UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





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





For the
quarterly period ended June 30,
2010





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




For the
transition period from __________________ to __________________.




Commission
File Number: 0-27672





NORTH CENTRAL BANCSHARES, INC.


(Exact
name of registrant as specified in its charter)





Iowa
                  
                  42-1449849(State
      or other jurisdiction of incorporation or organization)
                  
                  (I.R.S.
      Employer Identification
No.)





825 Central Avenue, Fort Dodge,
      Iowa
                
                50501(Address
      of principal executive offices)
                
                (Zip
      Code)





515-576-7531


(Registrant’s
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  þ  No   ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes   ̈  No   ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):




Large
      accelerated filer  ̈
                  
                  Accelerated
      filer   ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
                  
                  Smaller
      reporting company þ




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


Yes   ̈  No
þ




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.





Class
              
              Outstanding at July 31,
  2010Common
      Stock, $.01 par value
              
              1,351,448










NORTH
CENTRAL BANCSHARES, INC.





INDEX




PagePart
      I.  Financial InformationItem
      1.  Financial Statements (Unaudited)
                            
                            1Consolidated
      Condensed Statements of Financial Condition at June 30,
      2010  and December 31, 2009
                            
                            1Consolidated
      Condensed Statements of Income for the Three Months and Six Months Ended
      June 30, 2010 and 2009
                            
                            2Consolidated
      Condensed Statements of Stockholders’ Equity for the Six Months Ended June
      30, 2010 and 2009
                            
                            3Consolidated
      Condensed Statements of Cash Flows for the Six Months Ended June 30, 2010
      and 2009
                            
                            4Notes
      to Consolidated Condensed Financial Statements
                            
                            6Item
      2.  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                            
                            15Item
      3.  Quantitative and Qualitative Disclosure About Market Risk
                            
                            26Item
      4T.  Controls and Procedures
                            
                            26Part
      II.  Other
      InformationItem
      1. Legal Proceedings
                            
                            26Item
      1A. Risk Factors
                            
                            26Item
      6. Exhibits
                            
                            27Signatures
                            
                            28










PART
I.  FINANCIAL INFORMATION





Item
1.  Financial Statements (Unaudited)





NORTH CENTRAL BANCSHARES, INC. AND
SUBSIDIARIES


CONSOLIDATED
CONDENSED STATEMENTS OF FINANCIAL CONDITION





June 30,
                                    
                                    
                                    December 31,2010
                                    
                                    
                                    2009(Unaudited)ASSETSCash
      and due from banks:Interest-bearing
                                    
                                    $
                                    6,174,165
                                    
                                    
                                    $
                                    12,804,849Noninterest-bearing
                                    
                                    
                                    7,131,003
                                    
                                    
                                    
                                    8,961,321Total
      cash and due from banks
                                    
                                    
                                    13,305,168
                                    
                                    
                                    
                                    21,766,170Investments
      in certificates of deposit
                                    
                                    
                                    11,994,000
                                    
                                    
                                    
                                    -Securities
      available-for-sale
                                    
                                    
                                    38,865,857
                                    
                                    
                                    
                                    23,175,201Federal
      Home Loan Bank stock, at cost
                                    
                                    
                                    3,298,700
                                    
                                    
                                    
                                    3,924,700Loans
      receivable, (net of allowance for loan loss of $8,992,716 and $7,170,595
      respectively)
                                    
                                    
                                    351,476,179
                                    
                                    
                                    
                                    374,854,993Loans
      held for sale
                                    
                                    
                                    2,223,700
                                    
                                    
                                    
                                    1,333,933Accrued
      interest receivable
                                    
                                    
                                    1,787,961
                                    
                                    
                                    
                                    1,867,970Foreclosed
      real estate
                                    
                                    
                                    2,460,696
                                    
                                    
                                    
                                    1,709,128Premises
      and equipment, net
                                    
                                    
                                    11,711,986
                                    
                                    
                                    
                                    11,882,839Rental
      real estate
                                    
                                    
                                    2,190,977
                                    
                                    
                                    
                                    2,243,704Title
      plant
                                    
                                    
                                    671,704
                                    
                                    
                                    
                                    671,704Deferred
      taxes
                                    
                                    
                                    3,007,661
                                    
                                    
                                    
                                    2,230,971Bank-owned
      life insurance
                                    
                                    
                                    5,664,635
                                    
                                    
                                    
                                    5,543,681Prepaid
      FDIC assessment
                                    
                                    
                                    1,612,026
                                    
                                    
                                    
                                    1,877,699Prepaid
      expenses and other assets
                                    
                                    
                                    1,858,482
                                    
                                    
                                    
                                    1,928,266Total
      assets
                                    
                                    $
                                    452,129,732
                                    
                                    
                                    $
                                    455,010,959LIABILITIES
      AND STOCKHOLDERS' EQUITYLIABILITIESDeposits
                                    
                                    $
                                    344,540,516
                                    
                                    
                                    $
                                    334,813,060Borrowed
      funds
                                    
                                    
                                    54,500,000
                                    
                                    
                                    
                                    66,500,000Advances
      from borrowers for taxes and insurance
                                    
                                    
                                    1,856,991
                                    
                                    
                                    
                                    1,792,790Accrued
      expenses and other liabilities
                                    
                                    
                                    2,603,938
                                    
                                    
                                    
                                    3,626,291Total
      liabilities
                                    
                                    
                                    403,501,445
                                    
                                    
                                    
                                    406,732,141STOCKHOLDERS'
      EQUITYPreferred
      stock, $.01 par value, authorized 3,000,000 shares; 10,200 shares were
      issued and outstanding
                                    
                                    
                                    10,127,859
                                    
                                    
                                    
                                    10,118,581Common
      stock, $.01 par value, authorized 15,500,000 shares; at June 30, 2010 and
      at December 31, 2009 1,351,448 and 1,348,448 shares were issued and
      outstanding
                                    
                                    
                                    13,487
                                    
                                    
                                    
                                    13,471Additional
      paid-in capital
                                    
                                    
                                    18,038,344
                                    
                                    
                                    
                                    18,009,468Retained
      earnings, substantially restricted
                                    
                                    
                                    20,133,113
                                    
                                    
                                    
                                    19,924,798Accumulated
      other comprehensive income
                                    
                                    
                                    315,484
                                    
                                    
                                    
                                    212,500Total
      stockholders' equity
                                    
                                    
                                    48,628,287
                                    
                                    
                                    
                                    48,278,818Total
      liabilities and stockholders' equity
                                    
                                    $
                                    452,129,732
                                    
                                    
                                    $
                                    455,010,959





See Notes
to Consolidated Condensed Financial Statements.


1





NORTH
CENTRAL BANCSHARES, INC. AND SUBSIDIARIES


CONSOLIDATED CONDENSED STATEMENTS OF
INCOME(Unaudited)





Three Months Ended
                                
                                
                                Six Months EndedJune 30,
                                
                                
                                June 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Interest
      income:Loans
      receivable
                                
                                $
                                5,294,291
                                
                                
                                $
                                6,000,127
                                
                                
                                $
                                10,847,401
                                
                                
                                $
                                12,185,344Securities
      and cash deposits
                                
                                
                                299,544
                                
                                
                                
                                286,599
                                
                                
                                
                                534,220
                                
                                
                                
                                567,1775,593,835
                                
                                
                                
                                6,286,726
                                
                                
                                
                                11,381,621
                                
                                
                                
                                12,752,521Interest
      expense:Deposits
                                
                                
                                1,357,456
                                
                                
                                
                                1,786,240
                                
                                
                                
                                2,684,966
                                
                                
                                
                                3,855,796Borrowed
      funds
                                
                                
                                606,998
                                
                                
                                
                                888,844
                                
                                
                                
                                1,301,593
                                
                                
                                
                                1,887,2811,964,454
                                
                                
                                
                                2,675,084
                                
                                
                                
                                3,986,559
                                
                                
                                
                                5,743,077Net
      interest income
                                
                                
                                3,629,381
                                
                                
                                
                                3,611,642
                                
                                
                                
                                7,395,062
                                
                                
                                
                                7,009,444Provision
      for loan losses
                                
                                
                                1,610,000
                                
                                
                                
                                610,000
                                
                                
                                
                                2,410,000
                                
                                
                                
                                770,000Net
      interest income after provision for loan losses
                                
                                
                                2,019,381
                                
                                
                                
                                3,001,642
                                
                                
                                
                                4,985,062
                                
                                
                                
                                6,239,444Noninterest
      income:Fees
      and service charges
                                
                                
                                1,216,101
                                
                                
                                
                                1,207,750
                                
                                
                                
                                2,292,863
                                
                                
                                
                                2,256,150Abstract
      fees
                                
                                
                                164,063
                                
                                
                                
                                282,739
                                
                                
                                
                                306,684
                                
                                
                                
                                499,491Mortgage
      banking income
                                
                                
                                128,768
                                
                                
                                
                                331,994
                                
                                
                                
                                240,955
                                
                                
                                
                                646,737Loan
      prepayment fees
                                
                                
                                17,125
                                
                                
                                
                                199,512
                                
                                
                                
                                27,204
                                
                                
                                
                                212,166Other
      income
                                
                                
                                348,250
                                
                                
                                
                                395,506
                                
                                
                                
                                671,198
                                
                                
                                
                                766,745Total
      noninterest income
                                
                                
                                1,874,307
                                
                                
                                
                                2,417,501
                                
                                
                                
                                3,538,904
                                
                                
                                
                                4,381,289Investment
      securities gains (losses), net:Total
      other-than-temporary impairment losses
                                
                                
                                -
                                
                                
                                
                                (23,343
                                )
                                
                                
                                -
                                
                                
                                
                                (23,343
                                )Portion
      of loss recognized in other comprehensive  income (loss) before
      taxes
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Net
      impairment losses recognized in earnings
                                
                                
                                -
                                
                                
                                
                                (23,343
                                )
                                
                                
                                -
                                
                                
                                
                                (23,343
                                )Realized
      securities gains (losses), net
                                
                                
                                
                                
                                
                                
                                (9,602
                                )
                                
                                
                                7,652
                                
                                
                                
                                (19,944
                                )Total
      securities gains (losses), net
                                
                                
                                -
                                
                                
                                
                                (32,945
                                )
                                
                                
                                7,652
                                
                                
                                
                                (43,287
                                )Noninterest
      expense:Compensation
      and employee benefits
                                
                                
                                1,879,873
                                
                                
                                
                                1,844,770
                                
                                
                                
                                3,769,732
                                
                                
                                
                                3,712,155Premises
      and equipment
                                
                                
                                484,335
                                
                                
                                
                                442,199
                                
                                
                                
                                985,425
                                
                                
                                
                                928,831Data
      processing
                                
                                
                                229,857
                                
                                
                                
                                199,739
                                
                                
                                
                                442,980
                                
                                
                                
                                408,412FDIC
      insurance expense
                                
                                
                                140,013
                                
                                
                                
                                373,185
                                
                                
                                
                                283,830
                                
                                
                                
                                472,404Other
      expenses
                                
                                
                                1,469,026
                                
                                
                                
                                1,175,793
                                
                                
                                
                                2,473,959
                                
                                
                                
                                2,569,184Total
      noninterest expense
                                
                                
                                4,203,104
                                
                                
                                
                                4,035,686
                                
                                
                                
                                7,955,926
                                
                                
                                
                                8,090,986Income
      (loss) before income taxes
                                
                                
                                (309,416
                                )
                                
                                
                                1,350,512
                                
                                
                                
                                575,692
                                
                                
                                
                                2,486,460Provision
      for (benefit from) income taxes
                                
                                
                                (180,400
                                )
                                
                                
                                456,100
                                
                                
                                
                                76,100
                                
                                
                                
                                810,400Net
      income (loss)
                                
                                $
                                (129,016
                                )
                                
                                $
                                894,412
                                
                                
                                $
                                499,592
                                
                                
                                $
                                1,676,060Preferred
      stock dividends and accretion of discount
                                
                                $
                                132,169
                                
                                
                                $
                                131,933
                                
                                
                                $
                                264,278
                                
                                
                                $
                                250,884Net
      income (loss) available to common stockholders
                                
                                $
                                (261,185
                                )
                                
                                $
                                762,479
                                
                                
                                $
                                235,314
                                
                                
                                $
                                1,425,176Basic
      earnings (loss) per share
                                
                                $
                                (0.19
                                )
                                
                                $
                                0.57
                                
                                
                                $
                                0.17
                                
                                
                                $
                                1.06Dilluted
      earnings (loss) per share
                                
                                $
                                (0.19
                                )
                                
                                $
                                0.57
                                
                                
                                $
                                0.17
                                
                                
                                $
                                1.06Dividends
      declared per common share
                                
                                $
                                0.01
                                
                                
                                $
                                0.01
                                
                                
                                $
                                0.02
                                
                                
                                $
                                0.02





See Notes
to Consolidated Condensed Financial Statements.


