**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 September
      30, 2008





**o**
            **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 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 October 31, 2008Common
                Stock, $.01 par value
            1,343,448





NORTH
      CENTRAL BANCSHARES, INC.





INDEX




PagePart
                I. Financial InformationItem
                1. Financial Statements (Unaudited)
            1Consolidated
                Condensed Statements ofFinancial
                Condition at September 30, 2008and
                December 31, 2007
            1Consolidated
                Condensed Statements ofIncome
                for the Three Months and Nine MonthsEnded
                September 30, 2008 and 2007
            2Consolidated
                Condensed Statements ofCash
                Flows for the Nine MonthsEnded
                September 30, 2008 and 2007
            3Notes
                to Consolidated Condensed FinancialStatements
            5Item
                2. Management’s Discussion and Analysisof
                Financial Condition and Results of Operations
            10Item
                3. Quantitative and Qualitative DisclosureAbout
                Market Risk
            19Item
                4T. Controls and Procedures
            19Part
                II. Other InformationItem
                1. Legal Proceedings
            19Item
                1A. Risk Factors
            19Item
                6. Exhibits
            20Signatures
            21







**PART
      I. FINANCIAL INFORMATION**





**Item
      1. Financial Statements (Unaudited)**




**NORTH
      CENTRAL BANCSHARES, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      CONDENSED STATEMENTS OF FINANCIAL CONDITION**


(Unaudited)




**September 30,**
              
              **December 31,****2008**
              
              **2007****ASSETS**Cash
                  and due from banks:Interest-bearing
              
              $
              1,267,251
              
              $
              3,132,298Noninterest-bearing
              
              
              9,219,090
              
              
              9,394,409Securities
                  available-for-sale
              
              
              16,149,060
              
              
              11,534,942Federal
                  Home Loan Bank stock, at cost
              
              
              4,737,100
              
              
              5,064,200Loans
                  receivable, net
              
              
              412,323,248
              
              
              446,857,436Loans
                  held for sale
              
              
              396,598
              
              
              1,402,488Accrued
                  interest receivable
              
              
              2,077,460
              
              
              2,278,635Foreclosed
                  real estate
              
              
              1,108,825
              
              
              2,569,314Premises
                  and equipment, net
              
              
              12,240,246
              
              
              12,466,305Rental
                  real estate
              
              
              2,388,711
              
              
              2,473,633Title
                  plant
              
              
              671,704
              
              
              671,704Goodwill
              
              
              4,946,960
              
              
              4,946,960Deferred
                  taxes
              
              
              1,127,835
              
              
              1,110,306Bank-owned
                  life insurance
              
              
              5,233,097
              
              
              5,044,601Prepaid
                  expenses and other assets
              
              
              1,207,114
              
              
              1,245,733**Total
                  assets**
              
              $
              475,094,299
              
              $
              510,192,964


**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****LIABILITIES**Deposits
              
              $
              345,200,666
              
              $
              365,947,856Borrowed
                  funds
              
              
              87,356,494
              
              
              97,378,800Advances
                  from borrowers for taxes and insurance
              
              
              973,168
              
              
              2,016,809Dividends
                  payable
              
              
              13,435
              
              
              468,981Accrued
                  expenses and other liabilities
              
              
              3,256,076
              
              
              3,403,808**Total
                  liabilities**
              
              
              436,799,839
              
              
              469,216,254**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock ($.01 par value, authorized
                3,000,000
                  shares; none issued and outstanding)
              
              
              -
              
              
              -Common
                  stock ($.01 par value, authorized 15,500,000
                shares;
                  at September 30, 2008 1,343,448 shares issued and
                outstanding;
                  at December 31, 2007, 1,340,948 shares
                issued
                  and outstanding)
              
              
              13,414
              
              
              13,392Additional
                  paid-in capital
              
              
              17,787,774
              
              
              17,686,444Retained
                  earnings, substantially restricted
              
              
              20,627,000
              
              
              24,483,022Accumulated
                  other comprehensive income (loss)
              
              
              (133,728
              )
              
              (1,206,148
              )**Total
                  stockholders' equity**
              
              
              38,294,460
              
              
              40,976,710**Total
                  liabilities and stockholders' equity**
              
              $
              475,094,299
              
              $
              510,192,964




See
      Notes
      to Consolidated Condensed Financial Statements


1




**NORTH
      CENTRAL BANCSHARES, INC. AND SUBSIDIARIES**




**CONSOLIDATED
      CONDENSED STATEMENTS OF INCOME**


(Unaudited)




**Three Months Ended**
            
            **Nine Months Ended****September 30,**
            
            **September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Interest
                income:Loans
                receivable
            
            $
            6,698,254
            
            $
            7,653,605
            
            $
            20,749,524
            
            $
            22,331,328Securities
                and cash deposits
            
            
            267,728
            
            
            336,321
            
            
            859,625
            
            
            1,093,2546,965,982
            
            
            7,989,926
            
            
            21,609,149
            
            
            23,424,582Interest
                expense:Deposits
            
            
            2,543,881
            
            
            3,350,783
            
            
            8,379,181
            
            
            9,570,749Borrowed
                funds
            
            
            1,131,914
            
            
            1,365,003
            
            
            3,484,831
            
            
            3,979,3493,675,795
            
            
            4,715,786
            
            
            11,864,012
            
            
            13,550,098Net
                interest income
            
            
            3,290,187
            
            
            3,274,140
            
            
            9,745,137
            
            
            9,874,484Provision
                for loan losses
            
            
            60,000
            
            
            245,000
            
            
            280,000
            
            
            335,000Net
                interest income after provision for
              loan
                losses
            
            
            3,230,187
            
            
            3,029,140
            
            
            9,465,137
            
            
            9,539,484Noninterest
                income:Fees
                and service charges
            
            
            1,235,539
            
            
            1,229,304
            
            
            3,363,829
            
            
            3,313,829Abstract
                fees
            
            
            238,737
            
            
            245,922
            
            
            787,886
            
            
            750,179Provision
                for impairment on
              investments
            
            
            (3,850,900
            )
            
            -
            
            
            (5,810,811
            )
            
            -Mortgage
                banking income
            
            
            111,167
            
            
            148,999
            
            
            422,216
            
            
            318,297Other
                income
            
            
            336,294
            
            
            322,007
            
            
            955,697
            
            
            961,558Total
                noninterest income (loss)
            
            
            (1,929,163
            )
            
            1,946,232
            
            
            (281,183
            )
            
            5,343,863Noninterest
                expense:Compensation
                and employee benefits
            
            
            1,766,045
            
            
            1,897,024
            
            
            5,600,966
            
            
            5,808,115Premises
                and equipment
            
            
            423,783
            
            
            381,874
            
            
            1,279,964
            
            
            1,157,901Data
                processing
            
            
            229,002
            
            
            199,728
            
            
            715,286
            
            
            547,975Other
                expenses
            
            
            1,137,118
            
            
            1,028,901
            
            
            3,338,462
            
            
            2,966,955Total
                noninterest expense
            
            
            3,555,948
            
            
            3,507,527
            
            
            10,934,678
            
            
            10,480,946Income
                (loss) before income taxes
            
            
            (2,254,924
            )
            
            1,467,845
            
            
            (1,750,724
            )
            
            4,402,401Provision
                for income taxes
            
            
            495,000
            
            
            454,800
            
            
            1,152,500
            
            
            1,319,600Net
                income (loss)
            
            $
            (2,749,924
            )
            $
            1,013,045
            
            $
            (2,903,224
            )
            $
            3,082,801Basic
                earnings (loss) per common share
            
            $
            (2.04
            )
            $
            0.75
            
            $
            (2.17
            )
            $
            2.27Diluted
                earnings (loss) per common share
            
            $
            (2.04
            )
            $
            0.75
            
            $
            (2.17
            )
            $
            2.24Dividends
                declared per common share
            
            $
            0.01
            
            $
            0.35
            
            $
            0.71
            
            $
            1.05Comprehensive
                income (loss)
            
            $
            (2,757,371
            )
            $
            1,031,401
            
            $
            (1,830,804
            )
            $
            3,114,180





See
      Notes
      to Consolidated Condensed Financial Statements.


