10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

x       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934: For the fiscal year ended December 31, 2011

¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934:    For the transition period from to

Commission File No.  0-27672

NORTH CENTRAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code  (515) 576-7531

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: N/A

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

Yes ¨           No ý

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

Yes ¨           No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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

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

Large Accelerated Filer ¨                                                                                                           Accelerated Filer ¨

Non-Accelerated Filer ¨ (Do not check if smaller reporting company)                                                                                                                     Smaller Reporting Company x

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

Yes ¨           No ý

The aggregate market 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, 2011 was $19,825,000.  Soley for purposes of this calculation, the term “affiliate” includes all directors and executive officers of the registrant as well as the First Federal Savings Bank of Iowa 401(k) and Stock Ownership Plan, which beneficially owns more than 10% of the registrant’s voting securities.

As of March 1, 2012, there were issued and outstanding 1,357,073 shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

1.     Portions of the Proxy Statement for the registrant’s 2012 Annual Meeting of Shareholders are incorporated by reference to Items 10, 11, 12, 13 and 14 of Part III hereof.

2.     Portions of the 2011 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	3
Item 1A	Risk Factors	26
Item 1B	Unresolved Staff Comments	31
Item 2	Properties	31
Item 3	Legal Proceedings	31
Item 4	Mine Safety Disclosures	31
	PART II
Item 5	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6	Selected Financial Data	31
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8	Financial Statements and Supplementary Data	32
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	32
Item 9A	Controls and Procedures	32
Item 9B	Other Information	33
	PART III
Item 10	Directors, Executive Officers and Corporate Governance	33
Item 11	Executive Compensation	33
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13	Certain Relationships and Related Transactions, and Director Independence	34
Item 14	Principal Accountant Fees and Services	34
	PART IV
Item 15	Exhibits, Financial Statement Schedules	34

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 on Form 10-K with the Securities and Exchange Commission (the “SEC”), the Annual Report to Shareholders, 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.  As used in this Form 10-K, the terms “we,” “us,” “our,” “North Central” and “Company” mean North Central Bancshares, Inc. and its subsidiaries, including the Bank, on a consolidated basis (unless the context indicates another meaning).

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:

·   developments impacting the financial services industry and global credit markets, and the response of legislators and regulators thereto;

·   new laws and regulations aimed at stimulating the economy and mitigating the effects of the current global economic crisis;

·   developments at other companies in our industry, including the potential failure of other financial institutions;

·   the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

·   changes in consumer spending and saving habits;

·   the strength of our loan portfolio, including potential defaults by borrowers and our realization of amounts below the amounts we are due on certain loans;

·   the results of our operations, which could be adversely affected if asset valuations cause other-than-temporary impairment charges;

·   impairments to the value of investment securities held by us;

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

·   inflation, interest rate, market and monetary fluctuations;

·   our ability to attract and retain key personnel to implement our strategy and oversee our operations;

·   the impact of changes in laws and regulations applicable to the provision of financial services (including laws concerning taxes, banking, securities and insurance);

·   our success in gaining regulatory approval of products and services, when required;

·   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 our products and services;

·   our ability to attract funds and raise capital when needed to support growth or ongoing operations;

·   our expansion into new market areas and the associated costs may reduce our profitability;

·   the availability of desirable avenues to deploy our existing capital;

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·   our success at managing the risks involved in our business, including our ability to maintain an effective system of internal control over financial reporting; and

·   limitations imposed on us by our articles of incorporation and bylaws which could restrict our ability to pursue growth opportunities.

This list of important factors is not exclusive.  The Company and the Bank do 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.

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ITEM 1.               BUSINESS

General

North Central Bancshares, Inc., an Iowa corporation formed in 1995, is the holding company for First Federal Savings Bank of Iowa, a state-chartered commercial bank.  The Company owns 100% of the outstanding stock of the Bank.  The Company’s stock is traded on the NASDAQ Global Market under the symbol “FFFD.”

The Company conducts business as a bank holding company and the principal business of the Company is to operate the Bank.  The Company’s principal office is located 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 state-chartered commercial bank that conducts its operations from its main office located in Fort Dodge, Iowa and ten other branch offices located in Iowa.  Eight of the Bank’s offices are located in north central and central Iowa, in the cities of Fort Dodge (two locations), 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 (two locations) and Mount Pleasant. The Bank is the successor to First Federal Savings and Loan Association of Fort Dodge, which was originally chartered in 1954.  On May 7, 1987 the Bank became a federally chartered savings bank.  Effective June 29, 2011, the Bank completed a conversion to a state-chartered commercial bank.  The Bank adopted its present name on February 27, 1998. The Bank is a community-oriented depository 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 real estate loans and business and consumer 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, 2011, the Bank had total assets of $433.0 million, total deposits of $361.0 million, and total stockholders’ equity of $40.4 million.

The Bank’s principal 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.  Information on the website shall not be considered a part of this Form 10-K.

Market Area and Competition

The Company is a bank holding company that conducts its activities through the Bank and the Bank’s subsidiaries to serve its primary market area of Webster, Story, Des Moines, Dallas, Polk, and Henry Counties, which are located in the north central, 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 also operates two branch offices.

The year 2011 continued to be a challenging one for the financial industry and the entire world economy.  The financial crisis and recession has impacted the local economies in the Company’s market area.  The unemployment rate for the month of December 2011 for Webster County was 7.8%, for Story County 4.3%, for Dallas County 4.8%, for Polk County 6.0%, for Henry County 7.7% and for Des Moines County 7.1%.  These compare to the national rate of 8.5% and the State of Iowa rate of 5.6%.

Prior to 2010, the Company originated and/or purchased loans (primarily one-to-four family, multifamily and commercial real estate loans) from outside the State of Iowa motivated by factors such as the type of loan demand in the Company’s overall market area, increased competition, and the Company’s decision to diversify its loan portfolio.

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During 2010, the Company curtailed its out-of-state lending due to declines in demand and management’s credit risk mitigation plans.  Future opportunities for out-of-state lending for commercial real estate and multifamily real estate may be considered by the Company on a very limited basis.

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 an emphasis on second mortgage real estate loans.  At December 31, 2011, the Company’s total loans receivable was $318.1 million, of which $138.6 million, or 43.6%, were one-to-four family residential real estate first mortgage loans, $48.7 million, or 15.3%, were multifamily real estate first mortgage loans, primarily purchased by the Company, $67.3 million, or 21.2%, were commercial real estate first mortgage loans, and $2.1 million, or 0.6%, were construction and land development loans.  Consumer loans, consisting primarily of second mortgage loans and automobile loans, totaled $61.4 million, or 19.3%, of the Company’s loan portfolio.

Loans to One Borrower.   The Bank is subject to regulatory limits on loans to one borrower.  Generally, under these limits, a bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the bank’s capital and surplus.  Additional amounts may be lent, in an aggregate not exceeding 10% of capital and surplus, if any such loan or extension of credit is fully secured by readily-marketable collateral and subject to percentage limitations depending on the type of collateral.  At December 31, 2011 it was the Company’s policy to limit loans to one borrower to $5.0 million, with higher limits subject to approval by our Board of Directors (“Board”).  At December 31, 2011, it was the Company’s policy to limit loans to related entities, corporate groups, or common guarantors to $7.0 million.  These limitations are more stringent than those imposed under regulatory requirements.  At December 31, 2011, the Company’s largest aggregate amount of outstanding loans to a single borrower or group of related borrowers totaled $5.0 million.

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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,
	2011						2010						2009						2008						2007
				Percent						Percent						Percent						Percent						Percent
	Amount			of Total			Amount			of Total			Amount			of Total			Amount			of Total			Amount			of Total
	(Dollars in thousands)
First mortgage loans:
One-to-four family residential real estate	$	138,581			43.57	%	$	141,061			41.35	%	$	151,550			39.55	%	$	170,184			41.83	%	$	195,586			43.23	%
Multifamily real estate		48,656			15.30			57,461			16.84			63,470			16.57			57,968			14.25			56,587			12.51
Commercial real estate		67,323			21.17			69,254			20.30			80,252			20.94			84,705			22.61			97,115			24.13
Construction and land development		2,112			0.66			4,194			1.23			12,196			3.18			15,720			2.08			29,456			3.84
Total first mortgage loans		256,672			80.70			271,970			79.72			307,468			80.25			328,577			80.77			378,744			83.71
Consumer loans:
Automobiles	$	13,829			4.35		$	13,549			3.97		$	14,777			3.86		$	14,106			3.47		$	12,667			2.80
Second mortgage		43,898			13.80			51,349			15.05			55,824			14.57			58,001			14.26			54,586			12.06
Other		3,666			1.15			4,283			1.26			5,088			1.33			6,099			1.50			6,460			1.43
Total consumer loans		61,393			19.30			69,181			20.28			75,689			19.75			78,206			19.23			73,713			16.29
Total loans receivable	$	318,065			100.00	%	$	341,151			100.00	%	$	383,157			100.00	%	$	406,783			100.00	%	$	452,457			100.00	%
Less:
Undisbursed portion of construction loans	$	471			0.15	%	$	296			0.09	%	$	1,005			0.26	%	$	840			0.21	%	$	2,364			0.52	%
Unearned loan (premium), net		(22	)		(0.01	)		(84	)		(0.02	)		(155	)		(0.04	)		(347	)		(0.09	)		(370	)		(0.08	)
Net deferred loan origination fees		392			0.12			331			0.10			281			0.07			124			0.03			119			0.03
Allowance for loan losses		5,846			1.84			6,147			1.80			7,171			1.87			5,379			1.32			3,487			0.77
Total loans receivable, net	$	311,378			97.90	%	$	334,461			98.04	%	$	374,855			97.83	%	$	400,787			98.53	%	$	446,857			98.76	%

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Loan Maturity Schedule.  The following table sets forth the contractual maturity of the Company’s loan portfolio at December 31, 2011.  Overdraft lines of credit are reported as due within one year.

	At December 31, 2011
	Within			1-5	Beyond 5
	1 Year		Years		Years		Total
	(In thousands)
First mortgage loans:
One-to-four family residential real estate	$	2,264	$	4,735	$	131,582	$	138,581
Multifamily real estate		1,731		11,733		35,192		48,656
Commercial real estate		5,377		26,323		35,623		67,323
Construction and land development		869		111		1,132		2,112
Consumer loans		3,862		32,104		25,427		61,393
Total	$	14,103	$	75,006	$	228,956	$	318,065

The following table sets forth the dollar amounts of all fixed rate and adjustable rate loans in each loan category at December 31, 2011 due after December 31, 2012.

	Due After December 31, 2012
	Fixed		Adjustable		Total
	(In thousands)
First mortgage loans:
One-to-four family residential real estate	$	50,268	$	86,049	$	136,317
Multifamily real estate		12,617		34,308		46,925
Commercial real estate		18,305		43,641		61,946
Construction and land development		111		1,132		1,243
Consumer loans		43,238		14,293		57,531
Total	$	124,539	$	179,423	$	303,962

One-to-Four Family Residential Real Estate Loans.  Traditionally, the Company’s primary lending activity consists of the origination of fixed- and adjustable-rate one-to-four family owner-occupied residential first mortgage loans, substantially all of which are collateralized by properties located in the Company’s market area.  The Company also originates one-to-four family, interest-only construction loans that convert to permanent loans after an initial construction period that typically runs up to twelve months.  At December 31, 2011, 36.9% of the Company’s residential real estate loans had fixed rates and 63.1% had adjustable rates.

The Company originates loans for the purposes of both holding to maturity in its portfolio and selling the loans in the secondary mortgage market. The Company’s one-to-four family, fixed-rate, residential real estate loans originated for its 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 generally sells fixed-rate loans with maturities of greater than 15 years in the secondary mortgage market.  For the year ended December 31, 2011, the Company sold $34.9 million of one-to-four family residential mortgage loans, generally for the purpose of lowering the Company’s interest rate risk.  One-to-four family portfolio loans are originated and underwritten according to policies approved by our board of directors.

The Company makes construction loans to individuals for the construction of their residences.  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 adjustable rate mortgage (“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.  At December 31, 2011, the Company’s one-to-four family residential construction loans totaled $1.8 million, or 0.6%, of the Company’s total loan portfolio.

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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 risk 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 adjust on an annual basis after the initial fixed rate term.  The initial fixed rate term of these loans are primarily five and seven 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 establishes various annual and life-of-the-loan caps on adjustable rate mortgage (ARM) loan interest rate adjustments.  At December 31, 2011, the Company generally offered ARM loans with annual rate caps of 2.00% and maximum life-of-loan caps of 6.00% above the initial interest rate.   At present, the interest rate on the Company’s ARM loans are calculated by using the weekly average yield on United States Treasury securities adjusted to a constant maturity of one year.  In addition, the Company establishes floors for each loan originated below which the interest rate on the loan may not adjust. One-to-four family residential ARM loans totaled $86.1 million, or 27.1%, of the Company’s total loan portfolio at December 31, 2011.

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 2011 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Form 10-K and incorporated herein by reference.

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

Regulations limit the amount that a bank 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 96.5% 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 through the Bank.

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 $116.0 million, or 36.5%, of the Company’s total loan portfolio at December 31, 2011.  Of such loans, $62.9 million, or 54.2%, were secured by properties outside the State of Iowa.  The majority of out-of-state lending activity occurred prior to 2010.  Out-of-state lending activity was significantly restricted by management during 2010 and 2011.  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 “Loan Originations, Solicitation, Processing, and Commitments ─ Out-of-State Loans and Loans Serviced by Others.”

Prior to curtailing the purchase and origination of out-of-state loans in recent years, all multifamily or commercial real estate loans in excess of $1.0 million that were purchased or originated out-of-state were approved by the Company’s Senior Management Loan Committee as well as the board of directors.  

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All loans less than $1.0 million that were originated out-of-state were approved by the Company’s Senior Management Loan Committee and ratified by the board of directors.  Purchased loans were subject to the same underwriting standards as for loans originated by the Company.  Moreover, before a loan was purchased, the Company obtained copies of the original loan application, title insurance policy, appraisal and personal financial statements of any guarantors of the loan, and certified rent rolls. A member of the Company’s senior management also made a personal inspection of the property securing the loan. Such purchases were made without recourse to the seller. At December 31, 2011, $17.8 million, or 28.3%, of out-of-state multifamily and commercial real estate loans were serviced by the Bank.  At December 31, 2011, $45.1 million, or 71.7%, of the out-of-state multifamily and commercial real estate loans were serviced by the originating financial institution, mortgage company or alternate servicing financial institution.  The Company imposes a $3.0 million limit on the aggregate size of multifamily and commercial loans to any one borrower for loans secured by real estate located outside the State of Iowa and a $5.0 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 Iowa State-Chartered Commercial Banks – 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 such loans also typically have larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multifamily and commercial real estate is typically dependent upon the successful operation of the related real estate property. If the cash flow from such real estate projects is reduced, the borrower’s ability to repay the loan may be impaired.  As a result, these types of loans present greater potential loan delinquencies and loan losses than single-family residential loans.  At December 31, 2011, the Company had two out-of-state commercial real estate loans totaling $1.5 million that were nonperforming.

Construction and Land Development Lending.  The Company makes construction and land development loans to builders for the construction of one-to-four family residences and commercial and multifamily development.  Construction and land development loans on commercial and multifamily real estate projects may be secured by land, 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.  At December 31, 2011, the Company had approximately $2.1 million in commercial real estate construction and land development loans which included a total of $1.8 million of nonperforming loans associated with two unrelated borrowers, both of which were out-of-state loans.

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).

Due to the uncertainties inherent in estimating construction costs and the market for the project upon completion, it is relatively difficult to accurately evaluate 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.

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, 2011, consumer loans totaled $61.4 million, of which second mortgage loans totaled $43.9 million, or 13.8%, of the Company’s total loan portfolio. The Company’s second mortgage loans generally have fixed interest rates for terms of three to five 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 85%.  

8

In past years, the Company originated one-to-four family second mortgage loans with a loan-to-value ratio of up to 100%; however, during 2008, that limit was reduced to 95% and in 2009, the limit was further reduced to 85%.  Prior to 2009, second mortgage loans in excess of 85% loan-to-value were insured through a pool insurance product, unless the loan has secondary collateral.  These types of loans were subject to stricter underwriting guidelines.  As of December 31, 2011, the average principal amount of the Company’s second mortgage loans was approximately $23,000.

To a lesser extent, the Company also originates loans secured by automobiles, with fixed rates generally up to 100% loan-to-value ratio for new cars. All of the Company’s automobile loans were originated by the Bank and generally have terms of up to six years.  At December 31, 2011, automobile loans totaled $13.8 million, or 4.3%, of the Company’s total loan portfolio.

In addition, the Company also makes other types of consumer loans through the Bank, including unsecured signature loans, for various purposes.   At December 31, 2011, other consumer loans totaled $3.7 million, or 1.2%, of the Company’s total loan portfolio. The average balance of such loans is approximately $1,700.

Commercial Business Lending. The Company originates a limited number of commercial business loans, which the Company includes with its commercial real estate 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 commercial business lending and deposit/cash management services to small businesses in its current geographic market.  Commercial business lending will provide greater diversification of the loan portfolio in order to mitigate real estate concentrations.

              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.

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, and such insurance must be maintained during the full term of the loan. At December 31, 2011, the Company had outstanding commitments to originate $4.8 million of loans. This amount does not include undisbursed overdraft loan privileges, undisbursed home equity lines of credit or the unfunded portion of loans in process.

Out-of-State Loans and Loans Serviced by Others.  Due to prevailing market conditions, including the uncertainty surrounding real estate values in other geographical areas, the Company has not purchased any out-of-state loans since 2009.  Out-of-state lending was curtailed in 2010 and significantly restricted in 2011.  The Company originated $5.6 million of new out-of-state loans secured by multi-family and commercial real estate during 2011.

At December 31, 2011, the Company’s loan portfolio contained $71.4 million of loans secured by out-of-state properties.  These loans represented 22.4% of the Company’s total loan portfolio at December 31, 2011.  All of the one-to-four family, multifamily residential, commercial real estate and construction and land development loans in the Company’s loan portfolio which were purchased out-of-state by the Company are without recourse to the seller.  At December 31, 2011, the average balance of the Company’s out-of-state multifamily residential and commercial real estate loans was $691,000 and the largest loan had a principal balance of $2.6 million.  As of December 31, 2011, nonperforming loans secured by out-of-state properties totaled $3.3 million.

Prior to the curtailment of such activities in recent years, to supplement its origination of one-to-four family first mortgage loans, the Company also purchased first mortgage loans secured by out-of-state one-to-four family residences.  At December 31, 2011, $6.7 million, or 2.1%, of the Company’s total loan portfolio consisted of out-of-state one-to-four family loans.

