10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2006

0-27672

(Commission File Number)

NORTH CENTRAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

(515) 576-7531

(Registrant's telephone number; including area code)

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

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

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

None

(Title of Class)

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

YES  NO  Ö

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

YES  NO  Ö

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

YES  Ö NO 

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

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

 Large accelerated filer  Accelerated filer Ö  Non-accelerated filer

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

YES  NO  Ö

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

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

Table of Contents
PART I
Item 1	Business
Item 1A	Risk Factors
Item 1B	Unresolved Staff Comments
Item 2	Properties
Item 3	Legal Proceedings
Item 4	Submission of Matters to a Vote of Security Holders
PART II
Item 5	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6	Selected Financial Data
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A	Quantitative and Qualitative Disclosures About Market Risk
Item 8	Financial Statements and Supplementary Data
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A	Controls and Procedures
Item 9B	Other Information
PART III
Item 10	Directors, Executive Officers and Corporate Governance
Item 11	Executive Compensation
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13	Certain Relationships and Related Transactions, and Director Independence
Item 14	Principal Accountant Fees and Services
PART IV
Item 15	Exhibits, Financial Statement Schedules

PART I

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

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

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

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

• inflation, interest rate, market and monetary fluctuations;

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

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

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

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

• the impact of technological changes;

• acquisitions;

• changes in consumer spending and saving habits; and

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

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

ITEM 1.BUSINESS

General

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

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

First Federal Savings Bank of Iowa

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

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

Market Area and Competition

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

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

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

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

Lending Activities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Investment Activities

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

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

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

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

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

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

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

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

Sources of Funds

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

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

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

Weighted Average Interest Rate	Original Term		Checking and Savings Deposits		Minimum Balance		Balances		Percentage of Total Deposits
							(Dollars in thousands)
0.00%		None		Noninterest-bearing demand	$	50	$	12,788		3.5	%
0.22		None		NOW accounts		50		49,636		13.8
0.36		None		Savings accounts		25		25,160		7.0
2.67		None		Money market savings		2,500		34,688		9.6
				Total non-maturing deposits				122,272		33.9
			Certificates of Deposit
2.46		1-3 months		Fixed term, fixed rate	$	1,000	$	81		0.0	%
4.49		4-6 months		Fixed term, fixed rate		1,000		2,927		0.8
5.08		7-9 months		Fixed term, fixed rate		1,000		7,967		2.2
4.93		10-12 months		Fixed term, fixed rate		1,000		36,179		10.0
4.66		13-24 months		Fixed term, fixed rate		1,000		84,680		23.5
4.42		25-36 months		Fixed term, fixed rate		1,000		45,111		12.6
3.67		37-48 months		Fixed term, fixed rate		1,000		723		0.2
4.39		49-60 months		Fixed term, fixed rate		1,000		57,512		16.0
5.13		61 months or greater		Fixed term, fixed rate		1,000		2,878		0.8
			Total certificate of deposits					238,058		66.1
			Total deposits				$	360,330		100.0	%

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

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

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

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

	At December 31,
	2006		2005		2004
	(In thousands)
Rate
1.99% or less	$	347	$	3,747	$	25,555
2.00-2.99%		11,233		50,257		77,070
3.00-3.99%		38,326		72,508		27,977
4.00-5.99%		188,062		69,999		37,685
6.00-7.99%		90		4,510		15,241
	$	238,058	$	201,021	$	183,528

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

	Amount Due
	Less Than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		After 5 Years		Total
	(In thousands)
Rate
1.99% or less	$	339	$	8	$	-	$	-	$	-	$	-	$	347
2.00-2.99%		9,786		1,193		254		-		-		-		11,233
3.00-3.99%		18,795		6,768		9,099		3,664		-		-		38,326
4.00-5.99%		105,359		40,283		25,179		5,791		11,450		-		188,062
6.00-7.99%		90		-		-		-		-		-		90
	$	134,369	$	48,252	$	34,532	$	9,455	$	11,450	$	-	$	238,058

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

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

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

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

Borrowings

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

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

Title Abstract Business

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

Insurance and Annuity Business

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

Mortgage Company Business

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

Multifamily Apartment Buildings

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

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

Personnel

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

FEDERAL AND STATE TAXATION

Federal Taxation

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

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

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

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

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

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

State and Local Taxation

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

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

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

REGULATION

General

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

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

Regulation of Federal Savings Associations

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

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

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

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

•    goodwill and other intangible assets; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The OTS may disapprove of a notice of application if:

• The Bank would be undercapitalized following the distribution;

• the proposed capital distribution raises safety and soundness concerns; or

• the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

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

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

• well capitalized;

• adequately capitalized;

• undercapitalized; or

• critically undercapitalized.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regulation of Savings and Loan Holding Companies

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

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

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

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

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

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

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

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

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

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

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

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

• the creation of an independent accounting oversight board;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 1A.RISK FACTORS

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

• Commercial Mortgage Loans. Repayment is dependent upon income being generated in amounts sufficient to cover operating expenses and debt service.

• Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business.

• Consumer Loans. Consumer loans (such as personal lines of credit) may or may not be collateralized with assets that provide an adequate source of payment of the loan due to depreciation, damage, or loss.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.PROPERTIES

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

Location	Opening Date	Lease Expiration Date
Main Office:
825 Central Avenue	1973	N/A
Fort Dodge, Iowa
Branch Offices:
201 South 25th Street	1977	N/A
Fort Dodge, Iowa
404 Lincolnway	1977	N/A
Nevada, Iowa
316 South Duff	1995	N/A
Ames, Iowa
1111-141st Street	1999	N/A
Perry, Iowa
321 North Third Street	1953	N/A
Burlington, Iowa
1010 North Roosevelt	1975	N/A
Burlington, Iowa
102 South Main	1991	N/A
Mount Pleasant, Iowa
2110 SE Delaware	2003	N/A
Ankeny, Iowa
13150 Hickman Road	2004	N/A
Clive, Iowa
120 South 68th Street	2006	N/A
West Des Moines, Iowa
First Iowa Title Offices:
628 Central Avenue	1982	N/A
Fort Dodge, Iowa
814 8th Street	1994	2008
Boone, Iowa

ITEM 3.LEGAL PROCEEDINGS

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

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

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

PART II

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

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

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

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

ITEM 6.SELECTED FINANCIAL DATA

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

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

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

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A.CONTROLS AND PROCEDURES

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

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

ITEM 9B.OTHER INFORMATION

None.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

ITEM 11.EXECUTIVE COMPENSATION

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

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

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

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

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

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

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

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

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)        Financial Statements, Schedules and Exhibits

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

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

3. See Exhibit Index on following page.

(b)Exhibits

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

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

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

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

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

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

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

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

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

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

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

SIGNATURES

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

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

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

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

EX-13.1

Exhibit 13.1 Annual Report to Shareholders.

NORTH CENTRAL BANCSHARES, INC.

Holding Company for First Federal

Savings Bank of Iowa

2006 ANNUAL REPORT

TABLE OF CONTENTS

MESSAGE OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INDEX TO FINANCIAL STATEMENTS

QUARTERLY RESULTS OF OPERATIONS (Unaudited)

MANAGEMENT OF THE HOLDING COMPANY AND THE BANK

SHAREHOLDER INFORMATION

This Annual Report to Shareholders contains certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations (including noninterest expense and availability of potential tax credits) and business of North Central Bancshares, Inc. (the "Company") that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include changes in general, economic and market conditions, 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, and changes in depositor preferences for financial products. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company.

North Central Bancshares, Inc.

Holding Company for

First Federal Savings Bank of Iowa

825 Central Avenue

Fort Dodge, Iowa 50501

515-576-7531

www.firstfederaliowa.com

Branch Locations

Fort Dodge, Iowa	Fort Dodge, Iowa	Ames, Iowa	Nevada, Iowa
825 Central Avenue	201 South 25th Street	316 South Duff	404 Lincoln Highway
Fort Dodge, Iowa 50501	Fort Dodge, Iowa 50501	Ames, Iowa 50010	Nevada, Iowa 50201
515-576-7531	515-576-3177	515-232-4304	515-382-5408
Perry, Iowa	Ankeny, Iowa	Clive, Iowa	West Des Moines, Iowa
1111 - 141st Street	2110 SE Delaware Street	13150 Hickman Road	120 South 68th Street
Perry, Iowa 50220	Ankeny, Iowa 50021	Clive, Iowa 50325	West Des Moines, Iowa 50266
515-465-3187	515-963-4488	515-440-6300	515-226-0800

Burlington, Iowa	Burlington, Iowa	Mt. Pleasant, Iowa
1010 N. Roosevelt	321 North 3rd Street	102 South Main
Burlington, Iowa 52601	Burlington, Iowa 52601	Mt. Pleasant, Iowa 52641
319-754-6521	319-754-7517	319-385-8000

MESSAGE OF THE CHAIRMAN, PRESIDENT AND

CHIEF EXECUTIVE OFFICER

Dear Shareholders:

We are pleased to report to you the operating results of North Central Bancshares, Inc. (“North Central Bancshares” or the “Company”) for the year ended December 31, 2006. North Central Bancshares is the holding company for First Federal Savings Bank of Iowa (the “Bank”).

For the year ended December 31, 2006, North Central Bancshares’ net income was $4,812,000 or $3.32 diluted earnings per share. Total shareholder return was impacted favorably by a 13.8% increase in quarterly dividends effective April 2006. Some of our achievements during the past year include:

2006 HIGHLIGHTS

*   Total assets increased 6.3% to a new high of $515.5 million.

*   Net loans increased 4.4% to a new high of $449.0 million.

*   Increased quarterly dividends in April, 2006 to $0.33 per share, a 13.8% increase.

*   Repurchased a total of 151,250 shares of outstanding stock during the year ended December 31, 2006.

*   Opened a new 6,000 sq. ft. full service office in West Des Moines, Iowa.

With the support of our directors, officers, staff and the continuing confidence of our shareholders, we look forward to continued success in the coming year. We remain committed to increasing shareholder value.

Sincerely,

/s/ David M. Bradley                 

David M. Bradley

Chairman, President and Chief Executive Officer

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The selected consolidated financial and other data of North Central Bancshares set forth below is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto presented elsewhere in this Annual Report.

	At December 31,
	2006		2005		2004		2003		2002
	(In thousands)
Selected Consolidated Financial Condition Data:
Total assets	$	515,515	$	485,191	$	462,735	$	424,009	$	403,872
Cash (noninterest-bearing)		7,592		8,087		7,315		8,674		2,143
Loans receivable, net: (1) First mortgage loans secured by one- to four-family residences		215,992		210,793		184,324		171,468		147,479
First mortgage loans secured by multifamily properties		65,237		73,453		77,995		69,507		70,194
First mortgage loans secured by commercial properties		103,220		85,794		89,816		68,933		70,502
Consumer loans		64,594		60,238		55,181		53,051		52,971
Total loans receivable, net		449,043		430,278		407,316		362,959		341,146
Investment securities (2)		32,461		21,260		23,710		28,297		35,859
Deposits (3)		360,330		334,338		316,334		283,964		277,000
Borrowed funds		107,908		102,444		100,975		95,005		85,026
Total shareholders' equity		42,192		44,279		41,534		41,592		38,748

	For the Year Ended December 31,
	2006		2005		2004		2003		2002
	(In thousands)
Selected Operating Data:
Interest income	$	28,537	$	26,272	$	24,757	$	25,412	$	26,965
Interest expense		15,415		12,607		11,367		12,342		13,911
Net interest income before provision for loan losses		13,122		13,665		13,390		13,070		13,054
Provision for loan losses		240		260		240		255		383
Net interest income after provision for loan losses		12,882		13,405		13,150		12,815		12,671
Noninterest income: Fees and service charges		4,381		4,483		3,123		2,864		2,375
Abstract fees		1,223		1,289		1,461		1,811		1,686
Other income		1,507		776		1,476		1,910		1,668
Total noninterest income		7,111		6,548		6,060		6,585		5,729
Noninterest expense: Salaries and employee benefits		7,223		6,660		6,192		5,950		5,223
Premises and equipment		1,500		1,452		1,429		1,287		1,192
Data processing		669		597		567		578		544
Other expenses		3,727		3,730		3,127		3,016		2,623
Total noninterest expense		13,119		12,439		11,315		10,831		9,582
Income before income taxes		6,874		7,514		7,895		8,569		8,818
Income tax expense		2,062		2,499		2,496		2,721		2,953
Net income	$	4,812	$	5,015	$	5,399	$	5,848	$	5,865

