30, 1997. The abstract business performed by
First Iowa replaces the function of a title insurance company. The Company
believes that First Iowa can continue to be an excellent source of fee income.
Noninterest income from such business for the year ended December 31, 1997 was
$1.2 million, offset by noninterest expense attributable to First Iowa.

         Liquidity and Interest Rate Risk Management.  Management seeks to
manage the Company's interest rate risk exposure by monitoring the levels of
interest rate sensitive assets and liabilities while maintaining an acceptable
interest rate spread. At December 31, 1997, total interest-bearing assets
maturing or repricing within one year exceeded total interest-bearing
liabilities maturing or repricing in the same period by $614,000, representing
a one-year gap to total assets ratio of positive 0.28% as compared to a
negative 4.36% at December 31, 1996.  To reduce the potential volatility of
the Company's earnings in a changing interest rate environment, the Company
has emphasized the origination of 7-year fixed rate mortgage loans that
convert to adjustable rates at the conclusion of their initial terms and have
overall maturities of up to 30 years, adjustable-rate loans, investment in
2-year United States Government securities and has sought to lengthen the
terms of its deposits through its pricing strategies with respect to longer
term certificates of deposit.  See "- Discussion of Market Risk - Interest
Rate Sensitivity Analysis".

LIQUIDITY AND CAPITAL RESOURCES

       OTS regulations require that thrift institutions such as the Bank
maintain an average daily balance of liquid assets (cash, certain time
deposits, banker's acceptances and specified United States Government, state
or federal agency obligations) equal to a monthly average of not less than 4%
of its net withdrawable deposits plus short-term borrowings.  At December 31,
1997, the amount of the Bank's liquid assets were $14.0 million, resulting in
a liquidity ratio of 9.28%.  During the fourth quarter of 1997, the OTS
revised its liquidity requirements by reducing the minimum liquidity
requirements from 5% to 4% and by eliminating the 1% short term liquidity
requirement.

       The Company's primary sources of funds are deposits, amortization and
prepayment of loans, maturities of securities and other investments, and
earnings and funds provided from operations. While scheduled principal
repayments on loans are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions, and competition. The Company manages the pricing of its
deposits to maintain a desired deposit balance. In addition, the Company
invests in short-term interest-earning assets, which provide liquidity to meet
lending requirements. At December 31, 1997, $9.0 million, or 81.6%, of the
Company's investment portfolio, excluding equity securities, was scheduled to
mature in one year or less and $2.0 million, or 18.4%, was scheduled to mature
in one to five years.  Certificates of deposit scheduled to mature in less
than one year, at December 31, 1997, totalled $40.8 million.  Based on prior
experience, management believes that a significant portion of such deposits
will remain with the Company.  If the Company requires funds beyond its
ability to generate them internally, borrowing agreements exist with the FHLB
which provide an additional source of funds.  The amount of eligible
collateral for blanket lien pledges from the FHLB is $109.7 million as of
December 31, 1997.  For additional information about cash flows from the
Company's operating, financing and investing activities, see the Statements of
Cash Flows included in the Consolidated Financial Statements.

       At December 31, 1997, the Company had outstanding loan commitments of
$804,000. This amount does not include undisbursed overdraft loan privileges
and the unfunded portion of loans in process.

       The main sources of liquidity for the Holding Company are net proceeds
from the sale of stock and  payments from the Bank in the form of dividends
and loan repayments.  The main cash outflows are payments of dividends to
shareholders and funds used to repurchase the Common Stock.  During 1997, the
Holding Company repurchased 171,472 shares of its Common Stock, pursuant to
repurchase programs which were approved by the OTS.  On March 5, 1998, the
Company announced that it had received OTS approval and will commence a stock
repurchase program for up to 5% of its 3,266,483 outstanding shares of Common

                                      -40-
<PAGE>

Stock.  The Holding Company's ability to pay dividends to shareholders depends
substantially on dividends and loan payments received from the Bank.  The Bank
may not declare or pay cash dividends on or repurchase any of its shares of
common stock if the effect thereof would cause equity to be reduced below
applicable regulatory capital requirements or the amount required to be
maintained for the liquidation account.  For a description of the liquidation
account, see Notes 16 and 17 to the Consolidated Financial Statements.  Unlike
the Bank, the Holding Company is not subject to OTS regulatory restrictions on
the payment of dividends to its shareholders, however, it is subject to the
requirements of Iowa law. Iowa law generally prohibits the Holding Company
from paying a dividend if, after giving it effect, either of the following
would result:  (a) the Holding Company would not be able to pay its debts as
they become due in the usual course of business; or (b) the Holding Company's
total assets would be less than the sum of its total liabilities, plus the
amount that would be needed, if the Holding Company were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those receiving the
distribution.

       The primary investing activities of the Company are the origination and
purchase of mortgage and other loans and the purchase of securities.  During
the years ended December 31, 1997, 1996 and 1995, the Company's disbursements
for loan originations and purchases totaled $62.3 million, $52.0 million and
$48.2 million, respectively.  These activities were funded primarily by net
deposit inflows, principal repayments on loans, proceeds from the sale of
securities and FHLB advances.  Net cash flows used in investing activities
amounted to $19.1 million, $21.3 million and $23.3 million for the years ended
December 31, 1997, 1996 and 1995, respectively.  Net cash flows provided by
financing activities amounted to $14.3 million, $19.8 million  and $19.8
million for the years ended December 31, 1997, 1996 and 1995, respectively.

       The OTS regulations require savings associations, such as the Bank, to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations; a leverage ratio
requirement of 3% of core capital to such adjusted total assets; and a
risk-based capital ratio requirement of 8% of core and supplementary capital
to total risk-based assets.  The Bank satisfied these minimum capital
standards at December 31, 1997 with tangible and leverage capital ratios of
17.3% and a total risk-based capital ratio of 32.1%.  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 to 100% for consumer and commercial loans, as
assigned by the OTS capital regulations.  These capital requirements, which
are applicable to the Bank only, do not consider additional capital held at
the Holding Company level, and require certain adjustments to shareholder's
equity to arrive at the various regulatory capital amounts.


       The table below presents the Bank's regulatory capital amounts as
compared to the OTS regulatory capital requirements at December 31, 1997:

<TABLE>
<CAPTION>
                                              Capital       Excess
                                Amount      Requirements    Capital
                                ------      ------------    -------
                                           (In thousands)
         <S>                    <C>           <C>           <C>
         Tangible capital       $37,935       $3,298        $34,637
         Core capital            37,935        6,595         31,340
         Risk-based capital      39,478        9,830         29,648
</TABLE>

                                      -41-
<PAGE>

DISCUSSION OF MARKET RISK-INTEREST RATE SENSITIVITY ANALYSIS

         As a financial institution, the Company's primary component of market
risk is interest rate volatility.  Fluctuations in interest rates will
ultimately impact both the level of income and expense recorded on a large
portion of the Company's assets and liabilities, and the market value of all
interest-earning assets, other than those which possess a short term to
maturity.  Since all of the Company's interest-bearing liabilities and
virtually all of the Company's interest-earning assets are located at the
Bank, virtually all of the Company's interest rate risk management procedures
are performed at the Bank level.  Based upon the Bank's nature of operations,
the Bank is not subject to foreign currency exchange or commodity price risk.
The Bank's real estate loan portfolio, concentrated primarily within Iowa, is
subject to risks associated with the local economy.  The Company has sought to
diversify its loan portfolio by purchasing loans secured by properties outside
of Iowa.  At December 31, 1997, 31.1% of the Company's loan portfolio was
secured by properties outside the State of Iowa, located in sixteen states.
See "Asset Quality."  The Bank does not own any trading assets.  At December
31, 1997, neither the Company nor the Bank had any hedging transactions in
place, such as interest rate swaps and caps.

         The Company seeks to manage its interest risk by monitoring and
controlling the variation in repricing intervals between its assets and
liabilities.  To a lesser extent, the Company also monitors its interest rate
sensitivity by analyzing the estimated changes in market value of its assets
and liabilities assuming various interest rate scenarios.  As discussed more
fully below, there are a variety of factors which influence the repricing
characteristics of any given asset or liability.

         The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The "interest
rate sensitivity gap" is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within
that time period. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income while a positive gap would tend to
positively affect net interest income. Similarly, during a period of falling
interest rates, a negative gap would tend to positively affect net interest
income while a positive gap would tend to adversely affect net interest
income.

         The Company's policy in recent years has been to manage its exposure
to interest rate risk generally by focussing on the maturities of its interest
rate sensitive assets and by emphasizing adjustable-rate mortgage loans, and
maintaining a level of liquidity by investing in two-year United States
Government securities and short-term interest-earning deposits.  The Company
generally offers competitive rates on deposit accounts and prices certificates
of deposit to provide customers with incentives to choose certificates of
deposit with longer terms.

         At December 31, 1997, total interest-earning assets maturing or
repricing within one year exceeded total interest-bearing liabilities maturing
or repricing in the same period by $614,000, representing a one-year gap ratio
of positive 0.28%, compared to a one-year gap ratio of negative 4.36% at
December 31, 1996.  To manage the potential volatility of the Company's
earnings in a changing interest rate environment, the Company has emphasized
the origination of 7-year fixed rate mortgage loans that convert to adjustable
rates at the conclusion of their initial terms and have overall maturities of
up to 30 years, adjustable-rate loans and has sought to lengthen the terms of
its deposits through its pricing strategies with respect to longer term
certificates of deposit.  The Chief Executive Officer regularly meets with the
Bank's senior executive officers to review trends in deposits as well as
mortgage and consumer lending. The Chief Executive Officer also regularly
meets with the investment committee to review the investment portfolio. The
Chief Executive Officer reports quarterly to the Board of Directors on
interest rate risks and trends, as well as liquidity and capital ratios and
requirements.

                                      -42-
<PAGE>

         Gap Table.  The following table sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at
December 31, 1997, which are expected to reprice or mature, based upon certain
assumptions, in each of the future time periods shown.  Except as stated
below, the amounts of assets and liabilities shown that reprice or mature
during a particular period were determined in accordance with the earlier of
term of repricing or the contractual terms of the asset or liability.  Certain
assumptions used in preparing the table are set forth in the following table.
Management believes that these assumptions approximate actual experience and
considers them appropriate and reasonable.

                                      -43-
<PAGE>

<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31, 1997 (1)
                                     -------------------------------------------------------------------------------------------
                                      WITHIN          1-3          3-5          5-10           10-20        OVER 20
                                      1 YEAR         YEARS        YEARS         YEARS          YEARS        YEARS         TOTAL
                                     --------        -----        -----         -----          -----        -------       -----
                                                                       (DOLLARS IN THOUSANDS)
<S>                                  <C>           <C>           <C>           <C>           <C>          <C>           <C>
INTEREST-EARNING ASSETS:
  First mortgage loans
    Adjustable                       $ 49,072      $ 41,979      $ 13,488      $      -      $      -     $      -      $104,539
     Fixed (2)                         17,257        21,522        11,914        15,440           235            -        66,369
  Consumer and other loans              8,729        13,186         1,763            40             1            -        23,718
  Investment securities(3)             20,248         2,031             -             -             -            -        22,279
                                     --------      --------      --------      --------      --------     --------      --------
     Total interest-earning assets   $ 95,306      $ 78,718      $ 27,165      $ 15,480      $    236     $      -      $216,905
                                     ========      ========      ========      ========      ========     ========      ========

RATE SENSITIVE LIABILITIES:
  Passbook and statement savings
    accounts                         $ 17,120      $      -      $      -      $      -      $      -     $      -      $ 17,120
  NOW accounts                         14,457             -             -             -             -            -        14,457
  Money market accounts                 8,958             -             -             -             -            -         8,958
  Certificate accounts                 40,762        42,404        14,278             -             -            -        97,444
  Non-interest-bearing deposits         3,145             -             -             -             -            -         3,145
FHLB advances and other liabilities    10,250         8,000        10,300             -             -            -        28,550
                                     --------      --------      --------      --------      --------     --------      --------
     Total interest-bearing
      liabilities                    $ 94,692      $ 50,404      $ 24,578      $      -      $      -     $      -      $169,674
                                     ========      ========      ========      ========      ========     ========      ========

Interest sensitivity gap             $    614      $ 28,314      $  2,587      $ 15,480      $    236     $      -
Cumulative interest-sensitivity gap  $    614      $ 28,928      $ 31,515      $ 46,995      $ 47,231     $ 47,231

Interest sensitivity gap to total
  assets                                 0.28%        12.76%         1.17%         6.97%         0.11%           -
Cumulative interest-sensitivity gap
to total assets                          0.28%        13.03%        14.20%        21.17%        21.28%       21.28%
Ratio of interest-earning assets to
  interest-bearing liabilities         100.65%       156.17%       110.53%       100.00%       100.00%           -        127.84%
Cumulative ratio of interest-
  earning assets to interest-bearing
  liabilities                          100.65%       119.94%       118.57%       127.70%       127.84%      127.84%       127.84%

Total assets                         $221,954      $221,954      $221,954      $221,954      $221,954     $221,954      $221,954
Cumulative interest bearing assets   $ 95,306      $174,024      $201,189      $216,669      $216,905     $216,905      $216,905
Cumulative interest sensitive
  liabilities                        $ 94,692      $145,096      $169,674      $169,674      $169,674     $169,674      $169,674
</TABLE>
_________________________________

(1)       The Company prepared the above table using December 31, 1997
          composite interest rate sensitivity assumptions of the Eighth
          District of the FHLB where such assumptions were available. Where
          such information was not available, the assumptions were made based
          on December 1997 OTS assumptions or the Company's actual experience.
          These assumptions are as follows: (i) fixed- rate first mortgage
          loans on one-to-four family residential properties with interest
          rates less than 8%, 8% to 9%, 9% to 10%, 10% to 11%, and 11% and
          over, and the remaining terms to maturity of over 15 years will
          prepay annually at 9%, 22%, 18%, 13% and 13%, respectively; (ii)
          adjustable-rate first mortgage loans on one-to-four family
          residential properties will prepay at 6% to 8% per year; (iii)
          fixed- and adjustable-rate mortgage loans on multifamily and
          commercial properties will repay at 8% per year; (iv) second
          mortgage consumer loans will prepay at 9% per year; (v) fixed-rate
          deposits will not be withdrawn prior to maturity; and (vi) passbook
          savings accounts, NOW accounts, money market accounts and
          noninterest-bearing deposit accounts are assumed to reprice within
          one year due to the possibility that such deposits will reprice in
          the event of significant changes in the overall level of interest
          rates.  These assumptions are annual percentages based on remaining
          balances and should not be regarded as indicative of the actual
          prepayments and withdrawals that may be experienced by the Company.
          Certain shortcomings are inherent in the analysis presented by the
          foregoing table.

(2)       Fixed rate first mortgage loans include $44.0 million of one-to-four
          family seven year fixed rate loans than convert to adjustable rates
          at the beginning of the eighth year and are adjustable thereafter.

(3)       Includes FHLMC preferred stock, FNMA preferred stock, other equity
          securities, interest-bearing deposits and FHLB stock, all of which
          are shown in the within-one-year category.  Components include
          interest-bearing deposits of $2.5 million and securities available
          for sale of $19.8 million.

          Certain shortcomings are inherent in the method of analysis
presented in the Gap Table.  For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates.  Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types of assets and liabilities may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate loans, have features
which restrict changes in interest rates both on a short-term basis and over
the life of the asset.  Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table.  Finally, the ability of many
borrowers to service their adjustable-rate loans may decrease in the event of
an interest rate increase.

                                      -44-
<PAGE>

         NPV Analysis.  As part of its efforts to maximize net interest income
and manage the risks associated with changing interest rates, management uses
the "market value of portfolio equity" ("NPV") methodology which the OTS has
adopted as part of its capital regulations.

         Under this methodology, interest rate risk exposure is assessed by
reviewing the estimated changes in Net Interest Income ("NII") and NPV which
would hypothetically occur if interest rates rapidly rise or fall all along
the yield curve.  Projected values of NII and NPV at both higher and lower
regulatory defined rate scenarios are compared to base case values (no change
in rates) to determine the sensitivity to changing interest rates.

         Presented below, as of December 31, 1997, is an analysis of the
Company's interest rate risk ("IRR") as measured by changes in NPV and NII for
instantaneous and sustained parallel shifts of 100 basis points in market
interest rates.  Such limits have been established with consideration of the
impact of various rate changes and the Company's current capital position.

          INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE (NPV)(1)


<TABLE>
<CAPTION>
                         NET PORTFOLIO VALUE             NPV AS % OF PV OF ASSETS
                  ----------------------------------    --------------------------
CHANGE IN RATES   $ AMOUNT    $ CHANGE      % CHANGE       NPV RATIO      CHANGE
---------------   --------    --------      --------       ---------      ------
                                     (DOLLARS IN THOUSANDS)
    <S>            <C>          <C>           <C>            <C>          <C>
   +400 bp         $47,750      -6,401        -12%           22.63%       -134bp
   +300 bp          49,784      -4,367         -8            23.15         -83bp
   +200 bp          51,704      -2,447         -5            23.61         -37bp
   +100 bp          53,231        -920         -2            23.90          -8bp
      0 bp          54,151           -          -            23.98             -
   -100 bp          54,239          88          -            23.76         -22bp
   -200 bp          53,883        -268          -            23.40         -58bp
   -300 bp          54,107         -44          -            23.24         -74bp
   -400 bp          54,669         518          1            23.18         -80bp
</TABLE>
_________________________________

(1)  Denotes rate shock used to compute interest rate risk capital component.