2





NORTH
CENTRAL BANCSHARES, INC. AND SUBSIDIARIES





CONSOLIDATED
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY


Six
Months Ended June 30, 2009 and 2010


(Unaudited)


AccumulatedAdditional
                                  
                                  
                                  
                                  
                                  
                                  Other
                                  
                                  
                                  TotalComprehensive
                                  
                                  
                                  Preferred
                                  
                                  
                                  Common
                                  
                                  
                                  Paid-in
                                  
                                  
                                  Retained
                                  
                                  
                                  Comprehensive
                                  
                                  
                                  Stockholders'Income
                                  
                                  
                                  Stock
                                  
                                  
                                  Stock
                                  
                                  
                                  Capital
                                  
                                  
                                  Earnings
                                  
                                  
                                  Income
                                  
                                  
                                  EquityBalance,
      January 1, 2009
                                  
                                  
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  13,421
                                  
                                  
                                  $
                                  17,819,096
                                  
                                  
                                  $
                                  17,240,779
                                  
                                  
                                  $
                                  138,847
                                  
                                  
                                  $
                                  35,212,143Comprehensive
      income:Net
      income
                                  
                                  $
                                  1,676,060
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,676,060
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,676,060Other
      comprehensive income, net of reclassification adjustment and
      tax
                                  
                                  
                                  114,443
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  114,443
                                  
                                  
                                  
                                  114,443Total
      comprehensive income
                                  
                                  $
                                  1,790,503Dividends
      on preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (178,500
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (178,500
                                  )Dividends
      on common stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (26,899
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (26,899
                                  )Employee
      stock-based compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  14
                                  
                                  
                                  
                                  29,464
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  29,478Issuance
      of preferred stock and common stock warrant
                                  
                                  
                                  
                                  
                                  
                                  
                                  10,200,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  10,200,000Discount
      of preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  (99,268
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  99,268Accretion
      of discount on preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,809
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (8,809
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Balance,
      June 30, 2009
                                  
                                  
                                  
                                  
                                  
                                  $
                                  10,109,541
                                  
                                  
                                  $
                                  13,435
                                  
                                  
                                  $
                                  17,947,828
                                  
                                  
                                  $
                                  18,702,631
                                  
                                  
                                  $
                                  253,290
                                  
                                  
                                  $
                                  47,026,725Balance,
      January 1, 2010
                                  
                                  
                                  
                                  
                                  
                                  $
                                  10,118,581
                                  
                                  
                                  $
                                  13,471
                                  
                                  
                                  $
                                  18,009,468
                                  
                                  
                                  $
                                  19,924,798
                                  
                                  
                                  $
                                  212,500
                                  
                                  
                                  $
                                  48,278,818Comprehensive
      income:Net
      income
                                  
                                  $
                                  499,592
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  499,592
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  499,592Other
      comprehensive income, net of reclassification adjustment and
      tax
                                  
                                  
                                  102,984
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  102,984
                                  
                                  
                                  
                                  102,984Total
      comprehensive income
                                  
                                  $
                                  602,576Dividends
      on preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (255,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (255,000
                                  )Dividends
      on common stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (26,999
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (26,999
                                  )Employee
      stock-based compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  28,876
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  28,892Accretion
      of discount on preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  9,278
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (9,278
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Balance,
      June 30, 2010
                                  
                                  
                                  
                                  
                                  
                                  $
                                  10,127,859
                                  
                                  
                                  $
                                  13,487
                                  
                                  
                                  $
                                  18,038,344
                                  
                                  
                                  $
                                  20,133,113
                                  
                                  
                                  $
                                  315,484
                                  
                                  
                                  $
                                  48,628,287





See Notes
to Consolidated Condensed Financial Statements


3





NORTH
CENTRAL BANCSHARES, INC. AND SUBSIDIARIES





CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS


(Unaudited)
                  
                  Six Months EndedJune 30,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                  
                  $
                  499,592
                  
                  
                  $
                  1,676,060Adjustments
      to reconcile net income to net cash provided by operating
      activities:Provision
      for loan losses
                  
                  
                  2,410,000
                  
                  
                  
                  770,000Depreciation
                  
                  
                  472,129
                  
                  
                  
                  455,024Amortization
      and accretion
                  
                  
                  119,743
                  
                  
                  
                  229,595Deferred
      taxes
                  
                  
                  (842,000
                  )
                  
                  
                  732,924Stock-based
      compensation
                  
                  
                  28,892
                  
                  
                  
                  29,478Excess
      tax benefit related to stock-based compensation
                  
                  
                  -
                  
                  
                  
                  18,550(Gain)
      on sale of foreclosed real estate and loans, net
                  
                  
                  (218,262
                  )
                  
                  
                  (643,600
                  )Provision
      for impairment on investments
                  
                  
                  -
                  
                  
                  
                  23,343Loss
      on sale or disposal of equipment and other assets, net
                  
                  
                  -
                  
                  
                  
                  62Write-down
      of other real estate owned
                  
                  
                  316,458
                  
                  
                  
                  84,463(Gain)
      loss on sale of investments
                  
                  
                  (7,652
                  )
                  
                  
                  19,944Increase
      in value of bank-owned life insurance
                  
                  
                  (120,954
                  )
                  
                  
                  (123,721
                  )Proceeds
      from sales of loans held-for-sale
                  
                  
                  12,921,766
                  
                  
                  
                  50,556,224Originations
      of loans held-for-sale
                  
                  
                  (13,570,578
                  )
                  
                  
                  (50,448,448
                  )Change
      in assets and liabilities:Accrued
      interest receivable
                  
                  
                  80,009
                  
                  
                  
                  181,747Prepaid
      expenses and other assets
                  
                  
                  397,569
                  
                  
                  
                  (489,835
                  )Accrued
      expenses and other liabilities
                  
                  
                  (1,018,013
                  )
                  
                  
                  310,184Net
      cash provided by operating activities
                  
                  
                  1,468,699
                  
                  
                  
                  3,381,994CASH
      FLOWS FROM INVESTING ACTIVITIESNet
      change in loans
                  
                  
                  19,100,759
                  
                  
                  
                  21,207,738Purchase
      of loans
                  
                  
                  -
                  
                  
                  
                  (14,428,863
                  )Purchase
      of investments in certificates of deposit
                  
                  
                  (11,994,000
                  )
                  
                  
                  -Purchase
      of securities available-for-sale
                  
                  
                  (19,480,946
                  )
                  
                  
                  (8,032,172
                  )Proceeds
      from sale of securities available-for-sale
                  
                  
                  207,732
                  
                  
                  
                  582,000Proceeds
      from maturities and calls of securities available-for-sale
                  
                  
                  3,669,678
                  
                  
                  
                  3,468,824Proceeds
      from redemption of Federal Home Loan Bank stock
                  
                  
                  626,000
                  
                  
                  
                  -Purchase
      of Federal Home Loan Bank stock
                  
                  
                  -
                  
                  
                  
                  (46,600
                  )Purchase
      of premises, equipment and rental real estate
                  
                  
                  (248,549
                  )
                  
                  
                  (354,133
                  )Net
      proceeds from sale of foreclosed real estate
                  
                  
                  679,937
                  
                  
                  
                  708,075Net
      cash provided by (used in) investing activities
                  
                  
                  (7,439,389
                  )
                  
                  
                  3,104,869CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in deposits
                  
                  
                  9,727,456
                  
                  
                  
                  (18,945,667
                  )Net
      increase (decrease) in advances from borrowers for taxes and
      insurance
                  
                  
                  64,201
                  
                  
                  
                  (109,373
                  )Proceeds
      from other borrowed funds
                  
                  
                  -
                  
                  
                  
                  9,500,000Payments
      of other borrowed funds
                  
                  
                  (12,000,000
                  )
                  
                  
                  (15,015,376
                  )Proceeds
      from issuance of preferred stock and common stock warrant
                  
                  
                  -
                  
                  
                  
                  10,200,000Excess
      tax benefit related to stock-based compensation
                  
                  
                  -
                  
                  
                  
                  (18,550
                  )Common
      and preferred dividends paid
                  
                  
                  (281,969
                  )
                  
                  
                  (205,369
                  )Net
      cash (used in) financing activities
                  
                  
                  (2,490,312
                  )
                  
                  
                  (14,594,335
                  )Net
      decrease in cash
                  
                  
                  (8,461,002
                  )
                  
                  
                  (8,107,472
                  )CASH
      AND DUE FROM BANKSBeginning
                  
                  
                  21,766,170
                  
                  
                  
                  16,281,644Ending
                  
                  $
                  13,305,168
                  
                  
                  $
                  8,174,172




4





NORTH
CENTRAL BANCSHARES, INC. AND SUBSIDIARIES





CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS -Continued


(Unaudited)
                  
                  Six Months EndedJune 30,2010
                  
                  
                  2009SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      payments for:Interest
      paid to depositors
                  
                  $
                  2,763,782
                  
                  
                  $
                  3,794,173Interest
      paid on borrowings
                  
                  
                  1,301,593
                  
                  
                  
                  1,887,281Income
      taxes
                  
                  
                  1,197,213
                  
                  
                  
                  107,623SUPPLEMENTAL
      DISCLOSURE OF NONCASH OPERATING,INVESTING
      AND FINANCING ACTIVITIESTransfers
      from loans to other real estate owned
                  
                  $
                  1,793,962
                  
                  
                  $
                  898,041





See Notes
to Consolidated Condensed Financial Statements.


5


NORTH
CENTRAL BANCSHARES, INC. AND SUBSIDIARIES





NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)





1.           BASIS
OF PRESENTATION





The
consolidated condensed financial statements for the three and six month periods
ended June 30, 2010 and 2009 are unaudited.  In the opinion of the
management of North Central Bancshares, Inc. (the “Company”), these financial
statements reflect all adjustments, including normal recurring accruals,
necessary to present fairly these consolidated financial
statements.  The results of operations for the interim periods are not
necessarily indicative of results that may be expected for an entire
year.  Certain information and footnote disclosures normally included
in complete financial statements prepared in accordance with generally accepted
accounting principles have been omitted in accordance with the requirements for
interim financial statements.  The financial statements and notes
thereto should be read in conjunction with the Company’s Annual Report on Form
10-K for the year ended December 31, 2009.





In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expense during the reporting
periods.  Significant estimates include the determination of the
allowance for loan losses, other-than temporary declines in the fair value of
securities, and fair value measurements.  Actual results could differ
from those estimates.





The
consolidated condensed financial statements include the accounts of the Company
and its wholly owned subsidiaries.  All significant intercompany
balances and transactions have been eliminated in consolidation.





Accounting
policy for investments in certificates of deposit:  Investments in
certificates of deposit mature within twenty-four months and are carried at
cost.





2.           EARNINGS
(LOSS) PER COMMON SHARE





Basic
earnings (loss) per common share is computed by dividing income (loss) available
to common stockholders by the weighted average number of common shares
outstanding for the period.  Income (loss) available to common
stockholders is net income (loss) less preferred stock dividends and accretion
of discount on preferred stock, treated as preferred stock
dividends.  Diluted earnings (loss) per common share reflects the
potential dilution that would occur if the Company’s outstanding stock options
and warrants were exercised and converted into common stock and the Company’s
outstanding restricted stock was vested.  The dilutive effect is
computed using the treasury stock method, which assumes all outstanding stock
options and warrants are exercised.  The incremental shares issuable
upon exercise of the stock options and warrants, to the extent they would have
been dilutive, are included in the denominator of the diluted earnings (loss)
per common share calculation.  The calculation of earnings (loss) per
common share and diluted earnings (loss) per common share for the three and six
months ended June 30, 2010 and 2009 is presented below.


6





Three
      Months Ended June 30,
                                                                                                
                                                                                                Six
      Months Ended June 30,2010
                                                                                                
                                                                                                
                                                                                                
                                                                                                2009
                                                                                                
                                                                                                
                                                                                                2010
                                                                                                
                                                                                                
                                                                                                2009Basic
      earnings per common share:Net
      Income (loss)
                                                                                                
                                                                                                $
                                                                                                (129,016
                                                                                                )
                                                                                                
                                                                                                
                                                                                                $
                                                                                                894,412
                                                                                                
                                                                                                
                                                                                                $
                                                                                                499,592
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1,676,060Preferred
      stock dividends and accretion of discount
                                                                                                
                                                                                                
                                                                                                132,169
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                131,933
                                                                                                
                                                                                                
                                                                                                
                                                                                                264,278
                                                                                                
                                                                                                
                                                                                                
                                                                                                250,884Net
      income (loss) available to common stockholders
                                                                                                
                                                                                                $
                                                                                                (261,185
                                                                                                )
                                                                                                
                                                                                                
                                                                                                $
                                                                                                762,479
                                                                                                
                                                                                                
                                                                                                $
                                                                                                235,314
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1,425,176Weighted
      average common shares outstanding - basic
                                                                                                
                                                                                                
                                                                                                1,346,906
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,342,210
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,345,933
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,341,184Basic
      earnings (loss) per common share
                                                                                                
                                                                                                $
                                                                                                (0.19
                                                                                                )
                                                                                                
                                                                                                
                                                                                                $
                                                                                                0.57
                                                                                                
                                                                                                
                                                                                                $
                                                                                                0.17
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1.06Diluted
      earnings (loss) per common share:Net
      income (loss) available to common stockholders
                                                                                                
                                                                                                
                                                                                                (261,185
                                                                                                )
                                                                                                
                                                                                                
                                                                                                
                                                                                                762,479
                                                                                                
                                                                                                
                                                                                                
                                                                                                235,314
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,425,176Weighted
      average common shares outstanding - basic
                                                                                                
                                                                                                
                                                                                                1,346,906
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,342,210
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,345,933
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,341,184Effect
      of dilutive securities:Stock
      Options
                                                                                                
                                                                                                
                                                                                                -
                                                                                                1
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                2
                                                                                                
                                                                                                
                                                                                                -
                                                                                                3
                                                                                                
                                                                                                
                                                                                                -
                                                                                                2Restricted
      Stock
                                                                                                
                                                                                                
                                                                                                -
                                                                                                1
                                                                                                
                                                                                                
                                                                                                
                                                                                                3,118
                                                                                                
                                                                                                
                                                                                                
                                                                                                3,659
                                                                                                
                                                                                                
                                                                                                
                                                                                                3,208Common
      stock warrant
                                                                                                
                                                                                                
                                                                                                -
                                                                                                1
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                4
                                                                                                
                                                                                                
                                                                                                4,228
                                                                                                
                                                                                                
                                                                                                
                                                                                                -
                                                                                                4Total
      diluted average common shares issued and outstanding
                                                                                                
                                                                                                
                                                                                                1,346,906
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,345,328
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,353,820
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,344,392Diluted
      earnings (loss) per common share
                                                                                                
                                                                                                $
                                                                                                (0.19
                                                                                                )
                                                                                                
                                                                                                
                                                                                                $
                                                                                                0.57
                                                                                                
                                                                                                
                                                                                                $
                                                                                                0.17
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1.06





1For the
three months ending June 30, 2010, options to purchase 65,200 shares of common
stock, 3,500 shares of restricted stock and 99,157 shares of
common stock warrants were not dilutive due to a net loss for the
quarter.


2For the
three and six months ending June 30, 2009, the stock options to purchase 67,400
shares of common stock were not dilutive due to
the exercise price of the options exceeding the average closing price of the
Company's common stock.


3For the
six months ending June 30, 2010, the stock options to purchase 65,200 shares of
common stock were not dilutive due to the exercise price of
the options exceeding the average closing price of the Company's common
stock.


4For the
three and six months ending June 30, 2009, the common stock warrants were not
dilutive due to the exercise price of the warrant exceeding
the average closing price of the Company stock.