	At or For the Year Ended December 31,
	2006			2005			2004			2003			2002
Key Financial Ratios and Other Data:
Performance Ratios: (%)
Net interest rate spread (difference between average yield on interest-earning assets and average cost of interest-bearing liabilities)		2.56	%		2.83	%		3.02	%		3.03	%		3.15	%
Net interest margin (net interest income as a percentage of average interest-earning assets)		2.79			3.05			3.22			3.27			3.44
Return on average assets (net income divided by average total assets)		0.96			1.05			1.21			1.38			1.47
Return on average equity (net income divided by average equity)		11.24			11.57			12.97			14.65			15.57
Noninterest income to average assets		1.42			1.37			1.36			1.55			1.43
Efficiency ratio (4)		64.84			61.54			58.18			55.11			51.01
Noninterest expense to average assets		2.63			2.61			2.54			2.55			2.40
Net interest income after provision for loan losses to noninterest expenses		98.19			107.76			116.22			118.32			132.24
Financial Condition Ratios: (%) (5)
Equity to assets at period end		8.18			9.13			8.98			9.81			9.59
Tangible equity to tangible assets at period end (6) (7)		7.17			8.01			7.80			8.54			8.25
Average shareholders' equity divided by average total assets		8.57			9.09			9.35			9.40			9.42
Average tangible shareholders equity divided by average tangible total assets (6) (7)		7.53			7.95			8.13			8.12			8.06
Average interest-earning assets to average interest-bearing liabilities		107.09			107.62			107.24			107.63			107.91
Asset Quality Ratios: (%) (5)
Nonaccrual loans to total net loans		0.13			0.14			0.16			0.17			0.19
Nonperforming assets to total assets (8)		0.20			0.36			0.37			0.49			0.35
Allowance for loan losses as a percent of total loans receivable at end of period		0.77			0.76			0.77			0.86			0.90
Allowance for loan losses to nonaccrual loans		603.41			567.98			513.13			515.02			485.00
Per Share Data:
Book value per share	$	30.56		$	29.37		$	27.14		$	25.92		$	23.62
Tangible book value per share (6)		26.49			25.46			23.28			22.24			20.03
Basic earnings per share (9)		3.36			3.29			3.47			3.69			3.58
Diluted earnings per share (10)		3.32			3.20			3.34			3.48			3.37
Dividends declared per share		1.32			1.16			1.00			0.84			0.72
Dividend payout ratio		0.39			0.35			0.29			0.23			0.20

_______________________

(Notes on following page)

(1) Loans receivable, net, represents total loans less discounts, loans in process, net deferred loan fees and allowance for loan losses, plus premiums. The allowance for loan losses at December 31, 2006, 2005, 2004, 2003 and 2002 was $3.5 million, $3.3 million, $3.2 million, $3.2 million and $3.1 million, respectively.

(2) Includes interest-bearing cash and Federal Home Loan Bank stock.

(3) Includes brokered certificates of deposits of $30.4 million, $4.0 million, $0.0 million, $0.0 million and $0.0 million for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively.

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

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

(6) Tangible equity consists of stockholders’ equity less goodwill and title plant. Goodwill and title plant was $5.6 million for the year ended December 31, 2006 and $5.9 million for each of the years ended December 31, 2005, 2004, 2003 and 2002.

(7) Tangible assets consist of total assets less goodwill and title plant. Goodwill and title plant was $5.6 million for the year ended December 31, 2006 and $5.9 million for each of the years ended December 31, 2005, 2004, 2003 and 2002.

(8)            Nonperforming assets consists of nonaccrual loans and foreclosed real estate.

(9) Basic earnings per share information is calculated by dividing net income by the weighted average number of shares outstanding. The weighted average number of shares outstanding for basic earnings per share computation for 2006, 2005, 2004, 2003 and 2002 were 1,429,912, 1,524,056, 1,554,329, 1,583,568 and 1,637,749, respectively.

(10)         Diluted earnings per share information is calculated by dividing net income by the weighted average number of shares outstanding, adjusted for the effect of dilutive potential common shares outstanding which consists of stock options granted. The weighted average number of shares outstanding for diluted earnings per share computation for 2006, 2005, 2004, 2003 and 2002 were 1,448,857, 1,566,848, 1,616,689, 1,679,046 and 1,739,535, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

North Central Bancshares, Inc. (the "Company"), an Iowa corporation, is the holding company for First Federal Savings Bank of Iowa (the "Bank"), a federally-chartered savings bank. The principal business of the Company consists of the operation of its wholly-owned subsidiary, the Bank.

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

Executive Overview

The Company’s business strategy is to operate the Bank as a well-capitalized, profitable and independent community oriented savings bank. Specifically, the Company’s business strategy incorporates the following elements: (1) operating the Bank as a community oriented financial institution; (2) increasing loan and deposit balances in existing branch offices as well as by establishing de novo branch offices in markets where population growth trends are positive such as the Des Moines, Iowa metropolitan area; (3) maintaining high asset quality by emphasizing investment in residential mortgage, multifamily and commercial real estate loans and consumer loans; (4) emphasizing growth in core deposits, which includes demand deposit, NOW, money market and savings accounts; (5) maintaining capital in excess of regulatory requirements; (6) controlling noninterest expense; (7) managing interest rate risk exposure; and (8) increasing noninterest income through increases in fees and service charges.

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 shareholder value strategy. 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 points were the most important to that analysis this year:

• The Company has effectively managed its capital since the Company’s inception in 1996. Annual dividends per share have increased from $.25 per share in 1997 to $1.32 per share in 2006. In addition, an active stock repurchase program has consistently been used by the Company to manage capital and increase earnings per share. Since the Company’s inception, it has repurchased 2,936,804 shares at a cost of $60.1 million as of December 31, 2006, including 151,250 shares purchased in 2006 at a cost of $5.9 million.

• The Bank has opened new offices in market areas where population growth trends are positive. New offices were opened in Ankeny, Iowa in February 2003 and in Clive, Iowa in March, 2004. In August, 2006, the Bank opened a new branch office in West Des Moines, Iowa near Jordan Town Center Mall. These locations are in suburbs of Des Moines, Iowa, which is Iowa’s largest metropolitan area. The Company will continue to analyze de novo branch opportunities in the Des Moines metropolitan area. Noninterest expenses have increased each year since 2003 due in part to the Company’s strategy of opening de novo branch offices. We believe that this strategy will result in long-term loan and deposit growth for the Company, but will negatively impact short-term earnings until each de novo branch achieves profitability.

• Consistent with the Bank’s emphasis on attracting and retaining core deposits, growth in deposit fees, including overdraft fees, continued a strong positive trend.

• The Company continues to be liability sensitive. The growth of interest-bearing liabilities primarily reflects the growth of higher cost certificates of deposit, including brokered certificates of deposit, and borrowed funds. Also contributing to the liability sensitivity of the Company is the continuing shift of lower cost non-maturing deposits into higher cost short-term certificates of deposit.

• The Company began utilizing brokered certificates of deposits in 2005 as an alternative funding source. At December 31, 2006, the Company had brokered certificates of deposit of $30.4 million, compared to $4.0 million at December 31, 2005.

• Noninterest income for the year ended December 31, 2006, included $569,000 in loan prepayment fees, compared to $1.0 million for the year ended December 31, 2005.

• During the year ended December 31, 2005, the Company recognized an other-than-temporary impairment of $680,000 on three Freddie Mac adjustable rate, perpetual preferred stocks that had declined in value. The securities are investment grade securities that are held in the Company’s available-for-sale portfolio. The Company recognized an other-than-temporary impairment on the securities based on the facts and circumstances surrounding each of the securities at the time, including the duration and amount of the unrealized loss, as well as the prospect for the recovery of market value within a reasonable period of time.

• Management believes that the allowance for loan losses is adequate. The allowance for loan losses to nonaccrual loans was 603% at December 31, 2006. Net annualized charge-offs for 2006 were 0.02% of total loans and have averaged under 0.04% of total loans for the past five years. During 2006, the Company’s total loan portfolio increased $14.7 million, or 3.4%. This increase primarily consisted of increases in the one- to four-family first and second mortgage real estate loans. The Company’s provision for loan losses in 2006 was $240,000.

• The Company has lowered its effective tax rate through the use of federal Low Income Housing Tax Credits (LIHTC). The Company owns and operates two LIHTC projects in Fort Dodge. These projects generated $278,000 in federal income tax credits in 2006. The federal income tax credits associated with these projects will decline to $173,000 in 2007.

• Purchases and originations of out of state real estate loans remained 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 diversify its mortgage loan portfolio geographically.

Critical Accounting Policies

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures included within this report, are based on the Company’s audited 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.” 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.

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.

Business Strategy

The Company's current business strategy is to operate the Bank as a well-capitalized, profitable and independent community-oriented savings bank. Generally, the Company has sought to implement this strategy primarily by using deposits, including brokered certificates of deposit, and advances from the FHLB as its source of funds and maintaining a substantial part of its assets in loans secured by one- to four-family residential real estate, multifamily real estate and commercial real estate located both inside and outside the Company's market area, consumer and other loans and in other liquid investment securities. Specifically, the Company's business strategy incorporates the following elements: (1) operating the Bank as a community-oriented financial institution, maintaining a strong core customer base by providing dedicated service to the individual consumer; (2) increasing loan and deposit balances in existing branch offices as well as by establishing de novo branch offices in markets where population growth trends are positive such as the Des Moines, Iowa metropolitan area; (3) maintaining high asset quality by emphasizing investment in residential mortgage, multifamily and commercial real estate loans and consumer loans; (4) emphasizing growth in core deposits, which includes demand deposit, NOW, money market and savings accounts; (5) maintaining capital in excess of regulatory requirements; (6) controlling noninterest expense; (7) managing interest rate risk exposure; and (8) increasing noninterest income through increases in fees and service charges.

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

Community-Oriented Institution. The Company is committed to meeting the financial needs of the communities in which it operates. Based in part on its participation in several different programs designed to facilitate residential lending to low- and moderate-income households, the Bank has received an "Outstanding" as its most recent Community Reinvestment Act rating.

Retail Deposit Base. In 2006, the Company had eleven offices located in Fort Dodge, Ames, Nevada, Perry, Ankeny, Clive, West Des Moines, Burlington and Mount Pleasant, Iowa. At December 31, 2006, 33.9% of the deposit base, or $122.3 million, consisted of core deposits, which included money market accounts, savings accounts, NOW accounts, and noninterest-bearing demand accounts. Core deposits are generally considered to be a more stable and lower cost source of funds than certificates of deposit or outside borrowings. The Company continues to emphasize growth in core deposits.

Asset Quality and Emphasis on Residential Mortgage Lending. The Company has historically emphasized residential real estate financing. The Company expects to continue its commitment to financing the purchase, construction or improvement of residential real estate in its market area. At December 31, 2006, 41.9% of the Company's total assets consisted of one- to four-family residential first mortgage loans. To supplement local mortgage loan originations and to diversify its mortgage loan portfolio geographically, the Company has originated or purchased loans in the secondary mortgage market, with an emphasis on multifamily and commercial real estate loans, secured by properties outside the State of Iowa (the "out of state properties"). At December 31, 2006, the Company's portfolio of loans which were either originated or purchased by the Company and secured by out of state properties totaled $135.3 million and consisted of $15.0 million one- to four-family residential mortgage loans, or 3.3%, $54.5 million multifamily real estate loans, or 12.0%, and $65.8 million commercial real estate loans, or 14.5%, of the Company's total loan portfolio. At December 31, 2006, the Company's ratio of nonperforming assets to total assets was 0.20%. The Company also invests in state and local obligations, mortgage-backed securities, interest-earning deposits, equity securities and FHLB stock.

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

Increasing Noninterest Income. The Company has attempted to increase its level of noninterest income from both new and traditional lines of business to supplement net interest income. The Company generally increases noninterest income by emphasizing growth in core deposit accounts. During the year ended December 31, 2006, fees and service charges totaled $4.4 million, a decrease of $102,000 from the prior year. This decrease was primarily due to a decrease in loan prepayment fees of $444,000, offset in part by an increase in fees associated with checking accounts, including overdraft fees, of $343,000. The Company also maintains its noninterest income through emphasizing growth in mortgage banking income, annuity and mutual fund sales, and insurance sales. In addition, the Company currently owns abstract companies in Webster and Boone counties in Iowa, through First Iowa Title Services, Inc. ("First Iowa"), the Bank's wholly owned subsidiary. The abstract business performed by First Iowa replaces the function of a title insurance company. The Company believes that First Iowa can continue to be an important source of fee income. Noninterest income from First Iowa’s business for the years ended December 31, 2006 and 2005 was $1.2 and $1.3 million, respectively, offset by noninterest expense attributable to First Iowa. The decline in First Iowa’s income was due in part to the sale of one of the Company’s three abstract offices at the end of the second quarter of 2006.