         As is the case with the Gap Table, certain shortcomings are inherent
in the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in
market interest rates.  In this regard, the NPV Table presented assumes that
the composition of the Company's interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities.  Accordingly,
although the NPV Table provides an indication of the Company's interest rate
risk exposure at a particular point in time, such measurements are not
intended to and do not provide a precise forecast of the effect of changes in
market interest rates on the Company's net interest income and will differ
from actual results.

DELINQUENCIES AND CLASSIFIED ASSETS

         Delinquencies. The Company's collection procedures provide that when
a loan is 15 days past due, a computer-generated late charge notice is sent to
the borrower requesting payment, plus a late charge for mortgage loans. If
delinquency continues, on the 20th day past due, a telephone call is made to
the borrower seeking payment. If the loan is 30 days past due, a delinquent
notice is mailed along with a letter advising that the mortgagors are in
violation of the terms of their mortgage contract. If a loan becomes 60 days
past due, the loan becomes subject to possible legal action. After 90 days, if
satisfactory payment terms are not reached with the borrower, foreclosure
proceedings are initiated. To the extent required by the Department of Housing
and Urban Development (the "HUD") regulations, generally within 45 days of
delinquency, a Section 160 HUD notice is given to the borrower which provides
access to consumer counseling services.

                                      -45-
<PAGE>

         It is sometimes necessary and desirable to arrange special repayment
schedules with mortgagors to prevent foreclosure or filing for bankruptcy. The
mortgagors are required to submit a written repayment schedule which is
closely monitored for compliance. Under these terms, the account is brought to
date, usually within a few months.

         Nonperforming Assets. Loans are reviewed on a regular basis and are
placed on nonaccrual status when, in the opinion of management, the collection
of additional interest is doubtful. Mortgage loans and consumer loans are
placed on nonaccrual status generally when either principal or interest is
more than 90 days past due. Interest accrued and unpaid at the time a loan is
placed on nonaccrual status is charged against interest income.

         Real estate acquired by the Company as a result of foreclosure or by
deed in lieu of foreclosure is deemed foreclosed real estate until such time
as it is sold. In general, the Company considers collateral for a loan to be
in substance foreclosed if: (i) the borrower has little or no equity in the
collateral; (ii) proceeds for repayment of the loan can be expected to come
only from the operation or sale of the collateral; and (iii) the borrower has
either formally or effectively abandoned control of the collateral to the
Company, or retained control of the collateral but is unlikely to be able to
rebuild equity in the collateral or otherwise repay the loan in the
foreseeable future. Cash flow attributable to in-substance foreclosures is
used to reduce the carrying value of the collateral.

         When foreclosed real estate is acquired or otherwise deemed
foreclosed real estate, it is recorded at the lower of the unpaid principal
balance of the related loan or its estimated fair value, less estimated
selling expenses. Valuations are periodically performed by management, and any
subsequent decline in fair value is charged to operations. At December 31,
1997, the Company's foreclosed real estate consisted of two properties with an
aggregate value of $67,000.

         Delinquent Loans, Nonaccrual Loans and Nonperforming Assets.  The
following table sets forth information regarding loans on nonaccrual status
and foreclosed real estate of the Company at the dates indicated.  At the
dates indicated, the Company did not have any material restructured loans
within the meaning of SFAS No. 15, Accounting by Debtors and Creditors for
Troubled Debt Restructurings,  and did not have any loans that were ninety
days past due and still accruing interest.

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,
                                            ------------------------------------------------------
                                             1997        1996        1995        1994        1993
                                            ------      ------      ------      ------      ------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                         <C>         <C>         <C>         <C>          <C>
NONACCRUAL LOANS AND NONPERFORMING
ASSETS:
First mortgage loans:
  One-to-four family residential            $ 122       $ 149       $ 137       $ 299        $  91
  Multifamily and commercial
    properties                                  -           -           -           -            7
Consumer loans:                                25          35          44          25            4
  Total nonaccrual loans                      147         184         181         324          102
Total foreclosed real estate(1)                67         128         128           -           15
Other nonperforming assets                      -           2         109           -            -
                                            -----       -----       -----       -----        -----
  Total nonperforming assets                $ 214       $ 314       $ 418       $ 324        $ 117
                                            =====       =====       =====       =====        =====
Total nonaccrual loans to net loans
  receivable                                 0.08%       0.11%       0.12%       0.26%        0.09%
Total nonaccrual loans to total assets       0.07        0.09        0.10        0.21         0.07
Total nonperforming assets to total
  assets                                     0.10        0.15        0.23        0.21         0.08
</TABLE>
________________________

(1)      Represents the net book value of property acquired by the Company
         through foreclosure or deed in lieu of foreclosure.  Upon
         acquisition, this property is recorded at the lower of cost or fair
         value less estimated selling expenses.

                                      -46-
<PAGE>

         The following table sets forth information with respect to loans
delinquent 60-89 days in the Company's portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31,
                                                  ------------------------------------------------------------
                                                    1997          1996         1995          1994       1993
                                                  --------       ------       ------        ------     ------
                                                                           (IN THOUSANDS)
 <S>                                              <C>            <C>          <C>           <C>        <C>
 LOANS PAST DUE 60-89 DAYS:
 First mortgage loans:
    One-to-four family residential                $  275         $  323       $  311        $  288     $ 5222
    Multifamily and commercial properties             -               -            -             -          -
 Consumer loans                                      135             51           28            62          1
                                                  ------         ------       ------        ------     ------
      Total past due 60-89 days                   $  410         $  374       $  339        $  350     $  523
                                                  ======         ======       ======        ======     ======

</TABLE>

         The following table sets forth information with respect to the
Company's delinquent loans and other problem assets at December 31, 1997.

<TABLE>
<CAPTION>
                                                                               AT DECEMBER 31, 1997
                                                                      -----------------------------------
                                                                      BALANCE                      NUMBER
                                                                      -------                      ------
                                                                              (DOLLARS IN THOUSANDS)
 <S>                                                                   <C>                            <C>
 One-to-four family first mortgage loans:
   Loans 60 to 89 days delinquent                                      $ 275                           9
   Loans 90 days or more delinquent                                      122                           3
 Multifamily and commercial first mortgage loans:
   Loans 60 to 89 days delinquent                                          -                           -
   Loans 90 days or more delinquent                                        -                           -
 Consumer Loans:
   Loans 60 to 89 days delinquent                                        135                           8
   Loans 90 days or more delinquent                                       25                          11
 Foreclosed real estate                                                   67                           2
 Other nonperforming assets                                                -                           -
 Loans to facilitate sale of foreclosed real estate                      297                           9
 Special mention loans                                                   422                          32
</TABLE>

         Classification of Assets.  Federal regulations provide for the
classification of loans and other assets such as debt and equity securities
considered by the OTS to be of lesser quality as "substandard," "doubtful," or
"loss" assets.  An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of
the collateral pledged, if any.  "Substandard" assets include those
characterized by the "distinct possibility" that the savings institution will
sustain "some loss" if the deficiencies are not corrected.  Assets classified
as "doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable."  Assets
classified as "loss" are those considered "uncollectible" and of such little
value that their continuance as assets without the establishment of a specific
loss reserve is not warranted. Assets that do not expose the savings
institution to risk sufficient to warrant classification in one of the
aforementioned categories, but which possess some weaknesses, are required to
be designated "special mention" by management.  Loans designated as special
mention are generally loans that, while current in required payments, have
exhibited some potential weaknesses that, if not corrected, could increase the
level of risk in the future.  At December 31, 1997, the Company had $422,000
of special mention loans, consisting of twelve loans secured by one-to-four
family residences and twenty consumer loans.

                                      -47-
<PAGE>

         The following table sets forth the aggregate amount of the Company's
classified assets at the dates indicated.

<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,
                                  --------------------------------------------------------------------
                                     1997          1996           1995           1994          1993
                                  ---------     ---------      ---------       ---------     ---------
                                                             (IN THOUSANDS)
 <S>                              <C>           <C>            <C>             <C>           <C>
 Substandard assets               $     208     $     311      $  1,134(1)     $     357     $     143
 Doubtful assets                          -             -              -               -             -
 Loss assets                             18             9              -              10             5
                                  ---------     ---------      ---------       ---------     ---------
  Total classified assets         $     226     $     320      $   1,134       $     367     $     148
                                  =========     =========      =========       =========     =========
</TABLE>
______________

(1)      Includes one purchased loan which was secured by a multifamily
         property that was 30 days past due in the amount of $791,000 (in
         actual dollars).  This loan was repaid in January 1996.

         Allowance for Loan Losses. It is management's policy to provide an
allowance for estimated losses on the Company's loan portfolio based on
management's evaluation of the prior loss experience, industry standards, past
due loans, economic conditions, the volume and type of loans in the Company's
portfolio, which includes a significant amount of multifamily loans,
substantially all of which are purchased and are collateralized by properties
located outside of the Company's market area, and other factors related to the
collectibility of the Company's loan portfolio. The Company regularly reviews
its loan portfolio, including problem loans, to determine whether any loans
require classification or the establishment of appropriate reserves or
allowances for losses. Such evaluation, which includes a review of all loans
of which full collectibility of interest and principal may not be reasonably
assured, considers, among other matters, the estimated fair value of the
underlying collateral. During the years ended December 31, 1997, 1996 and 1995
the Company's provision for loan losses were $240,000, $240,000 and $250,000,
respectively. The Company's allowance for loan losses totalled $2.2 million,
$2.0 million and $1.7 million at December 31, 1997, 1996 and 1995,
respectively.

         Management believes that the allowances for losses on loans and
foreclosed real estate are adequate. While management uses available
information to recognize losses on loans and foreclosed real estate, future
additions to the allowances may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowances for loan
losses. Such agencies may require the Bank to recognize additions to the
allowances based on their judgments about information available to them at the
time of their examination.

                                      -48-
<PAGE>

         Analysis of the Allowance for Loan Losses.  The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                        FOR THE YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------------------------------
                                                       1997           1996          1995           1994          1993
                                                     --------       --------      --------       --------      --------
                                                                            (DOLLARS IN THOUSANDS)
              <S>                                    <C>            <C>           <C>            <C>           <C>
              Total loans outstanding                $194,626       $168,921      $151,310       $128,951      $120,097

              Average net loans outstanding           175,284        156,708       137,068        118,997       114,163
              Allowance balances (at beginning of
               period                                   1,953          1,736         1,543          1,306         1,077
                                                     --------       --------      --------       --------      --------
              Provisions for losses:
               First mortgage loans                       190            150           200            165           200
               Consumer loans                              50             90            50             77            48
              Charge-Offs:
               First mortgage loans                        21              5             2              -             7
               Consumer loans                              31             19            56              7            13
              Recoveries:
               First mortgage loans                        -               -             -              -             -
               Consumer loans                              10              1             1              2             1
                                                     --------       --------      --------       --------      --------
              Net charge-offs                              42             23            57              5            19
                                                     --------       --------      --------       --------      --------
              Allowance balance (at end of
              period)                                $  2,151       $  1,953      $  1,736       $  1,543      $  1,306
                                                     ========       ========      ========       ========      ========
              Allowance for loan losses as a
               percent of total loans receivable
               at end of period                          1.10%          1.16%         1.15%          1.20%         1.09%
              Net loans charged off as a percent
               of average net loans outstanding          0.02           0.01          0.04              -          0.02
              Ratio of allowance for loan losses
               to total nonaccrual loans at end of
               period                                 1468.33       1,059.35        960.20         476.23      1,279.41
              Ratio of allowance for loan losses
               to total nonaccrual loans and
               foreclosed real estate at end
               of period                              1006.96         621.31        562.15         476.23      1,115.38

</TABLE>

                                      -49-
<PAGE>

         Allocation of Allowance for Loan Losses.  The following table sets
forth the allocation for loan losses by loan category for the periods
indicated:

<TABLE>
<CAPTION>
                                                                                              AT DECEMBER 31,
                                          ----------------------------------------------------------------------
                                                   1997                    1996                    1995
                                          ------------------------ ---------------------- ----------------------
                                                      % OF LOANS             % OF LOANS              % OF LOANS
                                                        IN EACH                IN EACH                IN EACH
                                                      CATEGORY TO            CATEGORY TO            CATEGORY TO
                                           AMOUNT     TOTAL LOANS   AMOUNT   TOTAL LOANS   AMOUNT   TOTAL LOANS
                                          -------     -----------   ------   -----------   ------   -----------
                                                                                          (DOLLARS IN THOUSANDS)
 <S>                                      <C>          <C>          <C>         <C>         <C>        <C>
 Balance at end of period applicable
 to:
        One-to-four family residential
          mortgage loans                  $  675        59.48%      $  503      63.44%      $  418     62.70%
        Multifamily residential
         mortgage loans                    1,026        26.38          948      20.42          870     20.90
        Commercial mortgage loans             76         1.95          157       3.09          175      3.85
        Consumer loans                       374        12.19          345      13.05          273     12.55
                                          ------       ------       ------     ------       ------    ------
           Total allowance for loan
           losses                         $2,151       100.00%      $1,953     100.00%      $1,736    100.00%
                                          ======       ======       ======     ======       ======    ======
</TABLE>
<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,
                                         --------------------------------------------------
                                                    1994                     1993
                                         -------------------------- -----------------------
                                                      % OF LOANS                % OF LOANS
                                                        IN EACH                   IN EACH
                                                      CATEGORY TO               CATEGORY TO
                                            AMOUNT    TOTAL LOANS     AMOUNT    TOTAL LOANS
                                            ------    -----------     ------    -----------

 <S>                                        <C>          <C>         <C>           <C>
 Balance at end of period applicable
 to:
        One-to-four family residential
          mortgage loans                    $  429       65.48%      $  272        63.98%
        Multifamily residential
         mortgage loans                        646       16.70          646        18.73
        Commercial mortgage loans              189        4.79          181         5.39
        Consumer loans                         279       13.03          207        11.90
                                            ------      ------       ------       ------
           Total allowance for loan
           losses                           $1,543      100.00%      $1,306       100.00%
                                            ======      ======       ======       ======
</TABLE>


         AVERAGE BALANCE SHEET

         The following tables sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid.  Such yields and costs are derived by dividing income
or expense by the average balance of assets or liabilities, respectively, for
the periods presented.  For purposes of these tables, average balances were
computed on a monthly basis.

                                      -50-
<PAGE>

<TABLE>
<CAPTION>
                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                  ----------------------------------------------------------------------------------------------
                                  AT DECEMBER 31, 1997                 1997                                 1996
                                  --------------------    ----------------------------------   ---------------------------------
                                                                                    AVEREAGE                             AVERAGE
                                                YIELD/    AVERAGE                   YIELD/     AVERAGE                   YIELD/
                                    BALANCE      COST     BALANCE      INTEREST      COST      BALANCE       INTEREST     COST
                                    -------     ------    -------      --------     --------   -------       --------    -------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                 <C>           <C>     <C>          <C>            <C>       <C>           <C>           <C>
ASSETS:
  Interest-earning
  assets:
    First mortgage loans(1)         $169,682      8.07%   $154,227     $ 12,433(8)    8.06%     $137,668      $11,174(8)    8.12%
    Consumer loans(1)                 23,717      9.50      23,138        2,201       9.51        20,900        2,007       9.60
    Investment securities             21,706(4)   6.12      27,102(5)     1,571       5.79        29,827(6)     1,909       6.40
                                    --------              --------     --------                 --------      -------
      Total interest-
       earning assets               $215,105      8.03    $204,467     $ 16,205       7.93      $188,395      $15,090       8.01
  Noninterest-earning assets           6,849                 6,645     ========                    4,721      =======
                                    --------              --------                              --------
      Total assets                  $221,954              $211,112                              $193,116
                                    ========              ========                              ========

LIABILITIES AND EQUITY:
  Interest-bearing liabilities:
  NOW and money market
    savings                         $ 23,415      2.90%   $ 21,777     $    632       2.90%     $ 18,704      $   530       2.83%
  Passbook savings                    17,120      2.25      17,425          392       2.25        18,997          432       2.27
  Certificates of
   Deposit                            97,444      5.94       93,239       5,470       5.87        88,688        5,256       5.93
  Borrowed funds                      28,550      5.93       23,679       1,406       5.94        12,114          711       5.87
                                    --------              --------     --------                 --------      -------
     Total interest-bearing
      liabilities                   $166,529      5.13%    $156,120    $  7,900       5.06%     $138,503      $ 6,929       5.00%
  Noninterest-bearing                                                  ========                               =======
   liabilities                         5,008                  5,634                                4,920
                                    --------              --------                              --------
      Total liabilities             $171,537               $161,754                             $143,423
  Equity                              50,417                 49,358                               49,693
                                    --------              --------                              --------
      Total liabilities
      and equity                    $221,954               $211,112                             $193,116
                                    ========              ========                              ========
  Net interest income                                                  $  8,305                               $ 8,161
  Net interest rate spread(2)                     2.90%                ========       2.87%                   ========      3.01%
  Net interest margin(3)                          4.06                                4.06                                  4.33
  Ratio of average
   interest-earning assets to
    average interest-bearing
    liabilities                                 129.17                              130.97                                136.02
</TABLE>
<TABLE>
<CAPTION>