2


**NORTH
      CENTRAL BANCSHARES, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS**


(Unaudited)




**Nine Months Ended**
              **September 30,****2008**
            
            **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income (loss)
            
            $
            (2,903,224
            )
            $
            3,082,801Adjustments
                to reconcile net income (loss) to net cash provided by operating
                activities:Provision
                for loan losses
            
            
            280,000
            
            
            335,000Depreciation
            
            
            649,141
            
            
            610,176Amortization
                and accretion
            
            
            52,966
            
            
            168,195Deferred
                taxes
            
            
            48,551
            
            
            (93,869
            )Stock-based
                compensation
            
            
            85,115
            
            
            73,143Excess
                benefit related to stock-based compensation
            
            
            (2,268
            )
            
            (96,249
            )(Gain)
                on sale of foreclosed real estate and loans, net
            
            
            (528,586
            )
            
            (325,810
            )Provision
                for impairment on investments
            
            
            5,810,811
            
            
            -Write-down
                of foreclosed real estate
            
            
            359,696
            
            
            31,000Loss
                on sale or disposal of equipment and other assets, net
            
            
            6,299
            
            
            2,836Proceeds
                from sales of loans held-for-sale
            
            
            34,533,178
            
            
            24,592,494Originations
                of loans held-for-sale
            
            
            (33,105,072
            )
            
            (24,555,552
            )Change
                in assets and liabilities:Accrued
                interest receivable
            
            
            201,175
            
            
            (122,502
            )Prepaid
                expenses and other assets
            
            
            (251,235
            )
            
            183,367Accrued
                expenses and other liabilities
            
            
            (134,659
            )
            
            537,078Net
                cash provided by operating activities
            
            
            5,101,888
            
            
            4,422,108**CASH
                FLOWS FROM INVESTING ACTIVITIES**Net
                change in loans
            
            
            50,178,568
            
            
            23,149,028Purchase
                of loans
            
            
            (18,473,872
            )
            
            (35,574,614
            )Proceeds
                from sale of securities available-for-sale
            
            
            9,850Purchase
                of securities available-for-sale
            
            
            (10,800,499
            )
            
            -Proceeds
                from maturities and calls of securities available-for-sale
            
            
            1,468,059
            
            
            1,117,337Proceeds
                from redemption of Federal Home Loan Bank stock
            
            
            542,900
            
            
            636,700Purchase
                of Federal Home Loan Bank stock
            
            
            (215,800
            )
            
            (581,300
            )Purchase
                of premises, equipment and rental real estate
            
            
            (344,840
            )
            
            (445,278
            )Proceeds
                from sale of premises and equipment
            
            
            381
            
            
            305Net
                proceeds from sale of foreclosed real estate
            
            
            3,707,708
            
            
            227,927Net
                cash provided by (used in) investing activities
            
            
            26,072,455
            
            
            (11,469,895
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Net
                increase (decrease) in deposits
            
            
            (20,747,190
            )
            
            8,890,134Net
                increase (decrease) in advances from borrowers for taxes and
                insurance
            
            
            (1,043,641
            )
            
            (1,051,721
            )Proceeds
                from other borrowed funds
            
            
            11,500,000
            
            
            17,000,000Payments
                of other borrowed funds
            
            
            (21,522,306
            )
            
            (20,521,469
            )Purchase
                of common stock for retirement
            
            
            -
            
            
            (2,377,500
            )Proceeds
                from issuance of common stock
            
            
            4,504
            
            
            333,230Excess

                benefit related to stock-based compensation
            
            
            2,268
            
            
            96,249Dividends
                paid
            
            
            (1,408,344
            )
            
            (1,410,207
            )Net
                cash provided by (used in) financing activities
            
            
            (33,214,709
            )
            
            958,716Net
                (decrease) in cash
            
            
            (2,040,366
            )
            
            (6,089,071
            )**CASH
                AND DUE FROM BANKS**Beginning
            
            
            12,526,707
            
            
            20,022,276Ending
            
            $
            10,486,341
            
            $
            13,933,205


3





**CONSOLIDATED
      CONDENSED STATEMENTS OF CASH FLOWS-** Continued


(Unaudited)





**Nine Months Ended**
              **September 30,****2008**
            
            **2007****SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION**Cash
                payments for:Interest
                paid to depositors
            
            $
            8,834,215
            
            $
            9,267,126Interest
                paid on borrowings
            
            
            3,484,831
            
            
            3,979,349Income
                taxes
            
            
            719,509
            
            
            1,166,198**SUPPLEMENTAL
                DISCLOSURE OF NONCASH OPERATING,**
              **INVESTING
                AND FINANCING ACTIVITIES**Transfers
                from loans to foreclosed real estate
            
            $
            2,500,545
            
            $
            352,405Cumulative
                effect of adoption of FIN 48
            
            
            -
            
            
            200,000





See
      Notes
      to Consolidated Condensed Financial Statements.




4


**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 nine month periods
      ended September 30, 2008 and 2007 are unaudited. In the opinion of the
      management of North Central Bancshares, Inc. (the “Company”), these financial
      statements reflect all adjustments, consisting only of 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, 2007.





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.





**2.**
            **EARNINGS
                (LOSS) PER SHARE**





The
      earnings (loss) per share amounts were computed using the weighted-average
      number of shares outstanding during the periods presented. In accordance with
      Statement of Position No. 93-6, *Employers'
      Accounting for Employee Stock Ownership Plans,* issued
      by the American Institute of Certified Public Accountants, shares owned by
      First
      Federal Savings Bank of Iowa’s Employee Stock Ownership Plan that have not been
      committed to be released are not considered to be outstanding for the purpose
      of
      computing earnings (loss) per share. For the three-month period ended September
      30, 2008, the weighted-average number of shares outstanding for the computation
      of basic and diluted earnings (loss) per share were 1,340,148 and 1,340,148,
      respectively. For the nine-month period ended September 30, 2008, the
      weighted-average number of shares outstanding for basic and diluted earnings
      (loss) per share computation were 1,339,132 and 1,339,132, respectively.
      Excluded from the computation of the 2008 earnings per share amounts were 5,965
      and 8,838 shares for the three and nine months ended September 30, 2008
      respectively because the shares were anti-dilutive. For the three-month period
      ended September 30, 2007, the weighted-average number of shares outstanding
      for
      the computation of basic and diluted earnings (loss) per share were 1,343,441
      and 1,357,655, respectively. For the nine-month period ended September 30,
      2007,
      the weighted average number of shares outstanding for the basic and diluted
      earnings (loss) per share computations were 1,358,909 and 1,373,451,
      respectively.





**3.**
            **DIVIDENDS**





On
      August
      29, 2008, the Company declared a cash dividend on its common stock, payable
      on
      October 6, 2008 to stockholders of record as of September 15, 2008, equal to
      $0.01 per share.





**4.**
            **GOODWILL**





As
      of
      January 1, 2002, the Company adopted Statement of Financial Accounting Standards
      (SFAS) No. 142, *Goodwill
      and Other Intangible Assets* that
      eliminated the amortization and required a goodwill impairment test. The Company
      completed the goodwill impairment test during the year ended December 31, 2007
      and determined there has been no impairment of goodwill.





As
      of
      September 30, 2008 and December 31, 2007, the Company had goodwill of
      $4,946,960. The Company is required to complete a goodwill impairment test
      at
      least annually utilizing the same date each year. The impairment test for 2008
      will be completed in the fourth quarter of 2008 utilizing the October 31, 2008
      financial information as has been done in past years. The Company reviews
      goodwill each quarter to determine if there are reasons to consider an interim
      goodwill impairment test. There was no goodwill impairment loss or amortization
      related to goodwill during the three months ended September 30, 2008 or
      September 30, 2007.


5





**5.**
            **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
      its 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.