Liquidity and Interest Rate Risk Management. Management seeks to manage the Company's interest rate risk exposure by monitoring the levels of interest rate sensitive assets and liabilities while maintaining an acceptable interest rate spread. At December 31, 2006, total interest-bearing liabilities maturing or repricing within one year exceeded total interest-earning assets maturing or repricing in the same period by $51.8 million, representing a one-year gap to total assets ratio of -10.1%, compared to a -12.3% at December 31, 2005. To manage the Company’s interest rate exposure, the Company emphasizes the origination of five- and seven-year fixed-rate mortgage loans that convert to adjustable rates at the conclusion of their initial terms and have overall maturities of up to 30 years, and the origination of adjustable rate home equity lines of credit and short-term consumer loans. The Company also manages its interest rate risk and liquidity by investing in mortgage-backed, municipal and equity securities. In addition, the Company generally sells all fixed rate one- to four-family residential loans with maturities of fifteen years or greater. See "Discussion of Market Risk - Interest Rate Sensitivity Analysis".

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. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by interest rates, economic conditions, and competition. The Company manages the pricing of its deposits to maintain a desired deposit balance. In addition, the Company invests in interest-earning assets, which provide liquidity to meet lending requirements. At December 31, 2006, $960,000, or 26.1% of the Company's investment portfolio excluding mortgage-backed, mutual fund and equity securities, was scheduled to mature within one year or less, $1.9 million, or 51.1%, was scheduled to mature within one to five years and $837,000, or 22.8%, was scheduled to mature in more than five years. At December 31, 2006, certificates of deposit scheduled to mature in less than one year totaled $134.4 million. Based on prior experience, management believes that a significant portion of such deposits will remain with the Company. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLB, which provide an additional source of funds. The amount of eligible collateral for blanket lien pledges from the FHLB was $201.8 millionas of December 31, 2006. The Company may also use brokered certificates of deposit, up to 10% of total assets, as an additional source of funds. For additional information about cash flows from the Company's operating, financing and investing activities, see the Statements of Cash Flows included in the Consolidated Financial Statements.

At December 31, 2006, the Company had outstanding loan commitments of $3.8 million. This amount does not include undisbursed overdraft loan privileges and the undisbursed home equity lines of credit. The Company monitors its liquidity position and expects to have sufficient funds to meet its current funding commitments.

The main sources of liquidity for the Company are proceeds from dividends and loan repayments from the Bank and the proceeds from stock options exercised. The main cash outflows are dividend payments to shareholders and funds used to repurchase shares of the Company’s common stock. During 2006, the Company repurchased 151,250 shares of its common stock. The Company has determined that a share repurchase program is appropriate to enhance shareholder value. Share repurchases generally increase earnings per share, return on average assets, and return on average equity, three performance benchmarks against which the Company and thrift holding companies are often measured. The Company buys stock in the open market whenever the price of the stock is deemed reasonable and the Company has funds available for the purchase. The Company's ability to pay dividends to shareholders depends substantially on dividends and loan payments received from the Bank. The Bank may not declare or pay cash dividends on any of its shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital requirements or the amount required to be maintained for the liquidation account. For a description of the liquidation account, see Note 17 to the Consolidated Financial Statements. Unlike the Bank, the Company is not subject to OTS formula-based regulatory restrictions on the payment of dividends to its shareholders; however, it is subject to the requirements of Iowa law. Iowa law generally prohibits the Company from paying a dividend if either of the following would result: (a) the Company would not be able to pay its debts as they become due in the usual course of business; or (b) the Company's total assets would be less than the sum of its total liabilities, plus the amount that would be needed, if the Company were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

The primary investing activities of the Company are the origination and purchase of mortgage and other loans and the purchase of securities. During the years ended December 31, 2006, 2005 and 2004, the Company's disbursements for loan originations and purchases totaled $153.3 million, $143.1 million and $160.2 million, respectively. These activities were funded primarily by net deposit inflows, principal repayments on loans, proceeds from the sale of loans, proceeds from the maturity and call of securities, brokered certificates of deposit, and FHLB advances. Net cash flows (used in) investing activities were $(20.0) million, $(23.1) million and $(42.4) million for the years ended December 31, 2006, 2005 and 2004, respectively. Net cash flows provided by financing activities were $24.4 million, $16.5 million and $33.2 million for the years ended December 31, 2006, 2005 and 2004, respectively.

The OTS regulations require savings associations, such as the Bank, to meet three minimum capital standards: a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations; a leverage ratio requirement of 3% of core capital to such adjusted total assets; and a risk-based capital ratio requirement of 8% of core and supplementary capital to total risk-based assets. The Bank satisfied these minimum capital standards at December 31, 2006 with tangible and leverage capital ratios of 7.1% and a total risk-based capital ratio of 11.9 %. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk-weights, which range from 0% for cash and obligations issued by the United States Government or its agencies to 100% for consumer and commercial loans, as assigned by the OTS capital regulations. These capital requirements, which are applicable to the Bank only, do not consider additional capital held at the Company level, and require certain adjustments to shareholders’ equity to arrive at the various regulatory capital amounts.

The table below presents the Bank's regulatory capital amounts as compared to the OTS regulatory capital requirements at December 31, 2006:

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

Discussion of Market Risk—Interest Rate Sensitivity Analysis

As a financial institution, the Company's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Bank's assets and liabilities, and the market value of all interest-earning assets, other than those which possess a short term to maturity. Since all of the Company's interest-bearing liabilities and virtually all of the Company's interest-earning assets are located at the Bank, virtually all of the Company's interest rate risk management procedures are performed at the Bank level. Based upon the Bank's nature of operations, the Bank is not subject to foreign currency exchange or commodity price risk. The Bank's real estate loan portfolio, within Iowa, is subject to risks associated with the local economy. The Company has sought to diversify its loan portfolio by purchasing loans secured by properties outside of Iowa. At December 31, 2006, $135.3 million, or 29.8%, of the Company's total loan portfolio was secured by properties outside the State of Iowa, located in twenty-one states. The Bank does not own any trading assets. At December 31, 2006, neither the Company nor the Bank had any hedging transactions in place, such as interest rate swaps and caps.

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

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

The Company's policy in recent years has been to manage its exposure to interest rate risk generally by focusing on the maturities of its interest rate sensitive assets and by emphasizing adjustable-rate mortgage loans and short-term consumer loans, and maintaining a level of liquidity by investing in short-term interest-earning deposits and equity securities. In addition, the Company generally sells all fixed rate one- to four-family residential loans with maturities of fifteen years or greater.

At December 31, 2006, total interest-bearing liabilities maturing or repricing within one year exceeded total interest-earning assets maturing or repricing in the same period by $51.8 million, representing a one-year gap ratio of -10.1%, compared to a one-year gap ratio of -12.3% at December 31, 2005. The chief executive officer meets regularly with the Bank's senior executive officers to review trends in deposits as well as mortgage and consumer lending activities. The chief executive officer reports quarterly to the board of directors on interest rate risks and trends, as well as liquidity and capital ratio requirements.

Gap Table. The following table (the “Gap Table”) sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2006, which are expected to reprice or mature, based upon certain assumptions, in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown that reprice or mature during a particular period were determined in accordance with the earlier of the terms of repricing or the contractual terms of the asset or liability. Certain assumptions used in preparing the table are set forth in the following table. Management believes that these assumptions approximate actual experience and considers them appropriate and reasonable.

	At December 31, 2006 (1)
	Within 1 Year			1-3 Years			3-5 Years			5-10 Years			10-20 Years			Over 20 Years			Total
	(Dollars in thousands)
Interest-earning assets:
First mortgage loans
Adjustable (2)	$	99,888		$	117,209		$	46,957		$	-		$	-		$	-		$	264,054
Fixed (2)		24,845			40,045			23,625			34,870			2,468			83			125,936
Consumer and other loans		23,946			26,173			10,986			4,121			197			5			65,428
Investment securities (3)(4)		23,187			2,100			500			862			-			2,930			29,579
Total interest-earning assets	$	171,866		$	185,527		$	82,068		$	39,853		$	2,665		$	3,018		$	484,997
Rate sensitive liabilities:
Savings accounts	$	4,277		$	6,497		$	4,476		$	6,007		$	3,298		$	605		$	25,160
NOW accounts		18,365			18,859			7,485			4,438			484			5			49,636
Money market accounts		27,403			7,285			-			-			-			-			34,688
Certificate accounts		134,323			82,830			20,905			-			-			-			238,058
Noninterest bearing deposits		12,788			-			-			-			-			-			12,788
FHLB advances and other liabilities (5)		26,529			54,561			26,565			188			64			-			107,907
Total interest-bearing liabilities	$	223,685		$	170,032		$	59,431		$	10,633		$	3,846		$	610		$	468,237
Interest sensitivity gap	$	(51,819	)	$	15,495		$	22,637		$	29,220		$	(1,181	)	$	2,408
Cumulative interest-sensitivity gap	$	(51,819	)	$	(36,324	)	$	(13,687	)	$	15,533		$	14,352		$	16,760
Interest sensitivity gap to total asset		(10.05	)%		3.01	%		4.39	%		5.67	%		(0.23	)%		0.47	%
Cumulative interest-sensitivity gap to total asset		(10.05	)		(7.05	)		(2.66	)		3.01			2.78			3.25
Ratio of interest-earning assets to interest-bearing liabilities		76.83			109.11			138.09			374.80			69.29			494.75			103.58	%
Cumulative ratio of interest-earning assets to interest-bearing liabilities		76.83			90.77			96.98			103.35			103.07			103.58			103.58
Total assets	$	515,515		$	515,515		$	515,515		$	515,515		$	515,515		$	515,515		$	515,515
Cumulative interest-earning assets	$	171,866		$	357,393		$	439,461		$	479,314		$	481,979		$	484,997		$	484,997
Cumulative interest-bearing liabilities	$	223,685		$	393,717		$	453,148		$	463,781		$	467,627		$	468,237		$	468,237

________________________________

(1)     The following assumptions were used in regard to prepayment speed for loans: (i) fixed rate commercial real estate loans and mortgage-backed securities will prepay at 10 percent per year, (ii) one- to four-family loans (both fixed rate and adjustable rate) will prepay at 12 percent per year, (iii) all multifamily loans (both fixed and adjustable rate) and adjustable rate commercial real estate loans will prepay at 15 percent per year, (iv) all second mortgage real estate loans and all other loans will prepay at 20 percent year. Besides prepayment assumptions, the chart above also includes normal principal payments based upon the loan contractual agreements. Savings accounts are assumed to be withdrawn at an annual rate of 17 percent. NOW accounts are assumed to be withdrawn at an annual rate of 37 percent. Money market accounts are assumed to be withdrawn at 79 percent during the first year with the balance being withdrawn within the one-to-three year category. These assumptions are annual percentages based on remaining balances and should not be regarded as indicative of the actual prepayments and withdrawals that may be experienced by the Company. Certain shortcomings are inherent in the analysis presented by the foregoing table.

(2)      Includes $2.4 million and $0.5 million in mortgage-backed securities in adjustable and fixed first mortgage loans, respectively.

(3)      Includes other equity securities, interest-bearing deposits and FHLB stock, all of which are shown in the within-one-year category. Components include interest-bearing deposits of $12.4 million and securities available-for-sale of $11.7 million.

(4)      Includes $5.0 million of FHLMC preferred stock and $1.0 million of FNMA preferred stock. $2.9 million is fixed rate and $3.1 million is adjustable rate. The fixed rate preferred stock was included in the appropriate category based upon their maturity date. The adjustable rate preferred stock was included in the appropriate category based upon their repricing date.

(5)     Includes $107.9 million of advances from the FHLB. Of these advances, $69.4 million are term advances and $38.5 million are callable. The term advances have been categorized based upon their maturity date. Of the $38.5 million of callable advances, $28.5 million have been categorized based upon their maturity date because the interest rates on such advances are near or above current market rates. The remaining $10.0 million callable advance was placed in the repricing category based upon its call date because the rate on this advance was below current market rates.

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

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

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

Presented below, as of December 31, 2006, is an analysis of the Company's interest rate risk ("IRR") as measured by changes in NPV for instantaneous and sustained parallel shifts of 100 basis points in market interest rates. Such limits have been established with consideration of the impact of various rate changes and the Company's current capital position.

Interest Rate Sensitivity of Net Portfolio Value (NPV)(1)

	Net Portfolio Value						NPV as % of PV of Assets
Change in Rates	$ Amount		$ Change		% Change		NPV Ratio		Change
(Dollars in thousands)
+300 bp		40,161		(11,499)		(22)		8.01		(184) bp
+200 bp		45,268		(6,392)		(12)		8.87		(97) bp
+100 bp		49,267		(2,393)		(5)		9.51		(34) bp
0 bp		51,660		-		-		9.84		-
-100 bp		51,601		(59)		-		9.74		(10) bp
-200 bp		51,727		67		-		9.67		(17) bp

_________________________________

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

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

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

Real estate acquired by the Company as a result of foreclosure, or by deed in lieu of foreclosure, is deemed foreclosed real estate until such time as it is sold.