                                     FOR THE YEAR ENDED DECEMBER 31,
                                    ----------------------------------
                                                   1995
                                    ----------------------------------
                                                               AVERAGE
                                    AVERAGE                    YIELD/
                                    BALANCE      INTEREST       COST
                                    -------      --------      -------
                                          (DOLLARS IN THOUSANDS)
<S>                                 <C>            <C>           <C>
ASSETS:
  Interest-earning
  assets:
    First mortgage loans(1)         $120,825      $ 9,818(8)     8.13
    Consumer loans(1)                 17,865        1,703        9.53
    Investment securities             27,128(7)     1,627        6.00
                                    --------      -------
      Total interest-
       earning assets               $165,818      $13,148        7.93
  Noninterest-earning assets           3,722      =======
                                    --------
      Total assets                  $169,540
                                    ========
LIABILITIES AND EQUITY:
  Interest-bearing liabilities:
  NOW and money market
    savings                         $ 15,000      $   426        2.84%
  Passbook savings                    19,777          571        2.89
  Certificates of
   Deposit                            88,107        5,281        5.99
  Borrowed funds                      13,734          801        5.84
                                    --------      -------
     Total interest-bearing
      liabilities                   $136,618      $ 7,079        5.18%
  Noninterest-bearing                             =======
   liabilities                         4,111
                                    --------
      Total liabilities             $140,729
  Equity                              28,811
                                    --------
      Total liabilities
      and equity                    $169,540
                                    ========
  Net interest income                             $ 6,069
                                                  =======
  Net interest rate spread(2)                                    2.75%
  Net interest margin(3)                                         3.66
  Ratio of average
   interest-earning assets to
    average interest-bearing
    liabilities                                                121.37
</TABLE>
____________________

(1)      Balance is net of deferred loan fees, loan discounts and loans in
         process.  Nonaccrual loans are included in the balances.
(2)      Net interest rate spread represents the difference between the yield
         on average interest-earning assets and the cost of average
         interest-bearing liabilities.
(3)      Net interest margin represents net interest income divided by average
         total interest-earning assets.
(4)      Includes interest-bearing deposits of $2,463,000 and securities
         available for sale of $19,243,000.
(5)      Includes interest-bearing deposits of $3,912,000, securities
         available for sale of $22,440,000 and securities held to maturity of
         $750,000.
(6)      Includes interest-bearing deposits of $3,323,000, securities
         available for sale of $16,298,000 and securities held to maturity of
         $10,206,000.
(7)      Includes interest-bearing deposits of $2,251,000, securities
         available for sale of $5,846,000 and securities held to maturity of
         $19,031,000.
(8)      Includes loan fee amortization of $(35,000), $(33,000) and $(57,000)
         for the years ended December 31, 1997, 1996 and 1995.

                                      -51-
<PAGE>

RATE/VOLUME ANALYSIS

         The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods indicated.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in average
volume (changes in average volume multiplied by old rate); (ii) changes in
rates (changes in rate multiplied by old average volume); (iii) changes in
rate-volume (changes in rate multiplied by the changes in average volume); and
(iv) the net change.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                                DECEMBER 31, 1997
                                                                   COMPARED TO
                                                                    YEAR ENDED
                                                                DECEMBER 31, 1996
                                              -------------------------------------------------------
                                                        INCREASE/(DECREASE)
                                                              DUE TO
                                              --------------------------------------
                                                                                              TOTAL
                                                                              RATE/         INCREASE
                                              VOLUME           RATE           VOLUME       (DECREASE)
                                              ------           ----           ------        ---------
                                                                (IN THOUSANDS)
<S>                                           <C>             <C>            <C>             <C>
INTEREST INCOME:
   First mortgage loans                       $ 1,344         $   (76)       $    (9)        $ 1,259
   Consumer loans                                 215             (19)            (2)            194
   Investment securities                         (216)           (109)           (13)           (338)
                                              -------         -------        -------         -------
   Total interest-earning assets              $ 1,343         $  (204)       $   (24)        $ 1,115
                                              =======         =======        =======         =======
INTEREST EXPENSE:
   NOW and money market savings               $    87         $    13        $     2         $   102
   Passbook savings                               (36)             (4)             -             (40)
   Certificate of deposits                        271             (53)            (3)            215
   Borrowed funds                                 679               8              7             694
                                              -------         -------        -------         -------
   Total interest-bearing liabilities         $ 1,001         $   (36)       $     6         $   971
                                              =======         =======        =======         =======
   Net change in net interest income          $   342         $  (168)       $   (30)        $   144
                                              =======         =======        =======         =======
</TABLE>
<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                                                                    DECEMBER 31, 1996
                                                                       COMPARED TO
                                                                       YEAR ENDED
                                                                    DECEMBER 31, 1995
                                                  --------------------------------------------------------
                                                             INCREASE/(DECREASE)
                                                                   DUE TO
                                                  --------------------------------------          TOTAL
                                                                                  RATE/          INCREASE
                                                   VOLUME           RATE         VOLUME         (DECREASE)
                                                   ------           ----         -------        ----------
                                                                       (IN THOUSANDS)
<S>                                                <C>             <C>           <C>             <C>

INTEREST INCOME:
   First mortgage loans                            $ 1,369        $   (11)       $    (2)        $ 1,356
   Consumer loans                                      289             13              2             304
   Investment securities                               183            153            (54)            282
                                                   -------        -------        -------         -------
   Total interest-earning assets                   $ 1,841        $   155        $   (54)        $ 1,942
                                                   =======        =======        =======         =======
INTEREST EXPENSE:
   NOW and money market savings                    $   105        $    (1)       $     -         $   104
   Passbook savings                                    (23)          (122)             5            (140)
   Certificate of deposits                              35            (59)             -             (24)
   Borrowed funds                                      (94)             5             (1)            (90)
                                                   -------        -------        -------         -------
   Total interest-bearing liabilities              $    23        $  (177)       $     4         $  (150)
                                                   =======        =======        =======         =======
   Net change in net interest income               $ 1,818        $   332        $   (58)        $ 2,092
                                                   =======        =======        =======         =======
</TABLE>

                                      -52-
<PAGE>

COMPARISON OF FINANCIAL CONDITION AS OF DECEMBER 31, 1997, DECEMBER 31, 1996
AND DECEMBER 31, 1995

       Total assets increased $18.9 million, or 9.3%, from $203.1 million at
December 31, 1996 to $222.0 million at December 31, 1997.   Securities
available for sale decreased $3.3 million, or 14.2%, primarily due to the
maturities of several U.S. Treasury Notes and the call of certain equity
securities, partially offset by the purchase of several U.S. Treasury Notes
and the purchase of certain equity securities.  Securities held to maturity
decreased $3.5 million, or 100.0%, due to the maturities of several U.S.
Treasury Notes and the Company's decision not to replace such securities at
the present time, in order to allow the Company greater flexibility in
managing its portfolio of investment securities.  Total loans receivable, net,
increased by $25.4 million, or 15.3%, from $165.8 million at December 31, 1996
to $191.3 million at December 31, 1997, primarily due to the origination of
$25.0 million of first mortgage loans secured by one-to-four family
residences, purchases and originations of first mortgage loans primarily
secured by multifamily residences located out of state of $22.3 million, and
originations of $9.6 million of second mortgage loans.  These originations and
purchases were offset in part by payments, prepayments and sales of loans
during the year ended December 31, 1997.  Deposits increased $11.4 million, or
8.8%, from $129.7 million at December 31, 1996 to $141.1 million at December
31, 1997, primarily reflecting increases in certificates of deposit.  Other
borrowings, primarily FHLB advances, increased $6.2 million, to $28.6 million
at December 31, 1997 from $22.3 million at December 31, 1996.  Total
shareholders' equity increased $1.2 million from $49.2 million at December 31,
1996 to $50.4 million at December 31, 1997, primarily due to net income and
increased unrealized gains, less dividends paid to shareholders and funds used
for repurchases of Common Stock.

       Total assets increased $23.2 million, or 12.9%, from $179.9 million at
December 31, 1995 to $203.1 million at December 31, 1996, reflecting the use
of proceeds from the Conversion.  Total loans receivable, net, increased by
$18.0 million, or 12.1%, from $147.9 million at December 31, 1995 to $165.8
million at December 31, 1996, primarily due to the origination of $24.2
million of first mortgage loans secured by one-to-four family residences,
purchases and originations of first mortgage loans secured by one-to-four
family and multifamily residences located out of state of $11.4 million, and
originations of $10.1 million of second mortgage loans.  These originations
and purchases were offset in part by payments, prepayments and sales of loans
during the year ended December 31, 1996.  Deposits increased $3.0 million, or
2.4%, from $126.7 million at December 31, 1995 to $129.7 million at December
31, 1996.  Other borrowings, primarily FHLB advances, increased $395,000, to
$22.3 million at December 31, 1996 from $21.9 million at December 31, 1995.  A
portion of the proceeds from the Conversion was used to repay then outstanding
FHLB advances.  Subsequently, borrowings were increased primarily to fund loan
growth.  Total shareholders' equity increased $19.3 million from $29.9 million
at December 31, 1995 to $49.2 million at December 31, 1996, primarily due to
the issuance of stock in connection with the Conversion, less dividends paid
to shareholders and stock repurchases.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996

       Interest Income.  Interest income increased by $1.1 million to $16.2
million for the year ended December 31, 1997 compared to $15.1 million for the
year ended December 31, 1996.  The increase in interest income was primarily
due to a $16.1 million increase in average interest earning assets to $204.5
million for the year ended December 31, 1997, from $188.4 million for 1996.
The increase in the average balances of interest earning assets primarily
reflects increases in the average balances of first and second mortgage loans.
These increases were primarily derived from originations of $25.0 million of
first mortgage loans secured by one-to-four family residences, purchases and
originations of first mortgage loans secured by multifamily residences located
outside of the State of Iowa of $22.3 million and originations of $9.6 million
of second mortgage loans, which originations and purchases were offset in part
by payments, prepayments and sales of loans during the year ended December 31,
1997.  The  increase in average interest-earning assets reflects the Company's
continued emphasis on residential lending.  See "-Business Strategy."  The
average balance of securities held to maturity decreased $9.5 million, or
92.7%, and such securities were in part, replaced by lower yielding securities
available for sale.  The average yield on interest earning assets decreased

                                      -53-
<PAGE>

to 7.93% for the year ended December 31, 1997 from 8.01% for the year ended
December 31, 1996, primarily due to a general decrease in market interest
rates.

       Interest Expense.  Interest expense increased by $971,000 to $7.9
million for the year ended December 31, 1997 compared to $6.9 million for the
year ended December 31, 1996.  The increase in interest expense was primarily
due to a $17.6 million increase in the average balances of interest bearing
liabilities to $156.1 million for the year ended December 31, 1997 compared to
$138.5 million for comparable 1996 period.  The increase in the average
balances of interest bearing liabilities reflects an increase in the average
balances of certificates of deposit and borrowed funds, consistent with the
Company's strategy of controlled internal growth.  The increase of $11.6
million, or 95.5%, of the average balance of borrowed funds from 1996 reflects
the repayment of borrowed funds with the proceeds of the Conversion in 1996
and the increase of borrowed funds subsequent to the Reorganization to fund
asset growth.  The average cost of interest bearing liabilities increased to
5.06% for the year ended December 31, 1997 from 5.00% for the year ended
December 31, 1996, reflecting changes in the distribution of NOW and money
market savings accounts and borrowing of funds with longer maturities and to a
lesser extent increases in the average cost of NOW and money market savings
accounts and borrowed funds.  This was offset in part by a decline in the
average cost of certificates of deposit, primarily reflecting maturities of
certificates of deposit at a rate of higher than the current market rate.

       Net Interest Income.  Net interest income before provision for loan
losses increased by $144,000 to $8.3 million for the year ended December 31,
1997 from $8.2 million for the year ended December 31, 1996.  The increase is
primarily due to the increases in the average interest earning assets, and
increases in the average interest bearing liabilities.  This increase was
offset in part by the decrease in the interest rate spread  (i.e., the
difference in the average yield on assets and average cost of liabilities)
from 3.01% for the year ended December 31, 1996 to 2.87% for the year ended
December 31, 1997.  The decline in the spread reflects the general decline in
the overall yields on interest-earning assets combined with the increase in
the average balance of borrowed funds and certificates of deposit which have
higher costs than other interest-bearing liabilities.

       Provision for Loan Losses.  The Company's provision for loan losses was
$240,000 for years ended December 31, 1997 and December 31, 1996.  The Company
establishes provisions for loan losses, which are charged to operations, in
order to maintain the allowance for loan losses at a level which is deemed to
be appropriate based upon an assessment of prior loss experience, industry
standards, past due loans, economic conditions, the volume and type of loans
in the Company's portfolio, which includes a significant amount of multifamily
loans, substantially all of which are purchased and are secured by properties
located out of state, and other factors related to the collectibility of the
Company's loan portfolio.  The net charge offs were $42,000 for the year ended
December 31, 1997 as compared to $23,000 for the year ended December 31, 1996.
The resulting allowance for loan loss was $2.2 million at December 31, 1997 as
compared to $2.0 million at December 31, 1996.

       The increase in the allowance is primarily due to the increase in total
loans from $168.9 million at December 31, 1996 to $194.6 million at December
31, 1997 as well as the increase in multifamily loans both on an aggregate
basis and a percentage of the total loan portfolio.  The allowance for loan
losses as a percentage of total loans receivable decreased to 1.10% at
December 31, 1997 from 1.16% at December 31, 1996.  The level of nonperforming
loans has decreased to $147,000 at December 31, 1997 from $184,000 at December
31, 1996.  See "Asset Quality".

       Management believes that the allowance for loan losses is adequate.
While management estimates loan losses using the best available information,
such as independent appraisals for significant collateral properties, no
assurance can be made that future adjustments to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding problem loans, identification of
additional problem loans, and other factors, both within and outside of
management's control.

                                      -54-
<PAGE>

       Noninterest income.  Total noninterest income increased by $644,000, or
34.0%, to $2.5 million for the year ended December 31, 1997 from $1.9 million
for the year ended December 31, 1996.  The increase is due to increases in
abstract fees, other income and gain on the sale of investments.  Abstract
fees increased $291,000 due to increased sales volume, which is in part
attributable to the purchase of the assets of an abstract company in December,
1996.  Other income increased by $41,000, primarily due to the rental income
from the Bank's investment in the Northridge Apartment Limited Partnership,
offset in part by decreases in annuity sales.  Non interest income for the
year ended December 31, 1997 also reflects gains on the sales of securities
available for sale of $249,000, as compared to gains on the sale of such
securities of $14,000 for the 1996 comparable period due to a substantial
portion of the Holding Company's available for sale securities being sold in
1997.  See "-Business Strategy-Increased Noninterest Income".

       Noninterest Expense.  Total non-interest expense decreased by $362,000
million to $4.6 million for the year ended December 31, 1997 from $4.9 million
for the year ended December 31, 1996.  The decrease is primarily due to the
$817,000 one-time assessment to recapitalize the SAIF in 1996.  Absent the
one-time SAIF special assessment, the noninterest expense for the year ended
December 31, 1997 increased $455,000 over the corresponding period in 1996.
The increase in 1997 is primarily due to increases in salaries and employee
benefits and other expenses, offset in part by decreases in SAIF deposit
insurance premiums.  The increase in salaries and benefits was primarily a
result of the expenses associated with the ESOP, normal salary increases and
increase in the number of employees at the Ames office and at First Iowa,
offset in part by the costs incurred in 1996 related to the adoption of a
retirement plan for the benefit of the former Chairman of the Board.  The
increase in other expenses is primarily due to higher expenditures for
advertising, employee expenses, professional fees and expenses associated with
the Bank's investment in the Northridge Apartments Limited Partnership.  The
decrease in SAIF deposit insurance, excluding the one-time assessment, was
primarily due to the enactment of legislation which decrease assessment rates
for institutions such as the Bank.  See "SAIF Recapitalization."  The
Company's efficiency ratio, excluding the one-time SAIF assessment, for the
year ended December 31, 1997 and 1996 were 42.21% and 40.99%, respectively.
The Company's ratio of noninterest expense to average assets, excluding the
one-time SAIF assessment, for the year ended December 31, 1997 and 1997 were
2.17% and 2.13%, respectively.

       Income Taxes.  Income taxes increased by $365,000 to $2.1 million for
the year ended December 31, 1997 as compared to $1.7 million for the year
ended December 31, 1996. The increase was principally due to an increase in
pre-tax earnings during the 1997 period as compared to the 1996 period, offset
in part by the tax credits recognized from the Bank's investment in the
Northridge Apartments Limited Partnership in 1997.