3.           SECURITIES





Securities
available-for-sale as of June 30, 2010 were as follows:





Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      UnrealizedCost
                      
                      
                      Gains
                      
                      
                      (Losses)
                      
                      
                      Fair ValueDebt
      securities:State
      and local obligations
                      
                      $
                      3,860,227
                      
                      
                      $
                      55,006
                      
                      
                      $
                      (16,864
                      )
                      
                      $
                      3,898,369Mortgage-backed
      securities(1)
                      
                      
                      10,740,754
                      
                      
                      
                      373,461
                      
                      
                      
                      (386
                      )
                      
                      
                      11,113,829Collateralized
      mortgage obligations (1)
                      
                      
                      9,726,724
                      
                      
                      
                      29,804
                      
                      
                      
                      (23,897
                      )
                      
                      
                      9,732,631U.S.
      Government agencies
                      
                      
                      14,034,988
                      
                      
                      
                      86,040
                      
                      
                      
                      -
                      
                      
                      
                      14,121,028Total
                      
                      $
                      38,362,693
                      
                      
                      $
                      544,311
                      
                      
                      $
                      (41,147
                      )
                      
                      $
                      38,865,857





Securities
available-for-sale as of December 31, 2009 were as follows:





Gross
                      
                      
                      GrossAmortized
                      
                      
                      Unrealized
                      
                      
                      UnrealizedCost
                      
                      
                      Gains
                      
                      
                      (Losses)
                      
                      
                      Fair ValueEquity
      securities, mutual fund
                      
                      $
                      200,080
                      
                      
                      $
                      6,801
                      
                      
                      $
                      -
                      
                      
                      $
                      206,881Debt
      securities:State
      and local obligations
                      
                      
                      4,215,913
                      
                      
                      
                      112,114
                      
                      
                      
                      (1,530
                      )
                      
                      
                      4,326,497Mortgage-backed
      securities (1)
                      
                      
                      10,872,331
                      
                      
                      
                      302,038
                      
                      
                      
                      (9,056
                      )
                      
                      
                      11,165,313U.S.
      Government agencies
                      
                      
                      7,552,007
                      
                      
                      
                      5,163
                      
                      
                      
                      (80,660
                      )
                      
                      
                      7,476,51022,640,251
                      
                      
                      
                      419,315
                      
                      
                      
                      (91,246
                      )
                      
                      
                      22,968,320Total
                      
                      $
                      22,840,331
                      
                      
                      $
                      426,116
                      
                      
                      $
                      (91,246
                      )
                      
                      $
                      23,175,201





(1)
                All
      mortgage backed securities and collateralized mortgage obligations consist
      of securities issued by government sponsored
  agencies.




7





Gross
unrealized losses and estimated fair value, aggregated by investment category
and length of time that individual securities have been in a continuous
unrealized loss position, as of June 30, 2010 and December 31, 2009, are
summarized as follows:





June 30, 2010Less than 12 Months
                  
                  
                  12 Months or More
                  
                  
                  TotalUnrealized
                  
                  
                  
                  
                  
                  Unrealized
                  
                  
                  
                  
                  
                  UnrealizedFair Value
                  
                  
                  Losses
                  
                  
                  Fair Value
                  
                  
                  Losses
                  
                  
                  Fair Value
                  
                  
                  LossesDebt
      securities:State
      and local obligations
                  
                  $
                  2,140,803
                  
                  
                  $
                  (16,864
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2,140,803
                  
                  
                  $
                  (16,864
                  )Mortgage-backed
      securities
                  
                  
                  300,741
                  
                  
                  
                  (386
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,741
                  
                  
                  
                  (386
                  )Collateralized
      mortgage obligations
                  
                  
                  4,916,052
                  
                  
                  
                  (23,897
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,916,052
                  
                  
                  
                  (23,897
                  )Total
                  
                  $
                  7,357,596
                  
                  
                  $
                  (41,147
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  7,357,596
                  
                  
                  $
                  (41,147
                  )





December 31, 2009Less than 12 Months
                  
                  
                  12 Months or More
                  
                  
                  TotalUnrealized
                  
                  
                  
                  
                  
                  Unrealized
                  
                  
                  
                  
                  
                  UnrealizedFair Value
                  
                  
                  Losses
                  
                  
                  Fair Value
                  
                  
                  Losses
                  
                  
                  Fair Value
                  
                  
                  LossesDebt
      securities:State
      and local obligations
                  
                  $
                  353,470
                  
                  
                  $
                  (1,530
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  353,470
                  
                  
                  $
                  (1,530
                  )Mortgage-backed
      securities
                  
                  
                  1,013,063
                  
                  
                  
                  (9,056
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,013,063
                  
                  
                  
                  (9,056
                  )U.S.
      Government agencies
                  
                  
                  3,919,340
                  
                  
                  
                  (80,660
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,919,340
                  
                  
                  
                  (80,660
                  )Total
                  
                  $
                  5,285,873
                  
                  
                  $
                  (91,246
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  5,285,873
                  
                  
                  $
                  (91,246
                  )





The
unrealized losses for the above investment securities are generally due to
changes in interest rates and, as such, are considered to be temporary by the
Company.  In addition, the Company does not have the intent to sell
these investment securities and it is not more likely than not that the Company
will be required to sell the securities before their anticipated
recovery.





The
amortized cost and fair value of debt securities as of June 30, 2010 by
contractual maturity is shown below.  Certain securities have call
features, which allow the issuer to call the security prior to
maturity.  Maturities may differ from contractual maturities in
mortgage-backed securities and collateralized mortgage obligations because the
mortgage underlying the securities may be called or repaid without any
penalties.  Therefore, these securities are not included in the
maturity categories in the following maturity summary:





Debt Securities Available-for-SaleJune 30, 2010AmortizedCost
                  
                  
                  Fair ValueDue
      in one year or less
                  
                  $
                  45,000
                  
                  
                  $
                  45,063Due
      from one to five years
                  
                  
                  7,255,810
                  
                  
                  
                  7,295,512Due
      from five to ten years
                  
                  
                  9,061,417
                  
                  
                  
                  9,132,380Due
      after ten years
                  
                  
                  1,532,988
                  
                  
                  
                  1,546,442Mortgage-backed
      securities and collateralized mortgage obligations
                  
                  $
                  20,467,478
                  
                  
                  $
                  20,846,460$
                  38,362,693
                  
                  
                  $
                  38,865,857





There
were no sales of securities for the three months ended June 30,
2010.  Gross security gains from the sales of securities of $7,652
were realized for the six months ended June 30, 2010.  Gross security
(losses) from the sales of securities of ($9,602) and ($19,944) were realized
for the three and six months ended June 30, 2009, respectively.


8





4.           OTHER
COMPREHENSIVE INCOME





Under
Financial Accounting Standards Board (FASB) guidance on other than temporary
impairment (OTTI), credit-related losses on debt securities with OTTI are
recorded in current earnings, while the noncredit-related portion of the
reduction in fair value is recorded in other comprehensive
income.  The Company’s component of other comprehensive income
consists of the unrealized holding gains and losses on available for sale
investment securities which are considered temporary in nature.





The
components of other comprehensive income, presented net of taxes for the six
months ended June 30, 2010 and 2009, are as follows:





Six Months Ended June 30,2010
                    
                    
                    2009Other
      comprehensive income:Securities
      for which a portion of an other-than-temporary impairment has been
      recorded in earnings:Unrealized
      holding gain/(loss) arising during the period
                    
                    $
                    851
                    
                    
                    $
                    (43,287
                    )(Gain)/loss
      recognized in earnings
                    
                    
                    (7,652
                    )
                    
                    
                    43,287Net
      unrealized gain on securities with other-than-temporary impairment before
      tax expense
                    
                    
                    (6,801
                    )
                    
                    
                    -Tax
      expense
                    
                    
                    -
                    
                    
                    
                    -Net
      unrealized (losses) on securities with other-than-temporary impairment,
      net of tax in other comprehensive income (loss)
                    
                    
                    (6,801
                    )
                    
                    
                    -Other
      securities:Unrealized
      holding gains arising during the period
                    
                    
                    175,095
                    
                    
                    
                    182,524Realized
      net (gains) losses recognized into net income (loss)
                    
                    
                    -
                    
                    
                    
                    -Net
      unrealized gains (losses) on other securities before tax (expense)
      benefit
                    
                    
                    175,095
                    
                    
                    
                    182,524Tax
      (expense) benefit
                    
                    
                    (65,310
                    )
                    
                    
                    (68,081
                    )Net
      unrealized gains (losses) on other securities, net of tax in other
      comprehensive income (loss)
                    
                    
                    109,785
                    
                    
                    
                    114,443Total
      other comprehensive income
                    
                    $
                    102,984
                    
                    
                    $
                    114,443





The
components of accumulated other comprehensive income, presented net of taxes,
are shown in the following table:





June
      30, 2010
                                            
                                            
                                            December
      31, 2009Accumulated
      other comprehensive income:Unrealized
      gains on available for sale securities for which a portion of
      other-than-temporary impairment has been recorded in earnings, net of tax
      of $0 at June 30, 2010 and December 31, 2009
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            6,801Unrealized
      gains on available for sale securities which are not
      other-than-temporarily impaired, net of tax of $187,680 and $122,370 at
      June 30, 2010 and December 31, 2009, respectively
                                            
                                            
                                            315,484
                                            
                                            
                                            
                                            205,699$
                                            315,484
                                            
                                            
                                            $
                                            212,500





5.           IMPAIRED
LOANS AND ALLOWANCE FOR LOAN LOSSES





A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payment of
principal and interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due.  The following is
a summary of impaired loans at June 30, 2010 and December 31,
2009:


9


June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Impaired
      loans without a valuation allowance
                  
                  $
                  11,416,284
                  
                  
                  $
                  11,161,636Impaired
      loans with a valuation allowance
                  
                  $
                  16,182,112
                  
                  
                  $
                  11,593,200Total
      impaired loans
                  
                  $
                  27,598,396
                  
                  
                  $
                  22,754,836Valuation
      allowance related to impaired loans
                  
                  $
                  4,993,445
                  
                  
                  $
                  3,158,303Total
      nonaccrual loans
                  
                  $
                  13,516,771
                  
                  
                  $
                  14,349,340Total
      loans past due ninety days or more and still accruing
                  
                  $
                  -
                  
                  
                  $
                  -





Changes
in the allowance for loan losses were as follows for the three and six months
ended June 30, 2010 and 2009:





Three Months Ended June 30,
                
                
                Six Months Ended June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009(Dollars in thousands)
                
                
                (Dollars in thousands)Balance
      at beginning of period
                
                $
                7,760,897
                
                
                $
                5,424,864
                
                
                $
                7,170,595
                
                
                $
                5,379,155Charge-offs
                
                
                (379,781
                )
                
                
                (341,054
                )
                
                
                (593,975
                )
                
                
                (458,509
                )Recoveries
                
                
                1,600
                
                
                
                4,244
                
                
                
                6,096
                
                
                
                7,408Net
      charge-offs
                
                
                (378,181
                )
                
                
                (336,810
                )
                
                
                (587,879
                )
                
                
                (451,101
                )Provision
      charged to operations
                
                
                1,610,000
                
                
                
                610,000
                
                
                
                2,410,000
                
                
                
                770,000Balance
      at end of period
                
                $
                8,992,716
                
                
                $
                5,698,054
                
                
                $
                8,992,716
                
                
                $
                5,698,054





6.           FAIR
VALUE





Fair
Value Measurements





ASC 820,
Fair Value Measurements and Disclosures, defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements.  The Company uses fair value measurements to record fair
value adjustments to certain assets and to determine fair value
disclosures.  The Company did not have any liabilities that were
measured at fair value at June 30, 2010.  The Company’s securities
available for sale are recorded at fair value on a recurring
basis.  Additionally, from time to time, the Company may be required
to record at fair value other assets or liabilities on a non-recurring basis,
such as other real estate owned and impaired loans.  These
non-recurring fair value adjustments involve the application of
lower-of-cost-or-fair value accounting or write-downs of individual
assets.





In
accordance with ASC 820, the Company groups its assets at fair value in three
levels, based on the markets in which the assets are traded and the reliability
of the assumptions used to determine fair value.  These levels
are:





1.
            Level
      1 – Valuation is based upon quoted prices for identical instruments traded
      in active markets.





2.
            Level
      2 – Valuation is based upon quoted prices for similar instruments in
      active markets, quoted prices for identical or similar instruments in
      markets that are not active, and model-based valuation techniques for
      which all significant assumptions are observable in the
      market.





3.
            Level
      3 – Valuation is generated from model-based techniques that use
      significant assumptions not observable in the market.  These
      unobservable assumptions reflect the Company’s own estimates of
      assumptions that market participants would use in pricing the asset or
      liability.  Valuation techniques include the use of option
      pricing models, discounted cash flow models, and similar
      techniques.  The results cannot be determined with precision and
      may not be realized in an actual sale or immediate settlement of the asset
      or liability.


10


Fair
value measurements for assets measured at fair value on a recurring basis were
as follows:





Fair Value Measurements at June 30, 2010Quoted Pricesin Active Markets
                
                
                Significant Other
                
                
                Significantfor Identical Assets
                
                
                Observable Inputs
                
                
                Unobservable InputsDescription
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)
                
                
                TotalSecurities
      available-for-saleState
      and local obligations
                
                $
                -
                
                
                $
                3,898,369
                
                
                $
                -
                
                
                $
                3,898,369Mortgage-backed
      securities
                
                
                -
                
                
                
                11,113,829
                
                
                
                -
                
                
                
                11,113,829Collateralized
      mortgage obligations
                
                
                -
                
                
                
                9,732,631
                
                
                
                -
                
                
                
                9,732,631U.S.
      Government agencies
                
                
                -
                
                
                
                14,121,028
                
                
                
                -
                
                
                
                14,121,028Total
      securities available-for-sale
                
                $
                -
                
                
                $
                38,865,857
                
                
                $
                -
                
                
                $
                38,865,857





Fair Value Measurements at December 31, 2009Quoted Pricesin Active Markets
                
                
                Significant Other
                
                
                Significantfor Identical Assets
                
                
                Observable Inputs
                
                
                Unobservable InputsDescription
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)
                
                
                TotalSecurities
      available-for-saleEquity
      securities, mutual fund
                
                $
                206,881
                
                
                $
                -
                
                
                $
                -
                
                
                $
                206,881State
      and local obligations
                
                
                -
                
                
                
                4,326,497
                
                
                
                -
                
                
                
                4,326,497Mortgage-backed
      securities
                
                
                -
                
                
                
                11,165,313
                
                
                
                -
                
                
                
                11,165,313U.S.
      Government agencies
                
                
                -
                
                
                
                7,476,510
                
                
                
                -
                
                
                
                7,476,510Total
      securities available-for-sale
                
                $
                206,881
                
                
                $
                22,968,320
                
                
                $
                -
                
                
                $
                23,175,201





At
December 31, 2009, a portion of the securities available-for-sale portfolio
consisted of an equity security of a mortgage bond mutual fund
investment.  The fair value used by the Company represents quoted
market prices for the identical securities (Level 1 inputs).  This
security was sold during the first quarter of 2010.