**Three Months Ended September 30, 2008**
            
            **Nine Months Ended September 30, 2008****Traditional**
            
            
            
            
            
            **Traditional****Banking**
            
            **All
                Others**
            
            **Total**
            
            **Banking**
            
            **All
                Others**
            
            **Total**Interest
                income
            
            $
            6,965,982
            
            $
            -
            
            $
            6,965,982
            
            $
            21,609,149
            
            $
            -
            
            $
            21,609,149Interest
                expense
            
            
            3,675,795
            
            
            -
            
            
            3,675,795
            
            
            11,864,012
            
            
            -
            
            
            11,864,012**Net
                interest income**
            
            
            3,290,187
            
            
            -
            
            
            3,290,187
            
            
            9,745,137
            
            
            -
            
            
            9,745,137Provision
                for loan losses
            
            
            60,000
            
            
            -
            
            
            60,000
            
            
            280,000
            
            
            -
            
            
            280,000**Net
                interest income after**
              **provision
                for loan losses**
            
            
            3,230,187
            
            
            -
            
            
            3,230,187
            
            
            9,465,137
            
            
            -
            
            
            9,465,137Noninterest
                income (loss)
            
            
            (2,419,338
            )
            
            490,175
            
            
            (1,929,163
            )
            
            (1,841,834
            )
            
            1,560,651
            
            
            (281,183
            )Noninterest
                expense
            
            
            3,269,321
            
            
            286,627
            
            
            3,555,948
            
            
            10,021,190
            
            
            913,488
            
            
            10,934,678**Income
                (loss) before income**
              **taxes**
            
            
            (2,458,472
            )
            
            203,548
            
            
            (2,254,924
            )
            
            (2,397,887
            )
            
            647,163
            
            
            (1,750,724
            )Provision
                for income taxes
            
            
            472,000
            
            
            23,000
            
            
            495,000
            
            
            1,067,500
            
            
            85,000
            
            
            1,152,500**Net
                income (loss)**
            
            $
            (2,930,472
            )
            $
            180,548
            
            $
            (2,749,924
            )
            $
            (3,465,387
            )
            $
            562,163
            
            $
            (2,903,224
            )Inter-segment
                revenue (expense)
            
            $
            184,368
            
            $
            (184,368
            )
            $
            -
            
            $
            578,382
            
            $
            (578,382
            )
            $
            -Total
                assets
            
            $
            471,700,426
            
            $
            3,393,873
            
            $
            475,094,299
            
            
            471,700,426
            
            $
            3,393,873
            
            $
            475,094,299Total
                deposits
            
            $
            345,200,666
            
            $
            -
            
            $
            345,200,666
            
            $
            345,200,666
            
            $
            -
            
            $
            345,200,666





**Three Months Ended September 30, 2007**
            
            **Nine Months Ended September 30, 2007****Traditional**
            
            
            
            
            
            **Traditional****Banking**
            
            **All Others**
            
            **Total**
            
            **Banking**
            
            **All Others**
            
            **Total**Interest
                income
            
            $
            7,989,926
            
            $
            -
            
            $
            7,989,926
            
            $
            23,424,582
            
            $
            -
            
            $
            23,424,582Interest
                expense
            
            
            4,715,786
            
            
            -
            
            
            4,715,786
            
            
            13,550,098
            
            
            -
            
            
            13,550,098**Net
                interest income**
            
            
            3,274,140
            
            
            -
            
            
            3,274,140
            
            
            9,874,484
            
            
            -
            
            
            9,874,484Provision
                for loan losses
            
            
            245,000
            
            
            -
            
            
            245,000
            
            
            335,000
            
            
            -
            
            
            335,000**Net
                interest income after**
              **provision
                for loan losses**
            
            
            3,029,140
            
            
            -
            
            
            3,029,140
            
            
            9,539,484
            
            
            -
            
            
            9,539,484Noninterest
                income
            
            
            1,430,988
            
            
            515,244
            
            
            1,946,232
            
            
            3,779,124
            
            
            1,564,739
            
            
            5,343,863Noninterest
                expense
            
            
            3,211,498
            
            
            296,029
            
            
            3,507,527
            
            
            9,555,056
            
            
            925,890
            
            
            10,480,946**Income
                before income**
              **taxes**
            
            
            1,248,630
            
            
            219,215
            
            
            1,467,845
            
            
            3,763,552
            
            
            638,849
            
            
            4,402,401Provision
                for income taxes
            
            
            443,000
            
            
            11,800
            
            
            454,800
            
            
            1,288,900
            
            
            30,700
            
            
            1,319,600**Net
                income**
            
            $
            805,630
            
            $
            207,415
            
            $
            1,013,045
            
            $
            2,474,652
            
            $
            608,149
            
            $
            3,082,801Inter-segment
                revenue (expense)
            
            $
            225,782
            
            $
            (225,782
            )
            $
            -
            
            $
            684,210
            
            $
            (684,210
            )
            $
            -Total
                assets
            
            $
            516,518,893
            
            $
            3,564,446
            
            $
            520,083,339
            
            $
            516,518,893
            
            $
            3,564,446
            
            $
            520,083,339Total
                deposits
            
            $
            369,219,944
            
            $
            -
            
            $
            369,219,944
            
            $
            369,219,944
            
            $
            -
            
            $
            369,219,944


6





**6.**
            **RECENT
                ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, the Financial Accounting Standards Board (FASB) issued No.
      157, *Fair
      Value*  *Measurements* (SFAS
      157). The Company adopted SFAS 157 as of January 1, 2008. SFAS 157 defines
      fair
      value, establishes a consistent framework for measuring fair value and expands
      disclosure requirements about fair value measurements. SFAS 157 requires, among
      other things, the Company’s valuation techniques used to measure fair value to
      maximize the use of observable inputs and minimize the use of unobservable
      inputs. The adoption of SFAS 157 resulted in no changes to the Company’s
      financial statements as of January 1, 2008. See Note 7 for additional
      information.





In
      February 2007, the FASB issued FASB Statement No. 159. In conjunction with
      the
      adoption of SFAS 157, the Company adopted SFAS 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (SFAS
      159), as of January 1, 2008. SFAS 159 provides an option for most financial
      assets and liabilities to be reported at fair value on an
      instrument-by-instrument basis with changes in fair value reported in earnings.
      After the initial adoption, the election is made at the acquisition of a
      financial asset, financial liability, or a firm commitment and it may not be
      revoked. No items were selected for the fair value option at the time of
      adoption of SFAS 159.





In
      December 2007, the FASB issued SFAS No. 141 (revised), *Business
      Combinations* .
      SFAS
      No. 141 replaces the original SFAS. This Statement applies to all transactions
      in which an entity obtains control of one or more businesses. SFAS No. 141
      requires an acquirer to recognize the assets acquired, the liabilities assumed,
      and any noncontrolling interest in the acquiree at their fair values, with
      limited exceptions, as of the acquisition date. Goodwill is to be recognized
      as
      a residual. If the acquisition-date fair value exceeds the consideration
      transferred, a gain is to be recognized. The Statement generally requires that
      acquisition costs be expensed. This Statement is effective for the Company
      for
      business combinations for which the acquisition date is on or after January
      1,
      2009. The Company does not expect the adoption of this Statement will have
      a
      material impact on its financial position or results of operations.





In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements* .
      SFAS
      No. 160 requires companies to report ownership interest in subsidiaries held
      by
      other parties (minority interest) be clearly identified, labeled and presented
      in the consolidated statement of financial condition separately within the
      equity section. The amount of consolidated net income attributable to the parent
      company and to the noncontrolling interest is to be clearly identified and
      presented on the face of the consolidated statement of income. The statement
      also requires changes in a parent’s ownership interest be accounted for on a
      consistent basis. This statement is effective for the Company beginning January
      1, 2009. The Company does not expect the adoption of this statement will have
      a
      material impact on its financial position or results of operations.





In
      March
      2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities. SFAS No.* 161
      requires enhanced disclosures about how and why an entity uses derivative
      instruments; how derivative instruments are accounted for under SFAS No. 133
      and
      its related interpretations; and how derivative instruments and related hedged
      items affect an entity’s financial position, results of operations, and cash
      flows. This statement is effective for the Company beginning on January 1,
      2009.
      Earlier application is permitted, but is not required. The Company does not
      expect the adoption of this statement to have a material impact on its financial
      position or results of operations.


7





**7.**
            **FAIR
                VALUE**





As
      mentioned in Note 6, the Company adopted SFAS 157 *Fair
      Value Measurements* on
      January 1, 2008. SFAS No. 157 defines fair value, establishes a framework
      for measuring fair value and expands disclosures about fair value. It also
      establishes a hierarchy for determining fair value measurement. The hierarchy
      includes three levels and is based upon the valuation techniques used to measure
      assets and liabilities. The three levels are as follows:





1.
            
            Level
                1 - Inputs to the valuation methodology are quoted prices (unadjusted)
                for
                identical assets or liabilities in markets;2.
            
            Level
                2 - Inputs to the valuation methodology include quoted prices for
                similar
                assets and liabilities in active markets and inputs that are observable
                for the asset or liability, either directly or indirectly, for
                substantially the full term of the financial instrument;
                and3.
            