       Net Income.  Net income totalled $3.9 million for the year ended
December 31, 1997 compared to $3.1 million for the same period in 1996.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995

       Interest Income.  Interest income increased by $1.9 million to $15.1
million for the year ended December 31, 1996 compared to $13.1 million for the
year ended December 31, 1995.  The increase in interest income was primarily
due to a $22.7 million increase in average interest earning assets (consisting
primarily first and second mortgage loans) to $188.4 million for the year
ended December 31, 1996, from $165.7 million for the comparable 1995 period.
The increase in the average balances of interest earning assets primarily
reflects increases in the average balances of first and second mortgage loans.
These increases were primarily derived from originations of $24.2 million of
first mortgage loans secured by one-to-four family residences, purchases and
originations of first mortgage loans secured by one-to-four family and
multifamily residences located outside of the State of Iowa of $11.4 million
and originations of $10.1 million of second mortgage loans, which originations
and purchases were offset in part by payments, prepayments and sales of loans
during the year ended December 31, 1996.  The  increase in average
interest-earning assets reflects the use of proceeds from the Conversion and
the Company's emphasis on residential lending.  See "-Business Strategy."  The
increase in interest income was also due to an increase in the average yield
on investment securities to 6.40% from 6.00% for the year ended December 31,
1996 and 1995, respectively,

                                      -55-
<PAGE>

reflecting the purchase of certain higher yielding equity securities during
the year ended December 31, 1996.  The average yield on interest earning
assets increased to 8.01% for the year ended December 31, 1996 from 7.93% for
the year ended December 31, 1995.

       Interest Expense.  Interest expense decreased by $150,000 to $6.9
million for the year ended December 31, 1996 compared to $7.1 million for the
year ended December 31, 1995.  The decrease in interest expense was due to the
decrease in the average cost of deposits from 5.11% for the year ended
December 31, 1995 to 4.92% for the year ended December 31, 1996.  The decline
in the average cost of deposits was primarily due to a decline in the
Company's average cost of passbook accounts reflecting a general decline in
market interest rates, as well as a net increase of $3.7 million in the
average balance of NOW and money market savings accounts, which accounts bear
interest at lower rates than the Company's average cost of funds.  The
decrease in interest expense was also due to a decrease in the average balance
of borrowed funds from $13.7 million for the year ended December 31, 1995, to
$12.1 million for the 1996 comparable period, as the Company used a portion of
the proceeds of the Conversion to repay FHLB advances.  The decrease was
offset in part by an increase of $3.5 million in the average interest-bearing
deposits from $122.9 million for the year ended December 31, 1995 to $126.4
million for the year ended December 31, 1996, due to the Company's offering of
favorable rates on certain types of deposit accounts.  The average cost of
interest bearing liabilities decreased to 5.00% for the year ended December
31, 1996 from 5.18% for the year ended December 31, 1995.

       Net Interest Income.  Net interest income before provision for loan
losses increased by $2.1 million to $8.2 million for the year ended December
31, 1996 from $6.1 million for the year ended December 31, 1995.  The increase
is primarily due to the increase in the excess of average interest earning
assets over average interest bearing liabilities and an increase in the
Company's interest rate spread (i.e., the difference between the average yield
on assets and the average cost of liabilities) from 2.75% for the year ended
December 31, 1995 to 3.01% for the year ended December 31, 1996.

       Provision for Loan Losses.  The Company's provision for loan losses
decreased by $10,000 to $240,000 for year ended December 31, 1996 from
$250,000 for the same period of the prior year.  The Company establishes
provisions for loan losses, which are charged to operations, in order to
maintain the allowance for loan losses at a level which is deemed to be
appropriate based upon an assessment of prior loss experience, industry
standards, past due loans, economic conditions, the volume and type of loans
in the Company's portfolio, which includes a significant amount of multifamily
loans, substantially all of which are purchased and are secured by properties
located out of state, and other factors related to the collectibility of the
Company's loan portfolio.  The net charge offs were $23,000 for the year ended
December 31, 1996 as compared to $57,000 for the year ended December 31, 1995.
The resulting allowance for loan loss was $2.0 million at December 31, 1996 as
compared to $1.7 million at December 31, 1995.

       The increase in the allowance is primarily due to the increase in total
loans from $151.3 million at December 31, 1995 to $168.9 million at December
31, 1996.  The allowance for loan losses as a percentage of total loans
receivable increased to 1.16% at December 31, 1996 from 1.15% at December 31,
1995.  The level of nonperforming loans has increased slightly to $184,000 at
December 31, 1996 from $181,000 at December 31, 1995.  See "Asset Quality".

       Management believes that the allowance for loan losses is adequate.
While management estimates loan losses using the best available information,
such as independent appraisals for significant collateral properties, no
assurance can be made that future adjustments to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding problem loans, identification of
additional problem loans, and other factors, both within and outside of
management's control.

       Noninterest income.  Total noninterest income increased by $191,000, or
11.2%, to $1.9 million for the year ended December 31, 1996 from $1.7 million
for the year ended December 31, 1995.  The increase is primarily due to a
$136,000 increase in abstract fees, attributable to increased sales volume, a
$111,000 increase in checking account charges and a $82,000 increase in
annuity commissions, which commissions are

                                      -56-
<PAGE>

generated by the annuity sales activities of First Financial Service
Corporation, a wholly owned subsidiary of the Bank.  This increase, over
fiscal year 1995, was offset in part by a $182,000 gain on the sale of
securities available for sale for the year ended December 31, 1995.  See
"-Business Strategy-Increase Noninterest Income".

       Noninterest Expense.  Total non-interest expense increased by $1.3
million to $4.9 million for the year ended December 31, 1996 from $3.7 million
for the year ended December 31, 1995, primarily due to the $817,000 one-time
SAIF Assessment.  Absent the SAIF Assessment, the increase reflects a $322,000
increase in salaries and benefits, a $39,000 increase in premises and
equipment and $101,000 increase in other expenses.  The increase in salaries
and benefits was primarily a result of a one-time adoption of a retirement
plan for the benefit of the former Chairman of the Board, the increased costs
associated with the Company's Employee Stock Option Plan ("ESOP") and normal
salary increases.  The increase in premises and equipment is primarily a
result of increased depreciation expense due to expenditures in the Company's
Nevada office and equipment in the abstract companies.  The increase in other
expenses is primarily a result of increased professional fees, checking
account costs and costs incurred for a Special Meeting of Shareholders in
September, 1996.

       Income Taxes.  Income taxes increased by $340,000 to $1.7 million for
the year ended December 31, 1996 as compared to $1.4 million for the year
ended December 31, 1995. The increase was principally due to an increase in
pre-tax earnings during the 1996 period as compared to the 1995 period.

       Net Income.  Net income totalled $3.1 million for the year ended
December 31, 1996 compared to $2.5 million for the same period in 1995.

IMPACT OF INFLATION AND CHANGING PRICES

        The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance with
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars
without considering the change in the relative purchasing power of money over
time and due to inflation. The impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
nearly all the assets and liabilities are monetary. As a result, interest
rates have a greater impact on the Company's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

        In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).  SFAS No.
130 requires that all items that are components of comprehensive income
defined as "the change in equity [net assets] of a business enterprise during
a period from transactions and other events and circumstances from nonowner
sources, including all changes in equity during a period except those
resulting from investments by owners and distributions to owners," be reported
in a financial statement that is displayed with the same prominence as other
financial statements.  Companies will be required to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position.  SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997, and requires reclassification of prior
periods presented.  As the requirements of SFAS No. 130 are disclosure
related, its implementation will have no impact on the Company's financial
condition or results of operations.

        In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information (SFAS No. 131). SFAS No. 131 requires that enterprises report
certain financial and descriptive information about operating segments in
complete sets of financial statements of the Company and in condensed
financial statements of interim periods issued to

                                      -57-
<PAGE>

shareholders.  It also requires that a Company report certain information
about their products and services, geographic areas in which they operate and
their major customers. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. As the requirements of SFAS No. 131 are disclosure
related, its implementation will have no impact on the Company's financial
condition or results of operations.

                                      -58-
<PAGE>

ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES

                 See Item 7.  Management Discussion and Analysis.  "Discussion
                 of Market Risk - Interest Rate Sensitivity Analysis."



ITEM 8.  FINANCIAL STATEMENTS


                        NORTH CENTRAL BANCSHARES, INC.
                               AND SUBSIDIARIES


                        INDEX TO FINANCIAL STATEMENTS


--------------------------------------------------------------------------

INDEPENDENT AUDITOR'S REPORT                                     60

--------------------------------------------------------------------------

FINANCIAL STATEMENTS
         Consolidated statements of financial condition          61
         Consolidated statements of income                       62
         Consolidated statements of shareholders' equity         63
         Consolidated statements of cash flows                   64
         Notes to consolidated financial statements              66

--------------------------------------------------------------------------

                                      -59-
<PAGE>

                                    [LOGO]

                            McGLADREY & PULLEN, LLP
                            -----------------------
                 Certified Public Accountants and Consultants


                         INDEPENDENT AUDITOR'S REPORT
                         ON THE FINANCIAL STATEMENTS


To the Board of Directors
North Central Bancshares, Inc.
Fort Dodge, Iowa

We have audited the accompanying consolidated statements of financial
condition of North Central Bancshares, Inc. and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for the three years ended December 31,
1997, 1996 and 1995.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North
Central Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the three years
ended December 31, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles.




                                          /S/ MCGLADREY & PULLEN LLP


Des Moines, Iowa
January 30, 1998

                                      -60-
<PAGE>

 NORTH CENTRAL BANCSHARES, INC.
 AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
 ASSETS                                                                         1997              1996
---------------------------------------------------------------------------------------------------------
 <S>                                                                       <C>               <C>
 CASH:
   Interest-bearing                                                        $  2,462,809      $  2,973,490
   Noninterest-bearing                                                          982,354           963,325
 Securities available for sale (Notes 2 and 8)                               19,815,913        23,103,614
 Securities held to maturity (Note 2)                                                           3,499,528
 Loans receivable, net (Notes 3, 4, 8 and 14)                               191,248,830       165,831,040
 Accrued interest receivable (Note 5)                                         1,300,495         1,327,733
 Foreclosed real estate                                                          67,107           128,471
 Premises and equipment, net (Note 6)                                         2,143,016         1,780,392
 Rental real estate                                                           2,059,148         1,775,844
 Title plant                                                                    925,256           968,747
 Deferred taxes (Note 9)                                                        105,139           198,000
 Prepaid expenses and other assets                                              843,541           542,351
                                                                           ------------      ------------
        TOTAL ASSETS                                                       $221,953,608      $203,092,535
                                                                           ============      ============

 LIABILITIES AND STOCKHOLDERS' EQUITY

 LIABILITIES
   Deposits (Note 7)                                                       $141,123,707      $129,722,044
   Borrowed funds (Note 8)                                                   28,550,000        22,335,000
   Advances from borrowers for taxes and insurance (Note 4)                     918,369           845,488
   Dividend payable                                                             204,155           230,344
   Income taxes payable                                                         194,325           182,826
   Accrued expenses and other liabilities                                       545,976           542,026
                                                                           ------------      ------------
        TOTAL LIABILITIES                                                   171,536,532       153,857,728
                                                                           ------------      ------------

 COMMITMENTS AND CONTINGENCIES (Notes 13, 16 and 19)

 STOCKHOLDERS' EQUITY  (Notes 11 and 17)
   Common stock, $.01 par value, authorized 15,500,000 shares;
     issued and outstanding 1997 and 1996 4,011,057 shares                       40,111            40,111
   Preferred stock, $.01 par value, authorized 3,000,000 shares;
     issued and outstanding 1997 and 1996 none
   Additional paid-in capital                                                37,949,598        37,796,611
   Retained earnings, substantially restricted (Note 9)                      23,660,964        20,531,604
   Unearned shares, employee stock ownership plan (Note 10)                  (1,210,441)       (1,416,955)
   Unrealized gain on securities available for sale, net of income taxes        354,781            73,097
   Less cost of treasury stock, 1997 744,574 shares;
     1996 581,602 shares                                                    (10,377,937)       (7,789,661)
                                                                           ------------      ------------
        TOTAL STOCKHOLDERS' EQUITY                                           50,417,076        49,234,807
                                                                           ------------      ------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $221,953,608      $203,092,535
                                                                           ============      ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                      -61-
<PAGE>

 NORTH CENTRAL BANCSHARES, INC.
 AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME
 YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                               1997           1996           1995
------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>
Interest income:
  Loans receivable:
    First mortgage loans                                    $12,432,797    $11,173,567      $9,817,876
    Consumer loans                                            2,200,965      2,007,185       1,702,971
 Securities and cash deposits                                 1,570,932      1,909,267       1,627,516
                                                            ------------------------------------------
                                                             16,204,694     15,090,019      13,148,363
                                                            ------------------------------------------
 Interest expense:
   Deposits (Note 7)                                          6,493,931      6,217,234       6,277,578
   Other borrowed funds                                       1,405,679        711,418         801,448
                                                            ------------------------------------------
                                                              7,899,610      6,928,652       7,079,026
                                                            ------------------------------------------
        NET INTEREST INCOME                                   8,305,084      8,161,367       6,069,337
 Provision for loan losses (Note 3)                             240,000        240,000         250,000
                                                            ------------------------------------------
        NET INTEREST INCOME AFTER PROVISION
            FOR LOAN LOSSES                                   8,065,084      7,921,367       5,819,337
                                                            ------------------------------------------

Noninterest income:
  Fees and service charges                                      656,695        579,999         444,916
  Abstract fees                                               1,221,807        931,031         794,732
  Gain on sale of securities available for sale, net            248,526         13,774         181,871
  Other income                                                  409,968        368,691         281,286
                                                            ------------------------------------------
        TOTAL NONINTEREST INCOME                              2,536,996      1,893,495       1,702,805
                                                            ------------------------------------------

 Noninterest expense:
   Salaries and employee benefits (Note 10)                   2,208,807      2,003,701       1,681,290
   Premises and equipment                                       444,231        420,633         381,771
   Data processing                                              258,250        243,762         235,626
   SAIF special assessment                                            -        817,275               _
   SAIF deposit insurance premiums                               84,742        278,563         286,593
   Other expenses (Note 12)                                   1,580,622      1,174,450       1,072,968
                                                            ------------------------------------------
        TOTAL NONINTEREST EXPENSE                             4,576,652      4,938,384       3,658,248
                                                            ------------------------------------------
        INCOME BEFORE INCOME TAXES                            6,025,428      4,876,478       3,863,894
Provision for income taxes (Note 9)                           2,108,304      1,743,557       1,403,262
                                                            ------------------------------------------
        NET INCOME                                           $3,917,124     $3,132,921      $2,460,632
                                                            ==========================================

Basic earnings per common share (Note 18)                    $     1.23     $      .82      $      .63

Earnings per common share-assuming dilution (Note 18)        $     1.21     $      .82      $      .63

Dividends declared per common share (Note 11)                $      .25     $      .28      $      .60
</TABLE>


See Notes to Consolidated Financial Statements.