The
remaining securities available-for-sale portfolio consists of mortgage-backed
securities, collateralized mortgage obligations, government bonds, and municipal
bond investments where fair value are obtained from an independent pricing
service.  The fair values are determined by pricing models that
consider observable market data, such as interest rate volatilities, yield
curves, credit spreads and prices from market makers and live trading systems
(Level 2 inputs).


11


Fair
value measurements for assets measured at fair value on a non recurring basis
were as follows:





Fair Value Measurements at June 30, 2010Quoted Pricesin Active Markets
                
                
                Significant Other
                
                
                Significantfor Identical Assets
                
                
                Observable Inputs
                
                
                Unobservable InputsDescription
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)
                
                
                TotalAssets:Impaired
      loans
                
                $
                -
                
                
                $
                -
                
                
                $
                11,188,667
                
                
                $
                11,188,667Foreclosed
      real estate
                
                
                -
                
                
                
                -
                
                
                
                2,460,696
                
                
                
                2,460,696Total
                
                $
                -
                
                
                $
                -
                
                
                $
                13,649,363
                
                
                $
                13,649,363





Fair Value Measurements at December 31, 2009Quoted Pricesin Active Markets
                
                
                Significant Other
                
                
                Significantfor Identical Assets
                
                
                Observable Inputs
                
                
                Unobservable InputsDescription
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)
                
                
                TotalAssets:Impaired
      loans
                
                $
                -
                
                
                $
                -
                
                
                $
                8,434,897
                
                
                $
                8,434,897Foreclosed
      real estate
                
                
                -
                
                
                
                -
                
                
                
                1,709,128
                
                
                
                1,709,128Total
                
                $
                -
                
                
                $
                -
                
                
                $
                10,144,025
                
                
                $
                10,144,025





Impaired
loans are evaluated and valued at the time the loan is identified as impaired,
at the lower of cost or fair value.  Fair value is measured based on
the value of the collateral securing these loans or discounted cash flows and is
classified at a Level 3 in the fair value hierarchy.  Collateral may
be real estate and/or business assets including equipment, inventory and/or
accounts receivable.  Such collateral’s fair value is determined based
on appraisals by qualified licensed appraisers hired by the Company, and/or
management’s expertise and knowledge of the client and client’s
business.





Foreclosed
real estate is initially recorded at fair value less estimated selling
costs.  Subsequently it is carried at the lower of cost or fair value
less estimated selling costs.  Fair value is estimated through current
appraisals or listing prices.  Estimated fair values may be adjusted
by management to reflect current economic and market conditions and, as such,
are classified as Level 3.





Fair
Value Disclosures





Generally
accepted accounting principles require disclosure of the fair value of financial
assets and financial liabilities, including those financial assets and financial
liabilities that are not measured and reported at fair value on a recurring
basis or non-recurring basis.  The methodologies for estimating the
fair value of financial assets and financial liabilities that are measured at
fair value on a recurring or non-recurring basis are discussed
above.  The methodologies for other financial assets and financial
liabilities are discussed below:





Cash and due from banks:  The
carrying amount of cash and due from banks represents the fair
value.





Investments
in certificates of deposit:  The fair value of investments in
certificates of deposit is  estimated based on discounted cash flows
using current market interest rates.





Federal
Home Loan Bank stock:  The fair value of this untraded stock is
estimated at its carrying  value because the Company is able to redeem
the stock with the Federal Home Loan Bank at
par  value.


12


Loans
held for sale:  Fair values are based on quoted market prices of
similar loans sold on the secondary market.





Loans:  For
variable-rate loans that reprice frequently and 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, 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 are 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
creditworthiness of the counterparties.  At June 30, 2010 and December
31, 2009 the  carrying amount and fair value of the commitments were
not significant.





June 30, 2010
                  
                  
                  December 31, 2009Carrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairAmount
                  
                  
                  Value
                  
                  
                  Amount
                  
                  
                  Value(nearest 000)
                  
                  
                  
                  
                  
                  (nearest 000)Financial
      assets:Cash
      and due from banks
                  
                  $
                  13,305,168
                  
                  
                  $
                  13,305,000
                  
                  
                  $
                  21,766,170
                  
                  
                  $
                  21,766,000Investments
      in certificates of deposit
                  
                  
                  11,994,000
                  
                  
                  
                  12,107,000
                  
                  
                  
                  -
                  
                  
                  
                  -Securities
      available-for-sale
                  
                  
                  38,865,857
                  
                  
                  
                  38,866,000
                  
                  
                  
                  23,175,201
                  
                  
                  
                  23,175,000FHLB
      stock
                  
                  
                  3,298,700
                  
                  
                  
                  3,299,000
                  
                  
                  
                  3,924,700
                  
                  
                  
                  3,925,000Loans,
      net
                  
                  
                  351,476,179
                  
                  
                  
                  358,102,000
                  
                  
                  
                  374,854,993
                  
                  
                  
                  384,950,000Loans
      held for sale
                  
                  
                  2,223,700
                  
                  
                  
                  2,224,000
                  
                  
                  
                  1,333,933
                  
                  
                  
                  1,334,000Accrued
      interest receivable
                  
                  
                  1,787,961
                  
                  
                  
                  1,788,000
                  
                  
                  
                  1,867,970
                  
                  
                  
                  1,868,000Financial
      liabilities:Deposits
                  
                  
                  344,540,516
                  
                  
                  
                  347,902,000
                  
                  
                  
                  334,813,060
                  
                  
                  
                  338,105,000Borrowed
      funds
                  
                  
                  54,500,000
                  
                  
                  
                  56,086,000
                  
                  
                  
                  66,500,000
                  
                  
                  
                  69,132,000Accrued
      interest payable
                  
                  
                  251,988
                  
                  
                  
                  252,000
                  
                  
                  
                  330,804
                  
                  
                  
                  331,000





7.           OPERATING
SEGMENTS





An
operating segment is generally defined as a component of a business for which
discrete financial information is available and whose results are reviewed by
the chief operating decision-maker.  The Company has determined that
it has two reportable segments:  a traditional banking segment and a
nonbank segment.  The traditional banking segment consists of the
Company’s banking subsidiary, First Federal Savings Bank of Iowa (the “Bank”),
and the holding company.  The Bank operates as a federal savings bank
providing deposit, loan and other related products to individuals and small
businesses, primarily in the communities where their offices are
located.  The nonbank segment, which is set forth under the caption
“All Others” below, consists of the operations of the subsidiaries under the
Bank, and includes real estate abstracting services, insurance and investment
services, and ownership of low-income housing tax credit apartment
complexes.





Transactions
between affiliates, the resulting revenues of which are shown in the
inter-segment revenue category, are conducted at market prices that would be
paid if the companies were not affiliates.


13





Three Months Ended June 30, 2010
                  
                  
                  Six Months Ended June 30, 2010Traditional
                  
                  
                  
                  
                  
                  
                  
                  
                  TraditionalBanking
                  
                  
                  All Others
                  
                  
                  Total
                  
                  
                  Banking
                  
                  
                  All Others
                  
                  
                  TotalInterest
      income
                  
                  $
                  5,593,835
                  
                  
                  $
                  -
                  
                  
                  $
                  5,593,835
                  
                  
                  $
                  11,381,621
                  
                  
                  $
                  -
                  
                  
                  $
                  11,381,621Interest
      expense
                  
                  
                  1,936,416
                  
                  
                  
                  28,038
                  
                  
                  
                  1,964,454
                  
                  
                  
                  3,930,453
                  
                  
                  
                  56,106
                  
                  
                  
                  3,986,559Net
      interest income (loss)
                  
                  
                  3,657,419
                  
                  
                  
                  (28,038
                  )
                  
                  
                  3,629,381
                  
                  
                  
                  7,451,168
                  
                  
                  
                  (56,106
                  )
                  
                  
                  7,395,062Provision
      for loan losses
                  
                  
                  1,610,000
                  
                  
                  
                  -
                  
                  
                  
                  1,610,000
                  
                  
                  
                  2,410,000
                  
                  
                  
                  -
                  
                  
                  
                  2,410,000Net
      interest income (loss) after provision for loan losses
                  
                  
                  2,047,419
                  
                  
                  
                  (28,038
                  )
                  
                  
                  2,019,381
                  
                  
                  
                  5,041,168
                  
                  
                  
                  (56,106
                  )
                  
                  
                  4,985,062Noninterest
      income
                  
                  
                  1,434,207
                  
                  
                  
                  440,100
                  
                  
                  
                  1,874,307
                  
                  
                  
                  2,675,150
                  
                  
                  
                  863,754
                  
                  
                  
                  3,538,904Securities
      gains (losses), net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,652
                  
                  
                  
                  
                  
                  
                  
                  7,652Noninterest
      expense
                  
                  
                  3,778,573
                  
                  
                  
                  424,531
                  
                  
                  
                  4,203,104
                  
                  
                  
                  7,102,370
                  
                  
                  
                  853,556
                  
                  
                  
                  7,955,926Income
      (loss) before income taxes
                  
                  
                  (296,947
                  )
                  
                  
                  (12,469
                  )
                  
                  
                  (309,416
                  )
                  
                  
                  621,600
                  
                  
                  
                  (45,908
                  )
                  
                  
                  575,692Provision
      for income taxes
                  
                  
                  (183,400
                  )
                  
                  
                  3,000
                  
                  
                  
                  (180,400
                  )
                  
                  
                  80,300
                  
                  
                  
                  (4,200
                  )
                  
                  
                  76,100Net
      income (loss)
                  
                  $
                  (113,547
                  )
                  
                  $
                  (15,469
                  )
                  
                  $
                  (129,016
                  )
                  
                  $
                  541,300
                  
                  
                  $
                  (41,708
                  )
                  
                  $
                  499,592Inter-segment
      revenue (expense)
                  
                  $
                  177,922
                  
                  
                  $
                  (177,922
                  )
                  
                  $
                  -
                  
                  
                  $
                  353,196
                  
                  
                  $
                  (353,196
                  )
                  
                  $
                  -Total
      assets
                  
                  $
                  448,496,463
                  
                  
                  $
                  3,633,269
                  
                  
                  $
                  452,129,732
                  
                  
                  $
                  448,496,463
                  
                  
                  $
                  3,633,269
                  
                  
                  $
                  452,129,732Total
      deposits
                  
                  $
                  344,540,516
                  
                  
                  $
                  -
                  
                  
                  $
                  344,540,516
                  
                  
                  $
                  344,540,516
                  
                  
                  $
                  -
                  
                  
                  $
                  344,540,516





Three Months Ended June 30, 2009
                    
                    
                    Six Months Ended June 30, 2009Traditional
                    
                    
                    
                    
                    
                    
                    
                    
                    TraditionalBanking
                    
                    
                    All Others
                    
                    
                    Total
                    
                    
                    Banking
                    
                    
                    All Others
                    
                    
                    TotalInterest
      income
                    
                    $
                    6,286,726
                    
                    
                    $
                    -
                    
                    
                    $
                    6,286,726
                    
                    
                    $
                    12,752,521
                    
                    
                    $
                    -
                    
                    
                    $
                    12,752,521Interest
      expense
                    
                    
                    2,646,027
                    
                    
                    
                    29,057
                    
                    
                    $
                    2,675,084
                    
                    
                    
                    5,684,721
                    
                    
                    
                    58,356
                    
                    
                    
                    5,743,077Net
      interest income
                    
                    
                    3,640,699
                    
                    
                    
                    (29,057
                    )
                    
                    
                    3,611,642
                    
                    
                    
                    7,067,800
                    
                    
                    
                    (58,356
                    )
                    
                    
                    7,009,444Provision
      for loan losses
                    
                    
                    610,000
                    
                    
                    
                    -
                    
                    
                    
                    610,000
                    
                    
                    
                    770,000
                    
                    
                    
                    -
                    
                    
                    
                    770,000Net
      interest income after provision for loan losses
                    
                    
                    3,030,699
                    
                    
                    
                    (29,057
                    )
                    
                    
                    3,001,642
                    
                    
                    
                    6,297,800
                    
                    
                    
                    (58,356
                    )
                    
                    
                    6,239,444Noninterest
      income
                    
                    
                    1,809,944
                    
                    
                    
                    607,557
                    
                    
                    
                    2,417,501
                    
                    
                    
                    3,252,918
                    
                    
                    
                    1,128,371
                    
                    
                    
                    4,381,289Securities
      gains (losses), net
                    
                    
                    (32,945
                    )
                    
                    
                    -
                    
                    
                    
                    (32,945
                    )
                    
                    
                    (43,287
                    )
                    
                    
                    -
                    
                    
                    
                    (43,287
                    )Noninterest
      expense
                    
                    
                    3,526,897
                    
                    
                    
                    508,789
                    
                    
                    
                    4,035,686
                    
                    
                    
                    7,101,032
                    
                    
                    
                    989,954
                    
                    
                    
                    8,090,986Income
      before taxes
                    
                    
                    1,280,801
                    
                    
                    
                    69,711
                    
                    
                    
                    1,350,512
                    
                    
                    
                    2,406,399
                    
                    
                    
                    80,061
                    
                    
                    
                    2,486,460Provision
      for income taxes
                    
                    
                    412,500
                    
                    
                    
                    43,600
                    
                    
                    
                    456,100
                    
                    
                    
                    752,200
                    
                    
                    
                    58,200
                    
                    
                    
                    810,400Net
      income
                    
                    $
                    868,301
                    
                    
                    $
                    26,111
                    
                    
                    $
                    894,412
                    
                    
                    $
                    1,654,199
                    
                    
                    $
                    21,861
                    
                    
                    $
                    1,676,060Inter-segment
      revenue (expense)
                    
                    $
                    247,769
                    
                    
                    $
                    (247,769
                    )
                    
                    $
                    -
                    
                    
                    $
                    442,963
                    
                    
                    $
                    (442,963
                    )
                    
                    $
                    -Total
      assets
                    
                    $
                    457,621,881
                    
                    
                    $
                    3,230,335
                    
                    
                    $
                    460,852,216
                    
                    
                    $
                    457,621,881
                    
                    
                    $
                    3,230,335
                    
                    
                    $
                    460,852,216Total
      deposits
                    
                    $
                    331,224,258
                    
                    
                    $
                    -
                    
                    
                    $
                    331,224,258
                    
                    
                    $
                    331,224,258
                    
                    
                    $
                    -
                    
                    
                    $
                    331,224,258





8.           DIVIDENDS





On May
27, 2010, the Company declared a cash dividend on its common stock, payable on
July 2, 2010 to stockholders of record as of June 11, 2010.  On May
15, 2010, the Company paid an aggregate cash dividend of $127,500 on the Fixed
Rate Cumulative Perpetual Preferred Stock, Series A issued to the United States
Department of the Treasury.