When foreclosed real estate is acquired or otherwise deemed foreclosed real estate, it is recorded at the lower of the unpaid principal balance of the related loan or its estimated fair value, less estimated selling expenses. Valuations are periodically performed by management and any subsequent decline in fair value is charged to operations. At December 31, 2006, the Company's foreclosed real estate consisted of 7 properties with an aggregate carrying value of $468,000.

Delinquent Loans, Nonaccrual Loans and Nonperforming Assets. The following table sets forth information regarding loans on nonaccrual status and foreclosed real estate of the Company at the dates indicated. At the dates indicated, the Company did not have any material restructured loans and did not have any loans that were ninety days past due and still accruing interest.

	At December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Nonaccrual loans and nonperforming assets:
First mortgage loans:
One- to four-family residential	$	222		$	389		$	335		$	414		$	434
Multifamily and commercial properties		-			-			-			-			37
Consumer loans:		357			196			299			201			172
Total nonaccrual loans		579			585			634			615			643
Total foreclosed real estate		468			1,143			1,079			1,453			769
Other nonperforming assets		-			-			-			-			-
Total nonperforming assets	$	1,047		$	1,728		$	1,713		$	2,068		$	1,412
Total nonaccrual loans to net loans receivable		0.13	%		0.14	%		0.16	%		0.17	%		0.19	%
Total nonaccrual loans to total assets		0.11			0.12			0.14			0.15			0.16
Total nonperforming assets to total assets		0.20			0.36			0.37			0.49			0.35

________________________________

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

	At December 31,
	2006		2005		2004		2003		2002
	(In thousands)
Loans past due 60-89 days:
First mortgage loans:
One- to four-family residential	$	765	$	1,106	$	1,001	$	649	$	830
Multifamily and commercial properties		-		-		40		463		-
Consumer loans		68		214		238		223		183
Total past due	$	833	$	1,320	$	1,279	$	1,335	$	1,013

The following table sets forth information with respect to the Company's delinquent loans and other problem assets at December 31, 2006.

	At December 31, 2006
	Balance		Number
	(Dollars in thousands)
One- to four-family first mortgage loans: Loans 60 to 89 days delinquent		$  765		17
Loans 90 days or more delinquent		222		6
Multifamily and commercial first mortgage loans: Loans 60 to 89 days delinquent		-		-
Loans 90 days or more delinquent		-		-
Consumer Loans:
Loans 60 to 89 days delinquent		68		1
Loans 90 days or more delinquent		357		12
Foreclosed real estate		468		7
Other nonperforming assets		-		-
Loans to facilitate sale of foreclosed real estate		87		2
Special mention loans		751		27

Classification of Assets. Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the OTS to be of lesser quality as "substandard," "doubtful," or "loss" assets. An asset is considered "substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. "Substandard" assets include those characterized by the "distinct possibility" that the savings institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable.” Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets that do not expose the savings institution to risk sufficient to warrant classification in one of the aforementioned categories, but which possess some weaknesses, are required to be designated "special mention" by management. Loans designated as special mention are generally loans that, while current in required payments, have exhibited some potential weaknesses that, if not corrected, could increase the level of risk in the future. At December 31, 2006, the Company had $751,000 of special mention loans, consisting of ten loans secured by one- to four-family residences and seventeen consumer loans.

The following table sets forth the aggregate amount of the Company's classified assets, which include nonperforming loans and foreclosed real estate, at the dates indicated.

	At December 31,
	2006		2005		2004		2003		2002
	(In thousands)
Substandard assets	$	1,038	$	1,670	$	1,680	$	2,046	$	1,361
Doubtful assets		-		-		-		-		-
Loss assets		24		58		58		22		51
Total classified assets	$	1,062	$	1,728	$	1,738	$	2,068	$	1,412

Allowance for Loan Losses. It is management's policy to provide an allowance and provision for probable losses on the Company's loan portfolio based on management's evaluation of the prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company's portfolio, which includes a significant amount of multifamily and commercial loans, substantially all of which are purchased and are collateralized by properties located outside of the Company's market area, and other factors related to the collectibility of the Company's loan portfolio. The Company regularly reviews its loan portfolio, including problem loans, to determine whether any loans require classification or the establishment of appropriate allowances for losses. Such evaluation, which includes a review of all loans of which full collectibility of interest and principal may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral. During 2006 the Company’s total loan portfolio increased $14.7 million, or 3.4%. During the years ended December 31, 2006, 2005 and 2004 the Company's provision for loan losses were $240,000, $260,000 and $240,000, respectively. The Company's allowance for loan losses totaled $3.5 million, $3.3 million and $3.2 million at December 31, 2006, 2005 and 2004, respectively.

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

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

	For the Year Ended December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)
Total loans outstanding	$	453,335		$	438,650		$	418,841		$	367,396		$	344,574
Average loans outstanding		447,440			424,633			389,190			358,260			337,693
Allowance balances (at beginning of period)		3,326			3,235			3,165			3,118			2,883
Provisions for losses		240			260			240			255			383
Charge-Offs: First mortgage loans		22			5			66			36			27
Consumer loans		70			182			114			265			135
Recoveries: First mortgage loans		-			3			2			-			-
Consumer loans		19			15			8			93			14
Net charge-offs		73			169			170			208			148
Allowance balance (at end of period)	$	3,493		$	3,326		$	3,235		$	3,165		$	3,118
Allowance for loan losses as a percent of total loans receivable at end of period		0.77	%		0.76	%		0.77	%		0.86	%		0.90	%
Net loans charged off as a percent of average loans outstanding		0.02			0.04			0.04			0.06			0.04
Ratio of allowance for loan losses to total nonaccrual loans at end of period		603.41			567.98			513.13			515.02			485.00
Ratio of allowance for loan losses to total nonaccrual loans and foreclosed real estate at end of period		333.63			192.41			188.86			153.05			220.90

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

		At December 31,
		2006				2005				2004				2003				2002
		Amount	% of Loans In Each Category to Total Loans			Amount	% of Loans In Each Category to Total Loans			Amount	% of Loans In Each Category to Total Loans			Amount	% of Loans In Each Category to Total Loans			Amount	% of Loans In Each Category to Total Loans
(Dollars in thousands)
Balance at end of period applicable to:
One- to four-family residential mortgage loans	$	570	48.01	%	$	593	49.47	%	$	510	45.99	%	$	517	47.33	%	$	395	43.17	%
Multifamily residential mortgage loans		646	14.52			704	16.86			731	18.73			686	19.04			709	20.54
Commercial mortgage loans		1,443	23.04			1,201	19.76			1,240	21.94			978	18.95			1,223	20.68
Consumer loans		834	14.43			828	13.91			754	13.34			984	14.68			791	15.61
Total allowance for loan losses	$	3,493	100.00	%	$	3,326	100.00	%	$	3,235	100.00	%	$	3,165	100.00	%	$	3,118	100.00	%

Average Balance Sheet

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

	For the Year Ended December 31,
	2006								2005								2004
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
First mortgage loans(1)	$	384,965		$	23,102		6.00	%	$	365,647		$	21,391		5.85	%	$	334,676		$	20,027		5.98	%
Consumer loans(1)		62,474			4,420		7.07			58,986			3,933		6.67			54,513			3,757		6.89
Investment securities		22,403	(4)		1,015		4.53			23,738	(5)		948		3.99			27,232	(6)		973		3.57
Total interest-earning assets	$	469,842		$	28,537		6.07	%	$	448,371		$	26,272		5.86	%	$	416,421		$	24,757		5.95	%
Noninterest-earning assets		29,578								28,724								28,818
Total assets	$	499,420							$	477,095							$	445,239
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings	$	85,008		$	1,048		1.23	%	$	95,781		$	1,061		1.11	%	$	78,865		$	542		0.69	%
Savings		26,335			87		0.33			28,710			91		0.32			29,217			91		0.31
Certificates of Deposit		218,655			9,119		4.17			189,900			6,743		3.55			182,368			6,324		3.47
Borrowed funds		108,753			5,161		4.75			102,234			4,712		4.61			97,848			4,410		4.51
Total interest-bearing liabilities	$	438,751		$	15,415		3.51	%	$	416,625		$	12,607		3.03	%	$	388,298		$	11,367		2.93	%
Noninterest-bearing liabilities		17,858								17,110								15,322
Total liabilities	$	456,609							$	433,735							$	403,620
Equity		42,811								43,360								41,619
Total liabilities and equity	$	499,420							$	477,095							$	445,239
Net interest income				$	13,122							$	13,665							$	13,390
Net interest rate spread(2)							2.56	%							2.83	%							3.02	%
Net interest margin (3)							2.79								3.05								3.22
Ratio of average interest-earning assets to average interest-bearing liabilities							107.09								107.62								107.24

___________________

(1) Balance is net of deferred loan fees, deferred loan costs, loan premiums and loans in process. Nonaccrual loans are included in the balances.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

(4)  Includes interest-bearing deposits of $1,238,000, Federal Home Loan Bank stock of $5,563,000, and securities available-for-sale of $15,602,000.

(5)  Includes interest-bearing deposits of $1,150,000, Federal Home Loan Bank stock of $5,212,000, and securities available-for-sale of $17,376,000.

(6)  Includes interest-bearing deposits of $1,735,000, Federal Home Loan Bank stock of $4,993,000, and securities available-for-sale of $20,504,000.

Rate/Volume Analysis

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

	Year Ended December 31, 2006 Compared to Year Ended December 31, 2005												Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
	Increase/(Decrease) Due to												Increase/(Decrease) Due to
	Volume			Rate			Rate/ Volume			Total Increase (Decrease)			Volume			Rate			Rate/ Volume			Total Increase (Decrease)
	(In thousands)
Interest income:
First mortgage loans	$	1,130		$	552		$	29		$	1,711		$	1,853		$	(447	)	$	(41	)	$	1,365
Consumer loans		233			240			14			487			308			(122	)		(10	)		176
Investment securities		(59	)		123			3			67			(125	)		113			(13	)		(25	)
Total interest-earning assets	$	1,304		$	915		$	46		$	2,265		$	2,036		$	(456	)	$	(64	)	$	1,516
Interest expense:
NOW and money market savings	$	(119	)	$	120		$	(14	)	$	(13	)	$	117		$	331		$	71		$	519
Savings		(8	)		4			-			(4	)		(2	)		2			-			-
Certificate of deposits		1,021			1,177			178			2,376			261			152			6			419
Borrowed funds		301			139			9			449			199			100			4			303
Total interest-bearing liabilities		1,195			1,440			173			2,808			575			585			81			1,241
Net change in net interest income	$	109		$	(525	)	$	(127	)	$	(543	)	$	1,461		$	(1,041	)	$	(145	)	$	275

Comparison of Financial Condition as of December 31, 2006 and December 31, 2005

Total assets increased $30.3 million, or 6.3%, to $515.5 million at December 31, 2006 from $485.2 million at December 31, 2005. The increase in assets was primarily due to increases in net loans receivable, cash and cash equivalents, and premises and equipment, offset in part by a decrease in securities available-for-sale. Asset growth was funded by increases in deposits, consisting primarily of brokered certificates of deposit, and FHLB advances.

Total loans receivable, net, increased by $18.8 million, or 4.4%, to $449.0 million at December 31, 2006 from $430.3 million at December 31, 2005, primarily due to the origination of $46.2 million of first mortgage loans secured by one- to four-family residences, the origination of $16.3 million of first mortgage loans secured by commercial real estate, the origination of $9.7 million of first mortgage loans secured by multifamily residences; the purchase of first mortgage loans secured by one- to four-family residences, multifamily residences and commercial real estate of $40.4 million; and the origination of $28.8 million of second mortgage loans during the year ended December 31, 2006. These originations and purchases were offset in part by payments and prepayments of $119.2 million and sales of loans of $19.2 million during the year ended December 31, 2006. The Company sells substantially all fixed-rate loans with maturities of 15 years or more in the secondary mortgage market in order to reduce interest rate risk. Cash and cash equivalents increased $11.4 million, or 131.7%, to $20.0 million at December 31, 2006 from $8.6 million at December 31, 2005. The increase in cash and cash equivalents was primarily due to large commercial loan payoffs in December. Premises and equipment, net, increased by $1.7 million, or 15.2%, to $12.6 million at December 31, 2006 from $11.0 million at December 31, 2005. The increase in premises and equipment was primarily due to the construction costs associated with the construction of a new branch office located at the Jordan Creek Town Center in West Des Moines, Iowa and the expansion of the Crossroads branch in Fort Dodge, Iowa. Securities available-for-sale decreased $904,000, or 5.8%, to $14.6 million at December 31, 2006 from $15.5 million at December 31, 2005. The decrease in securities available-for-sale consisted primarily of a decrease in investments in mortgage-backed securities, offset in part by an increase in investments in municipal securities stock and an increase in unrealized gains. Proceeds of such calls, payments and maturities were used to fund loan growth.