                                      -62-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                                                                                  Gain (Loss)
                                                                                                                      on
                                                                                                                  Securities
                                                                                                                  Available
                                                                                                   Employee       for Sale,
                                                                      Additional                     Stock          Net of
                                                          Common       Paid-in        Retained     Ownership        Income
                                                          Stock        Capital        Earnings        Plan          Taxes
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>        <C>            <C>           <C>           <C>
Balance, December 31, 1994                                $ 37,000   $12,344,001    $16,541,883   $  (886,000)  $ (223,855)
  Net income                                                     -             -      2,460,632             -            -
  Dividends on common stock                                      -             -       (781,889)            -            -
  Effect on contribution to employee stock
   ownership plan                                                -         6,839              -       117,210            -
  Reclassification of security to available for sale
   (Note 2)                                                      -             -              -             -       27,766
  Net change in unrealized gain on securities available
   for sale, net                                                 -             -              -             -      256,741
                                                          -------------------------------------------------------------------
Balance, December 31, 1995                                  37,000    12,350,840     18,220,626      (768,790)      60,652
  Net income                                                     -             -      3,132,921             -            -
  Reorganization and conversion  to  stock  form
   and proceeds from issuance of common stock in
   connection therewith                                      3,111    26,249,048              -             -            -
  Expenses incurred relating to conversion to stock form         -      (844,469)             -             -            -
  Purchase of treasury stock                                     -             -              -             -            -
  Unearned ESOP shares                                           -             -              -      (840,000)           -
  Dividends on common stock                                      -             -       (821,943)            -            -
  Effect  of  contribution  to  employee stock ownership
   plan                                                          -        41,192              -       191,835            -
  Net change in unrealized gain on securities available
   for sale, net                                                 -             -              -             -       12,445
                                                          -------------------------------------------------------------------
Balance, December 31, 1996                                  40,111    37,796,611     20,531,604    (1,416,955)      73,097
  Net income                                                     -             -      3,917,124             -            -
  Purchase of treasury stock                                     -             -              -             -            -
  Dividends on common stock                                      -             -       (787,764)            -            -
  Effect of contribution to employee stock ownership plan        -       147,968              -       206,514            -
  Effect of stock options exercised                              -         5,019              -             -            -
  Net change in unrealized gain on securities available
   for sale, net                                                 -             -              -             -      281,684
                                                          -------------------------------------------------------------------
Balance, December 31, 1997                                $ 40,111   $37,949,598    $23,660,964   $(1,210,441)  $  354,781
                                                          ===================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                              Total
                                                             Treasury      Stockholders
                                                               Stock          Equity
---------------------------------------------------------------------------------------
<S>                                                        <C>             <C>
Balance, December 31, 1994                                 $          -    $27,813,029
  Net income                                                          -      2,460,632
  Dividends on common stock                                           -       (781,889)
  Effect on contribution to employee stock
   ownership plan                                                     -        124,049
  Reclassification of security to available for sale
   (Note 2)                                                           -         27,766
  Net change in unrealized gain on securities available
   for sale, net                                                      -        256,741
                                                          ----------------------------
Balance, December 31, 1995                                            -     29,900,328
  Net income                                                          -      3,132,921
  Reorganization and conversion  to  stock  form
   and proceeds from issuance of common stock in
   connection therewith                                               -     26,252,159
  Expenses incurred relating to conversion to stock form              -       (844,469)
  Purchase of treasury stock                                 (7,789,661)    (7,789,661)
  Unearned ESOP shares                                                -       (840,000)
  Dividends on common stock                                           -       (821,943)
  Effect  of  contribution  to  employee stock ownership
   plan                                                               -        233,027
  Net change in unrealized gain on securities available
   for sale, net                                                      -         12,445
                                                          ----------------------------
Balance, December 31, 1996                                   (7,789,661)    49,234,807
  Net income                                                          -      3,917,124
  Purchase of treasury stock                                 (2,706,750)    (2,706,750)
  Dividends on common stock                                           -       (787,764)
  Effect of contribution to employee stock ownership plan             -        354,482
  Effect of stock options exercised                             118,474        123,493
  Net change in unrealized gain on securities available
   for sale, net                                                      -        281,684
                                                          ----------------------------
Balance, December 31, 1997                                 $(10,377,937)   $50,417,076
                                                          ============================
</TABLE>

                                      -63-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                   1997            1996           1995
----------------------------------------------------------------------------------------------------------
 <S>                                                           <C>            <C>            <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                  $  3,917,124   $  3,132,921   $  2,460,632
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Provision for loan losses                                      240,000        240,000        250,000
     Depreciation                                                   298,927        202,911        170,445
     Amortization and accretion                                      74,219       (163,796)      (306,421)
     Deferred taxes                                                 (80,591)      (143,069)        41,946
     Effect of contribution to employee stock
       ownership plan                                               354,482        185,027         28,049
     (Gain) on sale of foreclosed real estate and loans, net         (7,499)       (16,924)       (11,675)
     (Gain) on sale of securities available for sale               (248,526)       (13,774)      (181,871)
     Loss on disposal of equipment                                    3,321         19,781
     Stock dividend on Federal Home Loan Bank stock                       -              -        (22,900)

     Change in assets and liabilities:
       (Increase) decrease in accrued interest receivable            27,238         87,378       (236,323)
       (Increase) decrease in income taxes receivable                     -         31,766        (31,766)
       (Increase) in prepaid expenses and other assets             (301,190)    (1,449,942)      (587,546)
       Increase (decrease) in income taxes payable                   29,211        182,826        (57,646)
       Increase in accrued expenses and other liabilities             3,950         34,345         74,195
                                                               ------------------------------------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES                4,310,666      2,329,450      1,589,119
                                                               ------------------------------------------

 CASH FLOWS FROM INVESTING ACTIVITIES
   Net (increase) in loans                                       (3,298,056)   (10,546,067)    (8,537,826)
   Purchase of loans                                            (22,363,597)    (7,499,489)   (14,503,589)
   Proceeds from sale of securities available for sale            3,204,196         53,891      1,165,856
   Purchase of securities available for sale                     (2,777,723)   (15,314,175)    (3,172,234)
   Proceeds from maturities of securities available for sale      3,500,000              -              -
   Proceeds from maturities of securities held to maturity        3,500,000     12,500,000      8,000,000
   Purchase of securities held to maturity                                -              -     (4,992,057)
   Purchase of premises, equipment and rental real estate          (981,010)      (381,450)      (424,827)
   Proceeds from sale of equipment                                   31,325            100            500
   Purchase of title plant                                                -       (110,947)      (699,270)
   Proceeds from sale of title plant                                 45,000              -              -
   Other                                                             62,925         16,442       (116,314)
                                                               ------------------------------------------
        NET CASH (USED IN) INVESTING ACTIVITIES                 (19,076,940)   (21,281,695)   (23,279,761)
                                                               ------------------------------------------
</TABLE>

                              (Continued)

                                      -64-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                                   1997            1996           1995
----------------------------------------------------------------------------------------------------------
 <S>                                                           <C>            <C>            <C>
 CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                    $ 11,401,663   $  3,049,731   $  2,483,023
   Increase in advances from borrowers for taxes
     and insurance                                                   72,881         63,943          7,740
   Net change in short-term borrowings                           (3,000,000)    (7,965,000)    15,000,000
   Proceeds from other borrowed funds                            21,250,000      9,300,000      3,150,000
   Payments of other borrowed funds                             (12,035,000)      (892,000)             -
   Proceeds from conversion to stock form                                 -     25,412,159              -
   Payments for expenses incurred relating to
     conversion to stock form                                             -       (642,326)             -
   Deferred conversion costs                                              -              -       (202,143)
   Purchase of treasury stock                                    (2,706,750)    (7,789,661)             -
   Proceeds from issuance of treasury stock                         105,781              -              -
   Dividends paid                                                  (813,953)      (719,428)      (654,060)
                                                               ------------------------------------------
        NET CASH PROVIDED BY FINANCING ACTIVITIES                14,274,622     19,817,418     19,784,560
                                                               ------------------------------------------

        NET INCREASE (DECREASE) IN CASH                            (491,652)       865,173     (1,906,082)

 CASH
   Beginning                                                      3,936,815      3,071,642      4,977,724
                                                               ------------------------------------------
   Ending                                                      $  3,445,163   $  3,936,815   $  3,071,642
                                                               ==========================================

 SUPPLEMENTAL SCHEDULE OF CASH FLOW
   INFORMATION
   Cash payments for:
     Interest paid to depositors                               $  6,479,044   $   6,236,351  $  6,320,563
     Interest paid on borrowings                                  1,477,850         684,894       767,995
     Income taxes                                                 2,180,268       1,656,411     1,450,728
</TABLE>

See Notes to Consolidated Financial Statements.

                                      -65-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------
Note 1.      Significant Accounting Policies

Organization and nature of business and basis of presentation:  North Central
Bancshares, Inc. (the Company), an Iowa corporation, is a unitary savings and
loan holding company that owns 100% of the outstanding stock of First Federal
Savings Bank of Iowa (the Bank), formerly First Federal Savings Bank of Fort
Dodge, which is a federally chartered stock savings bank that conducts its
operations from its main office located in Fort Dodge, Iowa and three branch
offices located in Fort Dodge, Nevada and Ames, Iowa.

The Company was created as part of a reorganization and conversion effected by
the Bank and North Central Bancshares, M.H.C. (the MHC) which became effective
on March 20, 1996. See Note 17 for a more complete description of the
reorganization and conversion.

Prior to March 20, 1996, the MHC owned approximately 65% of the Bank with the
remaining 35% owned by members of the general public (including directors and
officers of the Bank). The MHC became effective on August 31, 1994 when First
Federal Savings Bank of Iowa (the mutual savings bank) converted to a federal
mutual holding company and concurrently formed a new federally chartered stock
savings bank subsidiary (the Bank). See Note 16 for a more complete
description.

The financial statements presented for the Company include, since March 20,
1996, the consolidated statements of the Company and the Bank and, for periods
prior to the March 20, 1996 conversion, the consolidated statements of the MHC
and the Bank as if the MHC owned 100% of the Bank. These financial statements
were prepared as if the pooling-of-interests method of accounting were applied
to the conversions.

Principles of consolidation:  The consolidated financial statements, as
described above, include the accounts of the Company and its wholly-owned
subsidiary, the Bank and the Bank's wholly-owned subsidiaries, First Financial
Service Corporation (which sells insurance and annuity products and originates
equipment leases), First Iowa Title Services, Inc. (which provides real estate
abstracting services), and Northridge Apartments Limited Partnership (which
owns a multifamily apartment building).  All significant intercompany balances
and transactions have been eliminated in consolidation.

Accounting estimates and assumptions:  The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Securities held to maturity:  Debt securities for which the Company has both
the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost. Amortization of premiums and
accretion of discounts is computed by the interest method over their
contractual lives.

                                      -66-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

Securities available for sale:  Securities classified as available for sale
are those debt and equity securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity. Any decision to
sell a security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors.

Securities available for sale are reported at fair value with unrealized gains
or losses reported as a separate component of stockholders' equity, net of the
related deferred tax effect. The amortization of premiums and accretion of
discounts is computed by the interest method over their contractual lives.

Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings.

Loans receivable:  Loans receivable are stated at unpaid principal balances,
less the allowance for loan losses, net deferred loan origination fees, and
unearned discounts.

Discounts on first mortgage loans are amortized to income using the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.

The allowance for loan losses is increased by provisions charged to income and
reduced by charge-offs, net of recoveries. Management's periodic evaluation of
the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, and current economic conditions. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.

Uncollectible interest on loans that are contractually past due is charged off
or an allowance is established based on management's periodic evaluation,
generally when loans become 90 days past due. The allowance is established by
a charge to interest income equal to all interest previously accrued, and
income is subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower's ability to make
periodic interest and principal payments is no longer in doubt, in which case
the loan is returned to accrual status.

Loan origination fees and related costs:  Loan fees and certain direct loan
origination costs are deferred, and the net fee or cost is recognized as an
adjustment to interest income using the interest method over the contractual
life of the loans, adjusted for estimated prepayments based on the Bank's
historical prepayment experience.

Foreclosed real estate:  Real estate properties acquired through loan
foreclosure are initially recorded at the lower of cost or fair value less
selling costs at the date of foreclosure. Costs relating to development and
improvement of property are capitalized, whereas costs relating to the holding
of property are expensed.

Valuations are periodically performed by management, and an allowance for
losses is established by a charge to income if the carrying value of a
property exceeds its market value less estimated selling costs.

                                      -67-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

Premises and equipment:  Premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation is computed primarily by straight-line
and double declining-balance methods over the estimated useful lives of the
assets.

Rental real estate:  Rental real estate is comprised of a low-income housing,
multi-family apartment building and equipment which is stated at cost, net of
accumulated depreciation.  Depreciation is computed primarily by the
straight-line and double declining-balance methods over the estimated useful
lives of the assets.

Title plant:  Title plant is carried at cost and, in accordance with FASB
Statement No. 61, is not depreciated. Costs incurred to maintain and update
the title plant are expensed as incurred.

Income taxes:  Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
difference between the reported amounts of assets and liabilities and their
income tax bases. Income taxes are allocated to the Company and its
subsidiaries based on each entity's income tax liability as if it filed a
separate return.

Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.

Earnings per share:  Basic earnings per share and earnings per common share -
assuming dilution were computed using the methodology prescribed by FASB
Statement No. 128 "Earnings per Share," which became effective for the year
ended December 31, 1997.  The basic earnings per share amounts were computed
using the weighted average number of shares outstanding during the periods
presented.  The earnings per share amounts - assuming dilution were computed
using the weighted average number of shares outstanding during the periods
presented, adjusted for the effect of dilutive potential common shares
outstanding which consists of stock options granted.  In accordance with
Statement of Position 93-6, shares owned by the ESOP that have not been
committed to be released are not considered to be outstanding for the purpose
of computing earnings per share.  Earnings per share for 1995 have been
restated to account for the effect of the stock conversion ratio in the 1996
conversion.

Stock-option plan:  SFAS No. 123, "Accounting for Stock-Based Compensation,"
establishes a fair value based method for financial accounting and reporting
for stock-based employee compensation plans and for transactions in which an
entity issues its equity instruments to acquire goods and services from
non-employees. However, the standard allows compensation to continue to be
measured by using the intrinsic value based method of accounting prescribed by
APB No. 25, Accounting for Stock Issued to Employees, but requires expanded
disclosures. The Company has elected to apply the intrinsic value based method
of accounting for stock options issued to employees. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock.

                                      -68-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

Fair value of financial instruments:  FASB Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheets, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in immediate settlement of the
instruments. Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:

   Cash:  The fair value of cash approximates the carrying amount.

   Securities:  Fair values for all securities are based on quoted market
   prices, where available. If quoted market prices are not available, fair
   values are based on quoted market prices of comparable instruments.

   Loans:  For variable-rate loans that reprice frequently and that have
   experienced no significant change in credit risk, fair values are based on
   carrying values. Fair values for all other loans are estimated based on
   discounted cash flows, using interest rates currently being offered for
   loans with similar terms to borrowers with similar credit quality.

   Deposits:  Fair values disclosed for demand, NOW, passbook savings and
   money market savings deposits equal their carrying amounts, which represent
   the amount payable on demand. Fair values for certificates of deposit are
   estimated using a discounted cash flow calculation that applies interest
   rates currently being offered on certificates to a schedule of aggregate
   expected monthly maturities on time deposits.

   Borrowed funds:  The fair value of borrowed funds is estimated based on
   discounted cash flows using currently available borrowing rates.

   Accrued interest receivable and payable:  The fair values of both accrued
   interest receivable and payable approximate their carrying amounts.

   Commitments to extend credit:  The fair values of commitments to extend
   credit are based on fees currently charged to enter into similar
   agreements, taking into account the remaining terms of the agreements and
   credit worthiness of the counterparties. At December 31, 1997 and 1996, the
   carrying amount and fair value of the commitments were not significant.

                                      -69-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

NOTE 2. SECURITIES

Securities available for sale as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                               GROSS           GROSS
                                AMORTIZED    UNREALIZED      UNREALIZED
                                  COST         GAINS          (LOSSES)    FAIR VALUE
                              ------------------------------------------------------
 <S>                          <C>             <C>            <C>         <C>
 EQUITY SECURITIES:
   FEDERAL HOME LOAN BANK
     STOCK                    $ 1,549,700     $      -       $     -     $ 1,549,700
   FHLMC PREFERRED STOCK        1,005,810                     (3,978)      1,001,832
   FNMA PREFERRED STOCK         5,134,375      265,445             -       5,399,820
   OTHER                          557,078      261,858             -         818,936
 DEBT SECURITIES:
   U.S. TREASURY NOTES         10,995,766       50,994        (1,135)     11,045,625
                              ------------------------------------------------------
                              $19,242,729     $578,297       $(5,113)    $19,815,913
                              ======================================================
</TABLE>

Securities available for sale as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                               Gross           Gross
                                Amortized    Unrealized      Unrealized
                                  Cost         Gains          (Losses)    Fair Value
                              ------------------------------------------------------
 <S>                          <C>             <C>            <C>         <C>
 Equity securities:
   Federal Home Loan Bank
     stock                    $ 1,374,000     $      -       $      -    $ 1,374,000
   FHLMC preferred stock        3,011,510        1,800        (80,347)     2,932,963
   FNMA preferred stock         5,134,375      134,225              -      5,268,600
   Other                          475,250       35,429         (1,379)       509,300
 Debt securities:
   U.S. Treasury notes         12,990,431       45,933        (17,613)    13,018,751
                              ------------------------------------------------------
                              $22,985,566     $217,387       $(99,339)   $23,103,614
                              ======================================================
</TABLE>

Securities held to maturity as of  December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                               Gross           Gross
                                Amortized    Unrealized      Unrealized
                                  Cost         Gains          (Losses)    Fair Value
                              ------------------------------------------------------
 <S>                          <C>             <C>            <C>         <C>
 Debt securities,
   U.S. Treasury notes        $ 3,499,528     $  7,034       $      -    $ 3,506,562
                              ======================================================
</TABLE>

                                      -70-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

The amortized cost and fair value of debt securities as of December 31, 1997
by contractual maturity are shown below:

<TABLE>
<CAPTION>
                                                     Securities Available for Sale
                                                     -----------------------------
                                                      Amortized Cost    Fair Value
                                                     -----------------------------
<S>                                                    <C>             <C>
Due in one year or less                                $ 8,997,801     $ 9,014,846
Due in one year to five years                            1,997,965       2,030,782
                                                       ---------------------------
                                                       $10,995,766     $11,045,628
                                                       ===========================
</TABLE>


Gross gains of $248,526, $13,774 and $181,871 were realized on the sale of
available for sale securities in 1997, 1996 and 1995, respectively.

At December 31, 1997, the Bank has pledged $5,000,000 of U.S. Treasury notes
as collateral for certain deposits.