9.           CURRENT
ACCOUNTING DEVELOPMENTS





In July
2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about
the Credit Quality of Financing Receivables and the Allowance for Credit
Losses.  The Update expands disclosures about the credit quality of
financing receivables and the allowance for credit losses. Existing disclosure
guidance is amended to require an entity to provide a greater level of
disaggregated information about the credit quality of its financing receivables
and its allowance for credit losses. In addition, the Update requires an entity
to disclose credit quality indicators, past due information, and modifications
of its financing receivables. The disclosures that are required as of the end of
a reporting period are effective for the Company at December 31, 2010. The
disclosures about activity that occurs during a reporting period are effective
for the Company beginning January 1, 2011.  The adoption of this
standard is not expected to have a material impact on the Company’s financial
position or results of operations.


14


In June
2009, the FASB issued guidance on Accounting for Transfers of Financial Asset,
to improve the reporting for the transfers of financial assets resulting from
(1) practices that have developed that are not consistent with the original
intent and key requirements of prior FASB guidance and (2) concerns of financial
statement users that many of the financial assets (and related obligations) that
have been derecognized should continue to be reported in the financial
statements of transferors.  The Company adopted this standard
effective January 1, 2010.  The adoption of this standard did not have
a material impact on the Company’s financial position or results of
operations.





In
January 2010, the FASB issued guidance requiring increased fair value
disclosures.  There are two components to the increased disclosure
requirements set forth in the update:  (1) a description of, as well
as the disclosure of, the dollar amount of transfers in or out of level one or
level two (2) in the reconciliation for fair value measurements using
significant unobservable input (level 2), a reporting entity should present
separately information about purchases, sales, issuances and settlements (that
is, gross amounts shall be disclosed as opposed to a single net
figure).  Increased disclosures regarding the transfer in/out of level
one and two are required for interim and annual periods beginning after December
15, 2009.  The adoption of this portion of the standard did not have a
material impact on the Company’s consolidated financial position, results of
operations or cash flows.  Increased disclosures regarding the level
three fair value reconciliation are required for fiscal years beginning after
December 15, 2010.  The adoption of this portion of the standard is
not expected to have a material impact on the Company’s consolidated financial
position, results of operations or cash flows.





10.           RECLASSIFICATIONS





Certain
amounts in the prior period financial statements have been reclassified, with no
effect on net income or stockholders’ equity, to be consistent with the current
period classification.





Item
2.  Management’s Discussion and Analysis Of Financial Condition and
Results Of Operations





This
Quarterly Report on Form 10-Q contains forward-looking statements consisting of
estimates with respect to the consolidated financial condition, results of
operations and business of the Company and its subsidiaries, including the Bank,
that are subject to various factors which could cause actual results to differ
materially from these estimates, including those set forth in Part I,
Item 1A — Risk Factors included in the Company’s 2009 Annual Report on Form
10-K and in Part II, Item 1A — Risk Factors of this Quarterly Report on Form
10-Q.  These factors include changes in general, economic, market,
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company’s operations and investments.  The
Company’s actual results may differ from the results discussed in the
forward-looking statements.  The Company disclaims any obligation to
publicly announce future events or developments that may affect the
forward-looking financial statements contained herein.





Overview





The
purpose of this overview is to provide a summary of the items management focuses
on when evaluating the condition of the Company and its success in implementing
its business and shareholder value strategies. The Company’s business strategy
is to operate the Bank as a well-capitalized, profitable and independent
community oriented savings bank.  The Company’s shareholder value
strategy has three major themes: (1) enhancing shareholders’ value; (2)
making its banking franchise more valuable; and (3) efficiently utilizing its
capital.





Management
believes the following were important factors in the Company’s performance
during the three and six month periods ended June 30, 2010:




•
            During
      the first half of 2010, the economy began to show signs of recovery, as
      evidenced by an increase in consumer spending and stabilization of the
      labor market, the housing sector, and financial
      markets.  However, unemployment levels remained elevated, real
      estate values remained depressed and demand for housing was weak, due to
      distressed sales and tightened lending
  standards.


15





•
            Loans
      amounted to $362.2 million and $383.2 million as of June 30, 2010 and
      December 31, 2009, respectively.  The loan portfolio decreased
      5.47% during the six months ended June 30, 2010.  The decline in
      the loan portfolio is primarily due to the decrease in loan volume due to
      a weakening of loan demand as payments and repayments exceeded
      originations in most loan categories and the Company’s curtailment of out
      of state lending.





•
            Non-performing
      loans decreased $833,000 from $14.3 million at December 31, 2009 to $13.5
      million at June 30, 2010.  The balance of non-performing loans
      continues to remain at historically high levels due to the continued
      elevated level of unemployment coupled with the decline in real estate
      values, particularly in some of the states in which we have purchased
      loans.  The Bank recorded a provision for loan losses of $1.6
      million during the second quarter of 2010 and an aggregate of $2.4 million
      for the six months ended June 30, 2010, due to increases in certain
      factors in our general valuation allowance model and specific impairments,
      both primarily related to nonresidential commercial real estate and land
      and land development loans.





•
            The
      Company has taken significant steps to reduce the risk of additional loan
      losses.  Specifically, a senior credit administration position
      was added in late 2009 to actively manage and monitor asset quality and
      problem loans.  The Company continues to monitor its loan
      portfolio with the objective of minimizing defaults or
      write-downs.  Despite these actions, the possibility of
      additional losses can not be eliminated.  The Board of Directors
      and all employees continue to work hard to make the best of these
      continuing challenging conditions.





•
            Interest-bearing
      demand deposits increased $15.3 million for the six month ended June 30,
      2010, primarily as a result of the Company’s promotion F1Rst Perks, a new
      transaction account product
offering.





•
            The
      Company continues its focus on earnings through management of net interest
      margin, successfully increasing the margin to 3.36% for the quarter ended
      June 30, 2010 from 3.31% from the quarter ended June 30,
    2009.





•
            Capital
      remains strong, with stockholders’ equity as a percentage of total assets
      increasing to 10.76% at June 30, 2010 from 10.61% at December 31,
      2009.  The Bank continues to be considered “well capitalized”
      under regulatory capital requirements with a total risk based capital
      ratio of 15.7% at June 30, 2010.





•
            The
      Company has taken steps to increase liquidity with the investment of funds
      in securities available for sale and investments in certificates of
      deposit.




Dodd-Frank
Wall Street Reform and Consumer Protection Act




On July
21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act, or the Act, into law.  Among other things, the Act
dramatically impacts the rules governing the provision of consumer financial
products and services, and implementation of the Act will require new mandatory
and discretionary rulemakings by numerous federal regulatory agencies over the
next several years.  The new law significantly affects the operations
of thrifts and their holding companies as, among other things, the Act: (1)
abolishes our primary federal regulator, the Office of Thrift Supervision
(“OTS”), effective 90 days after the transfer of the OTS’s supervisory and other
functions to the Federal Reserve Board (“FRB”), Federal Deposit Insurance
Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”);
(2) creates the Bureau of Consumer Financial Protection, a new independent
consumer watchdog agency housed within the FRB that will have primary rulemaking
authority with respect to all federal consumer financial laws; (3) requires that
formal capital requirements be imposed on savings and loan holding companies
generally commencing July 2015; (4) codifies the “source of strength” doctrine
for all depository institution holding companies; (5) grants to the U.S.
Department of the Treasury, FDIC and the FRB broad new powers to seize, close
and wind down “too big to fail” financial (including non-bank) institutions in
an orderly fashion; (6) establishes a new Financial Stability Oversight
Council that is charged with identifying and responding to emerging risks
throughout the financial system, composed primarily of federal financial
services regulators and chaired by the Secretary of the Treasury Department; (7)
adopts new standards and rules for the mortgage industry; (8) adopts new bank,
thrift and holding company regulation; (9) permanently increases the standard
maximum deposit insurance limit to $250,000 per depositor, per institution for
each account ownership category; (10) temporarily provides for unlimited deposit
insurance coverage for “noninterest-bearing transaction accounts;” (11) repeals
the long-standing statutory prohibition on the payment of interest on demand
deposits; (12) adopts new federal regulation of the derivatives market; (13)
adopts the so-called Volcker Rule, substantially restricting proprietary trading
by depository institutions and their holding companies; (14) imposes
requirements for “funeral plans” by large, complex financial companies; (15)
establishes new regulation of the asset securitization market through “skin in
the game” and enhanced disclosure requirements; (16) establishes new regulation
of interchange fees; (17) establishes new and enhanced compensation and
corporate governance oversight for the financial services industry; (18)
provides enhanced oversight of municipal securities; (19) provides a specific
framework for payment, clearing and settlement regulation; (20) tasks the
federal banking agencies with adopting new and enhanced capital standards for
all depository institutions; and (21) significantly narrows the scope of federal
preemption for national banks and federal thrifts.




16




We are
currently evaluating the potential impact of the Act on our business, financial
condition, results of operations and prospects and expect that some provisions
of the Act may have adverse effects on us, such as the cost of complying with
the numerous new regulations and reporting requirements mandated by the Act, a
potential increase in competition for deposits resulting from the rise in cost
of funding using non-deposit liabilities which will now be subject to FDIC
assessments and the potential loss of interchange fee income from debit and
credit card transactions.




CRITICAL
ACCOUNTING POLICIES




This
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and the disclosures included elsewhere in this report, are based on
the Company’s consolidated financial statements.  These statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America.  The financial information contained
in these statements is, for the most part, based on approximate measures of the
financial effects of transactions and events that have already
occurred.  However, the preparation of these statements requires
management to make certain estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses.





The
Company’s accounting policies are described in the “Notes to Consolidated
Financial Statements” of the Company’s 2009 Annual Report on Form
10-K.  Based on its consideration of accounting policies that involve
the most complex and subjective estimates and judgments, management has
identified its most critical accounting policies to be those related to the
allowance for loan losses and asset impairment judgments.





The
allowance for loan losses is established through a provision for loan losses
charged to expense.  Loans are charged off against the allowance for
loan losses when management believes that collectibility of the principal is
unlikely.  The Company has policies and procedures for evaluating the
overall credit quality of its loan portfolio, including timely identification of
potential problem credits.  On a quarterly basis, management reviews
the appropriate level for the allowance for loan losses, incorporating a variety
of risk considerations, both quantitative and
qualitative.  Quantitative factors include the Company’s historical
loss experience, delinquency and charge-off trends, collateral values, known
information about individual loans and other factors.  Qualitative
factors include the general economic environment in the Company’s market area
and the trends of those economic conditions.  To the extent that
actual results differ from forecasts and management’s judgment, the allowance
for loan losses may be greater or less than future charge-offs.





Asset
impairment judgments include evaluating the decline in fair value of
available-for-sale securities below their cost.  Declines in fair
value of available-for-sale securities below their cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses.  In
estimating OTTI losses, management considers (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent of the
Company to not sell the security and whether it is more-likely-than-not that the
Company will be required to sell the security before its anticipated
recovery.


17


FINANCIAL
CONDITION





Total
assets decreased $2.9 million, or 0.6%, to $452.1 million at June 30, 2010, from
$455.0 million at December 31, 2009.  The decrease in assets was
primarily due to a decrease in net loans receivable and cash and cash
equivalents, offset in part by an increase in securities available-for-sale and
investments in certificates of deposits.  The increase in investments
in certificates of deposits was due to the purchase of $12.0 million of
certificates of deposit of other financial institutions during the six months
ended June 30, 2010.  The increase in securities available-for-sale
was primarily due to the purchase of $19.5 million of securities for the six
months ended June 30, 2010, offset in part by payments, maturities and the sale
of securities in the 2010 period.  The increases in securities
available for sale and investments in certificates of deposit were primarily
funded by loan repayments that exceeded loan originations and increases in
deposits.





Net loans
receivable decreased by $23.4 million, or 6.2%, to $351.5 million at June 30,
2010, from $374.9 million at December 31, 2009, primarily due to payments and
prepayments of $47.2 million and loan sales of $12.9 million during the six
months ended June 30, 2010. These payments, prepayments, and loan sales were
offset in part by the origination of $27.4 million of first mortgage loans
primarily secured by one-to-four family residences and commercial real estate,
and the origination of $12.9 million of consumer loans during the six months
ended June 30, 2010. The Company generally sells all fixed-rate residential
loans originated with maturities of 15 years or more in the secondary mortgage
market in order to reduce interest rate risk.





At June
30, 2010, net loans consisted of (i) $144.8 million of one-to-four family real
estate representing a decrease of $7.2 million from December 31, 2009, (ii)
$79.2 million of nonresidential commercial real estate loans representing a
decrease of $6.4 million from December 31, 2009, (iii) $56.8 million of
multi-family real estate loans representing a decrease of $6.1 million from
December 31, 2009, and (iv) $70.7 million of consumer loans representing a
decrease of $3.6 million from December 31, 2009.  The decrease in the
loan portfolio was primarily due to general decreases in demand for new loans
and the Company’s curtailment of out of state lending.  Future
opportunities for out of state lending for commercial real estate and
multifamily real estate may be considered by the Company on a limited
basis.





At June
30, 2010, the Company’s loan portfolio included $100.2 million of loans secured
by out of state properties, compared to $111.8 million at December 31,
2009.  These loans represented 27.7% of the Company’s total loan
portfolio at June 30, 2010 compared to 29.2% at December 31, 2009 and are
primarily multifamily and commercial real estate loans.  There were no
originations or purchase of loans secured by out of state properties during the
six months ended June 30, 2010.





The
following table provides information regarding nonaccrual loans and
nonperforming assets.