            Level
                3 - Inputs to the valuation methodology are unobservable and significant
                to the fair value measurement





Fair
      value measurements for items measured at fair value at September 30, 2008
      included:





**($
                in 000s)**
            
            **Fair
                Value Measurements at Reporting Date Using****Quoted Prices inActive Marketsfor IdenticalAssets (Level
                1)**
            
            **Significant
                Other Observable Inputs**
              **(Level
                2)**
            
            **SignificantUnobservableInputs**
              **(Level
                3)**
            
            **Total**
              **September 30,
                2008****Description**Securities
                available-for-sale
              (Excluding
                equity securities)
            
            
            _
            
            
            14,207
            
            
            _
            
            
            14,207Securities
                available-for-sale
              (Equity
                securities)
            
            
            1,942
            
            
            _
            
            
            _
            
            
            1,942Total
                Securities available-for-sale
            
            
            1,942
            
            
            14,207
            
            
            _
            
            
            16,149





A
      portion
      of the securities available-for-sale portfolio are equity securities and
      consists of preferred stocks issued by Freddie Mac and Fannie Mae and mortgage
      bond mutual fund investments. The fair values used by the Company are obtained
      from an independent pricing service, which represent quoted market prices for
      the identical securities (Level 1 inputs).





Securities
      available-for-sale (excluding equity securities) portfolio consists of
      mortgage-backed securities and municipal bond investments whereby the Company
      obtains fair values from an independent pricing service. The fair values are
      determined by pricing models that consider observable market data, such as
      interest rate volatilities, LIBOR yield curve, credit spreads and prices from
      market makers and live trading systems (Level 2 inputs).





Certain
      financial assets are measured at fair value on a non-recurring basis; that
      is,
      the instruments are not measured at fair value on an ongoing basis but are
      subject to fair value adjustments in certain circumstances (for example, when
      there is evidence of impairment). Financial assets measured at fair value on
      a
      non-recurring basis where not significant at September 30, 2008.





The
      Company held Freddie Mac and Fannie Mae perpetual preferred stock at June 30,
      2008 with a carrying cost of approximately $4.2 million. On September 7, 2008,
      the Federal Housing Finance Agency placed both Freddie Mac and Fannie Mae under
      conservatorship. This action did not eliminate the equity in Freddie Mac and
      Fannie Mae represented by the perpetual preferred stock but did negatively
      impact its value. As a result, a non-cash other-than-temporary impairment
      (“OTTI”) charge of $3.85 million pre tax was recorded by the Company in the
      quarter ended September 30, 2008. The estimated fair value of these securities
      at September 30, 2008 was $300,000.


8





**8.**
            **INCOME
                TAXES**





The
      Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), *Accounting
      for Uncertainty in Income Taxes* ,
      an
      interpretation of FASB Statement No. 109, effective as of January 1, 2007.
      As a
      result of the implementation of FIN 48, the Company recognized an increase
      of
      $200,000 in income tax liability for uncertain income tax expense. This increase
      was accounted for as an adjustment reducing the beginning balance of retained
      earnings on the Statement of Financial Condition by $200,000 which was comprised
      of $170,000 in taxes and $30,000 in interest. The Company recognizes interest
      and penalties related to uncertain tax positions in income tax expense. There
      was no adjustment to these amounts during the three months ended September
      30,
      2008.





The
      2005-2007 tax years remain open to examination by the major taxing jurisdictions
      to which we are subject.





**9.**
            **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.


9





**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 II, Item
      1A -
      Risk Factors of this Quarterly Report and Part I, Item 1A — Risk
      Factors of the Company’s 2007 Annual Report on Form 10-K. 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.





**Executive
      Overview**





The
      purpose of this summary is to provide an overview of the items management
      focuses on when evaluating the condition of the Company and our success in
      implementing our 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. Our shareholder value strategy
      has
      three major themes: (1) enhancing our shareholders’ value; (2) making our retail
      banking franchise more valuable; and (3) efficiently utilizing our capital.





Management
      believes the following were important factors in the Company’s performance
      during the quarter ended September 30, 2008:





•
            The
                Company held Freddie Mac and Fannie Mae perpetual preferred stock
                at June
                30, 2008 with a carrying cost of approximately $4.2 million. On September
                7, 2008, the Federal Housing Finance Agency placed both Freddie Mac
                and
                Fannie Mae under conservatorship. This action did not eliminate the
                equity
                in Freddie Mac and Fannie Mae represented by the perpetual preferred
                stock
                but did negatively impact its value. As a result, a non-cash
                other-than-temporary impairment (“OTTI”) charge of $3.85 million pre tax
                was recorded by the Company in the quarter ended September 30, 2008.
                The
                estimated fair value of these securities at September 30, 2008 was
                $300,000.





•
            On
                October 3, 2008 the Emergency Economic Stabilization Act of 2008
                ( “EESA”)
                was adopted. Among other things, EESA provides tax relief to banking
                organizations that have suffered losses on preferred holdings of
                Freddie
                Mac and Fannie Mae by changing the characterization of these losses
                from
                capital to ordinary for Federal income tax purposes. As a result,
                the
                Company will recognize a tax benefit of approximately $2.1 million,
                or
                $1.56 per diluted share, on the $6.19 million cumulative Freddie
                Mac and
                Fannie Mae impairment charges, during the fourth quarter of 2008.
                This tax
                benefit was realized in the third quarter of 2008 for purposes of
                regulatory capital ratios. The Bank’s required, actual and excess capital
                levels as of September 30, 2008 are shown in a table on page 12 of
                this
                report.•
            Earnings
                before the provision for impairment on investments (a non-GAAP measure)
                remains strong, evidenced by the chart
                below.





**Three Months Ended**
            
            **Nine Months Ended****September 30, 2008**
            
            **September 30, 2008**Diluted
                per
            
            
            
            Diluted
                per*(dollars
                in thousands, except per share data)*
            
            Amount
            
            share
            
            Amount
            
            shareReported
                net loss
            
            $
            (2,750
            )
            
            (2.04
            )
            $
            (2,903
            )
            
            (2.17
            )Provision
                for impairment (net)
            
            
            3,851
            
            
            2.86
            
            
            5,777
            
            
            4.30Net
                earnings before the provision for impairment
            
            $
            1,101
            
            
            0.82
            
            $
            2,874
            
            
            2.13




10





•
            Consistent
                with the Company’s focus on attracting and retaining talented employees,
                and at the same time reducing costs, the Board of Directors has approved
                changes in the Company’s employee benefits programs including a freeze to
                the defined benefit pension plan effective July 1, 2008 and enhancements
                to the 401(k) plan.





•
            Although
                the level of nonperforming assets to total assets increased to 1.15%
                as of
                September 30, 2008 from 0.97% as of December 31, 2007 the Company
                continues to be pro-active in its approach to addressing and minimizing
                the financial impact of these assets.





•
            Purchases
                and originations of out of state real estate loans remain an integral
                part
                of the Company’s business plan. The Company has purchased and originated
                out of state real estate loans to supplement local mortgage loan
                originations and to geographically diversify its mortgage loan
                portfolio.





•
            The
                Company continues its focus on earnings through management of net
                interest
                margin, successfully increasing the margin to 2.79% for the nine
                months
                ended September 30, 2008 from 2.65% for the twelve months ended December
                31, 2007.





The
      general economy is slowing. Based upon increasing numbers of foreclosures and
      slower sales of one- to four-family residences, it is generally agreed that
      the
      real estate market is in a slowdown. The Federal Reserve reduced the targeted
      fed funds rate and the discount rate by 425 basis points between September
      2007
      and October 2008, indicating its concern about the slowing economy. It is
      uncertain when this slowdown will turn around and the ripple effect it could
      have on other parts of the economy. The duration and magnitude of any near-term
      economic difficulties are not known.




**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 2007 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 that related to the allowance for loan losses and
      asset impairment judgments, including the recoverability of
      goodwill.





The
      allowance for loan losses is established through a provision for loan losses
      charged to expense. Loans are charged 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 expected trend 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
      other-than-temporary impairment 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
      and ability of the Company to retain its investment in the issuer for a period
      of time sufficient to allow for any anticipated recovery in fair
      value.


11





Goodwill
      represents the excess of the acquisition cost over the fair value of the net
      assets acquired in a purchase acquisition. Goodwill is tested for impairment
      at
      least annually.