NOTE 3. LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                                               1997            1996
                                                                           ----------------------------
<S>                                                                        <C>             <C>
First mortgage loans (principally conventional)
  Principal balances:
  Secured by one-to-four family residences                                 $114,692,784    $106,372,691
  Secured by:
    Multi-family properties                                                  51,345,391      34,488,126
    Commercial properties                                                     3,799,728       5,224,709
  Construction loans                                                          1,070,100         796,000
                                                                           ----------------------------
        Total first mortgage loans                                          170,908,003     146,881,526
                                                                           ----------------------------
Consumer loans:
  Principal balances:
    Automobile                                                                4,696,339       4,154,972
    Second mortgage                                                          16,225,834      15,301,062
    Other                                                                     2,794,877       2,582,812
                                                                           ----------------------------
        Total consumer loans                                                 23,717,050      22,038,846
                                                                           ----------------------------
 Total loans                                                                194,625,053     168,920,372

 Less:
    Undisbursed portion of construction loans                                  (453,434)       (370,881)
    Unearned discounts                                                         (423,640)       (524,679)
    Net deferred loan origination fees                                         (348,562)       (240,885)

Allowance for loan losses                                                    (2,150,587)     (1,952,887)
                                                                           ----------------------------
                                                                           $191,248,830    $165,831,040
                                                                           ============================
</TABLE>

                                      -71-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

Activity in the allowance for loan losses is summarized as follows for the
years ended December 31:

<TABLE>
<CAPTION>
                                                           1997          1996          1995
                                                        --------------------------------------
<S>                                                     <C>           <C>           <C>
Balance, beginning                                      $1,952,887    $1,735,599    $1,542,609
  Provision charged to income                              240,000       240,000       250,000
  Loans charged off                                        (52,724)      (24,297)      (57,956)
  Recoveries                                                10,424         1,585           946
                                                        --------------------------------------
Balance, ending                                         $2,150,587    $1,952,887    $1,735,599
                                                        ======================================
</TABLE>

Nonaccrual loans totaled approximately $147,000 and $184,000 at December 31,
1997 and 1996, respectively. The amount of interest related to nonaccrual
loans for 1997, 1996 and 1995 is insignificant.

The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, executive
officers and their immediate families (commonly referred to as related
parties), all of which have been, in the opinion of management, on the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others.

Activity in loans receivable from certain executive officers and directors of
the Bank consists of the following:

<TABLE>
<CAPTION>
 <S>                                                  <C>                                        $
 Balance, December 31, 1994                           906,873
   Additions                                          232,800
   Payments                                           (56,382)
                                                   ----------
 Balance, December 31, 1995                         1,083,291
   Additions                                          293,450
   Payments                                          (173,128)
                                                   ----------
 Balance, December 31, 1996                         1,203,613
   Additions                                          221,983
   Payments                                          (380,408)
                                                   ----------
 BALANCE, DECEMBER 31, 1997                        $1,045,188
                                                   ==========
</TABLE>

NOTE 4. LOAN SERVICING

Mortgage loans serviced for FHLMC and other banks are not included in the
accompanying consolidated statements of financial condition. The unpaid
principal balances of these loans at December 31, 1997 and 1996 are $2,963,396
and $2,498,998, respectively.  Custodial escrow balances maintained in
connection with the foregoing loan servicing were approximately $27,000 and
$54,000, at December 31, 1997 and 1996, respectively.

                                      -72-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

NOTE 5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31 is summarized as follows:

<TABLE>
<CAPTION>
                                                                  1997           1996
                                                               --------------------------
<S>                                                            <C>            <C>
Securities                                                     $  127,653     $  225,423
Loans receivable                                                1,177,763      1,114,498
                                                               -------------------------
                                                                1,305,416      1,339,921
Less allowance for uncollectible interest                           4,921         12,188
                                                               -------------------------
                                                               $1,300,495     $1,327,733
                                                               =========================
</TABLE>


NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                  1997           1996
                                                               --------------------------
<S>                                                            <C>            <C>
Land                                                           $   255,744    $   368,739
Buildings and improvements                                       2,784,872      2,331,709
Leasehold improvements                                              15,546         10,557
Furniture, fixtures and equipment                                1,218,608      1,044,801
Vehicles                                                            48,723         44,870
                                                               --------------------------
                                                                 4,323,493      3,800,676
Less accumulated depreciation                                    2,180,477      2,020,284
                                                               --------------------------
                                                               $ 2,143,016    $ 1,780,392
                                                               ==========================
</TABLE>

                                      -73-
<PAGE>

NOTE 7. DEPOSITS

Deposits at December 31 are as follows:

<TABLE>
<CAPTION>
                            Weighted                              Weighted
                            Average                               Average
                            Rate at             1997              Rate at                1996
                          December 31,   --------------------   December 31,  ------------------------
Nature of Deposit             1997       Amount     Percentage      1997        Amount      Percentage
------------------------------------------------------------------------------------------------------
<S>                           <C>     <C>              <C>         <C>       <C>              <C>
Demand and NOW
accounts:
   Noninterest bearing           -%   $  3,144,412      2.2            -%    $  2,274,967       1.8
   Interest-bearing           2.00      14,456,894     10.2         2.00       11,823,752       9.1
Passbook savings              2.25      17,119,633     12.1         2.25       17,755,812      13.7
Money market savings          4.35       8,958,483      6.4         4.33        7,280,741       5.6
                                      ---------------------                  ----------------------
                                        43,679,422     30.9                    39,135,272      30.2
                                      ---------------------                  ----------------------
Certificates of
deposit:
   Less than 4.0%             3.32          90,438      0.1         3.39          139,862       0.1
   4.0% - 4.9%                4.68       5,403,762      3.8         4.59        8,817,252       6.8
   5.0% - 5.9%                5.60      40,345,775     28.6         5.54       36,664,197      28.3
   6.0% - 6.9%                6.23      44,707,179     31.7         6.30       33,044,967      25.4
   7.0% - 7.9%                7.06       6,877,794      4.9         7.09       11,867,441       9.2
   8.0% - 8.9%                8.23          19,337      0.0         8.08           53,053         -
                                      ---------------------                  ----------------------
                                        97,444,285     69.1                    90,586,772      69.8
                                      ---------------------                  ----------------------
                              4.85%   $141,123,707    100.0%        4.87%    $129,722,044     100.0
                                      =====================                  ======================
</TABLE>

At December 31, 1997, scheduled maturities of certificates of deposit are as
follows:

<TABLE>
<CAPTION>
                          One year          One to           Two to         Three to       Four to
                          or less          two years       three years     four years     five years    Thereafter
                       -------------------------------------------------------------------------------------------
<S>                    <C>              <C>               <C>              <C>            <C>           <C>
 Less than 3.9%        $    90,438      $         -       $         -      $        -     $        -    $      -
 4.0 - 4.9%              4,358,583          888,683           150,642           5,854              -           -
 5.0 - 5.9%             21,918,572       11,541,153         4,516,435       2,258,357        111,258           -
 6.0 - 6.9%             13,858,816       10,958,844         7,987,260       5,566,739      6,324,583      10,937
 7.0 - 7.9%                518,678        1,252,264         5,106,852               -              -           -
 More than 8.0%             17,210            2,127                 -               -              -           -
                       -------------------------------------------------------------------------------------------
                       $40,762,297      $24,643,071        17,761,189       7,830,950      6,435,841      10,937.
                       ===========================================================================================
</TABLE>

                                      -74-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

Interest expense on deposits consists of the following:

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                          ----------------------------------------
                                                              1997          1996           1995
                                                          ----------------------------------------
 <S>                                                      <C>            <C>            <C>
 NOW accounts                                             $  253,210     $  223,567     $  229,368
 Passbook savings                                            392,064        431,724        571,191
 Money market savings                                        378,981        306,005        196,409
 Certificates of deposit                                  $5,469,676     $5,255,938     $5,280,610
                                                          ----------------------------------------
                                                          $6,493,931     $6,217,234     $6,277,578
                                                          ========================================
</TABLE>

The aggregate amount of certificates of deposit of $100,000 or more was
$5,782,000 and $2,432,000 as of December 31, 1997 and 1996, respectively.


Note 8. BORROWED FUNDS
Borrowed funds at December 31, 1997 consist of term borrowings from Federal
Home Loan Bank of Des Moines (FHLB) as follows:

<TABLE>
<CAPTION>

                                      Weighted
                                       Average
                 Maturity           Interest Rate             Amount
                 --------           -------------             ------
                 <S>                    <C>                <C>
                  1998                  5.76               $10,250,000
                  1999                  6.14                 3,000,000
                  2000                  5.90                 5,000,000
                  2001                  6.02                 4,300,000
                  2002                  6.06                 6,000,000
                                        ----               -----------
                                        5.93               $28,550,000
                                        ====               ===========
</TABLE>

The Bank has an open line of credit which matures on February 28, 1998.  There
were no advances on the FHLB open line of credit at December 31, 1997.  The
term borrowings and open line of credit are collateralized by the Federal Home
Loan Bank stock and sufficient real estate loans to at least equal 150% of the
total borrowings outstanding.

                                      -75-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------------

NOTE 9. INCOME TAXES AND RETAINED EARNINGS
Through 1995, the provisions of the Internal Revenue and similar sections of
Iowa Law Code permitted the Bank to deduct from taxable income an allowance
for bad debts based on 8% of taxable income before such deduction or actual
loss experience. The Bank used the percentage of taxable income method to
compute its deductions in 1995.  Legislation passed in 1996 eliminated the
percentage of taxable income method as an option for computing bad debt
deductions for 1996 and in all future years. The Bank will still be permitted
to take deductions for bad debts, but will be required to compute such
deductions using an experience method.

The Bank is recapturing its tax bad debt reserves which have accumulated since
1987 amounting to approximately $1,400,000. The tax associated with the
recaptured reserves is approximately $522,000 and will be paid over a six year
period beginning in 1998.  Deferred income taxes have been established for the
taxes associated with the recaptured reserves.

Deferred taxes have been provided for the difference between tax bad debt
reserves and the loan loss allowances recorded in the financial statements
subsequent to December 31, 1987.  However, at December 31, 1997, retained
earnings contain certain historical additions to bad debt reserves for income
tax purposes of approximately $1,636,000 as of December 31, 1987, for which no
deferred taxes have been provided because the Bank does not intend to use
these reserves for purposes other than to absorb losses. If these amounts
which qualified as bad debt deductions are used for purposes other than to
absorb bad debt losses or adjustments arising from the carryback of net
operating losses, income taxes may be imposed at the then existing rates. The
approximate amount of unrecognized tax liability associated with these
historical additions is $622,000.

Income tax expense is summarized as follows:

<TABLE>
<CAPTION>
                                    Years ended December 31,
                             ------------------------------------
                                 1997         1996         1995
                             ------------------------------------
 <S>                         <C>          <C>          <C>
 Current                     $2,188,895   $1,886,626   $1,361,316
 Deferred                       (80,591)    (143,069)      41,946
                             ------------------------------------
                             $2,108,304   $1,743,557   $1,403,262
                             ====================================
</TABLE>

                                      -76-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Deferred tax assets and liabilities consist of the following components as of
December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                             1997           1996
                                                                         ------------------------
 <S>                                                                     <C>          <C>
 Deferred tax assets:
   Unearned shares, employee stock ownership plan                        $  24,000    $    20,000
   Allowance for loan losses                                               270,000        197,000
   Deferred directors fees and compensation                                 62,000         68,000
   Other                                                                    28,591         15,000
                                                                         ------------------------
         Total gross deferred tax assets                                   384,591        300,000
                                                                         ------------------------
   Deferred tax liabilities:
   Federal Home Loan Bank stock dividend                                     9,000          9,000
   Unrealized gain on securities available for sale                        218,452         45,000
   Premises and equipment                                                   10,000         15,000
   Title plant                                                              42,000         33,000
                                                                         ------------------------
        Total gross deferred tax liabilities                               279,452        102,000
                                                                         ------------------------

        Net deferred tax assets                                          $ 105,139    $   198,000
                                                                         ========================
</TABLE>


Total income tax expense differed from the amounts computed by applying the U.
S. federal income tax rates of 34 percent to income before income taxes as a
result of the following:

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                          --------------------------------------------------------------------------
                                    1997                    1996                   1995
                          --------------------------------------------------------------------------
                                       PERCENT OF              PERCENT OF               PERCENT OF
                                         PRETAX                  PRETAX                   PRETAX
                            AMOUNT       INCOME     AMOUNT       INCOME      AMOUNT       INCOME
                          --------------------------------------------------------------------------
 <S>                      <C>             <C>     <C>            <C>      <C>             <C>
 Income before income
   taxes                  $2,048,646      34.0%   $1,658,003      34.0%   $1,313,724      34.0
 Nontaxable dividends       (119,550)     (2.0)     (107,983)     (2.2)      (56,134)     (1.4)
 State income taxes,
   net of federal income
   tax benefit               174,621       2.9       125,286       2.6       120,847       3.1
 Low income housing tax
   credit                    (97,894)     (1.6)            -         -             -
 Other                       102,481       1.7        68,251       1.4        24,825       0.6
                          --------------------------------------------------------------------------
                          $2,108,304      35.0%   $1,743,557      35.8    $1,403,262      36.3
                          ==========================================================================
</TABLE>


NOTE 10. EMPLOYEE BENEFIT PLANS
Retirement plans:  The Bank participates in a multi-employer defined benefit
pension plan covering substantially all employees. This is a multi-employer
plan and information as to actuarial valuations and net assets available for
benefits by participating institutions is not available.  There was no pension
expense for the years ended December 31, 1997, 1996 and 1995.

                                      -77-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

The Bank has a defined contribution plan covering substantially all employees.
Contributions to the plan were approximately none, $19,000 and $29,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. As of July 31,
1996, the Bank no longer contributes to this plan.

Employee Stock Ownership Plan (ESOP):  In conjunction with the Bank's
conversion to stock ownership, the Bank established an ESOP for eligible
employees. All employees of the Bank as of January 1, 1994, were eligible to
participate immediately and employees of the Bank hired after January 1, 1994
are eligible to participate after they attain age 21 and complete one year of
service during which they work at least 1,000 hours. The ESOP borrowed funds
in the amount of $960,000 to purchase 104,075 shares of common stock issued in
the conversion in 1994 and $840,000 to purchase 84,000 shares of common stock
issued in the reorganization and conversion in 1996. These funds are borrowed
from the Company.

The Bank makes contributions to the ESOP equal to the ESOP's debt service less
dividends received by the ESOP.  Dividends on unallocated ESOP shares are used
to pay debt service. Contributions to the ESOP and shares released from the
suspense account in an amount proportional to the repayment of the ESOP loan
are allocated among ESOP participants on the basis of compensation in the year
of allocation. Benefits generally become 100% vested after five years of
credited service. Forfeitures will be reallocated among remaining
participating employees, in the same proportion as contributions. Benefits may
be payable in the form of stock or cash upon termination of employment. If the
Bank's stock is not traded on an  established market at the time of an ESOP
participant's termination, the terminated ESOP participant has the right to
require the Bank to purchase the stock at its current fair market value. Bank
management believes that there is an established market for the Bank's stock
and therefore the Bank believes there is no potential repurchase obligation at
December 31, 1997 and 1996.

As shares are released, the Bank reports compensation expense equal to the
current market price of the shares. Dividends on allocated ESOP shares are
recorded as a reduction of retained earnings; dividends on unallocated ESOP
shares are recorded as a reduction of debt and accrued interest. ESOP
compensation expense was $354,482, $233,027 and $124,049 for the years ended
December 31, 1997, 1996 and 1995.

Shares of the Company's common stock held by the ESOP at December 31, 1997 and
1996 are as follows:

<TABLE>
<CPATION>
                                                                  1997          1996
                                                             ----------------------------
 <S>                                                         <C>             <C>
 Allocated shares                                            $   62,408.00  $   40,861.00
 Unreleased (unearned) shares                                   125,667.00     147,214.00
                                                             ----------------------------
                                                             $  188,075.00  $  188,075.00
                                                             ============================
 Fair market value of unreleased (unearned) shares           $2,497,632.00  $1,996,590.00
                                                             ============================
</TABLE>

                                      -78-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

Stock option plan:  In 1996, the stockholders of the Company ratified the 1996
Incentive Option Plan (the Plan). The Plan provides for the grant of options
at an exercise price equal to the fair market value on the date of grant. The
Plan is intended to promote stock ownership by directors and selected officers
and employees of the Company to increase their proprietary interest in the
success of the Company and to encourage them to remain in the employment of
the Company or its subsidiaries. Awards granted under the Plan may include
incentive stock options, nonqualified stock options and limited rights which
are exercisable only upon a change in control of the Bank or the Company. All
awards to date are nonqualified stock options.

The Plan authorizes the granting of stock options for a total of 401,105
shares of common stock or 10% of the shares issued in the 1996 conversion. All
options are granted at an exercise price which was the market price of  the
common stock on the grant date.

Options granted to officers and directors become exercisable in five equal
annual installments commencing September 21, 1997 and continuing on each
anniversary date thereafter. The options expire 10 years from the date of
grant unless an earlier expiration date is triggered by death, disability,
retirement or termination, as described in the Plan.

The table below reflects option activity for the period indicated:


                                                                   Weighted-
                                                                    Average
                                                                    Exercise
                                                       Number       Price per
                                                      of Shares      Share
                                                      -----------------------
Outstanding, December 31, 1995                              -             -
  Granted                                             237,000         12.38
  Exercised                                                 -             -
                                                      ---------------------
Outstanding, December 31, 1996                        237,000         12.38
  Granted                                               3,500         15.44
  Forfeited                                            (1,000)        12.38
  Exercised                                            (8,500)        12.45
                                                      ---------------------
Outstanding, December 31, 1997                        231,000      $  12.42
                                                      =====================

Options exercisable                                    39,200      $  12.38
                                                      =====================

Remaining shares available for grant                  160,605
                                                      =======

As of December 31, 1997, the 231,000 options outstanding under the Plan have
exercise prices between $12.375 and $15.75.  The weighted average fair value
per option of options granted during the years ended December 31, 1997 and
1996 were $5.75 and $4.54, respectively.