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There are certain risks with loans purchased by the Company that are not associated with loans the Company originates, such as risks associated with servicing of the loans.  At December 31, 2011, $55.9 million, or 17.6% of the total loan portfolio was serviced by the originating financial institution, mortgage company or alternate servicing financial institution.  With respect to out-of-state purchased loans, although the Company reviewed each purchased loan using the Company’s underwriting criteria for originations and a Company officer performed 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.  Our seller/servicers have a significant role in servicing loans in our commercial and multifamily real estate portfolio.  A decline in their performance could impact the overall quality of the service they provide, which could adversely affect our financial condition or results of operations and have significant impacts on our ability to mitigate credit losses.  In addition, the Company purchased 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 Bank-originated loans.  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.  There can be no assurance 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 purchased loans that met 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.  With respect to these loans, the Company required appropriate documentation, and personal inspections of the underlying real estate collateral by a member of senior management prior to purchase.  The Company limits its out-of-state loan portfolio concentration within a single state to 100% of the Bank’s risk based capital.  The Company also limits its loan portfolio concentration to a single servicer to 50% of the Bank’s risk based capital.

Set forth below is a table of the Company’s out-of-state loans by state of origin as of December 31, 2011.

(in thousands)
	One-to-four		Multi-		Commercial		Construction and		Total Balance as of		Percentage as of
State	Family		Family		Real Estate		Land Development		December 31, 2011		December 31, 2011
Arizona	$	-	$	-	$	2,525	$	-	$	2,525		3.5	%
California		4,143		6,693		7,881		-		18,717		26.2
Colorado		-		3,360		4,046		-		7,406		10.4
Minnesota		-		1,428		1,471		-		2,899		4.1
Missouri		904		-		2,864		-		3,768		5.3
Nebraska		-		-		4,810		-		4,810		6.7
Oregon		-		1,930		923		-		2,853		4.0
Washington		-		7,035		1,539		-		8,574		12.0
Wisconsin		-		5,505		-		-		5,505		7.7
Other (1)		1,621		4,031		6,831		1,836		14,319		20.1
Total	$	6,668	$	29,982	$	32,890	$	1,836	$	71,376		100.0	%
(1) Includes 13 states, each with less than $2,000 individually.

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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,
	2011			2010			2009
	(In thousands)
Total loans receivable at beginning of period	$	341,151		$	383,157		$	406,783
Originations:
First mortgage loans:
One-to-four family residential		64,302			71,164			91,783
Multifamily		5,806			4,057			2,333
Commercial		19,473			9,354			8,182
Consumer loans:
Automobiles		9,541			7,728			8,801
Second mortgage		14,616			16,892			23,605
Other		2,469			3,454			4,338
Total		116,207			112,649			139,042
Loan Purchases:
First mortgage multifamily		-			-			9,449
First mortgage commercial		-			-			5,313
Loan Sales:
First mortgage one-to-four family		(34,908	)		(50,400	)		(69,601	)
Transfer of mortgage loans to foreclosed
real estate		(2,324	)		(4,442	)		(2,647	)
Repayments		(102,061	)		(99,813	)		(105,182	)
Net loan activity		(23,086	)		(42,006	)		(23,626	)
Total loans receivable at end of period	$	318,065		$	341,151		$	383,157

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, 2011, the net deferred loan origination fees for the Company totaled $392,000. Such fees vary with the type of loans and commitments made. The Company typically charges an origination fee on fixed- and adjustable-rate first mortgage loans.

Investment Securities

At December 31, 2011, the Company’s investment portfolio was comprised of state and local obligations, mortgage-backed securities, collateralized mortgage obligations, U.S. Government agency securities, and corporate bonds.  At December 31, 2011, $50,000 of the Company’s investment portfolio, was scheduled to mature in one year or less, $9.0 million was scheduled to mature within one to five years, and $58.9 million was scheduled to mature in more than five years.

The general objectives of the Bank’s investment portfolio are to provide liquidity when loan demand is high, to assist in maintaining earnings when loan demand is low, and to maximize earnings while satisfactorily managing liquidity risk, interest rate risk, reinvestment risk, and credit risk.  The portfolio also intends to create a steady stream of cash flows that can be redeployed into other assets as the Bank grows the loan portfolio, or reinvested into higher yielding assets should interest rates rise.  Our portfolio totaled $68.0 million at December 31, 2011, compared to $48.4 million at December 31, 2010. The increase was due primarily to the investment of increased liquidity generated by both deposit growth and reduced loan origination activity during 2011. 

We consider many factors in determining the composition of our investment portfolio including tax-equivalent yield, credit quality, duration, regulatory and overall portfolio allocation.  All collateralized mortgage

11

obligations and mortgage-backed securities in the Company’s investment securities portfolio at December 31, 2011 were issued by government sponsored agencies.  Investments in states and local obligation represent municipal bonds located primarily in the state of Iowa and contiguous states.  No investment securities were considered to be other-than-temporarily impaired at December 31, 2011.

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

	At December 31,
	2011		2010		2009
	(In thousands)
Investment securities
Mortgage-backed securities (1)	$	18,259	$	13,863	$	11,165
Collateralized mortgage obligations (1)		26,657		19,288		-
U.S. government agency securities		5,301		8,694		7,477
State and local obligations		14,153		4,990		4,326
Corporate bonds		3,597		1,601		-
Mutual funds		-		-		207
Total investment securities		67,967		48,436		23,175
(1) These securities are issued by FNMA, FHLMC and GNMA. All are backed by residential
mortgage loans.

           Investment Portfolio Maturities.  The following table summarizes the maturity distribution scheduled with corresponding weighted average yields of securities.  Mortgage-backed securities and collateralized mortgage obligations are included in maturity categories based on their stated maturity date.  Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	At December 31,2011
	One Year or Less					One to Five Years					Five to Ten Years					Over Ten Years					Total
			Weighted					Weighted					Weighted					Weighted					Weighted
	Fair		Average			Fair		Average			Fair		Average			Fair		Average			Fair		Average
	Value		Yield			Value		Yield			Value		Yield			Value		Yield			Value		Yield
	(Dollars in thousands)
Investment securities:
Mortgage-backed securities	$	-		-	%	$	10		7.02	%	$	3,717		2.90	%	$	14,532		2.85	%	$	18,259		2.86	%
Collateralized mortgage obligations		-		-			474		1.46			1,759		2.37			24,424		2.44			26,657		2.42
U.S. government agency securities		-		-			4,050		2.18			1,251		2.00			-		-			5,301		2.14
State and local obligations		50		1.75			894		3.42			5,358		2.97			7,851		3.11			14,153		3.07
Corporate bonds		-		-			3,597		3.03			-		-			-		-			3,597		3.03
Total securities available-for-sale	$	50		1.75	%	$	9,025		2.61	%	$	12,085		2.76	%	$	46,807		2.68	%	$	67,967		2.68	%

At December 31, 2011, there were no holdings of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of the Company’s shareholders’ equity.

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, and 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.

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Deposits.  During 2011, the Company attracted consumer and commercial deposits principally from within its market area through the offering of a broad selection of deposit products including noninterest-bearing demand accounts, interest bearing accounts, savings accounts, money market savings, certificates of deposit and individual retirement accounts.  Deposit account terms vary according to the minimum balance required, the period of time during which the funds must remain on deposit, and the interest rate, among other factors.  The maximum rate of interest which the Company may pay is not established by regulatory authority.  The Company regularly evaluates its internal cost of funds, surveys rates offered by competing institutions, reviews the Company’s cash flow requirements for lending and liquidity, and executes rate changes when deemed appropriate.  Public fund deposits totaled $32.1 million at December 31, 2011, an increase of $4.8 million from December 31, 2010.  The Company also utilizes brokered certificates of deposit as an alternative wholesale funding source.  As of December 31, 2011, the Company had $567,000 in brokered certificates of deposit compared to $558,000 at December 31, 2010.  The mix of deposits continues to change as depositors are accumulating funds in shorter term, liquid deposits such as demand and savings accounts.

Deposit Portfolio.  At December 31, 2011, components of the Company’s deposit portfolio were represented by the various types of deposit programs described below.

Weighted									Percentage
Average					Minimum				of Total
Interest Rate			Original Term	Checking and Savings Deposits	Balance		Balances		Deposits
							(Dollars in
							thousands)
	0.00	%	None	Noninterest-bearing demand	$	50	$	20,612		5.7	%
	0.24	%	None	Interest-bearing demand		50		133,266		36.9
	0.10	%	None	Savings accounts		25		33,272		9.2
	0.12	%	None	Money market savings		2,500		34,438		9.5
				Total non-maturing deposits				221,588		61.4
				Certificates of Deposit
	0.17	%	1-3 months	Fixed term, fixed rate	$	1,000	$	207		0.1	%
	0.69	%	4-6 months	Fixed term, fixed rate		1,000		1,190		0.3
	0.56	%	7-9 months	Fixed term, fixed rate		1,000		6,169		1.7
	1.08	%	10-12 months	Fixed term, fixed rate		1,000		29,709		8.2
	1.08	%	13-24 months	Fixed term, fixed rate		1,000		28,052		7.8
	1.91	%	25-36 months	Fixed term, fixed rate		1,000		6,788		1.9
	2.95	%	37-48 months	Fixed term, fixed rate		1,000		22,126		6.1
	3.43	%	49-60 months	Fixed term, fixed rate		1,000		45,022		12.5
				Total certificates of deposit				139,263		38.6
				Total deposits			$	360,851		100.0	%

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 The following table summarizes the aggregate deposit balances in the various types of deposit accounts offered by the Company for the dates indicated.

	At December 31,
	2011		2010		2009
	(In Thousands)
Noninterest bearing demand	$	20,612	$	19,089	$	16,185
Interest bearing demand		133,266		116,866		77,694
Savings accounts		33,272		30,714		28,866
Money market savings		34,438		34,000		36,095
Certificates of deposit that mature:
within 12 months		70,488		77,083		110,154
within 12-36 months		48,607		43,680		42,028
beyond 36 months		20,168		28,401		23,791
Total	$	360,851	$	349,833	$	334,813

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

	At December 31,
	2011		2010		2009
	(In thousands)
Rate:
1.99% or less	$	71,390	$	66,782	$	74,847
2.00-2.99%		24,224		25,509		27,247
3.00-3.99%		29,240		30,745		38,226
4.00% or greater		14,409		26,128		35,653
	$	139,263	$	149,164	$	175,973

The following table sets forth the amount and maturities of certificates of deposit at December 31, 2011.

	Amount Due
	Less
	Than 1			1-2		2-3		3-4		4-5
	Year		Years		Years		Years		Years		Total
	(In thousands)
Rate:
1.99% or less	$	54,487	$	11,403	$	2,105	$	625	$	2,770	$	71,390
2.00-2.99%		1,800		3,416		4,841		8,037		6,130		24,224
3.00-3.99%		495		13,948		12,214		2,583		-		29,240
4.00% or greater		13,706		680		-		23		-		14,409
	$	70,488	$	29,447	$	19,160	$	11,268	$	8,900	$	139,263

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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, 2011.

	Certificates
	of Deposit over
Remaining Maturity	$	100,000
	(In thousands)
Three months or less	$	8,095
Three through six months		2,019
Six through twelve months		4,752
Over twelve months		16,530
Total	$	31,396

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, fluctuates from time to time in accordance with the policies of the FHLB.

	At or For the Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
FHLB advances:
Maximum balance	$	49,250		$	66,500		$	82,349
Average balance		33,445			56,551			74,438
Balance at year end		25,750			49,250			66,500
Weighted average interest
rate at end of the period		2.95	%		3.77	%		4.47	%
Weighted average interest
rate during the period		3.39	%		4.30	%		4.75	%

Title Abstract Business

A component of the Company’s operating strategy to increase non-interest income is through the abstract company business conducted by a wholly-owned subsidiary of the Bank, First Iowa Title Services, Inc. (“First Iowa”).  First Iowa 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.  First Iowa had seven employees as of December 31, 2011.

In February 2012, the Company implemented a plan to sell First Iowa.  The Company expects the sale to be completed during 2012.  First Iowa’s major asset is title plant of $475,704.

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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.  The activities of First Federal Investments include the sale of life insurance on mortgage loans, and credit life and accident and health insurance on consumer loans made by the Company. In addition, First Federal Investments sells life insurance, annuity products, mutual funds and other noninsured products.  First Federal Investments had five employees as of December 31, 2011.

Mortgage Company Business

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

Multifamily Apartment Buildings

On July 13, 1995, the Company formed the Northridge Apartments Limited Partnership (“Northridge Partnership”), a subsidiary of the Bank, with the Fort Dodge Housing Corporation (“FDHC”), a non-profit Iowa corporation formed to acquire, develop and manage low- and moderate-income housing for residents of the Fort Dodge area.  The FDHC is controlled by the Fort Dodge Municipal Housing Agency, an agency chartered by the City of Fort Dodge.  Northridge Partnership is a low-income housing tax credit project for certain federal tax purposes.  A 44-unit apartment complex was completed on February 1, 1997.  The final federal income tax credits amounting to approximately $12,000 was recognized in 2011.

On October 24, 1996, the Company formed the Northridge Apartments Limited Partnership II (“Northridge Partnership II”), a subsidiary of the Bank, to acquire, develop and manage low- and moderate-income housing for residents of the Fort Dodge area.  Northridge Partnership II was awarded low-income housing tax credits in 2002 by the Iowa Finance Authority.  These credits were awarded to construct a 23-unit apartment building in Fort Dodge, Iowa, which was completed on March 31, 2003.  The tax credits associated with this project for the year ended December 31, 2011 amounted to approximately $127,000.  The tax credits will continue for an additional 1.3 year period.

Personnel

At December 31, 2011, the Company had 141 full-time equivalent employees (including the seven employees of First Iowa and the five employees of First Federal Investments).  None of the Company’s employees are represented by a collective bargaining group.  Management believes that it enjoys good relations with its personnel.

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FEDERAL AND STATE TAXATION

Federal Taxation

General. The following discussion of tax matters 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.

Bad Debt Reserves.  The Bank is a “large bank” as of December 31, 2011 and is no longer permitted to maintain a reserve for bad debts with respect to loans for tax purposes.  The Bank instead utilizes the tax charge-off method for bad debt tax deductions.

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

The amount of additional taxable income created from a nondividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, in some situations, approximately one and one-half times the nondividend distribution would be includable in gross income for federal income tax purposes, assuming a 35% federal corporate income tax rate.  We do not intend to pay distributions that would result in the recapture of any portion of our bad debt reserves.

Corporate Alternative Minimum Tax.  The Internal Revenue Code (the “Code”) imposes a tax on alternative minimum taxable income (“AMTI”) at a rate of 20%. Only 90% of AMTI can be offset by AMTI minimum tax net operating loss carryovers, of which there are 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.

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, Colorado and Washington Taxation.  The Company and the Bank’s subsidiaries file Iowa corporation tax returns and the Bank files an Iowa franchise income tax return, Colorado income tax return and Washington business and occupation tax return.

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

Iowa imposes a financial institution franchise tax, in lieu of the corporate income tax, on the Iowa franchise taxable income of financial 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 carryforward rules are similar to the federal rules.  However, Iowa no longer allows carrybacks of net operating losses for tax years beginning on or after January 1, 2009.

Colorado’s corporate income tax is imposed on domestic and foreign corporations at a flat rate of 4.63% on net income derived from Colorado sources.  The Bank is subject to Colorado income tax on interest income derived from loans, purchased or originated, in the state of Colorado.  The Bank is subject to Washington business and

occupation tax for gross income derived from loans secured by property located in the State of Washington at a flat rate of 1.80%.

17

REGULATION

General

North Central Bancshares, Inc. was regulated as a savings and loan holding company by the Office of Thrift Supervision (“OTS”) until June 2011.  Effective June 29, 2011, the Company completed its reorganization to a bank holding company upon receipt of approval from the Board of Governors of the Federal Reserve System (“Federal Reserve”).  The Company is required to file reports with, and otherwise comply with, the rules and regulations of the Federal Reserve and of the SEC under federal securities laws.

First Federal Savings Bank of Iowa, a wholly-owned subsidiary of the Company, was a federally chartered savings bank until June 2011.  Effective June 29, 2011, the Bank received regulatory approval from the Iowa Division of Banking and completed its conversion to a state-chartered commercial bank.  The Federal Reserve Bank of Chicago has also approved the Bank’s membership in the Federal Reserve System.  Thus, the Bank is subject to primary regulation, examination and supervision by the Iowa Division of Banking and Federal Reserve Bank of Chicago.  These regulatory bodies 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.

Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

Major financial reform legislation, known as the Dodd-Frank Act, was signed into law by the President in July 2010. Among other things, the Dodd-Frank Act impacts the rules governing the provision of consumer financial products and services, and implementation of the many requirements of the legislation requires new mandatory and discretionary rulemakings by numerous federal regulatory agencies over the next several years.  Many of the provisions of the Dodd-Frank Act affecting the Company and Bank have effective dates ranging from immediately upon enactment of the legislation to several years following enactment of the Dodd-Frank Act.

The Company and Bank are continuing to closely monitor and evaluate developments under the Dodd-Frank Act with respect to our business, financial condition, results of operations and prospects.  We remain hopeful regarding the future but remain deeply concerned regarding the increased regulatory costs and restrictive burdens imposed by the Dodd-Frank Act on the banking industry.

The following discussion is intended to provide a summary of the material statutes and regulations applicable to bank holding companies and state-chartered commercial banks in Iowa, and does not purport to be a comprehensive description of all such statutes and regulations.

Regulation of Bank Holding Companies

Effective in June 2011,the Company became a bank holding company upon receipt of approval from the Federal Reserve and conversion of the Bank from a federal savings bank to an Iowa state-chartered commercial bank.  Accordingly, the Company is registered with the Federal Reserve as a bank holding company and is subject to Federal Reserve regulations, examinations, supervision and reporting requirements.  In addition, the Federal Reserve has general enforcement authority over the Company and its non-bank subsidiaries.  Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary depository institution.  As a bank holding company, the Company is subject to formal regulatory capital requirements and serves as a source of financial and managerial strength to the Bank.

Transactions between the Company or its subsidiaries and the Bank are subject to various conditions and limitations.  See “Regulation of Iowa State-Chartered Commercial Banks - Transactions with Affiliates” and “Regulation of Iowa State-Chartered Commercial Banks - Limitation on Capital Distributions.”