Deposits increased $26.0 million, or 7.8%, to $360.3 million at December 31, 2006 from $334.3 million at December 31, 2005, primarily reflecting an increase in certificates of deposit, offset in part by decreases in money market and savings account balances. The increase in certificates of deposit is primarily due to the utilization of brokered certificates of deposit, which increased $26.4 million, to $30.4 million at December 31, 2006. Borrowed funds, primarily FHLB advances, increased $5.5 million, or 5.3%, to $107.9 million at December 31, 2006 from $102.4 million at December 31, 2005. The increases in the deposits and borrowed funds were used to fund loan growth.

Total shareholders' equity decreased $2.1 million, or 4.7%, to $42.2 million at December 31, 2006 from $44.3 million at December 31, 2005, primarily due to stock repurchases and declared dividends, offset in part by earnings, the exercise of stock options, and an increase in unrealized gain on securities available-for-sale.

Comparison of Financial Condition as of December 31, 2005 and December 31, 2004

Total assets increased $22.5 million, or 4.9%, to $485.2 million at December 31, 2005 from $462.7 million at December 31, 2004. The increase in assets was primarily due to increases in net loans receivable, premises and equipment, and cash and cash equivalents, offset in part by a decrease in securities available-for-sale. Asset growth was funded by increases in deposits and FHLB advances.

Total loans receivable, net, increased by $23.0 million, or 5.6%, to $430.3 million at December 31, 2005 from $407.3 million at December 31, 2004, primarily due to the origination of $74.6 million of first mortgage loans secured by one- to four-family residences, originations of $8.5 million of first mortgage loans secured by commercial real estate, purchases of first mortgage loans primarily secured by one- to four-family residences, multifamily residences and commercial real estate of $24.0 million, and originations of $24.8 million of second mortgage loans during the year ended December 31, 2005. These originations and purchases were offset in part by payments and prepayments of $103.0 million and sales of loans of $19.5 million during the year ended December 31, 2005. The Company sells substantially all fixed-rate loans with maturities in excess of 15 years in the secondary mortgage market in order to reduce interest rate risk. Premises and equipment, net, increased by $1.1 million, or 10.8%, to $11.0 million at December 31, 2005 from $9.9 million at December 31, 2004. The increase in premises and equipment was primarily due to the initial construction costs associated with the construction of a new branch office located at the Jordan Creek Town Center in West Des Moines, Iowa and the expansion of the Crossroads branch in Fort Dodge, Iowa. Cash and cash equivalents increased $721,000, or 9.1%, to $8.6 million at December 31, 2005 from $7.9 million at December 31, 2004. Securities available-for-sale decreased $2.6 million, or 14.4%, to $15.5 million at December 31, 2005 from $18.1 million at December 31, 2004, primarily due to calls, payments and maturities of mortgage-backed and municipal securities. Proceeds of such calls, payments and maturities were used to fund loan growth.

Deposits increased $18.0 million, or 5.7%, to $334.3 million at December 31, 2005 from $316.3 million at December 31, 2004, primarily reflecting increases in checking accounts, NOW accounts, and certificates of deposit, offset in part by decreases in savings accounts and money market accounts. The increase in deposits is due primarily to management’s pricing strategies, continued marketing efforts, and the utilization of brokered certificates of deposit. In 2005, the Company began issuing brokered certificates of deposit. At December 31, 2005, the Company had $4.0 million of brokered certificates of deposit. Borrowed funds, primarily FHLB advances, increased $1.5 million, or 1.5%, to $102.4 million at December 31, 2005 from $101.0 million at December 31, 2004. The increases in the deposits and borrowed funds were used to fund loan growth.

Total shareholders' equity increased $2.8 million, or 6.6%, to $44.3 million at December 31, 2005 from $41.5 million at December 31, 2004, primarily due to earnings, the exercise of stock options, and a decrease in unrealized loss on securities available-for-sale, offset in part by stock repurchases and declared dividends.

Comparison of Results of Operations for the Years Ended December 31, 2006 and 2005

Net Income. Net income decreased by $203,000, or 4.1%, to $4.8 million for the year ended December 31, 2006, compared to $5.0 million for the year ended December 31, 2005. Net income is primarily dependent on net interest income, noninterest income, noninterest expense and income tax expense. The decrease in net income was primarily due to a decrease in net interest income and an increase in noninterest expense, offset in part by an increase in noninterest income.

Net Interest Income. Net interest income before provision for loan losses decreased by $543,000, or 4.0%, to $13.1 million for the year ended December 31, 2006 from $13.7 million for the year ended December 31, 2005. The decrease is due to an increase in the average balance of interest-bearing liabilities and an increase in the average cost of funds, offset in part by an increase in the average balance of interest-earning assets and an increase in the yield on interest-earning assets. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.56% for the year ended December 31, 2006 from 2.83% for the year ended December 31, 2005. The decrease in interest rate spread reflects the increase in the overall cost of interest-bearing liabilities, offset in part by an increase in the yield on interest-earning assets. The increase in the cost of interest-bearing liabilities primarily reflects the repricing of interest-bearing liabilities at higher current market interest rates and the growth of interest-bearing liabilities in higher cost certificates of deposit and borrowed funds. Also contributing to the increase of the cost of funds is the continuing shift of lower cost non-maturing deposits into higher cost short-term certificates of deposit.

Interest Income. Interest income increased by $2.3 million, or 8.6%, to $28.5 million for the year ended December 31, 2006, compared to $26.3 million for the year ended December 31, 2005. The increase in interest income was due to increases in the average balance of interest-earning assets and the average yield on interest-earning assets. The average balance of interest-earning assets increased $21.5 million, or 4.8%, to $469.8 million for the year ended December 31, 2006, from $448.4 million for 2005. The increase in the average balance of interest-earning assets primarily reflects increases in the average balances of first mortgage loans and consumer loans. The increases in first mortgage loans and consumer loans were primarily derived from the origination of $46.2 million of first mortgage loans secured by one- to four-family residences, the origination of $16.3 million of first mortgage loans secured by commercial real estate, the origination of $9.7 million of first mortgage loans secured by multifamily residences; the purchase of first mortgage loans secured by one- to four-family residences, multifamily residences, and commercial real estate of $40.4 million; and the origination of $28.8 million of second mortgage loans, which originations and purchases were offset in part by payments and prepayments of $119.2 million and sales of loans of $19.2 million during the year ended December 31, 2006. This reflects the Company's continued emphasis on residential lending. See “-Business Strategy.” The average yield on interest-earning assets increased to 6.07% for the year ended December 31, 2006, from 5.86% for the year ended December 31, 2005. The increase in the average yield on interest-earning assets was primarily due to loan growth at rates generally higher than portfolio rates and the repricing of adjustable rate loans within the portfolio at generally higher current market interest rates.

Interest Expense. Interest expense increased by $2.8 million, or 22.3%, to $15.4 million for the year ended December 31, 2006, compared to $12.6 million for the year ended December 31, 2005. The increase in interest expense was due to an increase in the average cost of funds and an increase in the average balance of interest-bearing liabilities. The average cost of funds increased to 3.51% for the year ended December 31, 2006 from 3.03% for the year ended December 31, 2005, due to an increase in the current market interest rates, a shift of core deposits into higher cost certificates of deposits, and an increase in certificates of deposit and borrowed funds. The average balance of interest-bearing liabilities increased $22.1 million, or 5.3%, to $438.8 million for the year ended December 31, 2006 from $416.6 million for 2005. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balances of certificates of deposit and borrowed funds, offset in part by a decrease in the average balance of money market and savings accounts. The increase in certificates of deposit is primarily due to the Company’s utilization of brokered certificates of deposit, which increased $26.4 million, to $30.4 million at December 31, 2006. Borrowed funds, primarily FHLB advances, increased $5.5 million, or 5.3%, to $107.9 million at December 31, 2006 from $102.4 million at December 31, 2005. The increase in interest-bearing liabilities was used to fund asset growth.

Provision for Loan Losses. The Company's provision for loan losses was $240,000 and $260,000 for the years ended December 31, 2006 and December 31, 2005, respectively. The Company establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company's portfolio, which includes a significant amount of multifamily and commercial real estate loans, substantially all of which are purchased and are secured by properties located out of state, and other factors related to the collectibility of the Company's loan portfolio. During 2006, the Company’s total loan portfolio increased $14.7 million, or 3.4%. This increase primarily consisted of increases in commercial real estate and consumer loans, which carries a higher level of risk than other loans in the portfolio. The Company purchased $40.4 million of loans in 2006, compared to $24.0 million of loans in 2005. The properties securing the loans purchased are primarily out of state and constitute a higher rate of risk than originated loans due to the size, locations and type of collateral securing such loans. The Company’s out of state loans decreased by $7.8 million, or 5.4% during 2006. The economic conditions in the Bank’s primary market areas remain generally stable. The net charge-offs were $73,000 for the year ended December 31, 2006 and $170,000 for the year ended December 31, 2005. The charge-offs were primarily due to losses on automobile and second mortgage loans. The resulting allowance for loan loss was $3.5 million and $3.3 million at December 31, 2006 and December 31, 2005, respectively.

The allowance for loan losses as a percentage of total loans receivable increased to 0.77% at December 31, 2006 from 0.76% at December 31, 2005. The level of nonperforming loans was $579,000 at December 31, 2006 and $585,000 at December 31, 2005.

Management believes that the allowance for loan losses is adequate as of December 31, 2006. While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans, and other factors, both within and outside of management's control.

Noninterest Income. Total noninterest income increased by $563,000, or 8.6%, to $7.1 million for the year ended December 31, 2006 from $6.5 million for the year ended December 31, 2005. The increase in noninterest income was primarily due to an impairment of securities available-for-sale recognized during the year ended December 31, 2005. During 2005, the Company recorded an other-than-temporary impairment of $679,500 related to three Freddie Mac adjustable rate, perpetual preferred stocks with a face value of $3.5 million, due to the facts and circumstances surrounding these securities at the time, including the duration and amount of the unrealized loss in the securities, as well as the prospect for a change in market value within a reasonable period of time. These perpetual preferred stock issues are investment grade securities that are held in the Company’s available-for-sale securities portfolio. The increase in 2006 was offset in part by decreases in fees and service charges, including loan prepayment fees, abstract fees, and mortgage banking income. Fees and service charges decreased $102,000 primarily due to a decrease in loan prepayment fees, offset in part by an increase in fees associated with checking accounts, including overdraft fees. During the year ended December 31, 2006, the Company recorded $569,000 in loan prepayment fees, compared to $1.0 million for the year ended December 31, 2005. Abstract fees decreased $66,000 due in part to the sale of one of the Company’s three abstract offices at the end of the second quarter of 2006. Mortgage banking income decreased $43,000 due to a decline in loans originated for the secondary market.

Noninterest Expense. Total noninterest expense increased by $680,000, or 5.5%, to $13.1 million for the year ended December 31, 2006 from $12.4 million for the year ended December 31, 2005. The increase is primarily due to increases in salaries and employee benefits and data processing expenses. Salaries and employee benefits increased $563,000 primarily due to normal salary increases, additions to staff, an increase in the Company’s contribution to its defined contribution retirement plan, and an increase in option expense due to the Company’s adoption of FAS 123(R) in 2006. Data processing expense increased $72,000 primarily due to outsourcing of certain data processing support functions during the year. The Company's efficiency ratio for the years ended December 31, 2006 and 2005 was 64.84% and 61.54%, respectively. The Company's ratio of noninterest expense to average assets for the years ended December 31, 2006 and 2005 was 2.63% and 2.61%, respectively.

Income Taxes. The Company’s provision for income taxes was $2.1 million and $2.5 million for the years ended December 31, 2006 and 2005, respectively. The decrease in the provision for income taxes was primarily due to the lower 2006 income before income taxes and the limited deductibility of the other-than-temporary impairment of securities available-for-sale in 2005.

Comparison of Results of Operations for the Years Ended December 31, 2005 and 2004

Net Income. Net income decreased by $384,000, or 7.1%, to $5.0 million for the year ended December 31, 2005 compared to $5.4 million for the year ended December 31, 2004. Net income is primarily dependent on net interest income, noninterest income, noninterest expense and income tax expense. The decrease in net income was primarily due to an increase in noninterest expense, offset in part by increases in net interest income and noninterest income.