                                      -79-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

Had compensation cost for the Plan been determined based on the grant date
fair values of awards (the method described in FASB Statement No. 123), the
approximate 1997 and 1996 reported net income and earnings per common share
would have been decreased to the pro forma amounts shown below. The 1995
amounts for net income and earnings per common share would not have been
affected since the Plan was adopted in 1996.

                                                       1997          1996
                                                   --------------------------
Net income:
  As reported                                      $ 3,917,124    $ 3,132,921
  Pro forma                                          3,780,710      3,098,600


Earnings per common share:
  As reported                                      $      1.23    $       .82
  Pro forma                                               1.19            .81


Earnings per common share - assuming dilution:
  As reported                                      $      1.21    $       .82
  Pro forma                                               1.17            .81


The fair values of the grants are estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted Lverage
assumptions:  dividend rate of 1.84%, price volatility of 25%, risk-free
interest rates of 6.62% to 7.40%, and expected lives of eight years.

Employment agreements:  The Company and the Bank have entered into employment
agreements with a key officer. Under the terms of the agreements, the officer
is entitled to additional compensation in the event of certain conditions of
involuntary termination. The agreements extend for up to 36 months.

The Bank has entered into certain employment retention agreements with key
officers. Under the terms of the agreements, the employees are entitled to
additional compensation in the event of a change of control of the Bank or the
Company and the employees are involuntarily terminated within the remaining
unexpired employment period, up to 24 months. A change in control is generally
triggered by the acquisition or control of 20% or more of the common stock.

NOTE 11.  STOCKHOLDERS' EQUITY

Regulatory capital requirements:  The Bank is subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory - and
possible additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

                                      -80-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), of Tier I capital (as defined) to average
assets (as defined) and tangible capital to adjusted assets. Management
believes, as of December 31, 1997, the Bank meets all capital adequacy
requirements to which it is subject.

The Bank's actual capital amounts and ratios are also presented in the table.

<TABLE>
<CAPTION>
                                                                                     To Be Well
                                                                                  Capitalized Under
                                                                For Capital       Prompt Corrective
                                             Actual          Adequacy Purposes    Action Provisions
                                    ---------------------------------------------------------------
                                      Amount       Ratio     Amount     Ratio    Amount       Ratio
                                    ---------------------------------------------------------------
                                      (000's)                (000's)               (000's)
<S>                                 <C>            <C>     <C>           <C>     <C>          <C>
AS OF DECEMBER 31, 1997:
  TOTAL CAPITAL (TO RISK
    WEIGHTED ASSETS)                $   39,478     32.1%   $   9,830     8.0%    $  12,288    10.0%
  TIER 1 CAPITAL (TO RISK
    WEIGHTED ASSETS)                    37,935     30.9        4,915     4.0         7,373     6.0
  TIER I (CORE) CAPITAL
    (TO ADJUSTED ASSETS)                37,935     17.3        6,595     3.0        10,992     5.0
  TANGIBLE CAPITAL (TO
    ADJUSTED ASSETS)                    37,935     17.3        3,298     1.5             -       -

As of December 31, 1996:
  Total Capital (to risk
    weighted assets)                $   45,255     40.7%   $   8,880     8.0%    $  11,100    10.0%
  Tier 1 Capital (to risk
    weighted assets)                    43,861     39.5        4,440     4.0         6,660     6.0
  Tier I (Core) Capital
    (to adjusted assets)                43,861     21.8        6,045     3.0        10,076     5.0
  Tangible Capital (to
    adjusted assets)                    43,861     21.8        3,023     1.5             -       -
</TABLE>

Limitations on Dividends and Other Capital Distributions  OTS regulations
impose limitations on dividends and other capital distributions by savings
institutions. Capital distributions include cash dividends, payments to
repurchase or otherwise acquire the savings association's shares, payments to
stockholders of another institution in a cash out merger, and other
distributions charged against capital. The rule establishes three tiers of
institutions. An institution such as the Bank that exceeds all fully phased-in
capital requirements before and after a proposed capital distribution ("Tier 1
Association") may, after prior notice but without the approval of the OTS,
make capital distributions during a calendar year up to the higher of (i) 100%
of its net income to date during the calendar year plus the amount that would
reduce by one-half its surplus capital at the beginning of the calendar year
or (ii) 75% of its net income over the most recent four-quarter period,
subject to certain limitations and restrictions as described in the
regulations. Any additional capital distributions would require prior
regulatory approval. A savings institution that does not meet its current
regulatory capital requirement before or after payment of a proposed capital
distribution may not make any capital distributions without the prior approval
of the OTS. At December 31, 1997 the Bank was considered a Tier 1 Association.

                                      -81-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

The MHC, which owned 2,421,711 shares of common stock prior to the 1996
conversion, requested and received permission from the OTS to waive the
receipt of dividends from the Bank for several quarterly periods. This waiver
had the effect of reducing the actual amount of dividends paid in cash.  The
total amount of dividends waived totaled approximately $1,897,000.  As a
result of the 1996 reorganization and conversion, the waived dividends were
added to the liquidation account (see Note 17).

NOTE 12.  OTHER NONINTEREST EXPENSE

Other noninterest expense amounts are summarized as follows for the years
ended December 31:

<TABLE>
<CAPTION>
                                                            1997           1996           1995
                                                        ----------     ----------     ----------
<S>                                                     <C>            <C>            <C>
Advertising and promotion                               $  147,605     $   92,245     $  108,146
Professional fees                                          249,617        202,677        137,189
Printing, postage, stationery, and supplies                215,332        182,134        171,631
Checking account charges                                   158,512        151,724        138,024
Insurance                                                   81,056         72,236         64,886
OTS general assessment                                      49,326         54,825         48,063
Other                                                      679,174        418,609        405,029
                                                        ----------     ----------     ----------
                                                        $1,580,622     $1,174,450     $1,072,968
                                                        ==========     ==========     ==========
</TABLE>



NOTE 13.  FINANCIAL INSTRUMENTS WITH OFF-STATEMENT OF FINANCIAL CONDITION RISK
The Bank is a party to financial instruments with off-statement of financial
condition risk in the normal course of business to meet the financing needs of
its customers. These financial instruments consist primarily of commitments to
extend credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial condition. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.

The Bank uses the same credit policies in making commitments and conditional
obligations as they do for on-statement of financial condition instruments.

The Bank does require collateral or other security to support financial
instruments with credit risk.

A summary of the contract amount of the Bank's exposure to off-statement of
financial condition risk for commitments to extend credit are as follows:

                                                Contract or Notional Amount
                                                ---------------------------
                                                        December 31,
                                                ---------------------------
                                                    1997            1996
                                                ---------------------------
Mortgage loans                                  $ 1,412,000     $ 3,090,000
Undisbursed overdraft loan privileges               255,000         239,000

                                      -82-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

At December 31, 1997, the mortgage loan commitments above are comprised of
variable-rate commitments carrying a weighted average interest rate of 7.44%.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected
to expire without being drawn upon, the total commitment amounts above do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank, upon extension of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies
but normally includes real estate and personal property.

NOTE 14.  LENDING ACTIVITIES AND CONCENTRATIONS OF CREDIT RISK
Most of the Bank's lending activity is with customers located within the state
of Iowa. The Bank generally originates single family residential loans within
its primary lending area of Webster and Story counties. The Bank's
underwriting policies require such loans to be 80% loan to value based upon
appraised values unless private mortgage insurance is obtained. Approximately
36% of the Bank's first mortgage loan portfolio at December 31, 1997 consists
of loans purchased or originated outside the Bank's primary lending area,
generally multi-family residential loans. These loans are secured by the
underlying properties. The properties securing these loans are physically
inspected and the loans are subject to the same underwriting guidelines as
loans originated locally. The Bank is also active in originating secured
consumer loans to its customers, primarily automobile and second mortgage
loans. Collateral for substantially all consumer loans are security agreements
and/or Uniform Commercial Code filings on the purchased asset.

NOTE 15.  FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and fair value of the Company's financial instruments as
of December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                    1997                               1996
                                       -----------------------------------------------------------------
                                          CARRYING           FAIR            Carrying           Fair
                                           AMOUNT           VALUE             Amount           Value
                                       -----------------------------------------------------------------
                                                        (NEAREST 000)                      (nearest 000)
<S>                                    <C>              <C>               <C>              <C>
Financial assets:
  Cash                                 $   3,445,163    $   3,445,000     $   3,936,815    $   3,937,000
  Securities                              19,815,913       19,816,000        26,603,142       26,610,000
  Loans, net                             191,248,830      192,436,000       165,831,040      168,389,000
  Accrued interest receivable              1,300,495        1,300,000         1,327,733        1,328,000
Financial liabilities:
  Deposits                               141,123,707      142,850,000       129,722,044      131,321,000
  Accrued interest payable                    28,532           29,000            85,815           86,000
  Borrowed funds                          28,550,000       28,620,000        22,335,000       22,139,000
</TABLE>

                                      -83-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

NOTE 16.  1994 REORGANIZATION AND CONVERSION TO STOCK OWNERSHIP
On January 27, 1994 the Board of Directors of First Federal Savings Bank of
Fort Dodge (a mutual savings bank) adopted a plan of reorganization whereby
the Bank would reorganize from a federally chartered mutual savings bank into
a federal mutual holding company and concurrently form a new federally
chartered stock savings bank subsidiary. Pursuant to the reorganization, the
Bank (a stock savings bank) was formed as a new federal stock savings bank
subsidiary of the mutual savings bank. The mutual savings bank transferred
substantially all of its assets and liabilities to the stock savings bank in
exchange for 2,421,711 shares of newly issued common stock of the stock
savings bank. The mutual savings bank then converted its mutual savings bank
charter to a federal mutual holding company charter under the name of North
Central Bancshares, Inc. (the mutual holding company).

The reorganization was effective August 31, 1994 at which time 2,421,711
shares of stock were issued to the mutual holding company representing
approximately 65.5% of the common stock of the Bank and the remaining 35
percent, or 1,278,289 shares were sold in a public offering to persons other
than the holding company at a price of $10 per share.

The reorganization and stock offering was completed on August 31, 1994 and the
Bank received proceeds of $12,038,638, net of costs of $644,252 and net of
$100,000 retained by the mutual holding company.

Persons who had membership or liquidation rights with respect to the mutual
savings bank as of the date of reorganization shall, as long as they remain
depositors of the Bank, continue to have such rights solely with respect to
the mutual holding company after the reorganization (see Note 17).

NOTE 17.  THE 1996 REORGANIZATION AND CONVERSION
On September 29, 1995, the Boards of Directors of the Bank and the Mutual
Holding Company (MHC) adopted a Plan of Conversion and Agreement and Plan of
Reorganization (the Plan).  The reorganization became effective March 20,
1996.  Pursuant to the Plan, (1) the MHC, which owned approximately 65.5% of
the Bank, converted to an interim federal stock savings association and
simultaneously merged into the Bank, with the Bank being the surviving entity;
(2) the Bank then merged into an interim institution (Interim) formed as a
wholly-owned subsidiary of the Company, a newly formed Iowa corporation formed
in connection with the reorganization, with the Bank being the surviving
entity; and, (3) the outstanding shares of the Bank's common stock (other than
those held by the MHC, which were canceled) were converted into shares of
common stock of the Company pursuant to a ratio that resulted in the holders
of such shares owning in the aggregate approximately the same percentage of
the Company as they owned of the Bank. The Company then offered for sale
pursuant to the Plan additional shares equal to 65.5% of the common shares of
the Company.

The reorganization was effective on March 20, 1996, at which time the Company
issued an aggregate of 4,011,057 shares of its common stock, 1,385,590 shares
of which were issued in exchange for all of the Bank's issued and outstanding
shares, except for shares owned by the MHC which were canceled, and 2,625,467
shares of which were sold in Subscription and Community Offerings at a price
of $10.00 per share, with gross proceeds amounting to $26,252,159.

                                      -84-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

The Plan provided that when the conversion was completed, a "Liquidation
Account" would be established in an amount equal to the amount of any
dividends waived by the MHC plus 65.5% of the Bank's total stockholders'
equity as reflected in its latest statement of financial condition in the
final prospectus utilized in the conversion.  The Liquidation Account is
established to provide a limited priority claim to the assets of the Bank to
qualifying depositors as of specified dates (Eligible Account Holders and
Supplemental Eligible Account Holders) who continue to maintain deposits in
the Bank after the conversion. In the unlikely event of a complete liquidation
of the Bank, and only in such an event, Eligible Account Holders and
Supplemental Eligible Account Holders would receive from the Liquidation
Account a liquidation distribution based on their proportionate share of the
then total remaining qualifying deposits.

NOTE 18.  EARNINGS PER COMMON SHARE

Presented below is the reconciliation of the numerators and denominators of
the computations for earnings per common share and earnings per common share -
diluted.

<TABLE>
<CAPTION>
                                                                  1997
                                                -----------------------------------------
                                                  Income         Shares        Per Share
                                                (Numerator)  (Denominator)       Amount
                                                -----------------------------------------
<S>                                             <C>             <C>               <C>
Income available to common stockholders         $ 3,917,124     3,323,346
  Less unallocated ESOP shares                            -       139,077
                                                -------------------------


Basic earnings per common share
  Income available to common stockholders         3,917,124     3,184,269         $1.23

Effect of dilutive securities - options                   -        56,800
                                                -------------------------

Earnings per common share - assuming dilution
 Income available to common stockholders +
 assumed conversions                             $3,917,124     3,241,069         $1.21
                                                =========================
</TABLE>

Basic earnings per common share information for 1996 and 1995 is calculated by
dividing net income by the weighted number of shares outstanding (3,818,273
and 3,919,488, respectively).  Earnings per common share - assuming dilution
for 1996 did not include the effect of options to purchase 237,000 shares of
common stock because the exercise price was greater than the average market
price of the common shares. Earnings per common share - assuming dilution for
1995 did not differ from basic earnings per common share because there were no
stock options or other common stock equivalents outstanding.

                                      -85-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

NOTE 19. SUBSEQUENT EVENT

Effective January 30, 1998, the Bank acquired for cash all of the outstanding
shares of Valley Financial Corp. of Burlington, Iowa. Valley Financial Corp.
was the parent company of Valley Savings Bank, FSB, an OTS regulated savings
bank headquartered in Burlington, Iowa with branch offices in Burlington and
Mt. Pleasant, Iowa.  At January 30, 1998, Valley Financial Corporation and
subsidiaries had consolidated assets of approximately $108,700,000; deposits
of $98,300,000 and stockholders' equity of $8,400,000.

The Company acquired 28,050 shares at a price of $525 per share, resulting in
a purchase price of approximately $14,700,000.  The acquisition will be
accounted for using the purchase method of accounting and will result in
goodwill estimated at $6,500,000.

NOTE 20.    PENDING ACCOUNTING PRONOUNCEMENTS AND REGULATIONS

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No. 130).  SFAS No. 130 requires
that all items that are components of comprehensive income defined as "the
change in equity [net assets] of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources,
including all changes in equity during a period except those resulting from
investments by owners and distributions to owners," be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Companies will be required to (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997, and requires reclassification of prior periods
presented. As the requirements of SFAS No. 130 are disclosure related, its
implementation will have no impact on the Company's financial condition or
results of operations.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information (SFAS
No. 131).  SFAS No. 131 requires that enterprises report certain financial and
descriptive information about operating segments in complete sets of financial
statements of the Company and in condensed financial statements of interim
periods issued to shareholders. It also requires that a Company report certain
information about their products and services, geographic areas in which they
operate and their major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. As the requirements of SFAS No. 131 are
disclosure related, its implementation will have no impact on the Company's
financial condition or results of operations.