Change of Control.  Federal law requires, with few exceptions, Federal Reserve approval (or, in some cases, notice and effective clearance) prior to any acquisition of control of the Company. Among other criteria, under the Bank Holding Company Act as amended, the Change in Bank Control Act and Federal Reserve regulations, “control”

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is conclusively presumed to exist if a person or company acquires, directly or indirectly, more than 25% of any class of voting stock of the holding company or bank, or controls in any manner the election of a majority of the directors of the holding company or bank.  Control requiring application and registration as a bank holding company may also be found to exist where the Federal Reserve determines, after notice and opportunity for hearing that a company has the power, directly or indirectly, to exercise a controlling influence over the management or policies of a bank.  Federal Reserve regulations and guidance set forth certain factors and circumstances where the Federal Reserve may generally find that a controlling influence over a bank would exist.

Regulation of Iowa State-Chartered Commercial Banks

Business Activities.  The Bank derives its lending and investment powers from the Iowa Banking Act and the rules and regulations of the Iowa Division of Banking which are administered by the Iowa Superintendent of Banking (“Superintendent”), the Bank’s primary supervisor.  Under these laws and regulations, the Bank has broad authority to invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and other types of specified assets.

Capital Requirements.  Iowa law imposes minimum capital requirements on the Bank and requires that the minimum capital structure of the Bank shall not be less than the amount required by the FDIC, or a greater amount which the Superintendent may deem necessary.

As a state member bank subject to the primary federal supervision of the Federal Reserve, the Bank is also subject to minimum capital requirements imposed by the Federal Reserve.  The Federal Reserve uses two ratios to help assess the capital adequacy of state member banks: the risk-based capital ratio and the tier 1 leverage ratio.  A bank’s risk-based capital ratio is calculated by dividing its qualifying capital (the numerator of the ratio) by its risk-weighted assets (the denominator).  For the purpose of risk-based capital, a bank’s total capital consists of two types of components: ‘‘core capital elements’’ (which are included in tier 1 capital) and ‘‘supplementary capital elements’’ (which are included in tier 2 capital).  Tier 1 capital is generally defined as the sum of core capital elements less any amounts of goodwill, other intangible assets, interest-only strips receivables and nonfinancial equity investments that are required to be deducted.  Core capital elements consist of common stock; related surplus; and retained earnings, including capital reserves and adjustments for the cumulative effect of foreign currency translation, net of any treasury stock; less net unrealized holding losses on available- for-sale equity securities with readily determinable fair values.  The tier 1 component of a bank’s qualifying capital must represent at least 50% of qualifying total capital.

Banks are expected to meet a minimum ratio of capital to risk-weighted assets of 8%, with at least 4% taking the form of tier 1 capital. Banks that do not meet the minimum risk-based capital ratios, or that are considered to lack sufficient capital to support their activities, are expected to develop and implement capital plans acceptable to the Federal Reserve for achieving adequate levels of capital.

Prompt Corrective Action Regulations.  Under the Federal Reserve’s “prompt corrective action” or “PCA” regulations that implement section 38 of the Federal Deposit Insurance Act as amended, the Federal Reserve is required to take certain, and is authorized to take other, supervisory actions against undercapitalized member banks.  Section 38 requires the Federal Reserve to administer timely corrective action to state member banks when their capital position declines or is deemed to have declined below certain threshold levels as a result of an unsafe or unsound condition or practice.  The statute and implementing regulations utilize capital ratios to trigger specific actions that are designed to restore a bank to financial health.  For this purpose, a bank is placed in one of the following five categories based on the bank’s capital:

•           well capitalized;

•           adequately capitalized;

•           undercapitalized;

•           significantly undercapitalized; or

•           critically undercapitalized.

At December 31, 2011, the Bank met the criteria for being considered “well capitalized.”  When appropriate, the Federal Reserve can require corrective action by a bank’s holding company under the “prompt corrective action” provisions of federal law.

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Limitation on Capital Distributions.  Federal and Iowa law imposes various restrictions or requirements on the Bank’s ability to make capital distributions, including the payment of cash dividends.  Generally, a bank or bank holding company may continue its existing rate of cash dividends on common stock only if—

·   the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends; and

·   the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial condition.

Federal Reserve regulations implementing the PCA provisions of the Federal Deposit Insurance Act described above prohibits the payment of dividends when a bank is deemed to be undercapitalized or when the payment of the dividend would make the bank undercapitalized in accordance with the PCA framework. An organization that is undercapitalized for purposes of PCA must cease paying dividends for as long as it is deemed to be undercapitalized. Once earnings have begun to improve and an adequate capital position has been restored, dividend payments may resume in accordance with federal and state statutory limitations and guidelines.

Liquidity.  Liquidity refers to the ability to meet maturing obligations and commitments and incorporates considerations such as availability of funding and the degree of reliance on volatile or concentrated funding sources. Interest sensitivity considers the overall matching of rate sensitivities of assets and liabilities and the responsiveness of asset yields, interest expense, and interest margins to changes in market interest rates.  As part of their examination of a member bank, Federal Reserve examiners are instructed to assess the adequacy and reasonableness of the bank’s policies regarding liquidity, interest-rate risk, and funding, as well as management’s compliance with those policies.

Insurance of Deposit Accounts.  The Bank is a member of, and pays deposit assessments to, the Deposit Insurance Fund (“DIF”) which is administered by the FDIC.  The Dodd-Frank Act established a minimum designated reserve ratio of 1.35% for the DIF and requires the FDIC to take steps to reach this goal for estimated insured deposits by September 30, 2020.

All deposit accounts held at the Bank are insured up to $250,000 per depositor for each account ownership category. This standard maximum deposit insurance coverage was raised from $100,000 first on a temporary basis under the Emergency Economic Stabilization Act of 2008 and then made permanent under the Dodd-Frank Act. In order to maintain the DIF, member institutions are assessed an insurance premium. The amount of each institution’s premium has historically generally been based on the balance of insured deposits and the degree of risk the institution poses to the DIF.  However, as required by the Dodd-Frank Act, the assessment base for institutions is now based on the institution’s average consolidated total assets minus average tangible equity.

On December 31, 2009, along with each institution’s risk-based deposit insurance assessment for the third quarter of 2009, all non-exempt insured depository institutions were required to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. For purposes of calculating the prepaid amount, the base assessment rate in effect at September 30, 2009 was used for 2010, and increased by an annualized 3 basis points for 2011 and 2012 assessments. The prepayment calculation also assumes a five percent annual deposit growth rate, increased quarterly, through the end of 2012. As provided for in the final rule implementing the prepaid assessment requirement, an institution accounts for the prepayment by recording the entire amount of its prepaid assessment as a prepaid expense (an asset) as of December 31, 2009. Subsequently, each institution will record an expense (charge to earnings) for its regular quarterly assessment and an offsetting credit to the prepaid assessment until the asset is exhausted. Once the asset is exhausted, the institution will resume paying and accounting for quarterly deposit insurance assessments as they would normally.

On February 7, 2011, the FDIC Board approved a final rule that implements a new deposit insurance assessment system for insured depository institutions, including a new pricing structure for institutions with more than $10 billion in assets. The new assessment structure modified the previous deposit insurance assessment base from adjusted domestic deposits to an institution’s average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act.  Pursuant to the final rule, Tier 1 capital is used as the measure for tangible equity. Depository institutions with less than $1 billion in assets report average weekly balances during the calendar quarter, unless they elect to report daily averages. Since the new assessment base is larger than the former base, the new assessment structure includes revisions to the total base assessment rate schedule by lowering assessment rates, after adjustments, to a range between 2.5 and 9 basis points for depository institutions in the lowest risk category, and 30 to

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45 basis points for institutions in the highest risk category. The various adjustments incorporated into the schedule take into account the heightened risk with respect to certain types of funding such as unsecured debt and brokered deposits. The final rule eliminated the secured liability adjustment and included a new adjustment requirement for long-term debt held by an insured depository institution where the debt is issued by another insured depository institution. The final rule calls for the indefinite suspension of dividends whenever the fund reserve ratio exceeds 1.50%. In lieu of dividends, however, the final rule sets out additional rate schedules with progressively lower rates that would go into effect without further action by the FDIC Board when the fund reserve ratio reaches certain milestones. Importantly, the final rule retains the FDIC Board’s flexibility to adopt actual rates that are higher or lower than total base assessment rates without requiring further notice-and-comment rulemaking, but provides that: (1) the FDIC Board cannot increase or decrease rates from one quarter to the next by more than 2 basis points; and (2) cumulative increases and decreases cannot be more than 2 basis points higher or lower than the total base assessment rates. The changes generally took effect as of April 1, 2011 and were reflected in the June 30, 2011 fund balance and the invoices for assessments due September 30, 2011.

In addition to deposit insurance assessments, 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, 2011, the FDIC assessed DIF-insured deposits 0.660 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 based on quarterly Call Report submissions by commercial banks.  This obligation will continue until the Financing Corporation bonds mature in 2017 through 2019.

Under the Federal Deposit Insurance Act, the FDIC may terminate the insurance of an institution’s deposits upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.  Management does not know of any practice, condition or violation that might lead to termination of deposit insurance for the Bank.

Standards for Safety and Soundness.  The federal and state supervisory process that the Bank is subject to is designed to evaluate the safety and soundness of banking institutions, including the assessment of risk-management systems, financial condition, and compliance with laws and regulations and sets for guidelines for the safe and sound operation of banking institutions. 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 and authorize the Bank’s regulators to undertake enforcement actions to prevent unsafe or unsound operations or practices.

Loans to One Borrower.  The Bank’s lending authority is derived from the Iowa Banking Act and is subject to any restrictions that may be imposed by the Superintendent.  In general, Iowa law authorizes a state bank to grant loans and extensions of credit to one borrower in an amount not to exceed 15% of the state bank's aggregate capital.  Notwithstanding the general limitation, a state bank may grant loans and extensions of credit to one borrower in an amount not to exceed 25% of the state bank's aggregate capital if any amount that exceeds 15% is fully secured by one or any combination of certain types of eligible collateral as provided under the Iowa law.  Additionally, Iowa authorizes a state bank to grant loans and extensions of credit to one borrower not to exceed 25% of the state bank's aggregate capital if any amount that exceeds the lending limitations described above consists of obligations as endorser of negotiable chattel paper negotiated by endorsement with recourse, or as unconditional guarantor of nonnegotiable chattel paper, or as transferor of chattel paper endorsed without recourse subject to a repurchase agreement.  The Bank currently complies with applicable loans-to-one-borrower limitations.

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 and the Federal Reserve’s Regulation W.  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.  The affiliated transaction rules also generally prohibit the Bank from purchasing low-quality (i.e., non-performing) assets from an affiliate.  Affiliates must pledge qualifying collateral in amounts between 100% and 130% of the covered transaction in order to receive loans from the Bank.

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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 governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve.  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 than 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 of credit in excess of certain limits must be approved by the Bank’s board of directors.

Community Reinvestment Act.  Under the Community Reinvestment Act (“CRA”), as implemented by Federal Reserve 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 Federal Reserve, 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.  In particular, CRA regulations rate an institution based on its actual performance in meeting community needs by means of an assessment system that focuses on three tests:

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

• 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.

The CRA also requires all institutions to publicly disclose their CRA ratings.  The Bank received the highest rating of “Outstanding” in its most recent examination.

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

• Federal Truth In Lending Act, governing disclosures of credit terms for open-end and closed-end loan products to consumer borrowers;

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

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

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

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

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•      Servicemembers' Civil Relief Act, providing certain protections to members of the armed forces while in active military service;

•           Real Estate Settlement Procedures Act, governing disclosures of fee estimates that would be incurred by a borrower during the mortgage process; and

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

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

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

• Electronic Funds Transfer Act, which governs automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

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

Prohibitions Against Tying Arrangements.  As a depository institution, the Bank is subject to prohibitions on certain tying arrangements involving its products and those offered by its affiliates.  The Bank is prohibited, subject to certain exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional product or service from the institution or its affiliates rather than from a competitor of the institution or its affiliates.

Privacy Provisions.  The Bank has a privacy policy in place and is required to disclose its privacy policy, which includes identifying parties with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.  The Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties except under limited circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party.  Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

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

Identity Theft.  The federal banking agencies, including the Federal Reserve, issued a joint rule implementing Section 315 of the FACT Act, requiring each financial institution or creditor to develop and implement a written Identity Theft Prevention Program (a “Program”) to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts.  Among the requirements under the rule, the Bank is required to adopt “reasonable policies and procedures” to:

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identify relevant “red flags” for covered accounts and incorporate those red flags into the Program;

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

·   respond appropriately to any red flags that are detected to prevent and mitigate identity theft; and

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

The Bank has implemented a program to meet the requirements of the regulation, and believes it is currently in compliance with this regulation.

Anti-Money Laundering/Terrorist Financing Requirements.  The Company and the Bank are subject to the Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“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 an anti-money laundering program that includes, at a minimum: (i) internal policies, procedures, and controls designed to detect and prevent money laundering activities, (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;

• 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 to detect and report instances of money laundering through those accounts;

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

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

The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S. Department of the Treasury (“Treasury”), is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress.  The Bank and the Company, like all United States companies and individuals, are prohibited from transacting business with the individuals and entities named on OFAC’s list of Specially Designated Nationals and Blocked Persons.  If the Bank finds a name on any transaction account or wire transfer that is on an OFAC list, the Bank is required to investigate, and if the match is confirmed, the Bank must take additional actions including freezing such account, filing a suspicious activity report and notifying the FBI.  Failure to comply may result in fines and other penalties.  OFAC has

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issued guidance directed at financial institutions in which it asserted that it may, in its discretion, examine institutions determined to be high-risk or to be lacking in their efforts to comply with these prohibitions.

Enforcement.  The Iowa Division of Banking and the Federal Reserve share primary enforcement responsibility over the Bank, which is an Iowa state-chartered member 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, or other unsafe or unsound practices.

Federal Home Loan Bank System.  The Bank is a member of the FHLB of Des Moines, which is one of the regional FHLBs composing the FHLB System.  Each FHLB serves as a central credit facility for its member institutions by extending advances up to a maximum aggregate amount.  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 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 of Des Moines.  The Bank was in compliance with this requirement with an investment of $1.9 million in FHLB of Des Moines stock at December 31, 2011.

The operations and earnings of each FHLB affects the amount of dividends the FLHB can pay to its members and could also result in the FHLB imposing a higher rate of interest on advances to its members.  If dividends were reduced, or if interest on future FHLB advances were increased, the Bank’s net interest income would be adversely affected.

Federal Reserve System.  Under the Federal Reserve Act and the Federal Reserve’s regulations, the Bank is required to maintain reserves against its transaction accounts (primarily negotiable order of withdrawal (“NOW”) and regular checking accounts).  The regulations exempt the first $11.5 million of otherwise reservable balances from the reserve requirements.  A 3% reserve is required for transaction account balances over $11.5 million and up to $71.0 million.  Transaction account balances over $71.0 million are subject to a reserve requirement of $1.785million plus 10% of any amount over $71.0 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 Federal Reserve, 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 Federal Reserve may be used to satisfy liquidity requirements imposed by the Federal Reserve.

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

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

Listing on NASDAQ.  The Company’s common stock is listed on the NASDAQ Global Market.  In order to maintain such listing, the Company is subject to certain corporate governance requirements, including:

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

• a requirement 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 NASDAQ and by Exchange Act regulations;

• requirements for its nominating committee and compensation committee to also be composed entirely of independent directors, except under exceptional and limited circumstances; and

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• a requirement for each of its audit committee and nominating committee to have a publicly available written charter.

Sarbanes-Oxley Act of 2002.  As a public company, the Company is subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing including:

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

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

• a requirement that companies establish and maintain a system of internal control over financial reporting and that a company’s management provide an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to the Company’s regulator and the FDIC; the Company’s assessment of internal control over financial reports is included in Part II, Item 9A of this 10-K;

• a requirement that an independent accountant for a large accelerated filer or accelerated filer must provide an attestation report with respect to management’s assessment of the effectiveness of the company’s internal control over financial reporting; pursuant to a permanent exemption granted under the Dodd-Frank Act for smaller reporting companies, the Company is not subject to the independent accountant attestation requirement as long as it remains a smaller reporting company for SEC reporting purposes;

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

• a range of enhanced disclosure requirements as well as penalties for fraud and other violations.

Section 402 of the Sarbanes-Oxley Act 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.

ITEM 1A.                      RISK FACTORS

An investment in our common stock involves certain risks.  This section describes material risks that our management believes are specific to us and our business.  Before making an investment decision, you should read carefully and consider these risk factors in conjunction with the other information in this Form 10-K and information incorporated by reference into this Form 10-K, including our consolidated financial statements and related notes which are set forth in the Company’s 2011 Annual Report to Shareholders, incorporated by reference to Exhibit 13.1 to this Annual Report on Form 10-K.

This Form 10-K contains forward-looking statements that involve risks and uncertainties, including statements about our future plans, objectives, intentions and expectations. Past results are not a reliable indicator of future results, and historical trends should not be used to anticipate results or trends in future periods. The risk factors described below could cause actual results to differ materially from those discussed in forward-looking statements. The value or market price of our common stock could decline due to any of the risks described below, and you may lose all or part of your investment.

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RISK FACTORS

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 federal and state regulatory agencies for both the Company and the Bank, and by the FDIC as the insurer of the Bank’s deposits up to certain limits.  We also belong to the FHLB 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 a banking regulator’s supervisory policies or examination procedures, whether by our primary federal banking regulator, the FDIC, other state or federal regulators, the U.S. Congress or the Iowa legislature, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Liquidity risks could affect operations and jeopardize our financial condition.   Liquidity is essential to our business.  Our primary source of funding is retail deposits gathered through our network of branch offices. Our alternative funding sources include, without limitation, brokered certificates of deposit, federal funds purchased, Federal Reserve Discount Window borrowings, FHLB advances and short and long-term debt. An inability to raise funds through deposits, borrowings, the sale of loans and other sources to accommodate our existing and future lending and investment activities could have a substantial negative effect on our liquidity and severely constrain our financial flexibility.

The soundness of other financial institutions could adversely affect us.  Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.  Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships.  As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions.  Many of these transactions expose us to credit risk in the event of default of our counterparty or client.  In addition, our credit risk may be exacerbated when the collateral held by us cannot be relied upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure.  There is no assurance that any such losses would not materially and adversely affect our results of operations

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. Prior to 2010, we also purchased 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 repayment on the loan due to depreciation, damage, or loss.

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Any additional 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.