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009(Dollars in thousands)First
      mortgage loans:One-
      to four-family residential
                  
                  $
                  2,635
                  
                  
                  $
                  4,323Multifamily
      and commercial properties
                  
                  
                  9,850
                  
                  
                  
                  9,033Consumer
      loans
                  
                  
                  1,032
                  
                  
                  
                  993Total
      nonaccrual loans
                  
                  
                  13,517
                  
                  
                  
                  14,34990
      days past due loans (still accruing interest)
                  
                  
                  -
                  
                  
                  
                  -Other
      nonperforming loans
                  
                  
                  -
                  
                  
                  
                  -Total
      nonperforming loans
                  
                  
                  13,517
                  
                  
                  
                  14,349Total
      foreclosed real estate
                  
                  
                  2,461
                  
                  
                  
                  1,709Other
      nonperforming assets
                  
                  
                  75
                  
                  
                  
                  42Total
      nonperforming assets
                  
                  $
                  16,053
                  
                  
                  $
                  16,100Total
      nonaccrual loans to net loans receivable
                  
                  
                  3.85
                  %
                  
                  
                  3.83
                  %Total
      nonaccrual loans to total assets
                  
                  
                  2.99
                  %
                  
                  
                  3.15
                  %Total
      nonperforming assets to total assets
                  
                  
                  3.55
                  %
                  
                  
                  3.54
                  %


18


The
allowance for loan loss was $9.0 million at June 30, 2010, compared to $7.2
million at December 31, 2009.  The allowance for loan losses at June
30, 2010 was 2.5% of loans and 66.5% of nonperforming loans, compared to 1.9% of
loans and 50.0% of nonperforming loans at December 31, 2009, and 1.4% of loans
and 52.8% of nonperforming loans at June 30, 2009.  Additions to the
allowance for loan loss in the six months ended June 30, 2010 were due to the
continued depressed economic conditions, downgrades in internal risk ratings,
primarily in certain nonresidential commercial real estate and land and land
development loans, and reductions in appraised values.  Deterioration
in collateral values supporting two out of state impaired real estate
development loans indicated by updated appraisals contributed approximately $1.6
million to the provision in the first six months of
2010.  Nonperforming loans were $13.5 million, or 3.73%, of total
loans at June 30, 2010, compared to $14.4 million, or 3.75%, of total loans at
December 31, 2009, and $10.8 million, or 2.65%, of total loans at June 30, 2009.
Foreclosed real estate increased to $2.5 million at June 30, 2010 from $1.7 at
December 31, 2009.





The
following table sets forth information with respect to the Company’s loan
delinquencies.





June 30, 2010
                  
                  
                  December 31, 2009Iowa
                  
                  
                  Out of State
                  
                  
                  Total
                  
                  
                  Iowa
                  
                  
                  Out of State
                  
                  
                  Total(Dollars in thousands)One-to-four
      family mortgage loans:Loans
      60 to 89 days delinquent
                  
                  $
                  1,231
                  
                  
                  $
                  -
                  
                  
                  $
                  1,231
                  
                  
                  $
                  1,555
                  
                  
                  $
                  -
                  
                  
                  $
                  1,555Loans
      90 days or more delinquent
                  
                  
                  2,635
                  
                  
                  
                  -
                  
                  
                  
                  2,635
                  
                  
                  
                  2,823
                  
                  
                  
                  1,500
                  
                  
                  
                  4,323Multifamily
      and commercial first mortgage loans:Loans
      60 to 89 days delinquent
                  
                  
                  3,216
                  
                  
                  
                  
                  
                  
                  
                  3,216
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Loans
      90 days or more delinquent
                  
                  
                  3,668
                  
                  
                  
                  5,018
                  
                  
                  
                  8,686
                  
                  
                  
                  5,873
                  
                  
                  
                  3,160
                  
                  
                  
                  9,033Consumer
      loans:Loans
      60 to 89 days delinquent
                  
                  
                  290
                  
                  
                  
                  -
                  
                  
                  
                  290
                  
                  
                  
                  292
                  
                  
                  
                  -
                  
                  
                  
                  292Loans
      90 days or more delinquent
                  
                  
                  1,032
                  
                  
                  
                  -
                  
                  
                  
                  1,032
                  
                  
                  
                  993
                  
                  
                  
                  -
                  
                  
                  
                  993





The
following table sets forth information with respect to the Company’s classified
assets which include nonperforming loans, impaired loans and foreclosed real
estate.  The increase in classified assets primarily relate to
nonresidential commercial real estate loans and commercial construction and land
development loans.





June 30, 2010
                  
                  
                  December 31, 2009(Dollars in thousands)Substandard
      assets
                  
                  $
                  26,560
                  
                  
                  $
                  21,224Doubtful
      assets
                  
                  
                  4,987
                  
                  
                  
                  3,029Loss
      assets
                  
                  
                  6
                  
                  
                  
                  129Total
      classified assets
                  
                  $
                  31,553
                  
                  
                  $
                  24,382





Management
believes that the allowance for loan losses was adequate as of June 30,
2010.  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.





Deposits
increased $9.7 million, or 2.9%, to $344.5 million at June 30, 2010, from $334.8
million at December 31, 2009, primarily reflecting increases in interest bearing
demand deposits, savings account and noninterest bearing balances of $15.3
million, $1.6 million and $300,000, respectively, offset in part by decreases in
money market and certificates of deposits balances of $300,000, and $7.2
million, respectively.  Interest bearing demand deposits increased
primarily due to the Company’s promotion of F1Rst Perks which is a new deposit
account introduced in late 2009 that offers a higher interest rate based on
certain transactional activity.  Borrowings, primarily FHLB advances,
decreased $12.0 million, or 18.0%, to $54.5 million at June 30, 2010, from $66.5
million at December 31, 2009.  This decrease was due to the normal
repayment of borrowings due to maturities which were not replaced because of
growth in deposits and the decline in demand for new loans.


19


Total
stockholders’ equity increased $349,000, or 0.7%, to $48.6 million at June 30,
2010, from $48.3 million at December 31, 2009, primarily due to earnings for the
2010 period, offset in part by dividends paid to stockholders.





RESULTS
OF OPERATIONS





The
following table shows selected financial results and ratios.





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      income (loss)
                    
                    $
                    (129,016
                    )
                    
                    $
                    894,412
                    
                    
                    $
                    499,592
                    
                    
                    $
                    1,676,060Average
      assets
                    
                    
                    456,296,391
                    
                    
                    
                    465,473,027
                    
                    
                    
                    456,286,629
                    
                    
                    
                    472,080,899Average
      stockholders equity
                    
                    
                    48,979,516
                    
                    
                    
                    46,821,147
                    
                    
                    
                    48,810,067
                    
                    
                    
                    45,913,566Return
      on assets
                    
                    
                    -0.11
                    %
                    
                    
                    0.77
                    %
                    
                    
                    0.22
                    %
                    
                    
                    0.71
                    %Return
      on equity
                    
                    
                    -1.05
                    %
                    
                    
                    7.64
                    %
                    
                    
                    2.05
                    %
                    
                    
                    7.30
                    %Efficiency
      ratio
                    
                    
                    76.37
                    %
                    
                    
                    66.22
                    %
                    
                    
                    72.76
                    %
                    
                    
                    70.42
                    %





Definitions
of ratios:





Return on
assets - annualized net income divided by average assets.


Return on
equity - annualized net income divided by average stockholders
equity.


Efficiency
ratio - noninterest expense divided by the sum of noninterest income plus net
interest income.





Net Income
(Loss).  Net income
(loss) decreased by $1.0 million to a net loss of ($129,000) for the quarter
ended June 30, 2010, compared to net income of $894,000 for the quarter ended
June 30, 2009.  The decrease in net income was primarily due to an
increase in provision for loan losses, a decrease in noninterest income and an
increase in noninterest expense.





Net
income decreased by $1.2 million to $500,000 for the six months ended June 30,
2010, compared to $1.7 million for the six months ended June 30,
2009.  The decrease in net income was primarily due to an increase in
provision for loan losses and decreases in noninterest income, offset in part by
an increase in net interest income and a decrease in noninterest
expense.





Net Interest
Income.The
following table sets forth certain information relating to the Company’s net
interest income and average balance sheet and reflects the average yield on
assets and average cost of liabilities for the periods
indicated.  Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented.  For purposes of this table, average balances were
computed on a monthly basis.


20





For the Three Months Ended June 30,2010
                  
                  
                  2009Average
                    Balance
                  
                  
                  Interest
                  
                  
                  Average
                    Yield/Rate
                  
                  
                  Average
                    Balance
                  
                  
                  Interest
                  
                  
                  Average
                    Yield/RateAssets:Interest-earning
      assets:Loans
                  
                  $
                  363,863,582
                  
                  
                  $
                  5,294,291
                  
                  
                  
                  5.82
                  %
                  
                  $
                  393,639,993
                  
                  
                  $
                  6,000,127
                  
                  
                  
                  6.10
                  %Securities
      available-for-sale
                  
                  
                  35,631,182
                  
                  
                  
                  254,497
                  
                  
                  
                  2.86
                  %
                  
                  
                  30,497,146
                  
                  
                  
                  282,183
                  
                  
                  
                  3.70
                  %Investments
      in certificates of deposit
                  
                  
                  9,732,374
                  
                  
                  
                  35,039
                  
                  
                  
                  1.44
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  0.00
                  %Interest-bearing
      cash
                  
                  
                  17,602,179
                  
                  
                  
                  10,008
                  
                  
                  
                  0.23
                  %
                  
                  
                  11,209,890
                  
                  
                  
                  4,416
                  
                  
                  
                  0.16
                  %Total
      interest-earning assets
                  
                  
                  426,829,317
                  
                  
                  
                  5,593,835
                  
                  
                  
                  5.21
                  %
                  
                  
                  435,347,029
                  
                  
                  
                  6,286,726
                  
                  
                  
                  5.78
                  %Noninterest-earning
      assets
                  
                  
                  29,467,074
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,125,998Total
      assets
                  
                  $
                  456,296,391
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  465,473,027Liabilities
      and Equity:Interest-bearing
      liabilities:Demand
      and money market savings
                  
                  $
                  126,047,498
                  
                  
                  $
                  230,379
                  
                  
                  
                  0.73
                  %
                  
                  $
                  98,827,791
                  
                  
                  $
                  111,646
                  
                  
                  
                  0.45
                  %Savings
                  
                  
                  30,855,916
                  
                  
                  
                  15,684
                  
                  
                  
                  0.20
                  %
                  
                  
                  28,891,099
                  
                  
                  
                  12,478
                  
                  
                  
                  0.17
                  %Certificates
      of Deposit
                  
                  
                  171,630,140
                  
                  
                  
                  1,111,393
                  
                  
                  
                  2.60
                  %
                  
                  
                  196,968,204
                  
                  
                  
                  1,662,116
                  
                  
                  
                  3.38
                  %Borrowed
      funds
                  
                  
                  56,383,154
                  
                  
                  
                  606,998
                  
                  
                  
                  4.32
                  %
                  
                  
                  72,040,795
                  
                  
                  
                  888,844
                  
                  
                  
                  4.95
                  %Total
      interest-bearing liabilities
                  
                  
                  384,916,708
                  
                  
                  
                  1,964,454
                  
                  
                  
                  2.05
                  %
                  
                  
                  396,727,889
                  
                  
                  
                  2,675,084
                  
                  
                  
                  2.70
                  %Noninterest-bearing
      liabilities
                  
                  
                  22,400,167
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  21,923,991Total
      liabilities
                  
                  
                  407,316,875
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  418,651,880Equity
                  
                  
                  48,979,516
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  46,821,147Total
      liabilities and equity
                  
                  $
                  456,296,391
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  465,473,027Net
      interest income
                  
                  
                  
                  
                  
                  $
                  3,629,381
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,611,642Net
      interest rate spread
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.16
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.08
                  %Net
      interest margin
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.36
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.31
                  %Ratio
      of average interest-earnings assets to average interest-bearing
      liabilities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  110.89
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  109.73
                  %





For the Six Months Ended June 30,2010
                      
                      
                      2009Average
                        Balance
                      
                      
                      Interest
                      
                      
                      Average
                        Yield/Rate
                      
                      
                      Average
                        Balance
                      
                      
                      Interest
                      
                      
                      Average
                        Yield/RateAssets:Interest-earning
      assets:Loans
                      
                      $
                      370,011,876
                      
                      
                      $
                      10,847,401
                      
                      
                      
                      5.88
                      %
                      
                      $
                      398,806,446
                      
                      
                      $
                      12,185,344
                      
                      
                      
                      6.13
                      %Securities
      available-for-sale
                      
                      
                      31,805,438
                      
                      
                      
                      476,053
                      
                      
                      
                      2.99
                      %
                      
                      
                      29,062,020
                      
                      
                      
                      556,207
                      
                      
                      
                      3.83
                      %Investments
      in certificates of deposit
                      
                      
                      5,188,542
                      
                      
                      
                      37,287
                      
                      
                      
                      1.45
                      %
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      0.00
                      %Interest-bearing
      cash
                      
                      
                      19,762,248
                      
                      
                      
                      20,880
                      
                      
                      
                      0.21
                      %
                      
                      
                      12,587,290
                      
                      
                      
                      10,970
                      
                      
                      
                      0.18
                      %Total
      interest-earning assets
                      
                      
                      426,768,104
                      
                      
                      
                      11,381,621
                      
                      
                      
                      5.35
                      %
                      
                      
                      440,455,756
                      
                      
                      
                      12,752,521
                      
                      
                      
                      5.80
                      %Noninterest-earning
      assets
                      
                      
                      29,518,525
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      31,625,143Total
      assets
                      
                      $
                      456,286,629
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      472,080,899Liabilities
      and Equity:Interest-bearing
      liabilities:Demand
      and money market savings
                      
                      $
                      121,597,655
                      
                      
                      $
                      409,731
                      
                      
                      
                      0.68
                      %
                      
                      $
                      96,192,002
                      
                      
                      $
                      248,518
                      
                      
                      
                      0.52
                      %Savings
                      
                      
                      30,353,681
                      
                      
                      
                      30,444
                      
                      
                      
                      0.20
                      %
                      
                      
                      27,968,380
                      
                      
                      
                      28,421
                      
                      
                      
                      0.20
                      %Certificates
      of Deposit
                      
                      
                      173,214,042
                      
                      
                      
                      2,244,791
                      
                      
                      
                      2.61
                      %
                      
                      
                      203,390,534
                      
                      
                      
                      3,578,857
                      
                      
                      
                      3.55
                      %Borrowed
      funds
                      
                      
                      59,692,504
                      
                      
                      
                      1,301,593
                      
                      
                      
                      4.40
                      %
                      
                      
                      76,546,459
                      
                      
                      
                      1,887,281
                      
                      
                      
                      4.97
                      %Total
      interest-bearing liabilities
                      
                      
                      384,857,882
                      
                      
                      
                      3,986,559
                      
                      
                      
                      2.09
                      %
                      
                      
                      404,097,375
                      
                      
                      
                      5,743,077
                      
                      
                      
                      2.87
                      %Noninterest-bearing
      liabilities
                      
                      
                      22,618,680
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      22,069,958Total
      liabilities
                      
                      
                      407,476,562
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      426,167,333Equity
                      
                      
                      48,810,067
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      45,913,566Total
      liabilities and equity
                      
                      $
                      456,286,629
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      472,080,899Net
      interest income
                      
                      
                      
                      
                      
                      $
                      7,395,062
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      7,009,444Net
      interest rate spread
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.26
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2.93
                      %Net
      interest margin
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.46
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.18
                      %Ratio
      of average interest-earnings assets to average interest-bearing
      liabilities
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      110.89
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      109.00
                      %


21


Fluctuations
in net interest income can result from the combination of changes in the
balances of asset and liability categories and changes in interest
rates.  Interest rates earned and paid are also affected by general
economic conditions, particularly changes in market interest rates, and by
competitive factors, government policies, and the actions of regulatory
authorities.  Net interest income before provision for loan losses
increased by $18,000, or 0.5%, to $3.6 million for the quarter ended June 30,
2010, from $3.6 million for the quarter ended June 30, 2009.  The
increase was primarily due to an increase in net interest rate spread (i.e., the
difference in the average yield on assets and average cost of liabilities) and a
decrease in the average balance of interest-bearing liabilities, offset in part
by a decrease in the average balance of interest-earning assets.  The
interest rate spread increased to 3.16% for the quarter ended June 30, 2010,
from 3.07% for the quarter ended June 30, 2009.  The increase in
interest rate spread reflects a decrease in cost of funds, offset in part by a
decrease in the yield on interest-earning assets.