Net Interest Income. Net interest income before provision for loan losses increased by $275,000, or 2.1%, to $13.7 million for the year ended December 31, 2005 from $13.4 million for the year ended December 31, 2004. The increase is primarily due to an increase in the average balance of interest-earning assets, offset in part by a decrease in the yield on interest-earning assets, an increase in the average balance of interest-bearing liabilities, and an increase in the average cost of funds. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.83% for the year ended December 31, 2005 from 3.02% for the year ended December 31, 2004. The decrease in interest rate spread reflects the general decrease in the yield on interest-earning assets and the increase in the overall cost of interest-bearing liabilities. The decrease in the yield on interest-earning assets primarily reflects loan growth at rates generally lower than portfolio rates. The increase in the cost of interest-bearing liabilities reflects repricing of interest-bearing liabilities at generally higher current market interest rates.

Interest Income. Interest income increased by $1.5 million, or 6.1%, to $26.3 million for the year ended December 31, 2005 compared to $24.8 million for the year ended December 31, 2004. The increase in interest income was primarily due to an increase in the average balance of interest-earning assets, offset in part by a decrease in the average yield on interest-earning assets. The average balance of interest-earning assets increased $32.0 million, or 7.7%, to $448.4 million for the year ended December 31, 2005, from $416.4 million for 2004. The increase in the average balances of interest-earning assets primarily reflects increases in the average balances of first mortgage loans and consumer loans. The increases in first mortgage loans were primarily derived from originations of $74.6 million of first mortgage loans secured by one- to four-family residences, originations of $8.5 million of first mortgage loans secured by commercial real estate, purchases of first mortgage loans secured by one- to four-family residences, multifamily residences and commercial real estate of $24.0 million, and originations of $24.8 million of second mortgage loans, which originations and purchases were offset in part by payments and prepayments of $103.0 million and sales of loans of $19.5 million during the year ended December 31, 2005. This reflects the Company's continued emphasis on residential lending. See “-Business Strategy.” The average yield on interest-earning assets decreased to 5.86% for the year ended December 31, 2005 from 5.95% for the year ended December 31, 2004, primarily due to loan growth at rates generally lower than portfolio rates.

Interest Expense. Interest expense increased by $1.2 million, or 10.9%, to $12.6 million for the year ended December 31, 2005, compared to $11.4 million for the year ended December 31, 2004. The increase in interest expense was primarily due to increases in the average cost of funds and in the average balance of interest-bearing liabilities. The average cost of funds increased to 3.03% for the year ended December 31, 2005 from 2.93% for the year ended December 31, 2004, primarily due to a general increase in market interest rates. The average balance of interest-bearing liabilities increased $28.3 million, or 7.3%, to $416.6 million for the year ended December 31, 2005 from $388.3 million for 2004. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balances of checking and money market accounts, certificates of deposit and borrowed funds, offset in part by a decrease in the average balance of savings accounts. The increase in average interest-bearing deposits was primarily due to the Company’s pricing strategies and continued marketing efforts. The increase in interest-bearing liabilities was used to fund asset growth.

Provision for Loan Losses. The Company's provision for loan losses was $260,000 and $240,000 for the years ended December 31, 2005 and December 31, 2004, respectively. The Company establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company's portfolio, which includes a significant amount of multifamily and commercial real estate loans, substantially all of which are purchased and are secured by properties located out of state, and other factors related to the collectibility of the Company's loan portfolio. During 2005, the Company’s total loan portfolio increased $19.8 million, or 4.7%. This increase primarily consisted of increases in the one- to four-family first mortgage real estate loans, which carries a lower level of risk than other loans in the portfolio. The Company purchased $24.0 million of loans in 2005, compared to $52.7 million of loans in 2004. The properties securing the loans purchased are primarily out of state and constitute a higher rate of risk than originated loans due to the size, locations and type of collateral securing such loans. The Company’s out of state loans decreased by $15.0 million, or 9.5% during 2005. The economic conditions in the Bank’s primary market areas remain generally stable. The net charge-offs were $170,000 for both of the years ended December 31, 2005 and 2004. The charge-offs were primarily due to losses on automobile and second mortgage loans. The resulting allowance for loan loss was $3.3 million and $3.2 million at December 31, 2005 and December 31, 2004, respectively.

The allowance for loan losses as a percentage of total loans receivable decreased to 0.76% at December 31, 2005 from 0.77% at December 31, 2004. The level of nonperforming loans was $585,000 at December 31, 2005 and $634,000 at December 31, 2004.

Management believes that the allowance for loan losses is adequate as of December 31, 2005. While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans, and other factors, both within and outside of management's control.

Noninterest Income. Total noninterest income increased by $489,000, or 8.1%, to $6.5 million for the year ended December 31, 2005 from $6.0 million for the year ended December 31, 2004. The increase is primarily due to increases in fees and service charges and mortgage banking income (gain on sale of loans), offset in part by a provision for impairment on securities available-for-sale and decreases in abstract fees and other income. Fees and service charges increased $1.36 million due primarily to an increase in loan prepayment fees of $644,000 and fees associated with checking accounts, including overdraft fees, of $328,000. Mortgage banking income increased $34,000 due in part to an increase in loan originations of loans held for sale. During 2005, the Company recognized an other-than-temporary impairment of $680,000 on three Freddie Mac adjustable rate, perpetual preferred stocks that had declined in value, reducing noninterest income for the year. The securities are investment grade securities that are held in the Company’s available-for-sale portfolio. The Company recognized an other-than-temporary impairment on the securities based on the facts and circumstances surrounding each of the securities at the time, including the duration and amount of the unrealized loss, as well as the prospect for the recovery of market value within a reasonable period of time. Abstract fees decreased $171,000 due to decreased sales volume as a result of a general decrease in real estate activity, such as loan originations, in Webster, Boone and Jasper Counties. Other income, which primarily includes insurance, annuity, and mutual fund sales, rent income, and income associated with foreclosed real estate decreased $54,000 due in part to decreases in annuity sales.

Noninterest Expense. Total noninterest expense increased by $1.1 million, or 9.9%, to $12.4 million for the year ended December 31, 2005 from $11.3 million for the year ended December 31, 2004. The increase is primarily due to an increase in salaries and employee benefits and other expenses. Salaries and employee benefits increased $467,000 primarily due to normal salary increases, additions to staff, and an increase in the Company’s contribution to its defined benefit retirement plan. Other expenses increased $603,000 due primarily to the write-down of other real estate owned and an increase in professional fees. The Company's efficiency ratio for the years ended December 31, 2005 and 2004 was 61.54% and 58.18%, respectively. The Company's ratio of noninterest expense to average assets for the years ended December 31, 2005 and 2004 was 2.61% and 2.54%, respectively.

Income Taxes. The Company’s provision for income taxes was $2.5 million for both of the years ended December 31, 2005 and 2004. The provision for income taxes remained steady primarily due to the decrease in income before income taxes, offset in part by the limited deductibility of the other-than-temporary impairment of securities available-for-sale.

Impact of Inflation and Changing Prices

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

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 polices in making commitments and conditional obligations as it does for on-statement of financial condition instruments. The Company does require collateral, or other security, to support financial instruments with credit risks.

For additional information regarding off-balance sheet arrangements, see Note 14 to the Consolidated Financial Statements.

Contractual Obligations

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In thousands)
Borrowings (1)	$	107,908	$	26,500	$	44,500	$	36,500	$	408
Loan commitments		3,750		3,750		-		-		-
Available home equity and unadvanced lines of credit		6,600		6,600		-		-		-
Total	$	118,258	$	36,850	$	44,500	$	36,500	$	408

(1) Callable advances are included in the category in which the advances mature

NORTH CENTRAL BANCSHARES, INC.

AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

________________________________________________________

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

________________________________________________________

FINANCIAL STATEMENTS

Consolidated statements of financial condition

Consolidated statements of income

Consolidated statements of stockholders' equity

Consolidated statements of cash flows

Notes to consolidated financial statements

______________________________

Report of Independent Registered Public Accounting Firm

To the Board of Directors

North Central Bancshares, Inc.

Fort Dodge, Iowa

We have audited the consolidated statements of financial condition of North Central Bancshares, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Central Bancshares, Inc. and subsidiaries as of December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation in 2006.

Des Moines, Iowa

March 12, 2007

McGladrey & Pullen, LLP is an independent member firm of RSM International, an affiliation of separate and independent legal entities.

North Central Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.Significant Accounting Policies

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

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiaries, First Federal Investment Services, Inc. (which sells insurance, annuity products and mutual funds), First Iowa Title Services, Inc. (which provides real estate abstracting services) and Northridge Apartments Limited Partnership and Northridge Apartments Limited Partnership II (which own multifamily apartment buildings). All significant intercompany balances and transactions have been eliminated in consolidation.

Accounting estimates and assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, valuation of goodwill, unrealized gains and losses on securities available-for-sale and fair value of financial instruments.

Revenue recognition: Interest income and expense is recognized on the accrual method based on the respective outstanding balances. Other revenue is recognized at the time the service is rendered.

Cash and cash equivalents and cash flows: For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash and balances due from banks. Cash flows from loans, deposits and short-term borrowings are reported net.

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

Securities available-for-sale are reported at fair value with unrealized gains or losses reported as a separate component of other comprehensive income (loss), net of the related deferred tax effect. The amortization of premiums and accretion of discounts, computed by the interest method over their contractual lives, are recognized in interest income.

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

Declines in the fair value of held-to-maturity and 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.

Loans held for sale: Residential real estate loans, which are originated and intended for resale in the secondary market in the foreseeable future, are classified as held-for-sale. These loans are carried at the lower of cost or estimated market value in the aggregate. As assets specifically acquired for resale, the origination of, disposition of, and gain/loss on these loans are classified as operating activities in the statement of cash flows.

Loans receivable: Loans that management has the intent and ability to hold for the foreseeable future, or until pay-off or maturity occurs, are classified as held for investment. These loans are stated at the amount of unpaid principal adjusted for charge-offs, the allowance for estimated losses on loans, any net deferred fees and/or costs on originated loans and net unearned premiums (discounts). Interest is credited to earnings as earned based on the principal amount outstanding. Deferred bank loan origination fees and/or costs are amortized as an adjustment of the related loan’s yield. As assets held for and used in the production of services, the origination and collection of these loans are classified as investing activities in the statement of cash flows.

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

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

A loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral-dependent.

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

Premiums (discounts) on first mortgage loans purchased are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments.

Transfers of financial assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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

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

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

Rental real estate: Rental real estate is comprised of two low-income housing, multifamily apartment buildings and equipment which is stated at cost, net of accumulated depreciation of approximately $1,256,000 and $1,044,000 for the years ended December 31, 2006 and 2005, respectively. Depreciation is computed primarily by the straight-line and double-declining balance methods over the estimated useful lives of the assets. Useful lives are the same as used for premises and equipment.

Title plant: Title plant is carried at cost and, in accordance with Statement No. 61, is not depreciated. Costs incurred to maintain and update the title plant are expensed as incurred. During the year ended December 31, 2006, title plant was reduced by $253,552 due to the sale of a branch of First Iowa Title Services.

Goodwill: Under the provisions of SFAS 142, goodwill is not amortized but is subject to an annual impairment test, or more often if conditions indicate a possible impairment. The Company has completed its annual goodwill impairment test and has determined that there has been no impairment of goodwill. During the year ended December 31, 2006, goodwill was reduced by $23,840 due to the sale of a branch of First Iowa Title Services.

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

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

Comprehensive income: Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income or loss. Gains and losses on available-for-sale securities are reclassified to net income as the gains or losses are realized upon sale of the securities. Other-than-temporary impairment charges are reclassified to net income at the time of the charge.

Earnings per share: Basic earnings per common share represents income available to common stockholders divided by the weighted average number of common shares outstanding during the periods presented. The earnings per common share amounts - assuming dilution were computed using the weighted average number of shares outstanding during the periods presented, adjusted for the effect of dilutive potential common shares outstanding, which consists of stock options granted. In accordance with Statement of Position 93-6, shares owned by the ESOP that have not been committed to be released are not considered to be outstanding for the purpose of computing earnings per share.

Operating segments: The Company uses the “management approach” for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the “management approach” model, the Company has determined that its business is comprised of two reporting segments. The Company operates primarily in the banking industry, which accounts for the majority of its revenues, operating income and assets, with the remaining operations consisting of real estate abstracting services, insurance and investment services, and ownership of low-income housing tax credit apartment complexes. The primary source of income for the Company is interest from the origination or purchase of residential real estate, commercial real estate, and consumer loans. The Company accepts deposits from customers in the normal course of business primarily in north central, central and southeastern Iowa.

Stock compensation: Effective January 1, 2006, the Company adopted SFAS No. 123(R), Shared-Based Payments, using the modified prospective transition method. Prior to that date the Company accounted for stock option awards under APB Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with SFAS No. 123(R), compensation expense for stock-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The recording of such compensation began on January 1, 2006 for shares not yet vested as of that date and for all new grants subsequent to that date. Prior years’ results have not been restated. The exercise price of options granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date. The Company assumes no projected forfeitures on its stock-based compensation, since actual historical forfeiture rates on its stock-based incentive awards have been negligible.