Low demand for real estate loans may lower our profitability. Making loans secured by real estate is our primary business and primary source of revenue. If customer demand for real estate loans further decreases, our profits may decrease because our alternative investments, primarily securities, generally earn less income than real estate loans. Customer demand for loans secured by real estate could be reduced due to weaker economic conditions, an increase in unemployment, a decrease in real estate values or an increase in interest rates.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.  Despite recent signs of improvement in the economy, given the high percentage of our assets represented, directly or indirectly, by loans and the importance of lending to our overall business, a relapse of the economy into recessionary conditions would likely have a negative impact on our business, our ability to serve our customers and our results of operations.  If the current economic environment worsens or does not improve, 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.  Any further downturn in the real estate market or local economy could exacerbate this risk.

Material additions to our allowance for loan losses to reflect the risk of additional unpaid loans 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 collectability 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.

The results of our operations may be adversely affected if asset valuations cause other-than-temporary impairment charges.  We may be required to record future impairment charges on our investment securities if they suffer declines in value that are considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on the Company’s investment portfolio in future periods. If an impairment charge is significant enough, it could affect the ability of the Bank to upstream dividends to the Company, which could have a material adverse effect on the Company’s liquidity and its ability to pay dividends to shareholders and could also negatively impact its regulatory capital ratios and result in the Bank not being classified as “well capitalized” for regulatory purposes.

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 could result in a decrease in 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 could increase more rapidly than the yields earned on our loan portfolio and securities portfolio. An increasing rate environment could cause a narrowing of our net interest rate spread and a decrease in our net interest income.

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Negative developments in the financial industry and the credit markets may subject us to additional regulation.  As a result of ongoing challenges facing the U.S. economy, the potential exists for the promulgation of new laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and credit markets, and the impact of new legislation and agency rulemakings in response to those developments, may negatively impact our operations by restricting our business operations, including our ability to originate or sell loans, and may adversely impact our financial performance.

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

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.

If external funds were not available, this could adversely impact our growth and prospects.  We rely on retail deposits, the amortization and prepayment of loans, the maturity and calls of investment securities, our operations and advances from the FHLB of Des Moines to fund our operations. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of the FHLB of Des Moines or market conditions were to change. In addition, if we fall below the FDIC’s thresholds to be considered “well capitalized” we will be unable to continue with uninterrupted access to the brokered funds markets. In addition, certain Federal Home Loan Banks have experienced lower earnings from time to time and paid out lower dividends to its members. Future problems at the Federal Home Loan Banks may impact the collateral necessary to secure borrowings and limit the borrowings extended to its member banks, require additional capital contributions by its member banks, and reduce or eliminate the dividends paid by the FHLB of Des Moines. Should this occur, we could have difficulty meeting our short term liquidity needs and the Bank’s net interest income could be affected.  In addition, future problems at the Federal Home Loan Banks could also cause the value of the equity investment we have in the stock of FHLB of Des Moines to decline or become impaired.  As of December 31, 2011, we held approximately $1.9 million in FHLB of Des Moines stock, representing approximately 0.43% of our total assets.

We may not be able to raise capital in the future on acceptable terms or at all.  We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate our capital resources will satisfy our capital requirements for the foreseeable future. We may at some point, however, need to raise additional capital to support our continued growth.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to satisfy regulatory capital requirements or expand our operations through internal growth and acquisitions could be materially impaired.

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A decline in the performance of our mortgage seller/servicers with respect to our commercial and multfamily real estate portfolio could adversely impact our financial condition or results of operations.  Our seller/servicers have a significant role in servicing loans in our commercial and multifamily real estate portfolio.  A decline in their performance could impact the overall quality of the service they provide, which could adversely affect our financial condition or results of operations and have significant impacts on our ability to mitigate credit losses.

               The downturn in our local economy may negatively affect our future growth possibilities by limiting funds available for deposit and our borrowers’ ability to repay their loans on a timely basis.  Our current primary market area is principally located in Webster, Story, Des Moines, Dallas, Polk, and Henry Counties, which are located in the north central, 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. Our future growth opportunities depend on the growth and stability of our regional economy and our ability to expand our market area. The current economic downturn could cause significant increases in non-performing loans, which would hurt our profits. Additionally, a decrease in asset quality could require additions to our allowance for loan losses through increased provisions for loan losses, which would hurt our profits. A decline in real estate values could cause some of our mortgage loans to become inadequately collateralized, which would expose us to a greater risk of loss.

The downgrade of U.S. government securities by the credit rating agencies could have a material adverse effect on the Company’s operations, earnings, and financial condition.  The debates in Congress regarding the national debt ceiling, federal budget deficit concerns, and overall weakness in the economy resulted in a downgrade of U.S. government securities by Standard & Poor’s, one of the three major credit rating agencies, in August 2011. While the federal banking agencies including the Federal Reserve and the FDIC have issued guidance indicating that, for risk-based capital purposes, the risk weights for U.S. Treasury securities and other securities issued or guaranteed by the U.S. government, government agencies, and government-sponsored entities will not be affected by the downgrade, the downgrade and the possible future downgrade of the federal government’s credit rating by one or both of the other two major rating agencies, could create uncertainty in the U.S. and global financial markets and cause other events which, directly or indirectly, may adversely affect the Company’s operations, earnings, and financial condition.

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

We may not be able to successfully implement our future plans for growth.  As a component of our business plan, we may consider expansion opportunities such as the acquisition of branches and other financial institutions as such opportunities arise. Significant changes in interest rates or the competition we face may make it difficult to attract the level of customer deposits needed to fund our internal growth at projected levels. Accordingly, there can also be no assurance that we will be able to adequately and profitably implement our possible future growth or that we will not have to incur additional expenditures beyond current projections to support such growth.

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

We may not be able to pay dividends in the future in accordance with past practice.  Our ability to pay dividends to our stockholders is primarily dependent on the Bank’s earnings.  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 the Company’s board of directors.  

            There may be future sales of additional common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock.  We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that

represent the right to receive, common stock or preferred stock or any substantially similar securities. Accordingly, the per share value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur.

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The trading volume in our common stock has been low, and the sale of a substantial number of shares of our common stock in the public market could depress the price of our common stock and make it difficult for you to sell your shares.  Our common stock is listed to trade on the NASDAQ Global Market, but is thinly traded. As a result, you may not be able to sell your shares of common stock on short notice. Additionally, thinly traded stock can be more volatile than stock trading in an active public market. The sale of a substantial number of shares of our common stock at one time could temporarily depress the market price of our common stock, making it difficult for you to sell your shares and impairing our ability to raise capital.

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 branches located in Fort Dodge, Nevada, Ames, Perry, Ankeny, Clive, West Des Moines, Burlington (two locations) and Mount Pleasant, Iowa all of which are owned by the Company.  The Company also leases administrative office space in West Des Moines, Iowa.  In addition, First Iowa Title owns an office building in Fort Dodge, Iowa and leases a second office in Boone, Iowa; First Federal Investments owns land and an office building in Fort Dodge, Iowa; Northridge Partnership owns a multifamily apartment building in Fort Dodge, Iowa; and Northridge Partnership II owns a multifamily apartment building in Fort Dodge, Iowa.  We believe that our facilities are suitable and adequate for our present needs.

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.                      MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

Information required by this Item is incorporated herein by reference to the Company’s 2011 Annual Report to Shareholders under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “Shareholder Information,” incorporated by reference to Exhibit 13.1 to this Annual Report on Form 10-K.  See Part III, Item 12, for the equity compensation plan information required by this Item.

               There were no purchases made by or on behalf of the Company or any “affiliated purchases” (as defined in rule 10b-18(a) (3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended December 31, 2011.  As of December 31, 2011, there were 64,250 shares of common stock available to be purchased as part of the Company’s previously publicly announced repurchase plan.

ITEM 6.                      SELECTED FINANCIAL DATA

               The information required by this Item is incorporated herein by reference to the Company’s 2011 Annual Report to Shareholders under the heading “Selected Consolidated Financial and Other Data,” incorporated by reference to Exhibit 13.1 to this Annual Report on Form 10-K.

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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 the Company’s 2011 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 the Company’s 2011 Annual Report to Shareholders under the heading “Quantitative and Qualitative Disclosures about Market Risk,” incorporated by reference to Exhibit 13.1 to this Annual Report on Form 10-K.

ITEM 8.                      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is incorporated herein by reference to the Company’s 2011 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’s Report on Internal Control Over Financial Reporting

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

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

Management has made a comprehensive review, evaluation, and assessment of the Company’s internal control over financial reporting as of December 31, 2011.  In making its assessment of internal control over financial reporting, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Based on that assessment, management concluded that, as of December 31, 2011, the internal control over financial reporting was effective.

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

Evaluation of Disclosure Controls and Procedures

Management has conducted an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2011.  The disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that we file with the SEC or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported on a timely basis.

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Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2011, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing, and reporting information required to be disclosed by the Company, within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to management to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter ending December 31, 2011, 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 Company is included under the headings “Information with Respect to Nominees and Continuing Directors,” “Nominees for Election as Directors,” “Continuing Directors,” “Information with Respect to 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, 2012, which has been filed with the SEC and is incorporated herein by reference.

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

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation is included under the heading “Executive Compensation” in the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 27, 2012, 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, 2012, which has been filed with the SEC and is incorporated herein by reference.

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 The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2011.

					Number of securities
					remaining available for future
	Number of securities				issuance under equity
	to be issued upon		Weighted-average		compensation plans
Plan category	exercise of outstanding		exercise price of		(excluding securities reflected
	options		outstanding options		in column (a))
		a		b		c
Equity compensation
plans approved by security		26,500	$	37.26		103,980
holders
Equity compensation
plans not approved by		17,000	$	38.38		-
security holders 1
Total		43,500	$	37.70		103,980	2
(1) The equity compensation plan not approved by shareholders is that portion of the 1996 Stock Option Plan which granted
nonqualified options to directors and officers out of a pool of 40,000 shares reserved to the plan without shareholder approval.
(2) Shares remaining from North Central Bancshares, Inc. 2006 Stock Incentive Plan approved by shareholders on April 28, 2006.
See Note 11 included with the financial statements of the annual report to the shareholders.

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

Information regarding certain relationships and related transactions is included under the heading “Transactions with Certain Related Persons” and “Board of Directors and Management” in the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 27, 2012, 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, 2012, 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 its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash flows for the years ended December 31, 2011, 2010, and 2009, 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.

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(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., as amended	(3)
3.3	Articles of Amendment to the Articles of Incorporation establishing Series A Preferred Stock	(4)
4.1	Specimen Stock Certificate of North Central Bancshares, Inc.	(2)
10.1	Tax Allocation Agreement between North Central Bancshares, Inc. and Subsidiaries	(3)
10.2+	North Central Bancshares, Inc. 1996 Stock Option Plan	(5)
10.3+	Amendment No. 1 to the North Central Bancshares, Inc. 1996 Stock Option Plan	(6)
10.4+	Form of Stock Option Agreement	(7)
10.5+	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	(2)
10.5A+	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	(8)
10.5B+	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	(8)
10.6+	ESOP Loan Documents, dated September 3, 1996	(9)
10.7+	Employment Agreement dated April 22, 2011 between North Central Bancshares, Inc. and First Federal Savings Bank of Iowa and David M. Bradley	(10)
10.8+	Employment Agreement dated April 22, 2011 between North Central Bancshares, Inc. and First Federal Savings Bank of Iowa and C. Thomas Chalstrom, amended and restated as of April 22, 2011	(10)
10.9+	Addendum to Employment Agreement dated April 22, 2011 between North Central Bancshares, Inc. and First Federal Savings Bank of Iowa and C. Thomas Chalstrom	(10)
10.10+	North Central Bancshares, Inc. 2006 Stock Incentive Plan	(11)
10.11+	North Central Bancshares, Inc. 2006 Incentive Award Plan	(12)
10.12+	Form of Restricted Stock Award Notice	(13)
10.13+	First Federal Savings Bank of Iowa Supplemental Retirement and Deferred Compensation Plan, as amended and restated effective as of January 1, 2005	(14)
13.1	North Central Bancshares, Inc. 2011 Annual Report to Shareholders	*
14.1	Code of Ethics for Senior Financial Officers of North Central Bancshares, Inc.	(3)
21.1	Subsidiaries of the Registrant	*
23.1	Consent of McGladrey & Pullen, LLP	*
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	*
32.1	Section 1350 Certification of Chief Executive Officer	*
32.2	Section 1350 Certification of Chief Financial Officer	*
99.1	Section 30.15 Certification	*
101	Interactive data files: (i) Consolidated Statements of Financial Condition, as of December 31, 2011 and 2010, (ii) Consolidated Statements of Income, Years Ended December 31, 2011, 2010 and 2009, (iii) Consolidated Statements of Comprehensive Income, Years Ended December 31, 2011, 2010 and 2009, (iv) Consolidated Statements of Changes in Stockholders’ Equity, Years Ended December 31, 2011, 2010 and 2009, (v) Consolidated Statements of Cash Flows, Years Ended December 31, 2011, 2010 and 2009, and (vi) Notes to Consolidated Financial Statements**

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+ Indicates a management contract or compensatory plan or arrangement.

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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

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

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

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

(5) Incorporated herein by reference to Registration Statement No. 333-33089 on form S-8 filed with the SEC on August 7, 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 Current Report on Form 8-K filed with the SEC on July 3, 2007.

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

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

(10) Incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on April 26, 2011.

(11) Incorporated herein by reference to Registration Statement No. 333-133810 on form S-8 filed with the SEC on May 4, 2006.

(12) Incorporated herein by reference to the Quarterly Report on Form 10-Q filed with the SEC on August 11, 2006.

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

(14) Incorporated herein by reference to the Current Report on Form 8-K filed with the SEC on February 27, 2009.

36

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 9, 2012 /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 David M. Bradley	President, Chief Executive Officer, Director, and Chairman of the Board (Principal Executive Officer)	03/09/2012
/s/ Jane M. Funk Jane M. Funk	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	03/09/2012
/s/ Robert H. Singer, Jr. Robert H. Singer, Jr.	Director	03/09/2012
/s/ Thomas E. Stanberry Thomas E. Stanberry	Director	03/09/2012
/s/ Mark M. Thompson Mark M. Thompson	Director	03/09/2012
/s/ Randall L. Minear Randall L. Minear	Director	03/09/2012
/s/ Paul F. Bognanno Paul F. Bognanno	Director	03/09/2012
/s/ C. Thomas Chalstrom C. Thomas Chalstrom	Director	03/09/2012

37

EX-21.1

Exhibit 21.1                      Subsidiaries of the Registrant

Subsidiaries of the Registrant

Company Name	Jurisdiction
First Federal Savings Bank of Iowa (Formerly known as First Federal Savings Bank of Fort Dodge)	Iowa
First Federal Investment Services, Inc.	Iowa
First Iowa Mortgage, Inc.	Iowa
First Iowa Title Services, Inc.	Iowa
Northridge Apartments Limited Partnership I	Iowa
NC Properties, LLC	Iowa
Northridge Apartments Limited Partnership II	Iowa

38

EX-23.1

Exhibit 23.1                      Consent of McGladrey & Pullen, LLP

Consent of Independent Registered Public Accounting Firm

To the Board of Directors

North Central Bancshares, Inc.

Fort Dodge, Iowa

We consent to the incorporation by reference in the Registration Statement (Registration #333-33089) on Form S-8 as filed with the Commission on August 7, 1997, the Registration Statement (Registration #333-82490) on Form S-8 as filed with the Commission on February 11, 2002, the Registration Statement (Registration #333-133810) on Form S-8 as filed with the Commission on May 4, 2006, Registration Statement No. 333-157027 on Form S-3 (Registration #333-157172) as filed with the Commission on March 27, 2009, and the Registration Statement (Registration #333-168640 ) on Form S-8 as filed with the Commission on August 9, 2010 of  North Central Bancshares, Inc. of our report dated March 9, 2012, relating to our audit of the consolidated financial statements, which appears in this Annual Report on Form 10-K of North Central Bancshares, Inc. and subsidiaries for the year ended December 31, 2011.

/s/ McGladrey & Pullen, LLP

Des Moines, Iowa

March 9, 2012

39

EX-31.1

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

CERTIFICATION

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

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 13(a)-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) 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 being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c.   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

d.   Disclosed in this report any change in Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent 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 9, 2012	/s/ David M. Bradley
	David M. Bradley
	President and Chief Executive Officer

40

EX-31.2

Exhibit 31.2     Rule 13a-14(a)/15d-14(a) Certification

CERTIFICATIONS

I, Jane M. Funk, 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 13(a)-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) 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 being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c. 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

d. Disclosed in this report any change in Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent 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 9, 2012	/s/ Jane M. Funk
	Jane M. Funk
	Chief Financial Officer and Treasurer

41

EX-32.1

Exhibit 32.1     Section 1350 Certification

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of North Central Bancshares, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David M. Bradley, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1)   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

2)   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.

March 9, 2012                                                                            /s/ David M. Bradley

                                                                                                    David M. Bradley

                                                                                                    President and Chief Executive Officer

42

EX-32.2

Exhibit 32.2     Section 1350 Certification

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of North Central Bancshares, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jane M. Funk, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

1) 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

2) 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.

March 9, 2012                                                                             /s/ Jane M. Funk

Jane M. Funk

Chief Financial Officer and Treasurer

43

EX-99.1

Exhibit 99.1     Section 30.15 Certification

North Central Bancshares, Inc.