**FINANCIAL
      CONDITION**





Total
      assets decreased $35.1 million, or 6.9%, to $475.1 million at September 30,
      2008, from $510.2 million at December 31, 2007. The decrease in assets was
      primarily due to a decrease in net loans receivable, offset in part by increases
      in securities available-for-sale.





Net loans
      receivable decreased by $34.6 million, or 7.7%, to $412.3 million at September
      30, 2008, from $446.9 million at December 31, 2007, primarily due to payments
      and prepayments of $101.5 million and loan sales of $34.1 million during the
      nine months ended September 30, 2008. These payments, prepayments, and loan
      sales were offset in part by the origination of $46.7 million of first mortgage
      loans primarily secured by one-to four-family residences and commercial real
      estate; the purchase of $18.5 million of first mortgage loans secured by
      commercial real estate and multifamily residential real estate; and the
      origination of $25.1 million of second mortgage loans during the nine months
      ended September 30, 2008. The Company sells substantially all fixed-rate
      residential loans originated with maturities of 15 years or more in the
      secondary mortgage market in order to reduced interest rate risk





Deposits
      decreased $20.7 million, or 5.7%, to $345.2 million at September 30, 2008,
      from
      $365.9 million at December 31, 2007. This decrease is a result of a few specific
      items. First, deposit pricing, particularly CD pricing, in certain markets
      the
      Company operates has been impacted by other financial institutions with above
      market specials. Second, a decrease in brokered deposits of $8.8 million which
      the Company has chosen not to replace due to pricing and liquidity needs.
      Lastly, deposits have fluctuated due to seasonality **.** Borrowings,
      primarily FHLB advances, decreased $10.0 million, or 10.3%, to $87.4 million
      at
      September 30, 2008, from $97.4 million at December 31, 2007. This decrease
      is
      due to the normal repayment of borrowings due to calls or
      maturities.





Total
      stockholders’ equity was at $38.3 million at September 30, 2008 compared to
      $41.0 million at December 31, 2007.





The
      Office of Thrift Supervision (the “OTS”) requires that the Bank meet minimum
      tangible, leverage (core) and risk-based capital requirements. As of September
      30, 2008, the Bank exceeded all of its regulatory capital requirements. The
      Bank’s required, actual and excess capital levels as of September 30, 2008 are
      set forth below. In accordance with EESA, the actual capital levels set forth
      below include the realization of a tax benefit of approximately $2.1 million,
      or
      $1.56 per diluted share, on the cumulative $6.19 million Freddie Mac and Fannie
      Mae impairment charges. The Company will recognize this tax benefit in its
      financial statements for the fourth quarter of 2008.





**Amount**
            
            **Percentage of Assets**(Dollars
                in thousands)Tangible
                capital:Capital
                level
            
            $
            34,716
            (1)
            
            7.34
            %Less
                Requirement
            
            
            7,094
            
            
            1.50
            %Excess
            
            $
            27,622
            
            
            5.84
            %Core
                capital:Capital
                level
            
            $
            34,716
            (1)
            
            7.34
            %Less
                Requirement
            
            
            18,918
            
            
            4.00
            %Excess
            
            $
            15,798
            
            
            3.34
            %Risk-based
                capital:Capital
                level
            
            $
            38,063
            (1)
            
            11.14
            %Less
                Requirement
            
            
            27,329
            
            
            8.00
            %Excess
            
            $
            10,734
            
            
            3.14
            %





(1)
      Includes the tax benefit related to the cumulative impairment losses on Freddie
      Mac and Fannie Mae as previously discussed.


12




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company’s primary sources of funds are deposits, amortization and prepayment of
      loans, borrowings such as FHLB advances, brokered certificates of deposit,
      maturities of securities and other investments, and earnings and funds provided
      from operations. During the first nine months of 2008 and 2007, principal
      payments, prepayments, and proceeds from the sale of loans totaled $135.6
      million and $113.6 million, respectively. Deposits decreased by $20.7 million
      during the first nine months of 2008 compared to an increase in deposits of
      $8.9
      million during the first nine months of 2007. The proceeds from borrowed funds
      during the nine months ended September 30, 2008 and 2007 totaled $11.5 million
      and $17.0 million. During the first nine months of 2008 and 2007, the proceeds
      from the maturities, calls and sales of securities totaled $2.0 million and
      $1.8
      million, respectively. Cash provided from operating activities during the first
      nine months of 2008 and 2007 totaled $5.1 million and $4.4 million,
      respectively. The Company’s primary use of funds is to originate and purchase
      loans, purchase securities available-for-sale, repay borrowed funds and other
      financing activities. During the first nine months of 2008 and 2007, the
      Company’s gross purchases and origination of loans totaled $102.8 million and
      $128.0 million, respectively. The purchase of securities available-for-sale
      for
      the nine months ended September 30, 2008 and 2007 totaled $11.0 million and
      $0.6
      million, respectively. The repayment of borrowed funds during the first nine
      months of 2008 and 2007 totaled $21.5 million and $20.5 million, respectively.
      OTS regulations require the Company to maintain sufficient liquidity to ensure
      its safe and sound operation. For additional information about cash flows from
      the Company’s operating, financing and investing activities, see the
      Consolidated Condensed Statements of Cash Flows in the Company’s financial
      statements included in Item 1 of this report.





The
      Company has a line of credit agreement in the amount of $3.0 million with an
      unaffiliated bank. As of September 30, 2008, there were no borrowings
      outstanding on this line of credit. This annual line matured in October 2008
      and
      the Company continues to analyze whether to renew due to the increased
      restrictions being place on all borrowers of this unaffiliated financial
      institution. If the Company renews the line of credit, it may use borrowings
      to
      fund stock repurchases in the future and for general corporate purposes.





On
      October 6, 2008, the Company paid a quarterly cash dividend of $0.01 per share
      of common stock to its shareholders as of the close of business on September
      15,
      2008. This dividend payment totaled $13,000. See SEC Form 8-K filed on August
      29, 2008 for additional information regarding the dividend reduction. On May
      30,
      2008, the Company declared a quarterly cash dividend of $0.35 per share, payable
      on July 3, 2008 to shareholders of record as of the close on June 13, 2008.
      This
      dividend payment totaled $470,000.





**RECENT
      REGULATORY ACTIONS**





In
      response to the recent crises affecting the financial markets, the federal
      government has taken unprecedented steps in an attempt to stabilize and provide
      liquidity to the U.S. financial markets. Under the Emergency Economic
      Stabilization Act of 2008 (“EESA”) and the Troubled Asset Relief Program Capital
      Purchase Program (“CPP”), the U.S. Treasury will make $250 billion of capital
      available to U.S. financial institutions and potentially other financial and
      commercial firms by purchasing preferred stock in these institutions. The
      program is voluntary and requires an institution to comply with a number of
      restrictions and provisions, including limits on executive compensation, stock
      redemptions and declaration of dividends. Applications must be submitted by
      November 14, 2008 and are subject to approval by the Treasury. The CPP provides
      for a minimum investment of 1% of Total Risk−Weighted Assets, with a maximum
      investment equal to the lesser of 3% of Total Risk−Weighted Assets or $25
      billion. In conjunction with the purchase of preferred stock, the U.S. Treasury
      will receive warrants to purchase common stock having an aggregate market price
      equal to 15% of the preferred stock purchased. Participation in the program
      is
      not automatic and is subject to approval by the Treasury. We are evaluating
      whether to apply for participation in the CPP.





In
      addition, the Federal Deposit Insurance Corporation (“FDIC”) announced the
      creation of the Temporary Liquidity Guarantee Program (“TLGP”) as part of a
      larger government effort to strengthen confidence and encourage liquidity in
      the
      nation’s banking system. All eligible institutions are automatically enrolled in
      the TLGP for the first 30 days at no cost. Organizations that do not wish to
      participate in the TLGP must opt out by December 5, 2008. After that time,
      participating entities will be charged fees. The TLGP has two components. The
      FDIC will provide a complete guarantee of newly issued senior unsecured debt
      of
      the participating organizations, within a certain limit, issued between October
      14, 2008 and June 30, 2009. For such debts maturing beyond June 30, 2009, the
      guarantee will remain in effect until June 30, 2012. An annualized fee of 75
      basis points multiplied by the amount of debt issued from October 14, 2008
      (and
      still outstanding on December 6, 2008), through June 30, 2009 will be charged.
      The other component provides full FDIC insurance coverage for non−interest
      bearing transaction deposit accounts, regardless of dollar amount until December
      31, 2009. An annualized 10 basis point assessment on balances in
      noninterest−bearing transaction accounts that exceed the existing deposit
      insurance limit of $250,000 will be assessed on a quarterly basis to insured
      depository institutions that have not opted out of the TLGP. We are evaluating
      whether to continue to participate in the TLGP.