Recent accounting pronouncements: In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments,which permits, but does not require, fair value accounting for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement also subjects beneficial interests in securitized financial assets to the requirements of SFAS No. 133. For the Company, this statement is effective for all financial instruments acquired, issued, or subject to remeasurement after the beginning of its fiscal year that begins after September 15, 2006, with earlier adoptionpermitted. The Company is currently evaluating the impact that the adoption of this statement will have on its financial position, results of operation and cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140. Thestatement amends SFAS No. 140 by (1) requiring the separate accounting for servicing assets and servicing liabilities, which arise from the sale of financialassets; (2) requiring all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable; and (3) permittingan entity to choose between an amortization method or a fair value method for subsequent measurement for each class of separately recognized servicing assets and servicing liabilities. This statement is effective for fiscal years beginning after September 15, 2006, with earlier adoption permitted. The Company is currently evaluating the impact that the adoption of this statement will have on its financial position, results of operation and cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. This interpretation applies to all tax positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 clarifies the application of SFAS No. 109 by defining the criteria that an individual tax position must meet in order for the position to be recognized within the financial statements and provides guidance on measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition for tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006, with earlier adoption permitted. The Company is currently evaluating the impact that the adoption of this interpretation will have on its financial position, results of operation and cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. It clarifies that fair value is the price that would be received to sell an asset orpaid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. This statement does notrequire any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to bemeasured at fair value. This statement is effective for fiscal years beginning after November 15, 2007, with earlier adoption permitted. The Company is currently evaluating the impact that the adoption of this statement will have on its financial position, results of operation and cash flows.

In September 2006, the FASB issued Statement No. 158, (SFAS No. 158), Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires a company that sponsors a postretirementbenefit plan (other than a multi-employer plan) to fully recognize, as an asset or liability, the over- or underfunded status of its benefit plan in its balance sheet. The funded status is measured as the difference between the fair value of the plan’s assets and its benefit obligation (projected benefit obligation for pension plans and accumulated postretirement benefit obligation for other postretirement benefit plans). Currently, the funded status of suchplans are reported in the notes to the financial statements. This provision is effective for public companies for fiscal years ending after December 15, 2006. In addition, SFAS No. 158 also requires a company to measure its plan assets and benefit obligations as of its year-end balance sheet date. Currently, a company is permitted to choose a measurementdate up to three months prior to its year-end to measure the plan assets and obligations. This provision is effective for all companies for fiscal years endingafter December 15, 2008. Since the Company participates in a multi-employer pension plan, it expects that the adoption of SFAS No. 158 will not have a material impact on its financial position, results of operations and cash flows.

Fair value of financial instruments: The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. FASB Statement No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115, which provides all entities, including not-for-profit organizations, with an option to report selected financial assets and liabilities at fair value. The objective of the statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the complex provisions of hedge accounting. Certain specified items are eligible for the irrevocable fair value measurement option as established by Statement No. 159. Statement No. 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007 provided the entity also elects to apply the provisions of Statement No. 157. The Company is currently evaluating the impact that the adoption of this statement will have on its financial position, results of operation and cash flows.

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

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

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

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

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

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

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

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

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

Commitments to extend credit: The fair values of commitments to extend credit are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and creditworthiness of the counterparties. At December 31, 2006 and 2005, the carrying amount and fair value of the commitments were not significant.

Note 2.      Restrictions on Cash and Due from Banks

The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. Those reserve balances totaled approximately $2,055,000 and $2,220,000 at December 31, 2006 and 2005, respectively.

Note 3.       Securities

Securities available-for-sale as of December 31, 2006 were as follows:

Securities available-for-sale as of December 31, 2005 were as follows:

Securities available-for-sale with carrying amounts of approximately $126,000 and $205,000 at December 31, 2006 and 2005, respectively, were pledged on deposit accounts. Securities available-for-sale with carrying amounts of approximately $2,372,000 and $3,452,000 at December 31, 2006 and 2005, respectively, were pledged as collateral on Federal Home Loan Bank advances.

Gross unrealized losses and gross estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2006 and 2005, are summarized as follows:

For all of the above investment securities, the unrealized losses are generally due to changes in interest rates and, as such, are considered to be temporary by the Company. In addition, the Company has the intent and ability to hold these investment securities for a period of time sufficient to allow for an anticipated recovery. During 2005, the Company determined that the unrealized losses related to the FHLMC preferred stock issues were other-than-temporary. Accordingly, an impairment loss of $679,500 was recorded and the cost basis of the securities was reduced by the same amount.

The amortized cost and fair value of debt securities as of December 31, 2006 by contractual maturity are shown below. Certain securities have call features, which allow the issuer to call the security prior to maturity. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the following maturity summary:

There were no securities sold during 2006, 2005 or 2004 except for FHLB stock.

Included in the interest income on securities and cash deposits was dividend income of $537,166, $434,251 and $371,519 for the years ended December 31, 2006, 2005 and 2004, respectively.

The components of other comprehensive income (loss) - net unrealized gains (losses) on available-for-sale securities for the years ended December 31, 2006, 2005 and 2004 were as follows:

Note 4.     Loans Receivable

Loans receivable at December 31, 2006 and 2005 are summarized as follows:

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

The following is a summary of information pertaining to impaired loans:

The average investment in impaired loans during the years ended December 31, 2006, 2005 and 2004 totaled $739,601, $589,756 and $578,180, respectively. Interest income recognized on impaired loans is insignificant.

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

Activity in loans receivable from certain executive officers and directors of the Company consisted of the following for the years ended December 31, 2006 and 2005:

Note 5.     Loan Servicing

Mortgage loans serviced for FHLMC and other banks are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of these loans at December 31, 2006 and 2005 are $51,348,477 and $45,422,224, respectively. Included in deposits are custodial escrow balances maintained in connection with the foregoing loan servicing of $432,143 and $373,477 at December 31, 2006 and 2005, respectively.

Note 6.     Premises and Equipment

Premises and equipment consisted of the following at December 31:

Note 7.     Deposits

Deposits at December 31 were as follows:

At December 31, 2006, scheduled maturities of certificates of deposit were as follows:

Interest expense on deposits consisted of the following:

The aggregate amounts of certificates of deposit in excess of $100,000 were $55,694,178 and $28,247,725 as of December 31, 2006 and 2005, respectively. Certificates of deposit include approximately $30,400,000 and $4,000,000 of brokered certificates of deposit as of December 31, 2006 and 2005, respectively.

Note 8.     Borrowed Funds

Borrowed funds at December 31, 2006 consists of borrowings from the Federal Home Loan Bank of Des Moines (FHLB) as follows:

At December 31, 2006, the Company had an unsecured $3,000,000 line of credit agreement with a bank. The line of credit bears interest at LIBOR plus 1.85% (7.20% at December 31, 2006) and matures October 1, 2007. There were no borrowings outstanding at December 31, 2006.

Borrowed funds at December 31, 2005 included miscellaneous borrowings of $8,495 and borrowings from the FHLB of $102,435,248. Such borrowings carried a weighted-average interest rate of 4.64% with maturities ranging from 2006 through 2018.

The FHLB borrowings are collateralized by FHLB stock and qualifying first and second mortgage loans representing various percentages of the total borrowings outstanding.

Note 9.     Income Taxes and Retained Earnings

Under previous law, the provisions of the IRS and similar sections of Iowa law permitted the Bank to deduct from taxable income an allowance for bad debts based on 8% of taxable income before such deduction or actual loss experience. Legislation passed in 1996 eliminated the percentage of taxable income method as an option for computing bad debt deductions for 1996 and in all future years.

Deferred taxes have been provided for the difference between tax bad debt reserves and the loan loss allowances recorded in the financial statements subsequent to December 31, 1987. However, at December 31, 2006, retained earnings contains certain historical additions to bad debt reserves for income tax purposes of approximately $2,445,000 as of December 31, 1987, for which no deferred taxes have been provided because the Bank does not intend to use these reserves for purposes other than to absorb losses. If these amounts which qualified as bad debt deductions are used for purposes other than to absorb bad debt losses or adjustments arising from the carryback of net operating losses, income taxes may be imposed at the then existing rates. The approximate amount of unrecognized tax liability associated with these historical additions is $929,000.

Income tax expense is summarized as follows:

Deferred tax assets and liabilities consisted of the following components as of December 31, 2006 and 2005:

The valuation allowance for deferred tax assets at December 31, 2006 and 2005, respectively, was $236,000 and $231,000. The net change in the valuation allowance for the year ended December 31, 2006 was an increase of $5,000.

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

Note 10.      Employee Benefit Plans

Retirement plans: The Bank participates in a multiemployer defined benefit pension plan covering substantially all full-time employees. This is a multiemployer plan, and information as to actuarial valuations and net assets available for benefits by participating institutions is not available. The Bank recognized $614,000, $566,000 and $404,000 pension expense for the years ended December 31, 2006, 2005 and 2004, respectively.

The Bank has a defined contribution plan covering substantially all employees. Contribution expense for the years ended December 31, 2006, 2005 and 2004 was $127,450, none and none, respectively.

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

The Bank makes contributions to the ESOP equal to the ESOP’s debt service less dividends received by the ESOP. Dividends on unallocated ESOP shares are used to pay debt service. Contributions to the ESOP and shares released from the suspense account in an amount proportional to the repayment of the ESOP loan are allocated among ESOP participants on the basis of compensation in the year of allocation. Benefits generally become 100% vested after five years of credited service. Forfeitures will be reallocated among remaining participating employees, in the same proportion as contributions. Benefits may be payable in the form of stock or cash upon termination of employment. If the Company’s stock is not traded on an established market at the time of an ESOP participant’s termination, the terminated ESOP participant has the right to require the Bank to purchase the stock at its current fair market value. Bank management believes there is an established market for the Company’s stock and therefore the Bank believes there is no potential repurchase obligation at December 31, 2006 and 2005.

As shares are released, the Bank reports compensation expense equal to the current market price of the shares. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Dividends on unallocated ESOP shares are recorded as a reduction of debt and accrued interest. ESOP compensation expense was $62,953, $254,711 and $328,075 for the years ended December 31, 2006, 2005 and 2004, respectively.

Shares of the Company’s common stock held by the ESOP at December 31, 2006 and 2005 are as follows:

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

The Bank has entered into certain employment retention agreements with key officers. Under the terms of the agreements, the employees are entitled to additional compensation in the event of a change of control of the Bank or the Company, and the employees are involuntarily terminated within the remaining unexpired employment period, up to 36 months. A change in control is generally triggered by the acquisition or control of 20% or more of the common stock.

Note 11.     Stock Based Compensation Plans

In 1996, the shareholders of the Company ratified the 1996 Incentive Stock Option Plan (the Plan), which permitted the grant of 441,105 shares of common stock to its directors and employees. The Plan was intended to promote stock ownership by directors and selected officers of the Company to increase their proprietary interest in the success of the Company and to encourage them to remain in the employment of the Company or its subsidiaries. The Plan provided for the grant of options at an exercise price equal to the market price of the Company’s stock on the date of grant. The option awards have a 10-year contractual term. Options granted to officers vest in five equal annual installments commencing on the first anniversary of the grant date and continuing each anniversary date thereafter. The options granted to officers expire ten years from the date of grant unless an earlier expiration date is triggered by death, disability, retirement or termination, as described in the Plan. Options granted to directors are vested immediately and expire ten years from the date of grant, unless an earlier expiration date is triggered by removal for cause. All awards were nonqualified stock options. Effective April 2006, upon shareholder approval of the North Central Bancshares, Inc. 2006 Stock Incentive Plan, no further awards under the Plan may be granted.

On April 28, 2006, the shareholders of the Company approved the Company’s adoption of the North Central Bancshares, Inc. 2006 Stock Incentive Plan (the “2006 Plan”), which permits the grant of 125,000 shares of common stock to its directors and officers. The 2006 Plan is intended to promote growth and profitability, to provide certain key officers and non-employee directors of the Company with an incentive to achieve corporate objectives, to attract and retain individuals of outstanding competence, and to provide such individuals with an equity interest in the Company. Awards granted under the 2006 Plan may include stock options, restricted stock options and stock appreciation rights. The 2006 Plan provides for the grant of options at an exercise price no less than the market price of the Company’s stock on the date of grant. The option awards may have a contractual term up to 10 years. The 2006 Plan will be administered by the Compensation Committee of the Board of Directors, including determining the type of awards made and establishing other terms and conditions applicable to the award.

Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payments, using the modified prospective transition method. Prior to that date the Company accounted for stock option awards under APB Opinion No. 25, Accounting for Stock Issued to Employees. In accordance with SFAS No. 123(R), compensation expense for stock-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The recording of such compensation began on January 1, 2006 for shares not yet vested as of that date and for all new grants subsequent to that date. Prior years’ results have not been restated. The exercise price of options granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date. The Company assumes no projected forfeitures on its stock-based compensation, since actual historical forfeiture rates on its stock-based incentive awards have been negligible.