Net
interest income before provision for loan losses increased by $386,000, or 5.5%,
to $7.4 million for the six months ended June 30, 2010, from $7.0 million for
the six months ended June 30, 2009.  The increase was primarily due to
an increase in net interest rate spread and a decrease in the average balance of
interest-bearing liabilities, offset in part by a decrease in the average
balance of interest-earning assets.  The interest rate spread
increased to 3.26% for the six months ended June 30, 2010, from 2.94% for the
six months ended June 30, 2009.  The increase in interest rate spread
reflects a decrease in cost of funds, offset in part by a decrease in the yield
on interest-earning assets.





Interest
Income.  Interest income decreased by $693,000, or 11.0%, to
$5.6 million for the quarter ended June 30, 2010, compared to $6.3 million for
the quarter ended June 30, 2009.  Interest income decreased by $1.4
million, or 10.8%, to $11.4 million for the six months ended June 30, 2010,
compared to $12.8 million for the six months ended March 31,
2009.  The decrease in interest income in both periods was due to a
decrease in the average balance of interest-earning assets and a decrease in the
yield on interest-earning assets.  The average yield on
interest-earning assets decreased primarily due to a decrease in market rates on
first mortgage loans secured by one-to-four family real estate, commercial real
estate, and multifamily residences and consumer loans and securities
available-for-sale.  The decrease in the average balance of
interest-earning assets primarily reflects decreases in the average balances of
first mortgage loans secured by one-to-four family real estate and commercial
real estate and consumer loans, offset in part by an increase in the average
balance of multifamily residences, securities available-for-sale, investments in
certificates of deposit and interest-bearing cash.  The decrease in
the average balance of first mortgage loans was derived from payments,
prepayments, and sales of loans offset in part by the origination of first
mortgage loans secured by one-to-four family real estate and commercial real
estate.  The increase in the average balance of securities
available-for-sale was primarily due to the purchases of securities
available-for-sale, offset in part by payments, maturities, and sale of
securities.





Interest
Expense.  Interest expense decreased by $711,000, or 26.6%, to
$2.0 million for the quarter ended June 30, 2010, compared to $2.7 million for
the quarter ended June 30, 2009.  Interest expense decreased by $1.8
million, or 30.6%, to $4.0 million for the six months ended June 30, 2010,
compared to $5.7 million for the six months ended June 30, 2009.  The
decrease in interest expense in both periods was due to a decrease in the
average balance of interest-bearing liabilities and a decrease in the cost of
funds on interest-bearing liabilities. The decrease in the average balance of
interest-bearing liabilities primarily reflects a decrease in borrowed funds,
money market and certificates of deposit, offset in part by an increase in
interest bearing demand deposits and savings account balances.  The
decrease in the average balance of borrowed funds was primarily due to normal
repayments of borrowings due to maturities.  The average cost of funds
on interest bearing liabilities decreased primarily due to a decrease in market
rates for certificates of deposit and the maturity of higher cost borrowed
funds.





Provision for
Loan Losses.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, a review of
classified loans, a realistic determination of value and adequacy of underlying
collateral, levels and trends of loan categories, industry standards, past due
loans, economic conditions, the volume and type of loans in the Company’s
portfolio, and other factors related to the collectibility of the Company’s loan
portfolio.  The Company’s provision for loan losses was $1.6 million
and $610,000 for the quarters ended June 30, 2010 and 2009, respectively,
representing an increase of $1.0 million, or 164%.  The Company’s
provision for loan losses was $2.4 million and $770,000 for the six months ended
June 30, 2010 and 2009, respectively, representing an increase of $1.6 million,
or 213%.  The increase in provision for loan losses in both periods
was primarily a result of continuing challenging economic conditions negatively
impacting the construction and real estate development, commercial real estate,
and consumer sectors.  Deterioration in collateral values supporting
two out of state impaired real estate development loans indicated by updated
appraisals contributed approximately $1.6 million to the provision for the six
months ended June 30, 2010.


22


Noninterest
Income.  The following
table shows the changes in the components of noninterest income.





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    Change %
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    Change %Noninterest
      income:Fees
      and service charges
                    
                    $
                    1,216,101
                    
                    
                    $
                    1,207,750
                    
                    
                    $
                    8,351
                    
                    
                    
                    0.7
                    %
                    
                    $
                    2,292,863
                    
                    
                    $
                    2,256,150
                    
                    
                    $
                    36,713
                    
                    
                    
                    1.6
                    %Abstract
      fees
                    
                    
                    164,063
                    
                    
                    
                    282,739
                    
                    
                    
                    (118,676
                    )
                    
                    
                    -42.0
                    %
                    
                    
                    306,684
                    
                    
                    
                    499,491
                    
                    
                    
                    (192,807
                    )
                    
                    
                    -38.6
                    %Mortgage
      banking income
                    
                    
                    128,768
                    
                    
                    
                    331,994
                    
                    
                    
                    (203,226
                    )
                    
                    
                    -61.2
                    %
                    
                    
                    240,955
                    
                    
                    
                    646,737
                    
                    
                    
                    (405,782
                    )
                    
                    
                    -62.7
                    %Loan
      prepayment fees
                    
                    
                    17,125
                    
                    
                    
                    199,512
                    
                    
                    
                    (182,387
                    )
                    
                    
                    -91.4
                    %
                    
                    
                    27,204
                    
                    
                    
                    212,166
                    
                    
                    
                    (184,962
                    )
                    
                    
                    -87.2
                    %Other
      income:Increase
      in CSV - BOLI
                    
                    
                    61,211
                    
                    
                    
                    62,956
                    
                    
                    
                    (1,745
                    )
                    
                    
                    -2.8
                    %
                    
                    
                    120,954
                    
                    
                    
                    123,721
                    
                    
                    
                    (2,767
                    )
                    
                    
                    -2.2
                    %Investment
      and Insurance sales
                    
                    
                    176,523
                    
                    
                    
                    220,607
                    
                    
                    
                    (44,084
                    )
                    
                    
                    -20.0
                    %
                    
                    
                    347,418
                    
                    
                    
                    427,540
                    
                    
                    
                    (80,122
                    )
                    
                    
                    -18.7
                    %Foreclosed
      real estate net earnings
                    
                    
                    (11,597
                    )
                    
                    
                    (7,260
                    )
                    
                    
                    (4,337
                    )
                    
                    
                    59.7
                    %
                    
                    
                    (52,657
                    )
                    
                    
                    (25,286
                    )
                    
                    
                    (27,371
                    )
                    
                    
                    108.2
                    %Rental
      income
                    
                    
                    120,941
                    
                    
                    
                    116,162
                    
                    
                    
                    4,779
                    
                    
                    
                    4.1
                    %
                    
                    
                    242,598
                    
                    
                    
                    234,460
                    
                    
                    
                    8,138
                    
                    
                    
                    3.5
                    %All
      other
                    
                    
                    1,172
                    
                    
                    
                    3,041
                    
                    
                    
                    (1,869
                    )
                    
                    
                    -61.4
                    %
                    
                    
                    12,885
                    
                    
                    
                    6,310
                    
                    
                    
                    6,575
                    
                    
                    
                    104.2
                    %Total
      other income
                    
                    $
                    348,250
                    
                    
                    $
                    395,506
                    
                    
                    $
                    (47,256
                    )
                    
                    
                    -11.9
                    %
                    
                    $
                    671,198
                    
                    
                    $
                    766,745
                    
                    
                    $
                    (95,547
                    )
                    
                    
                    -12.5
                    %Total
      noninterest income
                    
                    $
                    1,874,307
                    
                    
                    $
                    2,417,501
                    
                    
                    $
                    (543,194
                    )
                    
                    
                    -22.5
                    %
                    
                    $
                    3,538,904
                    
                    
                    $
                    4,381,289
                    
                    
                    $
                    (842,385
                    )
                    
                    
                    -19.2
                    %





Total
noninterest income decreased by $543,000, or 22.5%, to $1.9 million for the
quarter ended June 30, 2010, from $2.4 million for the quarter ended June 30,
2009.  Total noninterest income decreased by $842,000, or 19.2%, to
$3.5 million for the six months ended June 30, 2010, from $4.4 million for the
six months ended June 30, 2009.  The decrease in noninterest income
was primarily due to decreases in mortgage banking income, loan prepayment fees,
abstract fees, and other income, offset in part by an increase in fees and
service charges.  Mortgage banking income decreased due to a decrease
in demand for loans originated for the secondary market.  Abstract
fees also decreased due to the decline in mortgage loan demand.  Other
income, decreased primarily due to a decrease in the volume of sales of
insurance and annuities and an increase in net losses and expenses related to
foreclosed real estate.  Fees and service charges increased primarily
due to an increase in interchange fees associated with demand deposit accounts,
offset by a decrease in overdraft fees.





Securities Gains
(Losses). There were no sales of securities for the three
months ended June 30, 2010.  Gross security gains from the sales of
securities of $7,652 were realized for the six months ended June 30,
2010.  Gross security (losses) from the sales of securities of
($9,602) and ($19,944) were realized for the three and six months ended June 30,
2009, respectively. Other than temporary impairments recognized for the three
and six months ended June 30, 2009 were related to a mortgage bond mutual fund
investment.  No other than temporary impairments were recognized in
2010.  Realized losses for the three and six months ended June 30,
2009 and realized gain for the three and six months ended June 30, 2010
primarily relate to the sales of the mortgage bond mutual fund
investment.


23


Noninterest
Expense.  The following
table shows the changes in the components of noninterest expense.





Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    Change %
                    
                    
                    2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    Change %Noninterest
      expense:Compensation
      and employee benefits
                    
                    $
                    1,879,873
                    
                    
                    $
                    1,844,770
                    
                    
                    $
                    35,103
                    
                    
                    
                    1.9
                    %
                    
                    $
                    3,769,732
                    
                    
                    $
                    3,712,155
                    
                    
                    $
                    57,577
                    
                    
                    
                    1.6
                    %Premises
      and equipment
                    
                    
                    484,335
                    
                    
                    
                    442,199
                    
                    
                    
                    42,136
                    
                    
                    
                    9.5
                    %
                    
                    
                    985,425
                    
                    
                    
                    928,831
                    
                    
                    
                    56,594
                    
                    
                    
                    6.1
                    %Data
      processing
                    
                    
                    229,857
                    
                    
                    
                    199,739
                    
                    
                    
                    30,118
                    
                    
                    
                    15.1
                    %
                    
                    
                    442,980
                    
                    
                    
                    408,412
                    
                    
                    
                    34,568
                    
                    
                    
                    8.5
                    %FDIC
      insurance expense
                    
                    
                    140,013
                    
                    
                    
                    373,185
                    
                    
                    
                    (233,172
                    )
                    
                    
                    -62.5
                    %
                    
                    
                    283,830
                    
                    
                    
                    472,404
                    
                    
                    
                    (188,574
                    )
                    
                    
                    -39.9
                    %Other
      expense:Advertising
      and promotions
                    
                    
                    91,777
                    
                    
                    
                    118,530
                    
                    
                    
                    (26,753
                    )
                    
                    
                    -22.6
                    %
                    
                    
                    158,285
                    
                    
                    
                    235,681
                    
                    
                    
                    (77,396
                    )
                    
                    
                    -32.8
                    %Professional
      fees
                    
                    
                    155,557
                    
                    
                    
                    114,000
                    
                    
                    
                    41,557
                    
                    
                    
                    36.5
                    %
                    
                    
                    297,607
                    
                    
                    
                    415,805
                    
                    
                    
                    (118,198
                    )
                    
                    
                    -28.4
                    %Printing,
      postage, and supplies
                    
                    
                    125,872
                    
                    
                    
                    120,998
                    
                    
                    
                    4,874
                    
                    
                    
                    4.0
                    %
                    
                    
                    218,670
                    
                    
                    
                    222,754
                    
                    
                    
                    (4,084
                    )
                    
                    
                    -1.8
                    %Checking
      account charges
                    
                    
                    85,336
                    
                    
                    
                    100,956
                    
                    
                    
                    (15,620
                    )
                    
                    
                    -15.5
                    %
                    
                    
                    168,250
                    
                    
                    
                    186,922
                    
                    
                    
                    (18,672
                    )
                    
                    
                    -10.0
                    %Insurance
                    
                    
                    42,752
                    
                    
                    
                    42,553
                    
                    
                    
                    199
                    
                    
                    
                    0.5
                    %
                    
                    
                    85,502
                    
                    
                    
                    83,208
                    
                    
                    
                    2,294
                    
                    
                    
                    2.8
                    %OTS
      general assessment
                    
                    
                    29,332
                    
                    
                    