13





It
      is not
      clear at this time whether our decision to participate or not to participate
      in
      either the CPP or the TLGP will have an effect on our business. In addition,
      there is no assurance that these government actions will achieve their purpose.
      The failure of the financial markets to stabilize, or a continuation or
      worsening of the current financial market conditions, could have a material
      adverse affect on our business, our financial condition, the financial condition
      of our customers, our common stock trading price, as well as our ability to
      access credit.  It could also result in declines in our investment
      portfolio which could be “other-than-temporary impairments.”





**RESULTS
      OF OPERATIONS**





***Net
      Income (Loss)*** *.* Net
      income (loss) decreased by $3.76 million to a net loss of $2.75 million for
      the
      quarter ended September 30, 2008, compared to net income of $1.01 million for
      the quarter ended September 30, 2007. The decrease in earnings was primarily
      due
      to a non-cash provision for impairment on investments and an increase in other
      expenses including write downs of value on foreclosed real estate.





Net
      income (loss) decreased by $5.98 million to a net loss of $2.90 million for
      the
      nine months ended September 30, 2008, compared to net income of $3.08 million
      for the nine months ended September 30, 2007. The decrease in earnings was
      primarily due to a non-cash provision for impairment on investments and an
      increase in other expenses including write downs of value on foreclosed real
      estate, offset in part by a decrease in income tax expense.




***Net
      Interest Income*** .
      Net
      interest income before provision for loan losses increased by $16,000 to $3.29
      million for the quarter ended September 30, 2008, from $3.27 million for the
      quarter ended September 30, 2007. The increase is due to an increase in the
      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 2.70%
      for the quarter ended September 30, 2008, from 2.37% for the quarter ended
      September 30, 2007. The increase in interest rate spread primarily 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 decreased by $129,000 to $9.75
      million for the nine months ended September 30, 2008, from $9.87 million for
      the
      nine months ended September 30, 2007. The decrease is due to a decrease in
      the
      average balance of interest-earning assets, offset in part by an increase in
      the
      interest rate spread and a decrease in the average balance of interest-bearing
      liabilities. The interest rate spread (i.e., the difference in the average yield
      on assets and average cost of liabilities) increased to 2.58% for the nine
      months ended September 30, 2008, from 2.41% for the nine months ended September
      30, 2007. The increase in interest rate spread primarily 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 $1.02 million to $6.97 million for the quarter
      ended September 30, 2008, compared to $7.99 million for the quarter ended
      September 30, 2007. The decrease in interest income was due to a decrease in
      the
      average balance of interest-earning assets and a decrease in the yield on
      interest-earnings assets. The average balance of interest-earning assets
      decreased $43.7 million to $453.6 million for the quarter ended September 30,
      2008, from $497.3 million for the quarter ended September 30, 2007. The average
      yield on interest-earning assets decreased to 6.12% for the quarter ended
      September 30, 2008, from 6.40% for the quarter ended September 30, 2007,
      primarily due to a decrease in market interest rates on first mortgage loans
      secured by on-to four-family real estate, commercial real estate, and
      multifamily residences. The decrease in the average balance of interest-earning
      assets primarily reflects decreases in the average balances of first mortgage
      loans and interest-bearing cash, offset in part by an increase in the average
      balance of consumer loans and securities available-for sale. 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 and purchases of first
      mortgage loans secured by one-to four-family real estate, commercial real
      estate, and multifamily residences during the three months ended September
      30,
      2008. The increase in the average balance of securities available-for-sale
      was
      derived from purchases of mortgage-backed securities, offset in part by
      payments, maturities, and write downs due to the other-than-temporary impairment
      of investments during the quarter ended September 30, 2008.


14





Interest
      income decreased by $1.81 million to $21.61 million for the nine months ended
      September 30, 2008, compared to $23.42 million for the nine months ended
      September 30, 2007. The decrease in interest income was due to a decrease in
      the
      average balance of interest-earning assets and a decrease in the yield on
      interest-earnings assets. The average balance of interest-earning assets
      decreased $26.7 million to $464.3 million for the nine months ended September
      30, 2008, from $491.0 million for 2007. The average yield on interest-earning
      assets decreased to 6.19% for the nine months ended September 30, 2008, from
      6.36% for the nine months ended September 30, 2007, primarily due to a decrease
      in market interest rates on first mortgage loans secured by on-to four-family
      real estate, commercial real estate, and multifamily residences. The decrease
      in
      the average balance of interest-earning assets primarily reflects decreases
      in
      the average balances of first mortgage loans and interest-bearing cash, offset
      in part by an increase in the average balance of consumer loans and securities
      available-for sale. 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 and purchases of first mortgage loans secured by one-to
      four-family real estate, commercial real estate, and multifamily residences
      during the nine months ended September 30, 2008. The increase in the average
      balance of securities available-for-sale was derived from purchases of
      mortgage-backed securities, offset in part by payments, maturities, and write
      downs due to other-than-temporary impairment of investments during the nine
      months ended September 30, 2008.





***Interest
      Expense*** .
      Interest expense decreased by $1.04 million to $3.68 million for the quarter
      ended September 30, 2008, compared to $4.72 million for the quarter ended
      September 30, 2007. The average balance of interest-bearing liabilities
      decreased $37.1 million to $426.6 million for the quarter ended September 30,
      2008, from $463.7 million for the quarter ended September 30, 2007. The decrease
      in the average balance of interest-bearing liabilities primarily reflects a
      decrease in borrowed funds, certificates of deposit, and savings account
      balances, offset in part by an increase in NOW and money market 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 was 3.42% for the quarter ended September 30, 2008 and 4.03% for the
      quarter ended September 30, 2007, respectively.





Interest
      expense decreased by $1.69 million to $11.86 million for the nine months ended
      September 30, 2008, compared to $13.55 million for the nine months ended
      September 30, 2008. The average balance of interest-bearing liabilities
      decreased $21.2 million to $437.4 million for the nine months ended September
      30, 2008, from $458.6 million for the nine months ended September 30, 2007.
      The
      decrease in the average balance of interest-bearing liabilities primarily
      reflects a decrease in borrowed funds and certificates of deposit, offset in
      part by an increase in NOW, money market 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 was 3.61%
      for the nine months ended September 30, 2008 and 3.95% for nine months ended
      September 30, 2007, respectively.


15





The
      following table sets forth certain information relating to the Company’s average
      balance sheets and reflects the average yield on assets and average cost of
      liabilities for the three and nine months ended September 30, 2008 and 2007,
      respectively.





**For
                the Three Months Ended September 30,****2008**
            
            **2007****Average**
              **Balance**
            
            **Interest**
            
            **Average**
              **Yield/Cost**
            
            **Average**
              **Balance**
            
            **Interest**
            
            **Average**
              **Yield/Cost**(Dollars
                in thousands)Assets:Interest-earning
                assets:Loans
            
            $
            423,848
            
            $
            6,698
            
            
            6.29
            %
            $
            469,649
            
            $
            7,653
            
            
            6.49
            %Securities
                available-for-sale
            
            
            25,006
            
            
            245
            
            
            3.92
            
            
            18,942
            
            
            232
            
            
            4.90Interest-bearing
                cash
            
            
            4,743
            
            
            23
            
            
            1.88
            
            
            8,663
            
            
            105
            
            
            4.77Total
                interest-earning assets
            
            
            453,597
            
            $
            6,966
            
            
            6.12
            %
            
            497,254
            
            $
            7,990
            
            
            6.40
            %Noninterest-earning
                assets
            
            
            36,271
            
            
            
            
            
            
            
            
            29,157Total
                assets
            
            $
            489,868
            
            
            
            
            
            
            
            $
            526,411Liabilities
                and Equity:Interest-bearing
                liabilities:NOW
                and money market savings
            