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 31 C.F.R. 30.15(a)(3)

The undersigned, David M. Bradley and Jane M. Funk, Chief Executive Officer and Chief Financial Officer of North Central Bancshares, Inc. (the “Company”) respectively, do hereby certify, based on our knowledge, that:

i.The Personnel and Compensation Committee of the Company has discussed, reviewed, and evaluated with senior risk officers at least every six months during any part of the most recently completed fiscal year that was a TARP period (the “applicable period”), senior executive officer (“SEO”) compensation plans and employee compensation plans and the risks these plans pose to the Company;

ii.The Personnel and Compensation Committee of the Company has identified and limited during the applicable period the features in the SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company and has identified any features in the employee compensation plans that pose risks to the Company and limited those features to ensure that the Company is not unnecessarily exposed to risks;

iii.The Personnel and Compensation Committee has reviewed at least every six months during the applicable period the terms of each employee compensation plan and identified the features in the plan that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee and has limited those features;

iv.The Personnel and Compensation Committee of the Company will certify to the reviews of the SEO compensation plans and employee compensation plans required under (i) and (iii) above;

v.The Personnel and Compensation Committee of the Company will provide a narrative description of how it limited during any part of the most recently completed fiscal year that was a TARP period the features in:

(A)   SEO compensation plans that could lead SEOs to take unnecessary and excessive risks that could threaten the value of the Company;

(B)   Employee compensation plans that unnecessarily expose the Company to risks; and

(C)   Employee compensation plans that could encourage the manipulation of reported earnings of the Company to enhance the compensation of an employee;

vi.The Company has required that bonus payments to SEOs or any of the next twenty most highly compensated employees, as defined in the regulations and guidance established under Section 111 of EESA (bonus payments), be subject to a recovery or “clawback” provision during any part of the most recently completed fiscal year that was a TARP period if the bonus payments were based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria;

vii.The Company has prohibited any golden parachute payment, as defined in the regulations and guidance established under Section 111 of EESA, to a SEO or any of the next five most highly compensated employees during the applicable period;

viii.The Company has limited bonus payments to its applicable employees in accordance with Section 111 of EESA and the regulations and guidance established thereunder during the applicable period;

ix.The Company and its employees have complied with the excessive or luxury expenditures policy, as defined in the regulations and guidance established under Section 111 of EESA, during the applicable period; and any expenses that, pursuant to the policy, required approval of the board of directors, a committee of the board of directors, a SEO, or an executive officer with a similar level of responsibility, were properly approved;

x.The Company will permit a non-binding shareholder resolution in compliance with any applicable federal securities rules and regulations on the disclosures provided under the federal securities laws related to SEO compensation paid or accrued during the applicable period;

xi.The Company will disclose the amount, nature, and justification for the offering, during the applicable period, of any perquisites, as defined in the regulations and guidance established under Section 111 of EESA, whose total value exceeds $25,000 for each employee subject to the bonus payment limitations identified in paragraph (viii);

xii.The Company will disclose whether the Company, the board of directors of the Company, or the Personnel and Compensation Committee of the Company has engaged during the applicable period a compensation consultant; and the services the compensation consultant or any affiliate of the compensation consultant provided during this period;

xiii.The Company has prohibited the payment of any gross-ups, as defined in the regulations and guidance established under Section 111 of EESA, to the SEOs and the next twenty most highly compensated employees during the applicable period;

xiv.The Company has substantially complied with all other requirements related to employee compensation that are provided in the agreement between the Company and Treasury, including any amendments;

xv.The Company has submitted to Treasury a complete and accurate list of the SEOs and the twenty next most highly compensated employees for the current fiscal year, with the non-SEOs ranked in descending order of level of annual compensation, and with the name, title, and employer of each SEO and most highly compensated employee identified; and

xvi.I understand that a knowing and willful false or fraudulent statement made in connection with this certification may be punished by fine, imprisonment, or both. (See, for example, 18 U.S.C. 1001).

NORTH CENTRAL BANCSHARES, INC.

Date:           March 9, 2012                                                                           BY:           _/s/ David M. Bradley__________________

        David M. Bradley, Chairman, President & CEO

Date:           March 9, 2012                                                                           BY:           _/s/ Jane M. Funk_____________________

        Jane M. Funk, Chief Financial Officer and Treasurer

44

EX-13.1

NORTH CENTRAL

BANCSHARES, INC.

Holding Company for

First Federal Savings Bank

OF IOWA

2011 ANNUAL REPORT

TABLE OF CONTENTS

MESSAGE OF THE CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER	3
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA	4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS	7
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	27
DIRECTORS AND MANAGEMENT OF THE COMPANY AND THE BANK	30
SHAREHOLDER INFORMATION	32
INDEX TO FINANCIAL STATEMENTS	35

This Annual Report to Shareholders contains certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and the 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, changes in depositor preferences for financial products, competition, interest rate sensitivity and exposure to regulatory and legislative changes, and other risks and uncertainties that are identified and more fully described in the Risk Factors section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  Forward-looking statements also include statements with respect to the Company’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to the significant risks and uncertainties described above and in the Risk Factors section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.  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

2

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, 2011.  North Central Bancshares is the holding company for First Federal Savings Bank of Iowa (the “Bank”).

For the year ended December 31, 2011, North Central Bancshares reported net income of $2.6 million or $1.53 diluted earnings per common share.  While the Company continued to experience higher than historical levels of provisions for loan losses, foreclosed real estate impairments and real estate owned expenses that impacted earnings, the Company’s credit quality metrics showed marked improvement as of December 31, 2011.  While blessed with moderate unemployment rates as compared to the rest of the United States, many families and businesses in the Company’s market areas continued to struggle financially in 2011.

We are very pleased to report several actions completed during 2011.  On December 14, 2011 the Company announced that it had redeemed all $10.2 million of its Series A preferred stock issued to the U.S. Department of the Treasury (“Treasury”).  In addition, on January 11, 2012 the Company announced that it had completed the repurchase of the warrant to purchase the Company’s common stock held by the Treasury, thus ending the Company’s participation in the Treasury’s Troubled Asset Relief Program Capital Purchase Program (“TARP CPP”).  The Company was able to accomplish these actions without raising additional capital or incurring holding company debt.

Additional positive actions taken during 2011 included the Bank’s conversion to a state-chartered commercial bank regulated by the Iowa Division of Banking from a federally-chartered stock savings bank.  In connection with this conversion, the Bank was approved as a Federal Reserve member bank and the Company was granted approval by the Board of Governors of the Federal Reserve System to reorganize as a bank holding company from a savings and loan holding company.  We are very excited about these changes as they are closely aligned to the Company’s strategic focus on serving the financial needs of businesses and families within each of our markets.

We remain hopeful regarding the future but remain deeply concerned regarding the increased regulatory costs and restrictive burdens imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act on the banking industry.

With the support of our team members, directors, and the continuing confidence of our shareholders, we look forward to meeting the challenges of 2012.  As always, we remain committed to increasing shareholder value.

Sincerely,

/s/ David M. Bradley

David M. Bradley

Chairman, President and Chief Executive Officer

3

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,
	2011			2010			2009			2008			2007
	(In thousands)
Selected Consolidated Financial
Condition Data:
Total assets	$	433,022		$	452,264		$	455,011		$	473,298		$	510,193
Cash (noninterest bearing)		8,238			7,041			8,961			9,718			9,394
Loans receivable (1)		317,224			340,607			382,026			406,166			450,344
Allowance for loan losses		(5,846	)		(6,147	)		(7,171	)		(5,379	)		(3,487	)
Investment securities (2)		83,888			77,705			39,904			34,094			19,731
Deposits (3)		360,851			349,833			334,813			350,170			365,948
Borrowed funds		25,750			49,250			66,500			82,349			97,379
Total stockholders' equity		42,097			49,175			48,279			35,212			40,977

	For the Year Ended December 31,
	2011		2010		2009			2008			2007
	(In thousands)
Selected Operating Data:
Interest income	$	20,215	$	22,209	$	24,899		$	28,357		$	31,119
Interest expense		5,689		7,746		10,338			15,317			18,153
Net interest income		14,526		14,463		14,561			13,040			12,966
Provision for loan losses		2,135		4,091		2,450			2,240			655
Net interest income after
provision for loan losses		12,391		10,372		12,111			10,800			12,311
Noninterest income:
Fees and service charges		4,760		4,808		4,959			4,992			4,668
Abstract fees		561		637		929			1,006			991
Other income		2,255		2,493		2,490			1,830			1,821
Total noninterest income		7,576		7,938		8,378			7,828			7,480
Investment securities gains (losses):
Other-than-temporary-impairment losses		-		-		(23	)		(6,049	)		-
Realized securities gains (losses), net		136		8		363			(171	)		-
Total securities gains (losses), net		136		8		340			(6,220	)		-
Noninterest expense:
Compensation and employee benefits		7,810		7,615		7,364			7,365			7,699
Premises and equipment		1,841		1,895		1,879			1,776			1,573
Data processing		869		872		809			952			805
FDIC insurance expense		431		562		760			172			43
Foreclosed real estate impairment		556		479		518			432			-
Goodwill impairment		-		-		-			4,947			-
Other expenses		5,172		4,712		4,785			4,400			4,012
Total noninterest expense		16,679		16,135		16,115			20,044			14,132
Income (loss) before income taxes		3,424		2,183		4,714			(7,636	)		5,659
Provision (benefit) from income taxes		786		478		1,525			(1,360	)		1,658
Net income (loss)	$	2,638	$	1,705	$	3,189		$	(6,276	)	$	4,001
Less: preferred stock dividend and discount		550		529		515			-			-
Net income (loss) available to common stockholders	$	2,088	$	1,176	$	2,674		$	(6,276	)	$	4,001

4

	At or For the Year Ended December 31,
	2011			2010			2009			2008			2007
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)		3.33	%		3.19	%		3.13	%		2.63	%		2.40	%
Net interest margin (net interest income as a
percentage of average interest-earnings assets)		3.49			3.38			3.36			2.84			2.65
Return on average assets (net income divided
by average total assets)		0.59			0.37			0.69			(1.27	)		0.77
Return on average equity (net income divided
by average equity)		5.22			3.47			6.79			(15.33	)		9.53
Noninterest income to average assets		1.69			1.74			1.81			1.54			1.44
Efficiency ratio (4)		74.58			72.03			70.25			72.35			69.12
Noninterest expense to average assets		3.73			3.53			3.49			4.05			2.72
Financial Condition Ratios: (%) (5)
Equity to assets at period end		9.72			10.87			10.61			7.44			8.03
Tangible equity to tangible assets at
period end (6) (7)		9.62			10.74			10.48			7.31			7.01
Average shareholders' equity divided by
average total assets		11.29			10.76			10.16			8.28			8.09
Average tangible shareholders' equity divided
by average tangible total assets (6) (7)		11.20			10.62			10.04			7.23			7.09
Average interest-earning assets to average
interest-bearing liabilities		111.71			110.89			109.91			106.15			106.88
Asset Quality Ratios: (%) (5)
Nonaccrual loans to total net loans		1.51			3.46			3.83			1.00			0.53
Nonperforming assets to total assets (8)		1.50			3.57			3.54			1.95			0.97
Allowance for loan losses as a percent of total
loans receivable at end of period		1.84			1.80			1.87			1.32			0.77
Allowance for loan losses to nonaccrual loans		124.59			53.13			49.97			134.34			146.36
Per Share Data:
Book value per common share	$	31.02		$	28.84		$	28.24		$	26.21		$	30.56
Tangible book value per common share (6)		30.67			28.34			27.74			25.71			26.37
Basic earnings (loss) per common share (9)		1.55			0.87			1.99			(4.69	)		2.96
Diluted earnings (loss) per common share (10)		1.53			0.87			1.99			(4.69	)		2.93
Dividends declared per common share		0.04			0.04			0.04			0.72			1.40
Dividend payout ratio		0.03			0.05			0.02			(0.15	)		0.47

_______________________

(1) Loans receivable represents total loans less discounts, loans in process, net deferred loan fees plus premiums.

(2) Includes securities available-for-sale, restricted equity securities, investments in certificates of deposit and interest-bearing cash.

(3) Includes brokered certificates of deposits of $567,000, $558,000, $601,000, $15.6 million, and $23.6 million for the years ended December 31, 2011, 2010, 2009, 2008, and 2007, respectively.

(4) Efficiency ratio represents noninterest expense, excluding goodwill and title plant impairment, divided by the sum of net interest income before provision for loan losses plus noninterest income, excluding provision for impairment of securities and gain/(loss) on sale of investments.

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

5

(6) Tangible equity consists of stockholders’ equity less goodwill and title plant.  Title plant was $476,000 for year ended December 31, 2011 and $672,000 for the years ended December 31, 2010, 2009, 2008 and 2007.  Goodwill was $4.9 million for the year ended December 31, 2007.

(7) Tangible assets consist of total assets less goodwill and title plant.  Title plant was $476,000 for year ended December 31, 2011 and $672,000 for the years ended December 31, 2010, 2009, 2008 and 2007.  Goodwill was $4.9 million for the year ended December 31, 2007.

(8)           Nonperforming assets consists of nonaccrual loans, loans 90 days past due and still accruing interest, foreclosed real estate and other nonperforming assets.

(9) Basic earnings per common share information is calculated by dividing net income by the weighted average number of common shares outstanding.  The weighted average number of common shares outstanding for basic earnings per common share computation for 2011, 2010, 2009, 2008, and 2007 were 1,350,077, 1,346,949, 1,342,320, 1,339,388, and 1,353,399, respectively.

(10) Diluted earnings per common share information is calculated by dividing net income by the weighted average number of common shares outstanding, adjusted for the effect of dilutive potential common shares outstanding which consists of stock options granted, common stock warrants  and unvested restricted stock.  The weighted average number of common shares outstanding for diluted earnings per common share computation for 2011, 2010, 2009, 2008, and 2007 were 1,361,436, 1,352,642, 1,346,453, 1,339,388, and 1,367,295, and respectively.

6

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 state-chartered commercial bank.  References to “Company,” “we,” “our, and “us” are used throughout this report to refer to North Central Bancshares, Inc. individually, and/or collectively, with its subsidiaries, as context may require.  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, gain on sale of loans and other income, and noninterest expense, which primarily consists of compensation and employee benefit expenses, premises and equipment, insurance assessments paid to the Federal Deposit Insurance Corporation (“FDIC”), 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 are events beyond the control of the Company.

Executive Overview

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

Management believes the following factors had the most significant impact on our ability to achieve these goals in 2011:

•         On December 14, 2011, the Company redeemed all $10,200,000 of its Series A preferred stock issued to the United States Department of the Treasury (“Treasury”) under the Treasury’s Troubled Asset Relief Program’s Capital Purchase Program (“TARP CPP”).  On January 11, 2012, the Company completed the repurchase of the warrant to purchase the Company’s common stock (“Warrant”) held by the Treasury.  The Company paid $600,000 to the Treasury to repurchase the Warrant.  With these transactions, the Treasury no longer holds any investment in the Company.  The Bank continues to meet the requirements to be considered well-capitalized under regulatory requirements with a total risk based capital ratio of 14.7% and Tier 1 Capital ratio of 8.7% at December 31, 2011.  

•       Effective June 29, 2011, the Bank completed its conversion to a state-chartered commercial bank regulated by the Iowa Division of Banking from a federally-chartered stock savings bank and the Company completed a reorganization to a bank holding company regulated by the Federal Reserve Bank of Chicago from a savings and loan holding company.  The Bank is a state member bank of the Federal Reserve Bank of Chicago.  

•       Gross loans amounted to $318.1 million and $341.2 million as of December 31, 2011 and 2010, representing a decrease of 6.8%.  The decline in the loan portfolio is primarily the result of a decrease in loan volume due to low demand for new loans as payments and prepayments exceed originations in most loan categories.  As the Bank has significantly restricted new out-of-state lending, payments and repayments from out-of-state loans exceeded the Bank’s ability to reinvest those funds through local lending for most of 2011.  

•       Nonperforming assets decreased $9.7 million from $16.2 million at December 31, 2010 to $6.5 million at December 31, 2011. The Bank recorded a provision for loan losses of $2.1 million during the year ended December 31, 2011 compared to $4.1 million for the year ended December 31, 2010.  The Company continues to monitor its loan portfolio with the objective of minimizing defaults or write-downs. Despite these actions, the possibility of additional losses in loans and losses in the value of real estate owned can not be eliminated.  

•   The Company has increased liquidity with the investment of funds in securities available-for-sale.  

7

Business Strategy

As described above, the Company’s current business strategy is to operate the Bank as a well-capitalized, profitable and community-oriented commercial bank. Generally, the Company has sought to implement this strategy primarily by using deposits and advances from the FHLB as its source of funds and maintaining a substantial part of its assets in loans secured by one- to four-family residential real estate, multifamily real estate and commercial real estate located both inside and outside the Company’s market area, consumer, business and other loans and other liquid investment securities. Specifically, the Company’s business strategy incorporates the following elements: (1) operating the Bank as a community-oriented commercial bank, maintaining a strong core customer base by providing dedicated service to the individual consumer and business customers; (2) improving asset quality while continuing to emphasize investment in residential mortgage, multifamily and commercial real estate loans and business and consumer loans; (3) emphasizing growth in core retail and commercial deposits, which includes demand deposit, money market and savings accounts; (4) maintaining capital in excess of regulatory requirements; (5) managing interest rate risk exposure; (6) managing liquidity; and (7) increasing noninterest income through items such as 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.

Deposit Base. In 2011, the Company had eleven offices located in the following Iowa communities: Fort Dodge (two locations), Ames, Nevada, Perry, Ankeny, Clive, West Des Moines, Burlington (two locations) and Mount Pleasant.  At December 31, 2011, 61.4% of the deposit base, or $221.6 million, consisted of core deposits, which included money market accounts, savings accounts, interest-bearing demand accounts, and noninterest-bearing demand accounts. This represents an increase of 10.4%, or $20.9 million from December 31, 2010. 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 its deposit base, including retail and commercial 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 areas.  At December 31, 2011, 32.0% 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 had, prior to 2010, 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.  At December 31, 2011, the Company’s portfolio of loans which were either originated or purchased by the Company and secured by properties outside the State of Iowa totaled $71.4 million and consisted of $6.7 million in one- to four-family residential mortgage loans, or 2.1%, $30.0 million in multifamily real estate loans, or 9.4%, $32.9 million in commercial real estate loans, or 10.3%, and $1.8 million in construction and land development loans, or 0.6%, of the Company’s total gross loan portfolio.  The Company originated $5.6 million of new out-of-state loans secured by multifamily and commercial real estate during 2011 and none during 2010.  The Company also invests in obligations of local, state and U.S. government agencies, mortgage-backed securities, collateralized mortgage obligations, corporate bonds, certificates of deposit, interest-earning deposits and FHLB and Federal Reserve Bank stock.

Generally, the yield on mortgage loans originated or purchased by the Company is greater than that of securities purchased by the Company.  Economic conditions and weak loan demand have resulted in diminished lending opportunities. As a result, the Company has increased its investment in securities which has strengthened liquidity, but also put pressure on net interest margins.

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 years ended December 31, 2011 and 2010, fees and service charges relating to core deposits totaled $4.7 million and $4.8 million, respectively.  The Company also maintains its noninterest income through emphasizing growth in gain on sale of loans, annuity and insurance product sales.  

8

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.  Noninterest income from First Iowa’s business for the year ended December 31, 2011 declined $76,000 to $561,000, compared to $637,000 for 2010.  First Iowa’s fee income is impacted by competition in our market and mortgage underwriting requirements.  In February 2012, the Company implemented a plan to sell First Iowa.

Liquidity and Interest Rate Risk Management.  Management seeks to manage the Company’s interest rate risk exposure by monitoring the levels of interest rate sensitive assets and liabilities while maintaining an acceptable interest rate spread.  To manage the Company’s interest rate exposure, the Bank has historically originated five year and seven year fixed-rate mortgage loans that convert to adjustable rates at the conclusion of their initial term and have overall maturities of up to 30 years, and originates 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 agency bond securities and collateralized mortgage obligations.  In addition, the Company generally sells all fixed-rate one- to four-family residential loans with maturities of greater than 15 years.  See “Discussion of Market Risk - Interest Rate Sensitivity Analysis” below for additional information.

Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

Major financial reform legislation, known as the Dodd-Frank Act, was signed into law by the President in July 2010. Among other things, the Dodd-Frank Act impacts the rules governing the provision of consumer financial products and services, and implementation of the many requirements of the legislation requires new mandatory and discretionary rulemakings by numerous federal regulatory agencies over the next several years.  Many of the provisions of the Dodd-Frank Act affecting the Company and Bank have effective dates ranging from immediately upon enactment of the legislation to several years following enactment of the Dodd-Frank Act.

The Company and Bank are continuing to closely monitor and evaluate developments under the Dodd-Frank Act with respect to our business, financial condition, results of operations and prospects.  We remain hopeful regarding the future but remain deeply concerned regarding the increased regulatory costs and restrictive burdens imposed by the Dodd-Frank Act on the banking industry.

Critical Accounting Policies

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures included elsewhere in this report, are based on the Company’s 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” of the Company’s audited 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 those related to the allowance for loan losses and asset impairment judgments.

The allowance for loan losses is established through a provision for loan losses charged to expense.  Loans are charged against the allowance for loan losses when management believes that collectability 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.

9

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 lack of intent of the Company to sell the security or whether it is more-likely-than-not that the Company will be required to sell the security before its anticipated recovery.

Asset impairment judgments also include evaluation of fair value of foreclosed real estate.  Foreclosed real estate is initially recorded at fair value less estimated selling costs.  Subsequently it is carried at the lower of cost or fair value less estimated selling costs.  Fair value is estimated through current appraisals or listing prices.  Estimated fair values may be adjusted by management to reflect current economic and market conditions.

Comparison of Financial Condition as of December 31, 2011 and December 31, 2010

	December 31,		December 31,
	2011		2010		Change			Change %
Cash and cash equivalents	$	17,405,082	$	20,603,808	$	(3,198,726	)		-15.5	%
Investments in certificates of deposit		3,631,000		12,689,000		(9,058,000	)		-71.4	%
Securities available-for-sale		67,966,957		48,435,771		19,531,186			40.3	%
Loans receivable, net		311,377,863		334,460,567		(23,082,704	)		-6.9	%
Other assets		32,640,716		36,074,520		(3,433,804	)		-9.5	%
Total assets	$	433,021,618	$	452,263,666	$	(19,242,048	)		-4.3	%
Non-interest bearing DDA	$	20,611,897	$	19,089,162	$	1,522,735			8.0	%
Interest bearing DDA		133,265,490		116,865,788		16,399,702			14.0	%
Savings accounts		33,272,368		30,713,715		2,558,653			8.3	%
Money market accounts		34,437,965		33,999,781		438,184			1.3	%
Certificates of deposit		138,696,462		148,606,655		(9,910,193	)		-6.7	%
Certificates of deposit - brokered		566,545		557,803		8,742			1.6	%
Total deposits	$	360,850,727	$	349,832,904	$	11,017,823			3.1	%
Borrowed funds	$	25,750,000	$	49,250,000	$	(23,500,000	)		-47.7	%
Total stockholders' equity	$	42,097,482	$	49,175,290	$	(7,077,808	)		-14.4	%

Total assets decreased $19.2 million, or 4.3%, to $433.0 million at December 31, 2011, from $452.3 million at December 31, 2010.  The decrease in assets consisted primarily of a decrease in net loans receivable and investments in certificates of deposits, offset in part by an increase in securities available-for-sale.

Total loans receivable, net, decreased primarily due to payments and prepayments of $102.1 million and sales of loans with a principal balance of $34.9 million during the year ended December 31, 2011.  The Company sells substantially all of the fixed-rate loans with maturities of more than 15 years to participants in the secondary mortgage market to reduce interest rate risk.  These payments and sales of loans were offset in part by the origination of $64.3 million in first mortgage loans secured by one-to-four family residences, the origination of $19.5 million in first mortgage loans secured by commercial real estate, the origination of $5.8 million in first mortgage loans secured by multifamily residences and the origination of $14.6 million in second mortgage loans during the year ended December 31, 2011.  The Bank has significantly restricted new out-of-state lending due to prevailing market conditions.  Payments and repayments from the out-of-state loan portfolio exceeded the Bank’s ability to reinvest those funds through local lending for most of 2011.

The decrease in cash and cash equivalents was primarily due to purchases of securities available-for-sale and the redemption of $10.2 million of preferred stock.  Purchases of securities available-for-sale amounting to $37.6 million for the year ended December 31, 2011 were offset in part by payments, maturities and sales of $19.5 million.  The increase in securities available-for-sale were primarily funded by loan repayments that exceeded loan originations, increases in deposits and proceeds from maturities on investments in certificates of deposits.

The increase in deposits was primarily a reflection of increases in interest bearing deposits, noninterest-bearing deposits, savings accounts and money market accounts, offset in part by decreases in certificates of deposits.  

10

Interest bearing demand deposits increased primarily due to the Company’s promotion of F1Rst Perks Checking, which is a high yield checking account introduced in late 2009 that offers a higher interest rate based on certain transactional activity, and the promotion of business commercial checking accounts. The decline in certificates of deposit was a result of pricing in the marketplace as the Bank’s need for longer term funding was diminished in 2011 based on loan demand and excess cash position.  Borrowings decreased due to normal repayment of borrowings resulting from maturities, offset by new FHLB advances of $5.5 million.  Funding for the repayment of FHLB advances was provided primarily by net growth in deposits and loan repayments exceeding loan originations.

Total stockholders’ equity decreased primarily due to the Company’s redemption of all 10,200 shares of preferred stock for $10.2 million and common and preferred stock dividends declared to stockholders amounting to $605,000, offset in part by earnings for the year of $2.6 million and an increase in the market value of the investment portfolio, of approximately $1.0 million net of tax.  The preferred stock that was redeemed by the Company had a carrying value of $10,152,134 ($10.2 million net of a $47,866 unaccreted discount) on the Company’s balance sheet.  As a result of the redemption, the Company has accelerated accretion of the discount and recorded it as a reduction to retained earnings.

Comparison of Financial Condition as of December 31, 2010 and December 31, 2009

	December 31,		December 31,
	2010		2009		Change			Change %
Cash and cash equivalents	$	20,603,808	$	21,766,170	$	(1,162,362	)		-5.3	%
Investments in certificates of deposit		12,689,000		-		12,689,000			100.0	%
Securities available-for-sale		48,435,771		23,175,201		25,260,570			109.0	%
Loans receivable, net		334,460,567		374,854,993		(40,394,426	)		-10.8	%
Other assets		36,074,520		35,214,595		859,925			2.4	%
Total assets	$	452,263,666	$	455,010,959	$	(2,747,293	)		-0.6	%
Non-interest bearing DDA	$	19,089,162		16,184,866	$	2,904,296			17.9	%
Interest bearing DDA		116,865,788		77,694,324		39,171,464			50.4	%
Savings accounts		30,713,715		28,865,675		1,848,040			6.4	%
Money market accounts		33,999,781		36,095,478		(2,095,697	)		-5.8	%
Certificates of deposit		148,606,655		175,371,233		(26,764,578	)		-15.3	%
Certificates of deposit - brokered		557,803		601,484		(43,681	)		-7.3	%
Total deposits	$	349,832,904	$	334,813,060	$	15,019,844			4.5	%
Borrowed funds	$	49,250,000	$	66,500,000	$	(17,250,000	)		-25.9	%
Total stockholders' equity	$	49,175,290	$	48,278,818	$	896,472			1.9	%

Total assets decreased $2.7 million, or 0.6%, to $452.3 million at December 31, 2010, from $455.0 million at December 31, 2009.  The decrease in assets consisted primarily of a decrease in net loans receivable, offset in part by an increase in securities available-for-sale and investments in certificates of deposit.

Total loans receivable, net, decreased primarily due to payments and prepayments of $99.8 million and sales of loans of $50.4 million during the year ended December 31, 2010.  The Company sells substantially all of the fixed-rate loans with maturities of more than 15 years to participants in the secondary mortgage market to reduce interest rate risk.  These payments and sales of loans were offset in part by the origination of $71.2 million in first mortgage loans secured by one-to-four family residences, the origination of $9.4 million in first mortgage loans secured by commercial real estate, the origination of $4.1 million in first mortgage loans secured by multifamily residences and the origination of $16.9 million in second mortgage loans during the year ended December 31, 2010.  The decrease in cash and cash equivalents was primarily due to purchases of securities available-for-sale and investments in certificates of deposit.  Purchases of securities available-for-sale amounting to $40.6 million for the year ended December 31, 2010 were offset in part by payments and maturities of $14.8 million.  Purchases of investments in certificates of deposits of other financial institutions, which amounted to $16.7 million, were partially offset by maturities of $4.0 million during the year ended December 31, 2010.  

11

The increase in securities available-for-sale and investments in certificates of deposit were primarily funded by loan repayments that exceeded loan originations, increases in deposits and utilization of cash balances.

The increase in deposits was primarily a reflection of increases in interest bearing deposits, savings accounts and noninterest-bearing deposits, offset in part by decreases in certificates of deposits and money market accounts.  Interest bearing demand deposits increased primarily due to the Company’s promotion of F1Rst Perks Checking, which at the time was a new high yield checking account introduced in late 2009 that offers a higher interest rate based on certain transactional activity, and the promotion of business commercial checking accounts. The decline in certificates of deposit was a result of pricing in the market place as the Bank’s need for longer term funding was diminished in 2010 based on loan demand and excess cash position.  Borrowings decreased due to normal repayment of borrowings resulting from maturities, offset by new FHLB advances of $7.3 million.

Total stockholders’ equity increased primarily due to earnings for the year of $1.7 million, offset in part by stock based compensation of $57,000, common and preferred stock dividends declared to stockholders amounting to $564,000 and a decrease in the market value of the investment portfolio, of approximately $300,000 net of tax.

Comparison of Results of Operations for the Years Ended December 31, 2011 and 2010

Net Income.  Net income increased by $933,000 to $2.6 million for the year ended December 31, 2011, compared to $1.7 million for the year ended December 31, 2010.  The increase in net income was primarily due to a decrease in provision for loan losses and increases in net interest income and gain on sale of securities, offset in part by a decrease in noninterest income and increases in noninterest expense and provision for income taxes.

Net Interest Income.  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.

12

	2011							2010
	Average				Average			Average				Average
	Balance		Interest		Yield/Rate			Balance		Interest		Yield/Rate
Assets:
Interest-earning assets:
Loans	$	323,731,906	$	18,285,197		5.65	%	$	359,889,682	$	20,951,183		5.82	%
Securities available-for-sale		73,171,256		1,884,976		2.58	%		48,598,982		1,216,930		2.50	%
Interest-bearing cash		19,394,738		44,739		0.23	%		18,741,601		40,502		0.22	%
Total interest-earning assets	$	416,297,900	$	20,214,912		4.86	%	$	427,230,265	$	22,208,615		5.20	%
Noninterest-earning assets		30,900,381							30,034,015
Total assets	$	447,198,281						$	457,264,280
Liabilities and Equity:
Interest-bearing liabilities:
Demand deposit and money market savings	$	158,734,308	$	1,149,755		0.72	%	$	131,360,683	$	972,308		0.74	%
Savings		32,483,335		37,560		0.12	%		30,426,215		53,479		0.18	%
Certificates of Deposit		147,986,916		3,367,804		2.28	%		166,930,171		4,288,145		2.57	%
Borrowed funds		33,445,127		1,133,548		3.39	%		56,551,414		2,432,282		4.30	%
Total interest-bearing liabilities	$	372,649,686	$	5,688,667		1.53	%	$	385,268,483	$	7,746,214		2.01	%
Noninterest-bearing liabilities		24,045,306							22,811,625
Total liabilities	$	396,694,992						$	408,080,108
Equity		50,503,289							49,184,172
Total liabilities and equity	$	447,198,281						$	457,264,280
Net interest income			$	14,526,245						$	14,462,401
Net interest rate spread						3.33	%						3.19	%
Net interest margin						3.49	%						3.38	%
Ratio of average interest-earnings assets to
average interest-bearing liabilities						111.71	%						110.89	%

13

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, 2011												Year Ended December 31, 2010
	Compared to												Compared to
	Year Ended December 31, 2010												Year Ended December 31, 2009
	Increase/(Decrease) Due to												Increase/(Decrease) Due to
										Total												Total
							Rate/			Increase									Rate/			Increase
	Volume			Rate			Volume			(Decrease)			Volume			Rate			Volume			(Decrease)
	(In thousands)
Interest income:
First mortgage loans	$	(1,643	)	$	(344	)	$	33		$	(1,954	)	$	(1,748	)	$	(814	)	$	78		$	(2,484	)
Consumer loans		(449	)		(289	)		26			(712	)		(330	)		(52	)		3			(379	)
Investment securities		472			147			53			672			862			(385	)		(304	)		173
Total interest-earning assets	$	(1,620	)	$	(486	)	$	112		$	(1,994	)	$	(1,216	)	$	(1,251	)	$	(223	)	$	(2,690	)
Interest expense:
Demand deposit and money market savings	$	203		$	(21	)	$	(5	)	$	177		$	161		$	257		$	87		$	505
Savings		4			(19	)		(1	)		(16	)		4			(6	)		-			(2	)
Certificates of deposit		(487	)		(488	)		55			(920	)		(835	)		(1,333	)		177			(1,991	)
Borrowed funds		(994	)		(515	)		210			(1,299	)		(850	)		(333	)		80			(1,103	)
Total interest-bearing liabilities	$	(1,274	)	$	(1,043	)	$	259		$	(2,058	)	$	(1,520	)	$	(1,415	)	$	344		$	(2,591	)
Net change in net interest income	$	(346	)	$	557		$	(147	)	$	64		$	304		$	164		$	(567	)	$	(99	)

Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by the general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies, and the actions of regulatory authorities. Net interest income before provision for loan losses increased by $64,000, or 0.4%, to $14.5 million for the year ended December 31, 2011, from $14.5 million for the year ended December 31, 2010.  The increase was primarily due to a decrease in the average balance of interest-bearing liabilities and an increase in the net interest spread (i.e., the difference in the average yield on assets and average cost of liabilities), offset by a decrease in the average balance of interest-earning assets.  The interest rate spread increased to 3.33% for the year ended December 31, 2011, from 3.19% for the year ended December 31, 2010.  The increase in interest rate spread reflects a decrease in the cost of funds, offset in part by a decrease in the yield on interest-earning assets.

Provision for Loan Losses.  The Company establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, a review of classified loans, a realistic determination of value and adequacy of underlying collateral, levels and trends of loan categories, industry standards, past due loans, economic conditions, the volume and type of loans in the Company’s portfolio, and other factors related to the collectability of the Company’s loan portfolio. The Company’s provision for loan losses was $2.1 million and $4.1 million for the years ended December 31, 2011 and 2010, respectively, representing a decrease of $2.0 million, or 47.8%.  The provision for loan loss for the year December 31, 2011 was impacted by the overall reduction in the size of the loan portfolio and the reduction in the identification of new impaired loans and further impairments.

Management believes that the allowance for loan losses is adequate as of December 31, 2011.  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.

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

	Year Ended December 31,
	2011		2010		Change			Change %
Noninterest income:
Fees and service charges	$	4,716,612	$	4,772,904	$	(56,292	)		-1.2	%
Abstract fees		561,393		636,782		(75,389	)		-11.8	%
Gain on sale of loans		691,216		965,769		(274,553	)		-28.4	%
Other income:
Increase in CSV - BOLI		235,708		244,183		(8,475	)		-3.5	%
Investment and Insurance sales		787,100		637,822		149,278			23.4	%
Rental income		486,864		484,725		2,139			0.4	%
Loan prepayment fees		43,142		35,563		7,579			21.3	%
All other		53,908		160,617		(106,709	)		-66.4	%
Total other income		1,606,722		1,562,910		43,812			2.8	%
Total noninterest income	$	7,575,943	$	7,938,365	$	(362,422	)		-4.6	%

Total noninterest income decreased $362,000, or 4.6%, to $7.6 million for the year ended December 31, 2011, from $7.9 million for the year ended December 31, 2010.  Various factors account for the general decrease in noninterest income, including a decrease in abstract fees due to additional competition in our market and mortgage underwriting requirements.  Gain on sale of loans also decreased due to a decrease in the volume of loans sold in the secondary market.  The increase in other income was primarily due to an increase in investment and insurances sales as a result of a larger sales staff, offset in part by a $90,000 payment the Company received in 2010 from the FDIC for uninsured balances maintained at an institution closed by the FDIC in 2008.

Securities Gain.  Gross security gains from sales of securities was $136,000 for the year ended December 31, 2011 compared to $8,000 for the year ended December 31, 2010.  The realized gain for 2011 was primarily related to the sale of municipal bonds.  The realized gain for 2010 was related to the sale of the mortgage bond mutual fund investment.

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

	Year Ended December 31,
	2011		2010		Change			Change %
Noninterest expense:
Compensation and employee benefits	$	7,809,460	$	7,614,858	$	194,602			2.6	%
Premises and equipment		1,841,130		1,894,850		(53,720	)		-2.8	%
Data processing		868,437		871,816		(3,379	)		-0.4	%
FDIC insurance expense		430,888		561,990		(131,102	)		-23.3	%
Foreclosed real estate impairment		556,447		479,045		77,402			16.2	%
Other expense:
Advertising and promotions		392,181		366,681		25,500			7.0	%
Professional fees		796,726		615,313		181,413			29.5	%
Foreclosed real estate net expense		312,091		195,388		116,703			59.7	%
Printing, postage, and supplies		436,646		442,916		(6,270	)		-1.4	%
Checking account charges		247,470		335,364		(87,894	)		-26.2	%
Insurance (non-employee)		149,560		166,783		(17,223	)		-10.3	%
Regulatory fees		100,733		127,248		(26,515	)		-20.8	%
Telephone		153,737		155,501		(1,764	)		-1.1	%
Apartment operating costs		370,575		347,492		23,083			6.6	%
Employee costs		214,088		208,154		5,934			2.9	%
Card service expenses		679,679		623,188		56,491			9.1	%
Title plant impairment		196,000		-		196,000			100.0	%
All other		1,122,731		1,128,006		(5,275	)		-0.5	%
Total other expense		5,172,217		4,712,034		460,183			9.8	%
Total noninterest expense	$	16,678,579	$	16,134,593	$	543,986			3.4	%

Total noninterest expense increased by $544,000, or 3.4%, to $16.7 million for the year ended December 31, 2011, from $16.1 million for the year ended December 31, 2010.  Various factors account for the general increase in noninterest expense, including an increase in compensation and employee benefits primarily due to an increase in pension plan expense, bonus accruals and employee severance accrual.  The increase in foreclosed real estate impairment was primarily a result of further deterioration of foreclosed real estate values indicated by updated appraisals.  FDIC insurance expense decreased as the result of a new assessment methodology and calculation which became effective for the quarter ended June 30, 2011.  The increase in other expenses was primarily due to title plant impairment, increases in foreclosed real estate net expenses and increases in legal and professional fees related to loan collection, the conversion to a state charter from a federal thrift charter and other corporate matters.