Total employee stock-based compensation was as follows as of December 31:

The following table presents the effects on net income and earnings per share had stock-based compensation expense been recorded for the years ended December 31, 2005 and 2004 based on the fair value method under FAS 123(R):

As of December 31, 2006, stock-based compensation expense not yet recognized in income totaled $191,478, which is expected to be recognized over a weighted average remaining period of 6.3 years.

At grant date, the fair value of options awarded to recipients is estimated using a Black-Scholes valuation model. The exercise price of stock options equals the fair market value of the underlying stock at the date of grant. The following table shows the key valuation assumptions used for options granted during the years ended December 31, 2006, 2005 and 2004, and other information. Options are issued for 10-year periods with 100% vesting generally occurring either at grant date or over a five-year period.

The table below reflects option activity for the period indicated:

Note 12.     Stockholders’ Equity

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), of Tier I capital (as defined) to adjusted average assets (as defined) and tangible capital to adjusted assets. Management believes, as of December 31, 2006, the Bank meets all capital adequacy requirements to which it is subject.

The most recent notification from the federal regulatory agency categorizes the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since those notifications that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are also presented in the following table:

Limitations on dividends and other capital distributions: Office of Thrift Supervision (OTS) imposes limitations upon all capital distributions by savings institutions, including cash dividends. An institution that exceeds all fully phased-in capital requirements before and after a proposed capital distribution (Tier 1 Association) and has not been advised by the OTS that it is in need of more than normal supervision could, after prior notice but without the approval of the OTS, make capital distributions during a calendar year provided the total amount of capital distributions (including the proposed capital distribution) for the applicable calendar year does not exceed the institution’s year-to-date net income plus retained net income for the preceding two years. Any additional capital distributions would require prior regulatory approval.

Note 13.     Other Noninterest Expense

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

Note 14.     Financial Instruments with Off-Statement of Financial Condition Risk

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

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

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

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

At December 31, 2006, the mortgage loan commitments above were comprised of variable-rate commitments carrying a weighted-average interest rate of 7.00% and fixed-rate commitments carrying a weighted-average interest rate of 6.18%.

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

Note 15.      Lending Activities and Concentrations of Credit Risk

The Bank generally originates single family residential loans within its primary lending area of Webster, Story, Des Moines, Dallas, Polk and Henry counties in Iowa. The Bank’s underwriting policies require such loans to be 80% loan-to-value based upon appraised values unless private mortgage insurance is obtained. Approximately $135,309,000 of the Bank’s first mortgage loan portfolio at December 31, 2006 consisted of loans purchased or originated outside the state of Iowa. At December 31, 2006, concentrations by state include California with $20,077,000, Washington with $19,876,000 and South Carolina with $13,686,000. These are generally one- to four-family, multifamily residential and commercial real estate loans secured by the underlying properties. The loans are subject to the same underwriting guidelines as loans originated locally. The Bank is also active in originating secured consumer loans to its customers, primarily automobile and second mortgage loans. Collateral for substantially all consumer loans are security agreements and/or Uniform Commercial Code filings on the purchased asset.

Note 16.     Fair Values of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2006 and 2005 were as follows:

Note 17.     Restriction on Stockholders’ Equity

In 1996, the Company completed a Plan of Conversion and Reorganization, whereby the Company became a publicly traded Iowa corporation, and the previous mutual organization ceased to exist. The Plan provided that when the conversion was completed, a “Liquidation Account” would be established in an amount equal to the amount of any dividends waived by the previous mutual holding company (totaling approximately $1,897,000), plus 65.5% of the Bank’s total stockholders’ equity, as reflected in its latest statement of financial condition in the final prospectus utilized in the conversion. The Liquidation Account is established to provide a limited priority claim to the assets of the Bank to qualifying depositors as of specified dates (Eligible Account Holders and Supplemental Eligible Account Holders) who continue to maintain deposits in the Bank after the conversion. In the unlikely event of a complete liquidation of the Bank, and only in such an event, Eligible Account Holders and Supplemental Eligible Account Holders would receive from the Liquidation Account a liquidation distribution based on their proportionate share of the then total remaining qualifying deposits.

Note 18.     Earnings Per Common Share

Presented below is the reconciliation of the numerators and denominators of the computations for earnings per common share and earnings per common share - diluted, for the years ended December 31:

Note 19.     North Central Bancshares, Inc. (Parent Company Only) Condensed Financial Statements

Note 20.     Quarterly Results of Operations (Unaudited)

Note 21.     Segment Reporting

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, and the holding company. First Federal Savings Bank of Iowa operates as a federal savings bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where their offices are located. The remaining grouping under the caption “All Others” consists of the operations of the subsidiaries under the Bank, which 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, meaning prices that would be paid if the companies were not affiliates.

MANAGEMENT OF THE HOLDING COMPANY AND THE BANK

The Board of Directors of the Company is divided into three classes, each of which contains approximately one-third of the Board. The Bylaws of the Company currently authorize seven directors. Currently, all directors of the Company are also directors of the Bank.

Continuing Directors

David M. Bradley is currently Chairman of the Board, President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank. Effective July 1, 2007, Mr. Bradley will serve as Chairman of the Board of the Company and of the Bank in an executive officer position.

Paul F. Bognanno has been employed with the Company since February 2007 and is currently Senior Executive Vice President of the Company. Effective July 1, 2007, Mr. Bognanno will succeed Mr. Bradley as President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank. From 1993 to 2004, he was the President and Chief Executive Officer of Principal Residential Mortgage, a wholly-owned subsidiary of the Principal Financial Group. From 2000 to 2003, Mr. Bognanno also served as Chairman of the Board of Principal Bank, an OTS regulated savings bank wholly owned by the Principal Financial Group.

Robert H. Singer, Jr. is Executive Director of the Fort Dodge Area Chamber of Commerce. Mr. Singer was formerly the co-owner of Calvert, Singer & Kelley Insurance Services, Inc., an insurance agency, in Fort Dodge, Iowa.

Mark Thompson is the owner of Mark Thompson, CPA, P.C., in Fort Dodge, Iowa and has been a certified public accountant since 1978.

Nominees for Election as Directors

C. Thomas Chalstrom is Executive Vice President of the Company and President of the Bank and has been employed with the Bank since 1985. He was Executive Vice President of the Bank from 1994 until 2004. Mr. Chalstrom was named Chief Operating Officer of the Bank in December 1998. He became President of the Bank in April 2004.

Randall L. Minear is President of Terrus Real Estate Group, located in Des Moines, Iowa. He formerly served as the Director of Corporate Real Estate for The Principal Financial Group and as President of Principal Real Estate Services, a subsidiary of The Principal Financial Group.

Melvin R. Schroeder was formerly the Vice President of Instruction at Iowa Central Community College in Fort Dodge, Iowa. Mr. Schroeder retired in 2001.

Executive Officers Who are Not Directors or Nominees

Jean L. Lake is Secretary of the Company and the Bank.

David W. Edge, CPA is Chief Financial Officer and Treasurer of the Company and the Bank.

Kirk A. Yung is Senior Vice President of the Company and the Bank.

SHAREHOLDER INFORMATION

Price Range of the Company's Common Stock

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

	Price Range ($)
Quarter Ended	High	Low	Dividends Declared Per Share
2006
First Quarter	39.52	37.25	0.33
Second Quarter	40.12	38.30	0.33
Third Quarter	41.23	38.95	0.33
Fourth Quarter	41.33	39.22	0.33
2005
First Quarter	41.98	38.93	0.29
Second Quarter	40.95	37.30	0.29
Third Quarter	39.50	37.60	0.29
Fourth Quarter	39.12	37.70	0.29

The Company’s Common Stock was traded at $39.92as of March 5, 2007.

Performance Graph

Pursuant to the regulations of the SEC, the graph below compares the performance of the Company with that of the Nasdaq Composite Index (U.S. Companies) and the Nasdaq Bank Composite Index (banks and bank holding companies, over 99% of which are based in the United States) from December 31, 2001 through December 31, 2006.

The following graph compares the Company’s total cumulative shareholder return by an investor who invested $100.00 on December 31, 2001, to December 31, 2006, to the total return by an investor who invested $100.00 in each of the Nasdaq Stock Market Index and the Nasdaq Financial Stocks Index for the same period.

Information Relating to the Company's Common Stock

As of March 5, 2007, the Company had 1,192 shareholders of record, which includes the number of persons or entities who hold their Common Stock in nominee or "street" name through various brokerage firms. As of such date 1,364,653 shares of the Common Stock were outstanding.

The Company's current quarterly dividend is $0.35 per share. The Board of Directors of the Company plans to maintain a regular quarterly dividend in the future and will continue to review the dividend payment amount in relation to the Company's earnings, financial condition and other relevant factors (such as regulatory requirements).

The Bank will not be permitted to pay dividends to the Company on its capital stock if its shareholders' equity would be reduced below the amount required for the liquidation account. For information concerning federal regulations which apply to the Bank in determining the amount of proceeds which may be retained by the Company and regarding a savings institution's ability to make capital distributions including payment of dividends to its holding company, see Note 12 to the Consolidated Financial Statements.

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

Annual Meeting

The Annual Meeting of Shareholders of the Company will be held at 10:00 a.m., Central Time, Friday, April 27, 2007 at the Boston Centre, Suite 100, located at 809 Central Avenue, Fort Dodge, Iowa 50501.

Stockholders and General Inquiries	Stock Exchange
David M. Bradley North Central Bancshares, Inc. c/o First Federal Savings Bank of Iowa 825 Central Avenue Fort Dodge, Iowa 50501 (515) 576-7531 www.firstfederaliowa.com	The Company’s Common Shares are listed under the symbol “FFFD” on the Nasdaq Global Market
General Counsel The Law Office of Eric J. Eide, P.L.C. 805 Central Avenue, Suite 619 Fort Dodge, Iowa 50501 Special Counsel Thacher Proffitt & Wood LLP 1700 Pennsylvania Avenue, N.W., Suite 800 Washington, D.C. 20006 www.tpw.com	Independent Auditor McGladrey & Pullen, LLP 400 Locust Street, Suite 640 Des Moines, Iowa 50309 Transfer Agent Computershare Investor Services 350 Indiana Street, Suite 800 Golden, Colorado 80401 (303) 262-0600 or 800-962-4284 e-mail: inquire@computershare.com www.computershare.com

Publications - Annual Report on Form 10-K

A copy of the Company's Annual Report Form 10-K (without exhibits) for the fiscal year ended December 31, 2006 will be furnished without charge to shareholders of record as of March 5, 2007 upon written request to Jean L. Lake, Corporate Secretary, North Central Bancshares, Inc., c/o First Federal Savings Bank of Iowa, 825 Central Avenue, Fort Dodge, Iowa 50501. The Annual Report Form 10-K report is available online at www.sec.gov or via the Bank’s website at www.firstfederaliowa.com.

Dividend Reinvestment and Stock Purchase Plan

This plan provides shareholders with the ability to reinvest automatically their cash dividends in additional shares of North Central Bancshares, Inc. common stock. This plan also provides shareholders the opportunity to make quarterly cash purchases of additional shares of the Company’s common stock.

For more information, contact Computershare Investor Services (see address above) or visit Computershare’s website at www.computershare.com.

EX-23.1

  
    
      Unassociated Document





  
    

EX-31.1

Exhibit 31.1Rule 13a-14(a)/15d-14(a) Certifications

CERTIFICATIONS

I, David M. Bradley, certify that:

1.             I have reviewed this annual report on Form 10-K of North Central Bancshares, Inc., (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 30, 2007 /s/ David M. Bradley David M. Bradley President and Chief Executive Officer

CERTIFICATIONS

I, David W. Edge, certify that:

1.I have reviewed this annual report on Form 10-K of North Central Bancshares, Inc. (the “Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is prepared;

(b) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: March 30, 2007 /s/ David W. Edge David W. Edge Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1      Section 1350 Certifications

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, David M. Bradley, is the President and Chief Executive Officer of North Central Bancshares, Inc. (the “Company”). This statement is being furnished in connection with the filing by the Company of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”).

By execution of this statement, I certify that:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

March 30, 2007	/s/ David M. Bradley
Dated	David M. Bradley, President and CEO

STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350

The undersigned, David W. Edge, is the Chief Financial Officer and Treasurer of North Central Bancshares, Inc. (the “Company”). This statement is being furnished in connection with the filing by the Company of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Report”).

By execution of this statement, I certify that:

A) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and

B) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

March 30, 2007	/s/ David W. Edge
Dated	David W. Edge, Chief Financial Officer and Treasurer