            $
            93,733
            
            $
            213
            
            
            0.90
            %
            $
            82,858
            
            $
            287
            
            
            1.37
            %Passbook
                savings
            
            
            25,795
            
            
            18
            
            
            0.27
            
            
            25,869
            
            
            35
            
            
            0.54Certificates
                of deposit
            
            
            217,427
            
            
            2,313
            
            
            4.22
            
            
            246,353
            
            
            3,031
            
            
            4.88Borrowed
                funds
            
            
            89,655
            
            
            1,132
            
            
            5.01
            
            
            108,639
            
            
            1,363
            
            
            4.98Total
                interest-bearing liabilities
            
            
            426,610
            
            $
            3,676
            
            
            3.42
            %
            
            463,719
            
            $
            4,716
            
            
            4.03
            %Noninterest-bearing
                liabilities
            
            
            22,852
            
            
            
            
            
            
            
            
            20,829Total
                liabilities
            
            
            449,462
            
            
            
            
            
            
            
            
            484,548Equity
            
            
            40,406
            
            
            
            
            
            
            
            
            41,863Total
                liabilities and equity
            
            $
            489,868
            
            
            
            
            
            
            
            $
            526,411Net
                interest income
            
            
            
            
            $
            3,290
            
            
            
            
            
            
            
            $
            3,274Net
                interest rate spread
            
            
            
            
            
            
            
            
            2.70
            %
            
            
            
            
            
            
            
            2.37
            %Net
                interest margin
            
            
            
            
            
            
            
            
            2.90
            %
            
            
            
            
            
            
            
            2.64
            %Ratio
                of average interest-earning assetsto
                average interest-bearing liabilities
            
            
            
            
            
            
            
            
            106.33
            %
            
            
            
            
            
            
            
            107.23
            %





**For
                the Nine Months Ended September 30,****2008**
            
            **2007****Average**
              **Balance**
            
            **Interest**
            
            **Average**
              **Yield/Cost**
            
            **Average**
              **Balance**
            
            **Interest**
            
            **Average**
              **Yield/Cost**(Dollars
                in thousands)Assets:Interest-earning
                assets:Loans
            
            $
            434,848
            
            $
            20,749
            
            
            6.35
            %
            $
            461,068
            
            $
            22,332
            
            
            6.46
            %Securities
                available-for-sale
            
            
            22,032
            
            
            728
            
            
            4.41
            
            
            19,342
            
            
            701
            
            
            4.83Interest-bearing
                cash
            
            
            7,457
            
            
            132
            
            
            2.35
            
            
            10,609
            
            
            392
            
            
            4.95Total
                interest-earning assets
            
            
            464,337
            
            $
            21,609
            
            
            6.19
            %
            
            491,019
            
            $
            23,425
            
            
            6.36
            %Noninterest-earning
                assets
            
            
            36,129
            
            
            
            
            
            
            
            
            29,183Total
                assets
            
            $
            500,466
            
            
            
            
            
            
            
            $
            520,202Liabilities
                and Equity:Interest-bearing
                liabilities:NOW
                and money market savings
            
            $
            94,057
            
            $
            710
            
            
            1.01
            %
            $
            83,216
            
            $
            812
            
            
            1.30
            %Passbook
                savings
            
            
            25,624
            
            
            57
            
            
            0.29
            
            
            26,180
            
            
            97
            
            
            0.50Certificates
                of deposit
            
            
            225,626
            
            
            7,612
            
            
            4.49
            
            
            241,004
            
            
            8,662
            
            
            4.81Borrowed
                funds
            
            
            92,100
            
            
            3,485
            
            
            5.04
            
            
            108,195
            
            
            3,979
            
            
            4.92Total
                interest-bearing liabilities
            
            
            437,407
            
            $
            11,864
            
            
            3.61
            %
            
            458,595
            
            $
            13,550
            
            
            3.95
            %Noninterest-bearing
                liabilities
            
            
            21,990
            
            
            
            
            
            
            
            
            19,658Total
                liabilities
            
            
            459,397
            
            
            
            
            
            
            
            
            478,253Equity
            
            
            41,069
            
            
            
            
            
            
            
            
            41,949Total
                liabilities and equity
            
            $
            500,466
            
            
            
            
            
            
            
            $
            520,202Net
                interest income
            
            
            
            
            $
            9,745
            
            
            
            
            
            
            
            $
            9,875Net
                interest rate spread
            
            
            
            
            
            
            
            
            2.58
            %
            
            
            
            
            
            
            
            2.41
            %Net
                interest margin
            
            
            
            
            
            
            
            
            2.79
            %
            
            
            
            
            
            
            
            2.67
            %Ratio
                of average interest-earning assetsto
                average interest-bearing liabilities
            
            
            
            
            
            
            
            
            106.16
            %
            
            
            
            
            
            
            
            107.07
            %




16





***Provision
      for Loan Losses*** .
      The
      Company’s provision for loan losses was $60,000 and $245,000 for the quarters
      ended September 30, 2008 and 2007, respectively. The decrease in provision
      for
      loan losses for the quarter ended September 30, 2008 compared to the same period
      in 2007 was primarily due to a decrease in the loan portfolio in the 2008 period
      and an increased provision in the same period of 2007 due to a few single family
      residential construction relationships increasing non-performing assets. The
      Company establishes provisions for loan losses, which are charged to operations,
      in order to maintain the allowance for loan losses at a level which is deemed
      to
      be appropriate based upon an assessment of prior loss experience, industry
      standards, past due loans, economic conditions, the volume and type of loans
      in
      the Company’s portfolio, and other factors related to the collectibility of the
      Company’s loan portfolio. The Company’s total loan portfolio decreased $50.6
      million, or 10.8%, from September 30, 2008 to September 30, 2007. This decrease
      primarily consisted of decreases of $33.3 million in one-to four-family
      residential loans and $20.4 million in the Company’s out-of-state real estate
      loans, offset by an increase of $6.1 million in consumer loans. The decreases
      in
      loans are primarily due to less one-to four-family residential loans fitting
      the
      Company’s portfolio requirements resulting in more loans being sold to the
      secondary market, as well as the Company’s decision not to replace all of the
      out-of-state real estate loans that have been paid off during the past year
      due
      to their increased complexity in today’s economic times. Purchased out-of-state
      real estate loans generally constitute a higher rate of risk than originated
      loans due to the size, location and type of collateral securing such loans.
      Net
      charge-offs were $294,000 for the nine months ended September 30, 2008, compared
      to $119,000 for the nine months ended September 30, 2007 **.** The
      resulting allowance for loan loss was $3.5 million and $3.7 million at September
      30, 2008 and September 30, 2007, respectively.





The
      allowance for loan losses as a percentage of total loans receivable increased
      to
      0.83% at September 30, 2008 from 0.79% at September 30, 2007. Management
      believes the increase in the allowance for loan loss as a percentage of total
      loans receivable reflects a shift in the economy in some of the markets in
      which
      the Company operates, specifically the Des Moines, Iowa metropolitan area.
      The
      level of nonperforming loans increased to $4.32 million at September 30, 2008
      from $2.39 million at September 30, 2007. This change, along with the increase
      in foreclosed real estate to $1.11 million at September 30, 2008 from $569,000
      at September 30, 2007, is primarily a reflection of the deterioration in the
      housing market. The nonperforming asset ratio increased to 1.15% of total assets
      as of September 30, 2008 from 0.97% of total assets at December 31, 2007. The
      level of special mention loans increased to $4.91 million at September 30,
      2008
      from $2.71 million at September 30, 2007.





Management
      believes that the allowance for loan losses was adequate as of September 30,
      2008. While management estimates loan losses using the best available
      information, such as independent appraisals for significant collateral
      properties, no assurance can be made that future adjustments to the allowance
      will not be necessary based on changes in economic and real estate market
      conditions, further information obtained regarding problem loans, identification
      of additional problem loans, and other factors, both within and outside of
      management’s control.