Income Taxes.  Provision for income taxes increased $309,000, or 64.6%, to $786,000 for the year ended December 31, 2011, compared to $478,000 for the year ended December 31, 2010.  The increase in income taxes was primarily due to an increase in income before taxes, offset in part by the receipt of new low income housing tax credits.

Comparison of Results of Operations for the Years Ended December 31, 2010 and 2009

Net Income.  Net income decreased by $1.5 million to $1.7 million for the year ended December 31, 2010, compared to $3.2 million for the year ended December 31, 2009.  The decrease in net income was primarily due to an increase in provision for loan losses and a decrease in noninterest income and gain on securities, offset in part by a decrease in net interest income, noninterest expense and the provision for income taxes.

Net Interest Income.  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.

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	2010							2009
	Average				Average			Average				Average
	Balance		Interest		Yield/Rate			Balance		Interest		Yield/Rate
Assets:
Interest-earning assets:
Loans	$	359,889,682	$	20,951,183		5.82	%	$	394,749,068	$	23,814,290		6.03	%
Securities available-for-sale		48,598,982		1,216,930		2.50	%		28,986,405		1,070,874		3.69	%
Interest-bearing cash		18,741,601		40,502		0.22	%		8,540,974		13,521		0.16	%
Total interest-earning assets	$	427,230,265	$	22,208,615		5.20	%	$	432,276,447	$	24,898,685		5.76	%
Noninterest-earning assets		30,034,015							29,942,314
Total assets	$	457,264,280						$	462,218,761
Liabilities and Equity:
Interest-bearing liabilities:
Demand deposit and money market savings	$	131,360,683	$	972,308		0.74	%	$	97,818,678	$	468,416		0.48	%
Savings		30,426,215		53,479		0.18	%		28,482,799		54,959		0.19	%
Certificates of Deposit		166,930,171		4,288,145		2.57	%		192,551,764		6,278,631		3.26	%
Borrowed funds		56,551,414		2,432,282		4.30	%		74,437,952		3,535,522		4.75	%
Total interest-bearing liabilities	$	385,268,483	$	7,746,214		2.01	%	$	393,291,193	$	10,337,528		2.63	%
Noninterest-bearing liabilities		22,811,625							21,927,472
Total liabilities	$	408,080,108						$	415,218,665
Equity		49,184,172							47,000,096
Total liabilities and equity	$	457,264,280						$	462,218,761
Net interest income			$	14,462,401						$	14,561,157
Net interest rate spread						3.19	%						3.13	%
Net interest margin						3.38	%						3.36	%
Ratio of average interest-earnings assets to
average interest-bearing liabilities						110.89	%						109.91	%

Fluctuations in net interest income can result from the combination of changes in the balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are also affected by the general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies, and the actions of regulatory authorities. Net interest income before provision for loan losses decreased by $99,000, or 0.7%, to $14.5 million for the year ended December 31, 2010, from $14.6 million for the year ended December 31, 2009.  The decrease was primarily due to a decrease in the average balance of interest-earning assets, offset in part by an increase in net interest spread (i.e., the difference in the average yield on assets and average cost of liabilities) and a decrease in the average balance of interest-bearing liabilities.  The interest rate spread increased to 3.19% for the year ended December 31, 2010, from 3.13% for the year ended December 31, 2009.  The increase in interest rate spread reflects a decrease in cost of funds, offset in part by a decrease in the yield on interest-earning assets.  The decrease in the average yield of interest-earning assets in 2010 compared to 2009 was primarily a result of loan and security principal repayments being reinvested at lower market rates and a shift in reinvestment into the securities portfolio as loan demand declined in 2010.  The decrease in average cost of interest-bearing liabilities in 2010 compared to 2009 was primarily a result of the maturities of higher rate certificates of deposits and borrowed funds that were not replaced or were replaced with lower cost deposits.

Provision for Loan Losses. The Company’s provision for loan losses was $4.1 million and $2.5 million for the years ended December 31, 2010 and 2009, respectively, representing an increase of $1.6 million, or 67.0%.  The increase in provision for loan losses for the year was primarily a result of continuing challenging economic conditions negatively impacting the construction and land development, commercial real estate, and consumer sectors. The provision for loan losses was significantly impacted by further deterioration of the values of the underlying collateral of impaired loans, as confirmed by updated appraisals.  Net charge-offs were $5.1 million for the year ended December 31, 2010, compared to $659,000 for the year ended December 31, 2009.  In 2010, $3.5 million of net charge-offs related to construction and land development loans.  Significant charge-off activity and other credit risk factors also impacted the general portion of the allowance for loan losses and related provision during the year ended December 31, 2010.  These factors included past due trends, levels of nonperforming assets, and extended economic stresses such as continued high unemployment levels.

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Management believes that the allowance for loan losses is adequate as of December 31, 2010.  While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans, and other factors, both within and outside of management’s control.

Noninterest Income

	Year Ended December 31,
	2010		2009		Change			Change %
Noninterest income:
Fees and service charges	$	4,772,904	$	4,708,225	$	64,679			1.4	%
Abstract fees		636,782		929,279		(292,497	)		-31.5	%
Mortgage banking income		965,769		975,481		(9,712	)		-1.0	%
Other income:
Increase in CSV - BOLI		244,183		249,810		(5,627	)		-2.3	%
Investment and Insurance sales		637,822		772,575		(134,753	)		-17.4	%
Rental income		484,725		480,050		4,675			1.0	%
Loan prepayment fees		35,563		250,118		(214,555	)		-85.8	%
All other		160,617		12,791		147,826			1155.7	%
Total other income		1,562,910		1,765,344		(202,434	)		-11.5	%
Total noninterest income	$	7,938,365	$	8,378,329	$	(439,964	)		-5.3	%

Total noninterest income decreased $440,000, or 5.3%, to $7.9 million for the year ended December 31, 2010, from $8.4 million for the year ended December 31, 2009. Abstract fees decreased due to additional competition in our market and alternative products available to lenders. Loan prepayment fees also decreased due to a decline in volume of commercial real estate loans that had prepayment fees associated with paying off the loan prior to maturity. Mortgage banking income decreased slightly due to lower mortgage loan demand compared to the prior year.  The Company expects future mortgage refinancing activity to decline which will impact future mortgage banking income.  Other income decreased for the year due to a decrease in the volume of sales of insurance and annuities.  These were offset in part by a $90,000 recovery of an uninsured deposit balance maintained at an institution that failed in 2008 which had previously been written-off.  The Dodd-Frank Act raised the standard maximum deposit insurance amount from $100,000 to $250,000 retroactive to January 1, 2008, resulting in the recovery. Fees and service charges increased due to an increase in debit card interchange fees associated with demand deposit accounts, offset in part by a decrease in overdraft fees.  The Company expects future income from debit card interchange fees to be negatively impacted by new regulations resulting from the Dodd-Frank Act.

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Securities Gain/(Losses)

	Year Ended December 31,
	2010		2009			Change			Change %
Investment securities gains (losses), net:
Total other-than-temporary impairment losses	$	-	$	(23,343	)	$	23,343			100.0	%
Portion of loss recognized in other comprehensive
income (loss) before taxes		-		-			-			-
Net impairment losses recognized in earnings		-		(23,343	)		23,343			100.0	%
Realized securities gains (losses), net		7,652		362,560			(354,908	)		97.9	%
Total securities gains (losses), net	$	7,652	$	339,217		$	(331,565	)		97.7	%

Total securities gains decreased by $332,000, or 97.7%, to $8,000 for the year ended December 31, 2010, compared to $339,000 for the year ended December 31, 2009. There were no other-than-temporary impairment charges recognized in 2010, compared to $23,000 of other-than-temporary impairment charges recognized in 2009 related to a mortgage bond mutual fund investment.  The realized security gain in both periods was related to the sale of the mortgage bond mutual fund investment that the Company no longer holds.

Noninterest Expense

	Year Ended December 31,
	2010		2009		Change			Change %
Noninterest expense:
Compensation and employee benefits	$	7,614,858	$	7,364,215	$	250,643			3.4	%
Premises and equipment		1,894,850		1,878,967		15,883			0.8	%
Data processing		871,816		809,416		62,400			7.7	%
FDIC insurance expense		561,990		759,734		(197,744	)		-26.0	%
Foreclosed real estate impairment		479,045		518,136		(39,091	)		-7.5	%
Other expense:
Advertising and promotions		366,681		511,567		(144,886	)		-28.3	%
Professional fees		615,313		772,602		(157,289	)		-20.4	%
Foreclosed real estate net expense		195,388		79,743		115,645			145.0	%
Printing, postage, and supplies		442,916		441,802		1,114			0.3	%
Checking account charges		335,364		370,229		(34,865	)		-9.4	%
Insurance		166,783		167,613		(830	)		-0.5	%
OTS general assessment		127,248		129,935		(2,687	)		-2.1	%
Telephone		155,501		148,215		7,286			4.9	%
Apartment operating costs		347,492		344,438		3,054			0.9	%
Employee costs		208,154		165,926		42,228			25.4	%
ATM expense		623,188		576,693		46,495			8.1	%
All other		1,128,006		1,075,556		52,450			4.9	%
Total other expense		4,712,034		4,784,319		(72,285	)		-1.5	%
Total noninterest expense	$	16,134,593	$	16,114,787	$	19,806			0.1	%

Total noninterest expense increased $20,000, or 0.1%, to $16.1 million for the year ended December 31, 2010, from $16.1 million for the year ended December 31, 2009.  The increase was primarily related to increases in compensation and employee benefits, premise maintenance costs and equipment and data processing, offset in part by decreases in FDIC insurance expense, foreclosed real estate impairment and other expenses.  Compensation and employee benefits increased due to normal salary increases and increases in pension plan and insurance expense for employees.  FDIC insurance expense decreased in 2010 due to the FDIC special assessment of $210,000 that was paid on September 30, 2009.  There were no FDIC special assessments in 2010.  Foreclosed real estate impairments resulted from further deterioration in the value of the properties held in foreclosed real estate, as indicated by updated appraisal information.  Foreclosed real estate is subject to annual appraisals.  Other expenses decreased primarily due to decreases in professional fees and advertising and promotions offset in part by increases in foreclosed real estate expenses.  The decrease in professional fees for the year was due to a decrease in nonrecurring consulting fees and legal fees.

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               Income Taxes.  Provision for income taxes decreased $1.0 million, or 68.7%, to $478,000 for the year ended December 31, 2010, compared to $1.5 million for the year ended December 31, 2009.  The decrease in income taxes was primarily due to a decrease in income before income taxes and an increase in eligible low income housing tax credits.

Asset Quality

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 initially recorded at estimated fair value, less estimated selling expenses. Foreclosed real estate is subject to periodic valuation by management by obtaining updated appraisals or other market information.  Any subsequent decline in fair value is charged to operations. At December 31, 2011, the Company’s foreclosed real estate had an aggregate carrying value of $1.7 million.

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 December 31,
	2011			2010			2009			2008			2007
	(Dollars in thousands)
First mortgage loans:
One-to-four family residential real estate	$	1,087		$	2,460		$	4,323		$	915		$	917
Multifamily and commercial real estate (1)		3,347			8,647			9,033			2,885			1,216
Consumer loans		258			463			993			204			250
Total nonaccrual loans		4,692			11,570			14,349			4,004			2,383
90 days past due loans (still accruing interest)		-			-			-			1,071			-
Other nonperforming loans		-			-			-			2,941			-
Total nonperforming loans		4,692			11,570			14,349			8,016			2,383
Total foreclosed real estate		1,750			4,586			1,709			1,183			2,569
Other nonperforming assets		36			-			42			12			-
Total nonperforming assets	$	6,478		$	16,156		$	16,100		$	9,211		$	4,952
Total nonaccrual loans to net loans receivable		1.51	%		3.46	%		3.83	%		1.00	%		0.53	%
Total nonaccrual loans to total assets		1.08	%		2.56	%		3.15	%		0.85	%		0.47	%
Total nonperforming assets to total assets		1.50	%		3.57	%		3.54	%		1.95	%		0.97	%
(1) Includes construction and land development

Classification of Assets.  Federal banking regulations provide for the classification of loans and other assets such as debt and equity securities considered by federal banking regulators to be of lesser quality as “watch,” “special mention,” “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 Bank 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.  

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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 Bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve management’s close attention are designated as special mention.  If left uncorrected, these potential weaknesses could increase the level of risk to the Bank in the future.  Commercial loans to borrowers whose most recent financial information shows deterioration in the earliest stages and warrant greater than routine attention and monitoring by management are designated as watch.

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

	At December 31,
	2011		2010		2009		2008		2007
	(In thousands)
Watch	$	9,580	$	6,578	$	4,709	$	-	$	-
Special mention		1,575		1,580		3,017		4,410		458
Substandard assets		15,660		26,565		21,224		8,566		4,941
Doubtful assets		1,145		1,761		3,029		554		-
Loss assets		-		-		129		91		44
Total classified assets	$	27,960	$	36,484	$	32,108	$	13,621	$	5,443

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 collectability 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 for which full collectability of interest and principal may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral. During 2011, the Company’s gross loan portfolio decreased $23.1 million, or 6.8%.  During the years ended December 31, 2011, 2010 and 2009, the Company’s provision for loan losses were $2.1 million, $4.1 million, and $2.5 million, respectively.  The Company’s allowance for loan losses totaled $5.8 million, and $6.1 million at December 31, 2011 and 2010, respectively.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance 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.

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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,
	2011			2010			2009			2008			2007
	(Dollars in thousands)
Total loans receivable	$	318,065		$	341,151		$	383,157		$	406,783		$	452,457
Average loans outstanding		323,732			359,890			394,749			428,967			460,429
Allowance balances (at beginning of period)		6,147			7,171			5,379			3,487			3,493
Provision for losses		2,135			4,091			2,450			2,240			655
Charge-offs:
1-4 family residential real estate		(184	)		(511	)		(98	)		(55	)		(26	)
Multifamily and commercial real estate (1)		(1,635	)		(4,057	)		(214	)		(156	)		(500	)
Consumer loans		(648	)		(564	)		(364	)		(152	)		(147	)
Recoveries:
1-4 family residential real estate		-			1			7			-			-
Multifamily and commercial real estate (1)		10			-			-			-			-
Consumer loans		21			16			11			15			12
Net charge-offs		2,436			5,115			658			348			661
Allowance balances (at end of period)	$	5,846		$	6,147		$	7,171		$	5,379		$	3,487
Allowance for loan losses as a percent of total loans
receivable at end of period		1.84	%		1.80	%		1.87	%		1.32	%		0.77	%
Net charge-offs as a percent of average
loans outstanding		0.75			1.42			0.17			0.08			0.14
Ratio of allowance for loan losses to total nonaccrual
loans at end of period		124.59			53.13			49.97			134.34			146.36
(1) Includes construction and land development

22

Allocation of Allowance for Loan Losses.  The following table sets forth the allocation of allowance for loan losses by loan category for the periods indicated at December 31:

	2011					2010					2009					2008					2007
			% of Loans					% of Loans					% of Loans					% of Loans					% of Loans
			In Each					In Each					In Each					In Each					In Each
			Category to					Category to					Category to					Category to					Category to
	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans			Amount		Total Loans			Amount		Total Loans
	(Dollars in thousands)
Balance at end of period applicable to:
One-to-four family residential real estate	$	1,129		43.57	%	$	1,010		41.35	%	$	679		39.55	%	$	392		41.83	%	$	518		43.23	%
Multifamily real estate		516		15.30			804		16.84			620		16.57			513		14.25			472		12.51
Commercial real estate		2,527		21.17			2,555		20.30			1,992		20.94			2,207		22.61			1,570		24.13
Construction and land development		331		0.66			355		1.23			2,511		3.19			1,385		2.08			28		3.84
Consumer loans		1,343		19.30			1,423		20.28			1,369		19.75			882		19.23			899		16.29
Total allowance for loan losses	$	5,846		100.00	%	$	6,147		100.00	%	$	7,171		100.00	%	$	5,379		100.00	%	$	3,487		100.00	%

23

Liquidity and Capital Resources

The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for profitable business growth.  The Company’s principal source of funds is deposits.  Other sources include loan principal repayments, proceeds from the maturity and sale of investment securities, advances from the FHLB, and funds provided by operations.  Liquidity management is conducted on both a daily and long-term basis.  Investments in liquid assets are adjusted based on expected loan demand, projected loan maturities and payments, expected deposit flows, and the objectives set by the Company’s asset-liability management policy.  The Company had liquid assets (cash and cash equivalents) of $17.4 million as of December 31, 2011, compared with $20.6 million as of December 31, 2010.  The Bank had additional borrowing capacity available from the FHLB of approximately $81.6 million at December 31, 2011.  In addition, the Bank had $5.0 million in borrowing capacity available through a line of credit with a correspondent bank as of December 31, 2011.  The Bank had not drawn on this line of credit as of December 31, 2011.  Net cash from continuing operating activities contributed $6.8 million and $6.9 million to liquidity for the years ended December 31, 2011 and 2010, respectively.  The combination of high levels of potentially liquid assets, cash flows from operations and additional borrowing capacity provided strong liquidity for the Company at December 31, 2011.

During 2011, macro-economic conditions and the challenging economic environment continued to impact liquidity and credit quality across the financial markets.  While the recession has impacted the local economies in which the Company operates and holds out-of-state real estate loans, our liquidity position and capital resources remain strong and the Company anticipates that it will have sufficient funds to meet its current funding commitments.

On December 14, 2011, the Company redeemed all of its 10,200 shares of its Series A preferred stock issued to the Treasury under the TARP CPP for $10,200,000. On January 11, 2012, the Company completed the repurchase of the warrant to purchase 99,157 shares of the Company’s common stock held by the Treasury (“Warrant”). The Company paid $600,000 to the Treasury to repurchase the Warrant. The Company was able to accomplish these actions without raising additional capital or incurring holding company debt. With these transactions, the Treasury no longer holds any investment in the Company and the Company is no longer subject to related Treasury restrictions on the payment of dividends.