                                      -86-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21. NORTH CENTRAL BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
         INFORMATION


                      STATEMENTS OF FINANCIAL CONDITION
                          December 31, 1997 and 1996
<TABLE>
<CAPTION>

                                                                             1997       1996
                                                                        ------------------------
<S>                                                                     <C>          <C>
ASSETS
Cash                                                                    $   740,722  $   204,843
Securities available for sale                                               818,936      509,300
Loan receivables, net                                                     9,941,000    3,821,000
Investment in First Federal Savings Bank of Fort Dodge                   39,250,882   44,951,564
Prepaid expenses and other assets                                            12,777       26,276
                                                                        ------------------------
        TOTAL ASSETS                                                    $50,764,317  $49,512,983
                                                                        ========================

LIABILITIES AND EQUITY
 LIABILITIES
 Dividend payable                                                       $   204,155  $   230,344
 Income taxes payable                                                         2,723        8,522
 Accrued expenses and other liabilities                                      41,293       32,996
 Deferred taxes                                                              99,070        6,392
                                                                        ------------------------
        TOTAL LIABILITIES                                                   347,241      278,254
                                                                        ------------------------

EQUITY
 Common stock                                                                40,111       40,111
 Additional paid-in capital                                              37,949,598   37,796,611
 Retained earnings                                                       23,660,964   20,531,526
 Unearned shares, employee stock ownership plan                          (1,210,441)  (1,416,955)
 Unrealized gain on securities available for sale,
  net of income taxes                                                       354,781       73,097
 Treasury stock at cost                                                 (10,377,937)  (7,789,661)
                                                                        ------------------------
        TOTAL EQUITY                                                     50,417,076   49,234,729
                                                                        ------------------------
        TOTAL LIABILITIES AND EQUITY                                     50,764,317   49,512,983
                                                                        ========================
</TABLE>

                                      -87-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

                           STATEMENTS OF CASH FLOWS
   Period From March 20, 1996 (Date of Inception) to December 31, 1996 and
                         Year Ended December 31, 1997

<TABLE>
<CAPTION>

                                                                              1997          1996
                                                                         ---------------------------
<S>                                                                      <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                              $  3,917,124   $  2,582,491
 Adjustments to reconcile net income to net cash provided
  by operating activities:
  Equity in net income of First Federal Savings Bank                       (3,802,303)    (2,523,316)
  (Gain) on sale of securities available for sale                            (248,526)             -
  Change in deferred income taxes                                               4,021         (7,228)
  Change in assets and liabilities:
    (Increase) decrease in prepaid expenses and other assets                   13,499        (26,276)
    Increase (decrease) in income taxes payable                                11,913          8,522
    Increase in accrued expenses and other liabilities                          8,297         32,996
                                                                         ---------------------------
        NET CASH PROVIDED BY OPERATING ACTIVITIES                             (95,975)        67,189
                                                                         ---------------------------


 CASH FLOWS FROM INVESTING ACTIVITIES
 Net increase in loans                                                     (6,120,000)    (3,821,000)
 Proceeds from sale of securities available for sale                        1,270,447              -
 Purchase of securities available for sale                                 (1,103,749)      (475,250)
 Dividends received from First Federal Savings Bank                        10,000,000              -
 One half of stock proceeds paid to First Federal Savings Bank                      -    (12,703,561)
                                                                         ---------------------------
        NET CASH (USED IN) INVESTING ACTIVITIES                             4,046,698    (16,999,811)
                                                                         ---------------------------

 CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from issuance of common stock                                             -     26,252,059
 Payments for expenses incurred relating to conversion
  to stock form                                                                     -       (844,469)
 Purchase of treasury stock                                                (2,706,750)    (7,789,661)
 Proceeds from issuance of treasury stock                                     105,781              -
 Dividends paid                                                              (813,875)      (480,464)
                                                                         ---------------------------
        NET CASH (USED IN) FINANCING ACTIVITIES                            (3,414,844)    17,137,465
                                                                         ---------------------------

        NET INCREASE IN CASH                                                  535,879        204,843

CASH
 Beginning                                                                    204,843              -
                                                                         ---------------------------
 Ending                                                                  $    740,722   $    204,843
                                                                         ===========================

SUPPLEMENTAL SCHEDULE OF CASH
 FLOW INFORMATION
 Cash payment for income taxes                                           $    105,781   $     56,000
</TABLE>

                                      -88-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                             STATEMENTS OF EQUITY
   Period From March 20, 1996 (Date of Inception) to December 31, 1996 and
                         Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                                                                                  Gain (Loss)
                                                                                                                       on
                                                                                                                   Securities
                                                                                                                   Available
                                                                                                  Employee         for Sale,
                                                                   Additional                      Stock             Net of
                                                        Common       Paid-in        Retained      Ownership          Income
                                                         Stock       Capital        Earnings        Plan             Taxes
                                                        ----------------------------------------------------------------------
<S>                                                     <C>        <C>             <C>           <C>               <C>
Balance, March 20, 1996                                 $     -    $         -     $         -   $         -       $       -
 Net Income                                                   -              -       2,582,491             -               -
 Issuance of common stock in the conversion              40,111     26,211,948               -             -               -
 Expenses incurred                                            -       (844,469)              -             -               -
 Transfer of equity from First Federal Savings Bank           -     12,387,940      18,659,843      (786,790)         46,029
 Purchase of treasury stock                                   -              -               -             -               -
 Unearned ESOP shares                                         -              -               -      (840,000)              -
 Dividends on common stock                                    -              -        (710,808)            -               -
 Effect of contribution to employee stock ownership
  plan                                                        -              -               -       191,835               -
 Net change in unrealized loss on securities available
  for sale, net                                               -              -               -             -          27,068
                                                        ----------------------------------------------------------------------
Balance, December 31, 1996                               40,111     37,769,611      20,531,526    (1,416,955)         73,097
 Net income                                                   -              -       3,917,124             -               -
 Purchase of treasury stock                                   -              -               -             -               -
 Dividends on common stock                                    -              -        (787,686)            -               -
 Effect of contribution to employee stock ownership
  plan                                                        -        147,968               -       206,514               -
 Effect of stock options exercised                            -          5,019               -             -               -
 Net change in unrealized loss on securities available
  for sale, net                                               -              -               -             -         281,684
                                                        ----------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997                              $40,111    $37,949,598     $23,660,964   $(1,210,441)       $354,781
                                                        ======================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                                         Total
                                                          Treasury    Stockholders'
                                                            Stock        Equity
                                                       ---------------------------
<S>                                                    <C>             <C>
Balance, March 20, 1996                                $          -    $         -
 Net Income                                                       -      2,582,491
 Issuance of common stock in the conversion                       -     26,252,059
 Expenses incurred                                                -       (844,469)
 Transfer of equity from First Federal Savings Bank               -
 Purchase of treasury stock                              (7,789,661)    (7,789,661)
 Unearned ESOP shares                                             -       (840,000)
 Dividends on common stock                                        -       (710,808)
 Effect of contribution to employee stock ownership
  plan                                                            -        233,027
 Net change in unrealized loss on securities available
  for sale, net                                                   -         27,068
                                                       ---------------------------
Balance, December 31, 1996                               (7,789,661)    49,234,729
 Net income                                                       -      3,917,124
 Purchase of treasury stock                              (2,706,750)    (2,706,750)
 Dividends on common stock                                        -       (787,686)
 Effect of contribution to employee stock ownership
  plan                                                            -        354,482
 Effect of stock options exercised                          118,474        123,493
 Net change in unrealized loss on securities available
  for sale, net                                                   -        281,684
                                                       ---------------------------
BALANCE, DECEMBER 31, 1997                             $(10,377,937)   $50,417,076
                                                       ===========================
</TABLE>

                                      -89-
<PAGE>

NORTH CENTRAL BANCSHARES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------

                             STATEMENTS OF INCOME
   Period From March 20, 1996 (Date of Inception) to December 31, 1996 and
                         Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                             1997             1996
                                                         -----------------------------
<S>                                                      <C>              <C>
Operating income:
  Equity in net income of subsidiary                     $  3,802,303     $  2,523,316
  Interest income                                             334,775          418,948
  Gain on sale of securities available for sale, net          248,526                -
                                                         -----------------------------
                                                            4,385,604        2,942,264
                                                         -----------------------------
Operating expenses:
  Salaries and employee benefits                               39,950           21,440
  Other                                                       351,480          272,933
                                                         -----------------------------
                                                              391,430          294,373
                                                         -----------------------------

       INCOME BEFORE INCOME TAXES                           3,994,174        2,647,891

Provision for income taxes                                     77,050           65,400
                                                         -----------------------------

       NET INCOME                                        $  3,917,124     $  2,582,491
                                                         =============================
</TABLE>

                                      -90-
<PAGE>

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

                 None.
                                PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

                 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" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's Proxy Statement for its Annual Meeting
of Shareholders to be held on April 24, 1998, which has been filed with the
SEC and is incorporated herein by reference. Information regarding Executive
Officers, who are not Directors, appears under the caption "Executive
Officers" included in Item 1 of this Form 10-K.

ITEM 11.         EXECUTIVE COMPENSATION

                 Information relating to executive compensation is included
under the headings "Executive Compensation" (excluding the Stock Performance
Graph and the Compensation Committee Report) and "Directors' Compensation" in
the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held on April 24, 1998, which has been filed with the SEC and is incorporated
herein by reference.

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                 MANAGEMENT

                 Information relating to security ownership of certain
beneficial owners and management is included under the headings "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of Management"
in the Company's Proxy Statement for its Annual Meeting of Shareholders to be
held on April 24, 1998, which has been filed with the SEC and is incorporated
herein by reference.

ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                 Information regarding certain relationships and related
transactions is included under the heading "Certain Relationships and Related
Transactions" in the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held on April 24, 1998, which has been filed with the SEC
and is incorporated herein by reference.

                                      -91-
<PAGE>

                                   PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
                 8-K

(A)      1.  FINANCIAL STATEMENTS

         The following are filed as part of this annual report on Form 10-K:

         -       Independent Auditor's Report
         -       Consolidated Statements of Financial Condition at December
                 31, 1997 and 1996
         -       Consolidated Statements of Income for each of the years in
                 the three year period ended December 31, 1997
         -       Consolidated Statements of Shareholders' Equity for each of
                 the years in the three year period ended December 31, 1997
         -       Consolidated Statements of Cash Flows for each of the years
                 in the three year period ended December 31, 1997
         -       Notes to the Consolidated Financial Statements

         2.  FINANCIAL STATEMENT SCHEDULES

         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.

(B)      REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF 1997:

         None

                                      -92-
<PAGE>

(C)      EXHIBITS REQUIRED BY ITEM 601 OF SECURITIES AND EXCHANGE COMMISSION
         REGULATION S-K:

 EXHIBIT NO.                    DESCRIPTION                         PAGE NO.

    2.1           Agreement and Plan of Merger dated as of
                  September 18, 1997, by and among North Central
                  Bancshares, Inc., First Federal
                  Savings Bank of Iowa and Valley Financial
                  Corp.                                              *****

    3.1           Articles of Incorporation of North Central
                  Bancshares, Inc.                                       *

    3.2           Bylaws of North Central Bancshares, Inc.               *


    4.1           Federal Stock Charter of First Federal Savings
                  Bank of Fort Dodge                                     *

    4.2           Bylaws of First Federal Savings Bank of Fort
                  Dodge                                                  *

    4.3           Specimen Stock Certificate of North Central
                  Bancshares, Inc.                                       *

    10.1          Employee Stock Ownership Plan of First Federal
                  Savings Bank of Fort Dodge and ESOP Trust
                  Agreement (incorporating Amendments 1 and 2)

    10.2          ESOP Loan Documents, dated September 3, 1996        ****

    10.3          Employee Retention Agreements between First
                  Federal Savings Bank of Fort Dodge and certain
                  executive officers                                    **

    10.4          Employment Agreement between First Federal
                  Savings Bank of Fort Dodge and David M. Bradley,
                  effective as of August 31, 1994                        *

    10.5          Form of Employment Agreement between First
                  Federal Savings Bank of Fort Dodge and David M.
                  Bradley                                                *

    10.6          Form of Employment Agreement between North
                  Central Bancshares, Inc. and David M. Bradley          *

    10.7          Employment Agreement between Valley Financial
                  Corp. and Valley Savings Bank and Doyle V. Ruble

    10.8          North Central Bancshares, Inc. 1996 Stock Option
                  Plan                                                 ***

    10.9          Amendment No. 1 to the North Central Bancshares,
                  Inc. 1996 Stock Option Plan

   10.10          Asset Purchase Agreement between First Iowa
                  Title Services, Inc. and Webster County Title
                  Company, Inc.                                          *

   10.11          Asset Purchase Agreement between First Iowa
                  Title Services, Inc. and Calhoun County Abstract
                  Company, Inc.                                          *

    11.1          Statement regarding computation of per share
                  earnings

    21.1          Subsidiaries of the Registrant

    23.1          Consent of McGladrey & Pullen, LLP

    27.1          Financial Data Schedule

    99.1          Proxy Statement for Annual Meeting of
                  Shareholders of North Central Bancshares, Inc.
                  filed with the Securities and Exchange
                  Commission is incorporated herein by
                  reference.
________________________
(Notes on following page)

                                      -93-
<PAGE>

*        Incorporated herein by reference to Registration Statement No.
         33-80493 on Form S-1 of North Central Bancshares, Inc. (the
         "Registrant") filed with the Securities and Exchange Commission, (the
         "Commission") on December 18, 1995, as amended.

**       Incorporated herein by reference to the Exhibits to the Annual Report
         on Form 10-K filed by Registrant for fiscal year 1995, filed with the
         Commission on March 29, 1996.

***      Incorporated herein by reference to the Amended Schedule 14A of
         Registrant filed with the Commission on August 19, 1996.

****     Incorporated herein by reference to the Annual Report on Form 10-K of
         the Registrant filed with the Commission on March 31, 1997.

*****    Incorporated herein by reference to the Current Report on Form 8-K of
         the Registrant filed with the Commission on September 26, 1997.

                                      -94-
<PAGE>

CONFORMED

                               SIGNATURES

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

                                     North Central Bancshares, Inc.

Date:  March 27, 1998                /s/ David M. Bradley
                                     -------------------------------------
                                     By: David M. Bradley
                                     Chairman, 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.


<TABLE>
<CAPTION>
         NAME                                     TITLE                                 DATE
         ----                                     -----                                 ----
<S>                                 <C>                                            <C>
 /s/ David M. Bradley               President, Chief Executive Officer,            March 27, 1998
-----------------------------       Director, and Chairman of the Board
 David M. Bradley                   (principal executive officer)

 /s/ John L. Pierschbacher          Treasurer                                      March 27, 1998
-----------------------------       (principal accounting and
 John L. Pierschbacher              financial officer)


 /s/ Robert H. Singer, Jr.          Director                                       March 27, 1998
-----------------------------
 Robert H. Singer

 /s/ KaRene Egemo                   Director                                       March 27, 1998
-----------------------------
 KaRene Egemo

 /s/ Howard A. Hecht                Director                                       March 27, 1998
-----------------------------
 Howard A. Hecht

 /s/ John M. Peters                 Director                                       March 27, 1998
-----------------------------
 John M. Peters

 /s/ Melvin R. Schroeder            Director                                       March 27, 1998
-----------------------------
 Melvin R. Schroeder
</TABLE>

                                      -95-
<PAGE>

                           TABLE OF CONTENTS
           LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)

 EXHIBIT NO.                  DESCRIPTION                           PAGE NO.
 -----------                  -----------                           --------

    2.1       Agreement and Plan of Merger dated as of September
              18, 1997, by and among North Central Bancshares,
              Inc., First Federal Savings Bank of Iowa and Valley
              Financial Corp.                                        *****

    3.1       Articles of Incorporation of North Central                 *
              Bancshares, Inc.

    3.2       Bylaws of North Central Bancshares, Inc.                   *

    4.1       Federal Stock Charter of First Federal Savings Bank
              of Fort Dodge                                              *

    4.2       Bylaws of First Federal Savings Bank of Fort Dodge         *

    4.3       Specimen Stock Certificate of North Central
              Bancshares, Inc.                                           *

    10.1      Employee Stock Ownership Plan of First Federal
              Savings Bank of Fort Dodge and ESOP Trust Agreement
              (incorporating Amendments 1 and 2)

    10.2      ESOP Loan Documents, dated September 3, 1996            ****

    10.3      Employee Retention Agreements between First Federal
              Savings Bank of Fort Dodge and certain executive
              officers                                                  **

    10.4      Employment Agreement between First Federal Savings
              Bank of Fort Dodge and David M. Bradley, effective
              as of August 31, 1994                                      *

    10.5      Form of Employment Agreement between First Federal
              Savings Bank of Fort Dodge and David M. Bradley            *

    10.6      Form of Employment Agreement between North Central
              Bancshares, Inc. and David M. Bradley                      *

    10.7      Employment Agreement between Valley Financial Corp.
              and Valley Savings Bank and Doyle V. Ruble

    10.8      North Central Bancshares, Inc. 1996 Stock Option Plan    ***

    10.9      Amendment No. 1 to the North Central Bancshares,
              Inc. 1996 Stock Option Plan

   10.10      Asset Purchase Agreement between First Iowa Title
              Services, Inc. and Webster County Title Company, Inc.      *

   10.11      Asset Purchase Agreement between First Iowa Title
              Services, Inc. and Calhoun County Abstract Company, Inc.   *

    11.1      Statement regarding computation of per share earnings

    21.1      Subsidiaries of the Registrant

    23.1      Consent of McGladrey & Pullen, LLP

    27.1      Financial Data Schedule

    99.1      Proxy Statement for Annual Meeting of Shareholders
              of North Central Bancshares, Inc. filed with the
              Securities and Exchange Commission is incorporated
              herein by reference.

________________________

(Notes on following page)

                                      -96-
<PAGE>

*        Incorporated herein by reference to Registration Statement No.
         33-80493 on Form S-1 of North Central Bancshares, Inc. (the
         "Registrant") filed with the Securities and Exchange Commission, (the
         "Commission") on December 18, 1995, as amended.

**       Incorporated herein by reference to the Exhibits to the Annual Report
         on Form 10-K filed by Registrant for fiscal year 1995, filed with the
         Commission on March 29, 1996.

***      Incorporated herein by reference to the Amended Schedule 14A of
         Registrant filed with the Commission on August 19, 1996.

****     Incorporated herein by reference to the Annual Report on Form 10-K of
         the Registrant filed with the Commission on March 31, 1997.

*****    Incorporated herein by reference to the Current Report on Form 8-K of
         the Registrant filed with the Commission on September 26, 1997.

                                      -97-