                    30,040
                    
                    
                    
                    (708
                    )
                    
                    
                    -2.4
                    %
                    
                    
                    63,661
                    
                    
                    
                    64,505
                    
                    
                    
                    (844
                    )
                    
                    
                    -1.3
                    %Telephone
                    
                    
                    42,409
                    
                    
                    
                    36,675
                    
                    
                    
                    5,734
                    
                    
                    
                    15.6
                    %
                    
                    
                    74,980
                    
                    
                    
                    75,491
                    
                    
                    
                    (511
                    )
                    
                    
                    -0.7
                    %Apartment
      operating costs
                    
                    
                    84,233
                    
                    
                    
                    84,336
                    
                    
                    
                    (103
                    )
                    
                    
                    -0.1
                    %
                    
                    
                    174,069
                    
                    
                    
                    171,444
                    
                    
                    
                    2,625
                    
                    
                    
                    1.5
                    %Employee
      costs
                    
                    
                    71,697
                    
                    
                    
                    44,929
                    
                    
                    
                    26,768
                    
                    
                    
                    59.6
                    %
                    
                    
                    114,319
                    
                    
                    
                    92,563
                    
                    
                    
                    21,756
                    
                    
                    
                    23.5
                    %ATM
      expense
                    
                    
                    162,993
                    
                    
                    
                    151,143
                    
                    
                    
                    11,850
                    
                    
                    
                    7.8
                    %
                    
                    
                    308,835
                    
                    
                    
                    288,974
                    
                    
                    
                    19,861
                    
                    
                    
                    6.9
                    %Foreclosed
      real estate impairment
                    
                    
                    306,500
                    
                    
                    
                    -
                    
                    
                    
                    306,500
                    
                    
                    
                    100.0
                    %
                    
                    
                    316,458
                    
                    
                    
                    84,463
                    
                    
                    
                    231,995
                    
                    
                    
                    274.7
                    %All
      other
                    
                    
                    270,568
                    
                    
                    
                    331,633
                    
                    
                    
                    (61,065
                    )
                    
                    
                    -18.4
                    %
                    
                    
                    493,323
                    
                    
                    
                    647,374
                    
                    
                    
                    (154,051
                    )
                    
                    
                    -23.8
                    %Total
      other expense
                    
                    $
                    1,469,026
                    
                    
                    $
                    1,175,793
                    
                    
                    $
                    293,233
                    
                    
                    
                    24.9
                    %
                    
                    $
                    2,473,959
                    
                    
                    $
                    2,569,184
                    
                    
                    $
                    (95,225
                    )
                    
                    
                    -3.7
                    %Total
      noninterest expense
                    
                    $
                    4,203,104
                    
                    
                    $
                    4,035,686
                    
                    
                    $
                    167,418
                    
                    
                    
                    4.1
                    %
                    
                    $
                    7,955,926
                    
                    
                    $
                    8,090,986
                    
                    
                    $
                    (135,060
                    )
                    
                    
                    -1.7
                    %





Total
noninterest expense increased by $167,000, or 4.1%, to $4.2 million for the
quarter ended June 30, 2010, from $4.0 million for the quarter ended June 30,
2009.  Total noninterest expense decreased by $135,000, or 1.7%, to
$8.0 million for the six month ended June 30, 2010, from $8.1 million for the
six months ended June 30, 2009.  Compensation and employee benefits
increased due to an increase in pension plan and insurance expense for
employees.  The increase in premises and equipment was primarily due
to increases in information technology enhancements.  Other expenses
increased primarily due to impairments on foreclosed real estate.  The
impairment on foreclosed real estate was primarily a result of further
deterioration on out of state foreclosed real estate values indicated by updated
appraisals.  FDIC insurance decreased due to the FDIC special
assessment of $210,000 assessed in the quarter ended June 30, 2009. There have
been no FDIC special assessments in 2010.  Professional fees for the
six months ended June 30, 2009 included nonrecurring consulting
fees.  Professional fees for the six months ended June 30, 2010
include an increase in legal fees associated with loan collection and foreclosed
real estate.





Income
Taxes.Provision for
income taxes decreased by $637,000, or 139.6%, to ($180,000) for the quarter
ended June 30, 2010, compared to $456,000 for the quarter ended June 30,
2009.  The decrease in income taxes was primarily due to a decrease in
income before income taxes.





Provision
for income taxes decreased by $734,000, or 90.6%, to $76,000 for the six months
ended June 30, 2010, compared to $810,000 for the six months ended June 30,
2009.  The decrease in income taxes was primarily due to a decrease in
income before income taxes.




LIQUIDITY
AND CAPITAL RESOURCES




The
objective of liquidity management is to ensure the availability of sufficient
cash flows to meet all financial commitments and to capitalize on opportunities
for profitable business growth.  The Company’s principal source of
funds is deposits.  Other sources include loan principal repayments,
proceeds from the maturity and sale of investment securities, advances from the
FHLB, and funds provided by operations.  Liquidity management is
conducted on both a daily and a long-term basis.  Investments in
liquid assets are adjusted based on expected loan demand, projected loan
maturities and payments, expected deposit flows, and the objectives set by the
Company’s asset-liability management policy.  The Company had liquid
assets (cash and cash equivalents) of $13.3 million as of June 30, 2010,
compared with $21.8 million as of December 31, 2009. The Company had additional
borrowing capacity available from the FHLB of approximately $90.7 million at
June 30, 2010.  In addition, the Company had $5.0 million in borrowing
capacity available through lines of credit with correspondent banks as of June
30, 2010.  The Company was not drawing on any of these lines of credit
as of June 30, 2010.  Net cash from continuing operating activities
contributed $1.5 million and $3.4 million to liquidity for the six months ended
June 30, 2010 and 2009, respectively.  The combination of high levels
of potentially liquid assets, cash flows from operations and additional
borrowing capacity provide strong liquidity for the Company at June 30,
2010.


24


On
January 9, 2009, the Company completed the issuance of $10.2 million of our
Series A Preferred Stock and the Warrant under the TARP-CPP. Although the Bank
would have remained “well capitalized” without these funds, this new equity
investment increased the capacity to support economic activity and growth in
each of the communities served by the Bank through responsible
lending.





On May
15, 2010, the Company paid an aggregate cash dividend of $127,500 on the Fixed
Rate Cumulative Perpetual Preferred Stock, Series A issued to the United States
Department of the Treasury.  On May 27, 2010, the Company declared a
cash dividend of $0.01 per share of common stock, payable on July 2, 2010 to
stockholders of record as of June 11, 2010.  This payment totaled
$13,000.





During
the second quarter of 2010, macro-economic conditions and the challenging
economic environment continued to impact liquidity and credit quality across the
financial markets.  While the recession has impacted the local
economies in which the Company operates and holds out-of-state real estate
loans, our liquidity position and capital resources remain strong and the
Company anticipates that it will have sufficient funds to meet its current
funding commitments.





The
Office of Thrift Supervision (the “OTS”) requires the Bank to meet minimum
tangible, leverage (core) and risk-based capital requirements.  As of
June 30, 2010, the Bank exceeded all of its regulatory capital
requirements.  The Bank’s required and actual capital levels as of
June 30, 2010 and December 31, 2009 were as follows:





To Be Well-CapitalizedFor Capital
                
                
                Under Prompt CorrectiveActual
                
                
                Adequacy Purposes
                
                
                Action ProvisionsAmount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio(000's)
                
                
                
                
                
                (000's)
                
                
                
                
                
                (000's)As
      of June 30, 2010:Total
      Capital (to risk-weighted assets)
                
                $
                48,868
                
                
                
                15.7
                %
                
                $
                24,906
                
                
                
                8.0
                %
                
                $
                31,133
                
                
                
                10.0
                %Tier
      I Capital (to risk-weighted assets)
                
                
                45,012
                
                
                
                14.4
                
                
                
                12,453
                
                
                
                4.0
                
                
                
                18,680
                
                
                
                6.0Tier
      I (Core) Capital (to adjusted assets)
                
                
                45,012
                
                
                
                10.0
                
                
                
                18,063
                
                
                
                4.0
                
                
                
                22,578
                
                
                
                5.0Tangible
      Capital (to adjusted assets)
                
                
                45,012
                
                
                
                10.0
                
                
                
                6,774
                
                
                
                1.5
                
                
                
                -
                
                
                
                -As
      of December 31, 2009:Total
      Capital (to risk-weighted assets)
                
                $
                48,429
                
                
                
                14.9
                %
                
                $
                26,080
                
                
                
                8.0
                %
                
                $
                32,600
                
                
                
                10.0
                %Tier
      I Capital (to risk-weighted assets)
                
                
                44,450
                
                
                
                13.6
                
                
                
                13,040
                
                
                
                4.0
                
                
                
                19,560
                
                
                
                6.0Tier
      I (Core) Capital (to adjusted assets)
                
                
                44,450
                
                
                
                9.8
                
                
                
                13,636
                
                
                
                3.0
                
                
                
                22,727
                
                
                
                5.0Tangible
      Capital (to adjusted assets)
                
                
                44,450
                
                
                
                9.8
                
                
                
                6,818
                
                
                
                1.5
                
                
                
                -
                
                
                
                -





OFF-BALANCE
SHEET ARRANGEMENTS





The
Company 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
Company has in a particular class of financial instruments.


25


The
Company uses the same credit policies in making commitments and conditional
obligations as it does for instruments reflected in its statement of financial
condition. The Company requires collateral or other security, to support
financial instruments with credit risks.





No
material changes in the Company’s off-statement of financial condition
arrangements occurred during the six months ended June 30, 2010.





Item
3.  Quantitative and Qualitative Disclosures About Market
Risk





In
management’s opinion, there has been no material changes in the quantitative and
qualitative information about market risk provided in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009.  Please see
the Company’s 2009 Annual Report on Form 10-K for a more detailed discussion of
the Company’s interest rate sensitivity analysis.





Item
4T.  Controls and Procedures





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





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





PART
II.  OTHER INFORMATION





Item
1.  Legal Proceedings





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




Item
1A.  Risk Factors





The full impact
of the Dodd-Frank Act on the operations of the Bank and Company are currently
unknown given that much of the details and substance of the new laws will be
determined through agency rulemaking.The compliance burden
and impact on the operations and profitability of the Bank and Company with
respect to the Dodd-Frank Act are currently unknown, as the Dodd-Frank Act
delegates to various federal agencies the task of implementing its many
provisions through regulation. Hundreds of new federal regulations, studies and
reports addressing all of the major areas of the new law, including the
regulation of federal savings associations and their holding companies, will be
required, ensuring that federal rules and policies in this area will be further
developing for months and years to come.  Based on the provisions of
the Dodd-Frank Act and anticipated implementing regulations, it is highly likely
that banks and thrifts as well as their holding companies will be subject to
significantly increased regulation and compliance obligations.


26


The elimination
of the OTS and transfer of the OTS’s supervisory and rulemaking functions to
various federal banking agencies will change the way that the Bank and Company
are regulated.As the OTS is due to be abolished 90 days after
transferring its supervisory and rulemaking functions to various federal
agencies, both the Bank and Company will be transitioning to the jurisdiction of
new primary federal regulators, which will change the way that the Bank and
Company are regulated.  Specifically, the OTS’s supervisory and
rulemaking functions (except for consumer protection) relating to all federal
savings associations will be transferred to the OCC, while the OTS’s supervisory
and rulemaking functions relating to savings and loan holding companies and
their non-depository institution subsidiaries (excluding subsidiaries of the
federal savings association) will be transferred to the FRB.  While
the OCC and FRB are directed to implement existing OTS regulations, orders,
resolutions, determinations and agreements for thrifts and their holding
companies under the Home Owners’ Loan Act (“HOLA”), the transition of
supervisory functions from the OTS to the OCC (with respect to the Bank) and the
FRB (with respect to the Company), could alter the operations of the Bank and
Company so as to be more closely aligned with the OCC’s and FRB’s respective
supervision of national banks and bank holding companies.  While the
functions of the OTS pertaining to the Bank and Company will formally be
transferred to the OCC and FRB in July 2011 (or else by January 2012 if a
six-month extension is required), the Bank and the may see changes in the way
they are supervised and examined sooner, and may experience operational
challenges in the course of transition to their new regulators.





The new Bureau of
Consumer Financial Protection (“BCFP”) may reshape the consumer financial laws
through rulemaking and enforcement of unfair, deceptive or abusive practices,
which may directly impact the business operations of depository institutions
offering consumer financial products or services including the
Bank.The BCFP has broad rulemaking authority to administer
and carry out the purposes and objectives of the “Federal consumer financial
laws, and to prevent evasions thereof,” with respect to all financial
institutions that offer financial products and services to
consumers.  The BCFP is also authorized to prescribe rules applicable
to any covered person or service provider identifying and prohibiting acts or
practices that are “unfair, deceptive, or abusive” in connection with any
transaction with a consumer for a consumer financial product or service, or the
offering of a consumer financial product or service (“UDAP
authority”).  The potential reach of the BCFP’s broad new rulemaking
powers and UDAP authority on the operations of financial institutions offering
consumer financial products or services including the Bank is currently
unknown.





Item
6.  Exhibits





Exhibit No.
                        
                        Description
                        
                        Reference No.3.1
                        
                        Articles
      of Incorporation of North Central Bancshares, Inc.
                        
                        (1)3.2
                        
                        Bylaws
      of North Central Bancshares, Inc., as amended
                        
                        (2)3.3
                        
                        Articles
      of Amendment to the Articles of Incorporation establishing Series A
      Preferred Stock
                        
                        (3)31.1
                        
                        Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive
    Officer
                        
                        *31.2
                        
                        Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial
    Officer
                        
                        *32.1
                        
                        Section
      1350 Certification of Chief Executive Officer
                        
                        *32.2
                        
                        Section
      1350 Certificate of Chief Financial Officer
                        
                        *





*
            Filed
      herewith





(1)
            Incorporated
      herein by reference to the Quarterly Report on Form 10-Q filed with the
      SEC on August 12, 2009.





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





(3)
            Incorporated
      herein by reference to the Current Report on Form 8-K filed with the SEC
      on January 7, 2009.


27


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





NORTH
      CENTRAL BANCSHARES, INC.Date:
      August 6, 2010
            BY:
            /s/ David M. BradleyDavid
      M. Bradley, Chairman, President & CEODate:
      August 6, 2010
            BY:
            /s/ Jane M. FunkJane
      M. Funk, Chief Financial Officer and
Treasurer


28