***Noninterest
      Income (Loss)*** *.* Total
      noninterest income (loss) decreased by $3.88 million, or 199.1%, to a loss
      of
      $1.93 million for the quarter ended September 30, 2008, from income of $1.95
      million for the quarter ended September 30, 2007. The decrease in noninterest
      income was primarily due to the provision for impairment on investments as
      discussed below, abstract fees and mortgage banking income, offset in part
      by
      increases in fees and services charges and other income. Fees and service
      charges increased $6,000 primarily due to an increase in fees associated with
      checking accounts, including overdraft fees, offset in part by a decrease in
      loan prepayment fees. Mortgage banking income decreased $38,000 for the quarter
      ended September 30, 2008 compared to the same period of 2007 due to decreases
      in
      loans originated for the secondary market. Abstract fees decreased $7,000 for
      the quarter ended September 30, 2008 compared to the same period of 2007 due
      to
      a decrease in real estate activity. Other income, which primarily includes
      annuity, securities, insurance sales, cash surrender value of bank-owned life
      insurance, and foreclosed real estate net losses, increased $14,000 for the
      quarter ended September 30, 2008 compared to the same period of 2007 primarily
      due to an increase in the cash surrender value of bank-owned life insurance,
      offset in part by an increase foreclosed real estate expenses.





Total
      noninterest income (loss) decreased by $5.63 million, or 105.3%, to a loss
      of
      $281,000 for the nine months ended September 30, 2008, from income of $5.34
      million for the nine months ended September 30, 2007. The decrease in
      noninterest income was primarily due to an increase in the provision for
      impairment on investments as discussed below and a decrease in other income,
      offset in part by increases in fees and services charges, mortgage banking
      income, and abstract fees. Fees and service charges increased $50,000 primarily
      due to an increase in fees associated with checking accounts, including
      overdraft fees, offset in part by a decrease in loan prepayment fees. Mortgage
      banking income increased $104,000 for the nine months ended September 30, 2008
      compared to the same period of 2007 due to an increase in loans originated
      for
      the secondary market. Abstract fees increased $38,000 for the nine months ended
      September 30, 2008 compared to the same period of 2007 due to an increase in
      real estate activity. Other income, which primarily includes annuity,
      securities, insurance sales, cash surrender value of bank-owned life insurance,
      and foreclosed real estate net losses, decreased $6,000 for the nine months
      ended September 30, 2008 compared to the same period of 2007 primarily due
      to an
      increase in foreclosed real estate expenses, offset in part by an increase
      in
      the cash surrender value of bank-owned life insurance.


17





During
      the third quarter of 2008 the Company’s noninterest income decreased by $3.85
      million due to non-cash impairment charges in the investment portfolio due
      to
      the Federal Housing Finance Agency placing Freddie Mac and Fannie Mae under
      conservatorship. The carrying values of Freddie Mac and Fannie Mae preferred
      stock held by the Company have been written down to their fair market value
      of
      $235,000 and $71,000, respectively, as of September 30, 2008. Although these
      charges are required by generally accepted accounting principles (GAAP), they
      do
      not change the Company’s regulatory capital position of “well capitalized”.
      Sharp declines in the market valuations of these investments, coupled with
      uncertainty about future market conditions, led to the determination that these
      investments had become “other-than-temporarily impaired”. Additional impairment
      charges may be necessary on investment securities in future quarters if
      financial and economic conditions do not improve.





***Noninterest
      Expense*** *.* Total
      noninterest expense increased by $48,000, or 1.4%, to $3.56 million for the
      quarter ended September 30, 2008, from $3.51 million for the quarter ended
      September 30, 2007. The increase was primarily due to increased expenditures
      for
      information technology enhancements of $29,000 and increases on write downs
      of
      foreclosed real estate of $93,000, offset in part by decreases in salaries
      and
      employee benefits of $131,000. The Company’s ratio of noninterest expense to
      average assets for the quarters ended September 30, 2008 and 2007 was 2.90%
      and
      2.67%, respectively.





Total
      noninterest expense increased by $454,000, or 4.3%, to $10.93 million for the
      nine months ended September 30, 2008, from $10.48 million for the nine months
      ended September 30, 2007. The increase was primarily due to increased
      expenditures for information technology enhancements of $167,000 and increases
      on write downs of foreclosed real estate of $360,000, offset in part by
      decreases in salaries and employee benefits of $207,000 and decrease in
      professional services of $140,000. The Company’s ratio of noninterest expense to
      average assets for the nine months ended September 30, 2008 and 2007 was 2.91%
      and 2.69%, respectively.





***Income
      Taxes*** *.* Provision
      for income taxes increased by $40,000 to $495,000 for the quarter ended
      September 30, 2008, compared to $455,000 for the quarter ended September 30,
      2007. The increase in income taxes was primarily due to the increase in the
      income before income taxes without regard to the OTTI on securities, which
      had
      limited tax deductibility prior to the enactment of EESA.





Provision
      for income taxes decreased by $167,000 to $1.15 million for the nine months
      ended September 30, 2008, compared to $1.32 million for the nine months ended
      September 30, 2007. The decrease in income taxes was primarily due to the
      decrease in the income before income taxes, offset in part by the limited
      deductibility of the provision for impairment on investments and a reduction
      of
      income tax credits available.





**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.





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 three months ended September 30,
      2008.


18


**Item
      3. Quantitative and Qualitative Disclosures About Market Risk**





In
      management’s opinion, there has not been a material change in the Company’s
      market risk profile during the three months ended September 30, 2008. Please
      see
      the Company’s 2007 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**





In
      response to the recent crises affecting the financial markets, the federal
      government has taken unprecedented steps in an attempt to stabilize and provide
      liquidity to the U.S. financial markets. Under EESA and the CPP, the U.S.
      Treasury will make $250 million of capital available to U.S. financial
      institutions and potentially other financial and commercial firms by purchasing
      preferred stock in these institutions. The program is voluntary and requires
      an
      institution to comply with a number of restrictions and provisions, including
      limits on executive compensation, stock redemptions and declaration of
      dividends. Applications must be submitted by November 14, 2008 and are subject
      to approval by the Treasury. The CPP provides for a minimum investment of 1%
      of
      Total Risk−Weighted Assets, with a maximum investment equal to the lesser of 3%
      of Total Risk−Weighted Assets or $25 billion. In conjunction with the purchase
      of preferred stock, the U.S. Treasury will receive warrants to purchase common
      stock having an aggregate market price equal to 15% of the preferred stock
      purchased. Participation in the program is not automatic and is subject to
      approval by the Treasury. We are evaluating whether to apply for participation
      in the CPP.





In
      addition, the FDIC announced the creation of the TLGP as part of a larger
      government effort to strengthen confidence and encourage liquidity in the
      nation’s banking system. All eligible institutions are automatically enrolled in
      the TLGP for the first 30 days at no cost. Organizations that do not wish to
      participate in the TLGP must opt out by December 5, 2008. After that time,
      participating entities will be charged fees. The TLGP has two components. The
      FDIC will provide a complete guarantee of newly issued senior unsecured debt
      of
      the participating organizations, within a certain limit, issued between October
      14, 2008 and June 30, 2009. For such debts maturing beyond June 30, 2009, the
      guarantee will remain in effect until June 30, 2012. An annualized fee of 75
      basis points multiplied by the amount of debt issued from October 14, 2008
      (and
      still outstanding on December 6, 2008), through June 30, 2009 will be charged.
      The other component provides full FDIC insurance coverage for non−interest
      bearing transaction deposit accounts, regardless of dollar amount until December
      31, 2009. An annualized 10 basis point assessment on balances in
      noninterest−bearing transaction accounts that exceed the existing deposit
      insurance limit of $250,000 will be assessed on a quarterly basis to insured
      depository institutions that have not opted out of the TLGP. We are evaluating
      whether to continue to participate in the TLGP.


19





It
      is not
      clear at this time whether our decision to participate or not to participate
      in
      either the CPP or the TLGP will have an effect on our business. In addition,
      there is no assurance that these government actions will achieve their purpose.
      The failure of the financial markets to stabilize, or a continuation or
      worsening of the current financial market conditions, could have a material
      adverse affect on our business, our financial condition, the financial condition
      of our customers, our common stock trading price, as well as our ability to
      access credit.  It could also result in declines in our investment
      portfolio which could be “other-than-temporary impairments.”




**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)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 Registration Statement No. 33-80493 on Form
                S-1
                filed with the SEC on December 18, 1995, as amended.(2)
            Incorporated
                herein by reference to the Annual Report on Form 10-K filed with
                the SEC
                on March 29, 2004.




20


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:
                November 14, 2008
            BY:/s/
                David M.
                BradleyDavid
                M. Bradley, Chairman, President & CEODate:
                November 14, 2008
            BY:/s/
                Kyle C.
                CookKyle
                C. Cook, Chief Financial Officer and
                Treasurer




21