At December 31, 2011, the Company had outstanding loan commitments of $7.7 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.

24

The Bank is subject to various regulatory capital requirements administered by federal and state banking agencies.  Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier I Capital to Risk-Weighted Assets and of Tier I Capital to Average Assets.  The Bank met the requirements to be considered well-capitalized under regulatory requirements at December 31, 2011.  The Bank’s actual capital amounts and ratios are presented on the following table:

											To Be Well-Capitalized
						For Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
		(000’s)					(000’s)					(000’s)
As of December 31, 2011:
Total Capital (to risk-
weighted assets)	$	42,624		14.7	%	$	23,139		8.0	%	$	28,924		10.0	%
Tier I Capital (to risk-
weighted assets)		38,981		13.5			11,570		4.0			17,354		6.0
Tier I Capital (to
average assets)		38,981		8.7			17,956		4.0			22,445		5.0
As of December 31, 2010:
Total Capital (to risk-
weighted assets)	$	50,029		16.5	%	$	24,194		8.0	%	$	30,242		10.0	%
Tier I Capital (to risk-
weighted assets)		46,278		15.3			12,097		4.0			18,145		6.0
Tier I (Core) Capital
(to adjusted assets)		46,278		10.2			18,096		4.0			22,620		5.0
Tangible Capital (to
adjusted assets) (1)		46,278		10.2			6,786		1.5			-		-
(1) Under regulations as a federally-chartered stock savings bank, the Bank was subject to minimum tangible capital requirements
at December 31, 2010.

Impact of Inflation and Changing Prices

The consolidated financial statements of the Company and notes thereto, presented elsewhere in this report, 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 industrial companies, nearly all the assets and liabilities of the Company 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-balance sheet 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 balance sheet.  The contract or notional amounts of those instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for balance sheet instruments.  The Company requires 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 included in this report, titled “Financial Instruments with Off-Statement of Financial Condition Risk.”

25

Contractual Obligations

	Payments due by period
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
	(In thousands)
Certificates of deposit	$	139,263	$	70,488	$	48,608	$	20,167	$	-
Borrowings		25,750		13,000		8,250		1,500		3,000
Home equity lines of credit		14,198		14,198		-		-		-
Other loan commitments		8,143		8,143		-		-		-
Investment in low income housing partnership
commitment		413		79		158		143		33
Total	$	187,767	$	105,908	$	57,016	$	21,810	$	3,033

26

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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, all of the Company’s interest rate risk management procedures are performed at the Bank level.  Due to the nature of the Bank’s 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.  Historically, the Company has sought to diversify its loan portfolio by purchasing loans secured by properties outside of Iowa.  At December 31, 2011, $71.4 million, or 22.4%, of the Company’s total loan portfolio was secured by properties outside the State of Iowa, located in twenty-two states and the District of Columbia.  The Bank does not own any trading assets.  At December 31, 2011, neither the Company nor the Bank had any hedging transactions, such as interest rate swaps and caps, in place.

The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income, in a manner consistent with our policy to reduce, to the extent possible, the exposure of our net interest income to changes in market interest rates.  The Asset and Liability Committee regularly reviews the interest rate risk exposure of the Bank.  The Company seeks to manage its interest rate risk by monitoring and controlling the variation in repricing intervals between its assets and liabilities.  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 securities that generate cash flow.  In addition, the Company generally sells all fixed-rate one- to four-family residential loans with maturities of greater than 15 years.

               Gap Table.  The following table (the “Gap Table”) sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2011, 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.

27

	At December 31, 2011
	Within			Within 3 to			Beyond
	3 Months			12 Months			1 Year		Total
	(Dollars in thousands)
Interest-earning assets:
First mortgage loans	$	8,954		$	56,976		$	186,309	$	252,239
Consumer and other loans		5,331			5,000			50,803		61,134
Investment securities and interest bearing cash		19,958			19,649			41,158		80,765
Total interest-earning assets	$	34,243		$	81,625		$	278,270	$	394,138
Rate sensitive liabilities:
Savings accounts	$	33,272		$	-		$	-	$	33,272
Interest bearing demand accounts		133,265			-			-		133,265
Money market accounts		34,438			-			-		34,438
Certificate accounts		29,350			41,138			68,775		139,263
FHLB advances		5,000			8,000			12,750		25,750
Total interest-earning assets	$	235,325		$	49,138		$	81,525	$	365,988
Interest sensitivity gap	$	(201,082	)	$	32,487		$	196,745	$	28,150
Cumulative interest sensitivity gap	$	(201,082	)	$	(168,595	)	$	28,150	$	28,150
Interest sensitivity gap ratio		0.15			1.66			3.41		1.08
Cumulative interest sensitivity gap ratio		0.15			0.41			1.08		1.08

At December 31, 2011, the Company’s cumulative gap ratio for assets and liabilities repricing within one year was 0.41, which means that the Company is liability sensitive over the cumulative 12-month period.  In other words, more interest-bearing liabilities will be subject to repricing within that time frame than interest-earning assets.

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.  Also, the table does not take into account any actions that management may take in response to interest rate movements.

Net Interest Income Sensitivity.  The view presented in the preceding interest rate sensitivity gap table illustrates a static view of the effect on our net interest margin of changing interest rate scenarios.  We believe net interest income sensitivity provides the best perspective of how day-to-day decisions affect our interest rate risk profile.  We monitor net interest margin sensitivity by utilizing an income simulation model to subject twelve month net interest income to various rate movements.  Simulations modeled quarterly include scenarios where market rates change suddenly up or down in a parallel manner and scenarios where market rates gradually change up or down at nonparallel rates resulting in a change in the slope of the yield curve.  Estimates produced by our income simulation model are based on numerous assumptions.  Given these various assumptions, the actual effect of interest rate changes on our net interest margin may be materially different than estimated.

28

Based on simulation modeling which assumes gradual changes in interest rates over a one-year period, net interest income would change due to changes in interest rates as follows (dollars in thousands):

Gradual			Change in Net Interest Income Over One year Horizon
Changes in			At December 31, 2011
Levels of			Dollar			Percentage
Interest Rates			Change			Change
	2.00	%	$	(18	)		-0.11	%
	1.00	%		278			1.70	%

As a result of the current interest rate environment, the Company does not anticipate any significant declines in interest rates over the next twelve months.  For this reason, we did not use an interest rate sensitivity simulation that assumes a gradual decline in the level of interest rates over the next twelve months.

29

DIRECTORS AND MANAGEMENT OF THE COMPANY AND THE BANK

The Board of Directors of the Company is divided into three classes, each of which is comprised of 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

C. Thomas Chalstrom has served as Chief Operating Officer of the Bank since 1998 and as President of the Bank since 2004.  He was Executive Vice President of the Bank from 1994 until 2004, and has been employed with the Bank since 1985.  He has served as an Executive Vice President of the Company since 1994.

Randall L. Minear has served as President of Terrus Real Estate Group, located in Des Moines, Iowa since 2000.  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.

Thomas E. Stanberry serves as a shareholder in the law firm of Davis, Brown, Koehn, Shors and Roberts, P.C. in Des Moines, Iowa where he practices in the financial institutions, public finance and securities area.  Prior to joining the Davis Brown law firm, he was the Chairman, President and CEO of West Bancorporation, Inc. and Chairman and CEO of West Bank, West Des Moines, Iowa from March 2003 to July 2009.

 Mark Thompson has been an owner of Thompson & Eich CPAs (formerly known as Mark Thompson CPA, P.C.) in Fort Dodge, Iowa since 1984 and has been a Certified Public Accountant since 1978.

Paul F. Bognanno is currently retired.  He most recently served as President and CEO of Mortgage Electronic Registration Systems, Inc. (MERS) from January 2011 to May 2011. He served as Chairman of Radian Guaranty (NYSE: RDN) from November 2008 to December 2010.  Mr. Bognanno also served as Vice Chairman of Radian Guaranty from November 2007 to November 2008.  Mr. Bognanno served as Senior Executive Vice President of the Company from February 1, 2007 to July 1, 2007 and as President and Chief Executive Officer of the Company and the Bank from July 1, 2007 until October 31, 2007.  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.

Nominees for Election as Directors at Upcoming Annual Meeting of Shareholders

David M. Bradley has served as President and Chief Executive Officer of the Company since its inception in December 1995 except for the four month period from July 1, 2007 to October 31, 2007.  He has been employed by the Bank since 1982 and has served as its CEO since 1992 except for the four month period from July 1, 2007 to October 31, 2007.  He has served as the Chairman of the Board of North Central Bancshares, Inc. and First Federal Savings Bank of Iowa since 1997.

Robert H. Singer, Jr. is a Supervisor for Webster County, Iowa.  Mr. Singer is currently serving a four-year term expiring December 2012.

30

Executive Officers Who are Not Directors or Director Nominees

Jane M. Funk, age 43, was appointed Chief Financial Officer and Treasurer of the Company and Bank effective April 1, 2010.  Ms. Funk is a Certified Public Accountant.  Ms. Funk began her career with McGladrey & Pullen, LLP in Des Moines, Iowa in 1991 and most recently served as an Audit Director as well as a Director in the firm’s National Professional Standards Group specializing in Financial Institution Services.

Thomas J. Hromatka, age 55, was appointed Executive Vice President of the Bank in October 2009.  Mr. Hromatka is responsible for administering and coordinating the activities of the Retail Banking and Marketing divisions.  He was Senior Vice President from December 2008 to October 2009.  Prior to joining the Bank, Mr. Hromatka was President of VisionBank, headquartered in West Des Moines, Iowa.

Bradley D. Boerner, age 40, was appointed Senior Vice President of the Bank in November 2009.  Mr. Boerner serves as the Bank’s Credit Administration Manager and is responsible for the bank’s credit standards, policy and special asset administration.  He directs the bank’s commercial loan underwriting department and personnel.  Prior to joining the Bank, Mr. Boerner served as Senior Credit Officer from 2005 to 2009 at a financial institution in the Des Moines area.

Russell J. Ruhland, age 45, was appointed Senior Vice President of the Bank in October 2009.  Mr. Ruhland serves as the Bank’s Operations Manager and is responsible for the checking, savings, and other deposit related functions.  Mr. Ruhland also serves as the Compliance and Security Officer of the Bank. He served as Vice President from October 2002 to October 2009.

31

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				Dividends
						Declared
Quarter Ended		High		Low		Per Share
2011
	First Quarter	$	17.25	$	16.05	$	0.01
	Second Quarter	$	17.95	$	16.00	$	0.01
	Third Quarter	$	18.75	$	15.33	$	0.01
	Fourth Quarter	$	18.97	$	15.11	$	0.01
2010
	First Quarter	$	15.98	$	13.50	$	0.01
	Second Quarter	$	19.66	$	14.27	$	0.01
	Third Quarter	$	18.09	$	12.11	$	0.01
	Fourth Quarter	$	16.69	$	12.60	$	0.01

Prior to December 14, 2011, in connection with the Company’s participation in the TARP CPP and the issuance of the Series A preferred stock to the Treasury, the ability of the Company to declare and pay dividends was subject to restrictions, including the requirement that the Company obtain the consent of the Treasury prior to increasing dividend payments above current levels unless and until the Treasury no longer holds any shares of the Company’s Series A preferred stock.  On December 14, 2011, the Company redeemed all of its Series A preferred stock, effectively ending this dividend restriction.

The closing price of the Company’s common stock on March 1, 2012 was $23.00 per share.  As of March 1, 2012, there were 263 common stockholders (excluding beneficial holders in the Company’s 401(k) Plan and ESOP) of record and an estimated 493 additional beneficial holders whose stock was held in street name by brokerage houses.

32

Annual Meeting

The Annual Meeting of Shareholders of the Company will be held at 10:00 a.m., Central Time, Friday, April 27, 2012 at the Best Western Starlite Village, located at 1518 3rd Avenue Northwest, 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 Dickinson, Mackaman, Tyler & Hagen, P.C. 699 Walnut Street, Suite 1600 Des Moines, Iowa 50309 www.dickinsonlaw.com Special Counsel Paul Hastings LLP 875 15th Street, N.W. Washington, D.C. 20005 www.paulhastings.com	Independent Auditor McGladrey & Pullen, LLP 400 Locust Street, Suite 640 Des Moines, Iowa 50309 www.mcgladrey.com Transfer Agent Computershare Trust Company, N.A. PO Box 43070 Providence, RI 02940-3070 (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 on Form 10-K for the fiscal year ended December 31, 2011 will be furnished (without exhibits) without charge to shareholders of record as of March 1, 2012 upon written request to Corinna King, Corporate Secretary, North Central Bancshares, Inc., c/o First Federal Savings Bank of Iowa, 825 Central Avenue, Fort Dodge, Iowa 50501.  The Annual Report on Form 10-K report will also be available online at www.sec.gov or via the Bank’s website at www.firstfederaliowa.com.  The information set forth on the Company’s website is not incorporated by reference into this report or any of our other filings under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, except to the extent that the Company specifically so provides.

Dividend Reinvestment and Stock Purchase Plan

The Company maintains a Dividend Reinvestment and Stock Purchase Plan which provides shareholders with the ability to automatically reinvest their cash dividends in additional shares of the Company’s 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.

33

North Central Bancshares, Inc.

and Subsidiaries

Consolidated Financial Report

December 31, 2011

34

Contents

Report of Independent Registered Public Accounting Firm	36
Financial Statements
Consolidated Statements of Financial Condition	37
Consolidated Statements of Income	38
Consolidated Statements of Comprehensive Income	39
Consolidated Statements of Stockholders’ Equity	40 – 41
Consolidated Statements of Cash Flows	42 – 43
Notes to Consolidated Financial Statements	44 – 85

35

    McGladrey & Pullen, LLP Certified Public Accountants

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

North Central Bancshares, Inc

We have audited the accompanying consolidated statements of financial condition of North Central Bancshares, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011.  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.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Des Moines, IA

March 9, 2012

36

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 2011 and 2010
	2011		2010
ASSETS
Cash and due from banks:
Interest-bearing	$	9,167,235	$	13,563,234
Noninterest-bearing		8,237,847		7,040,574
Total cash and cash equivalents		17,405,082		20,603,808
Investments in certificates of deposit		3,631,000		12,689,000
Securities available-for-sale		67,966,957		48,435,771
Restricted equity securities		3,123,200		3,017,200
Loans receivable, net  (less allowance for loan losses of		311,377,863		334,460,567
$5,845,730 and $6,146,861)
Loans held for sale		1,657,813		332,178
Accrued interest receivable		1,622,767		1,754,292
Foreclosed real estate		1,749,986		4,586,399
Premises and equipment, net		11,604,202		11,498,583
Rental real estate		2,036,455		2,144,400
Title plant		475,704		671,704
Deferred taxes		1,351,639		2,151,594
Bank-owned life insurance (BOLI)		6,023,572		5,787,864
Prepaid FDIC assessment		954,947		1,353,121
Prepaid expenses and other assets		2,040,431		2,777,185
Total assets	$	433,021,618	$	452,263,666
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits	$	360,850,727	$	349,832,904
Borrowed funds		25,750,000		49,250,000
Advances from borrowers for taxes and insurance		2,069,176		1,828,430
Accrued expenses and other liabilities		2,254,233		2,177,042
Total liabilities		390,924,136		403,088,376
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value, authorized 3,000,000 shares;
issued and outstanding 2011 - none; 2010 - 10,200 shares		-		10,137,381
Common stock, $.01 par value, authorized 15,500,000 shares;
issued and outstanding 2011 - 1,357,073 shares;
2010 - 1,351,448 shares		13,557		13,502
Additional paid-in capital		18,167,895		18,066,437
Retained earnings, substantially restricted		23,017,789		21,047,295
Accumulated other comprehensive income (loss)		898,241		(89,325	)
Total stockholders’ equity		42,097,482		49,175,290
Total liabilities and stockholders’ equity	$	433,021,618	$	452,263,666
See Notes to Consolidated Financial Statements.

37

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2011, 2010 and 2009
	2011		2010		2009
Interest income:
Loans, including fees	$	18,285,197	$	20,951,183	$	23,814,290
Securities
Taxable		1,539,672		937,453		974,773
Nontaxable		255,953		151,511		96,100
Interest bearing deposits and other		134,090		168,468		13,522
		20,214,912		22,208,615		24,898,685
Interest expense:
Deposits		4,555,119		5,313,932		6,802,006
Borrowed funds		1,133,548		2,432,282		3,535,522
		5,688,667		7,746,214		10,337,528
Net interest income		14,526,245		14,462,401		14,561,157
Provision for loan losses		2,135,000		4,091,000		2,450,000
Net interest income after provision
for loan losses		12,391,245		10,371,401		12,111,157
Noninterest income:
Fees and service charges		4,716,612		4,772,904		4,708,225
Abstract fees		561,393		636,782		929,279
Gain on sale of loans		691,216		965,769		975,481
Other income		1,606,722		1,562,910		1,765,344
Total noninterest income		7,575,943		7,938,365		8,378,329
Investment securities gains (losses), net:
Total other-than-temporary impairment losses		-		-		(23,343	)
Portion of loss recognized in other comprehensive
income (loss) before taxes		-		-		-
Net impairment losses recognized in earnings		-		-		(23,343	)
Realized securities gains (losses), net		135,754		7,652		362,560
Total securities gains (losses), net		135,754		7,652		339,217
Noninterest expense:
Compensation and employee benefits		7,809,460		7,614,858		7,364,215
Premises and equipment		1,841,130		1,894,850		1,878,967
Data processing		868,437		871,816		809,416
FDIC insurance expense		430,888		561,990		759,734
Foreclosed real estate impairment		556,447		479,045		518,136
Other expenses		5,172,217		4,712,034		4,784,319
Total noninterest expense		16,678,579		16,134,593		16,114,787
Income before income taxes		3,424,363		2,182,825		4,713,916
Provision for income taxes		786,000		477,500		1,524,700
Net income	$	2,638,363	$	1,705,325	$	3,189,216
Preferred stock dividends and accretion of discount	$	550,127	$	528,800	$	514,924
Net income available to common stockholders	$	2,088,236	$	1,176,525	$	2,674,292
Basic earnings per common share	$	1.55	$	0.87	$	1.99
Diluted earnings per common share		1.53		0.87		1.99
Dividends declared per common share		0.04		0.04		0.04
See Notes to Consolidated Financial Statements.

38

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2011, 2010 and 2009
	2011			2010			2009
Net income	$	2,638,363		$	1,705,325		$	3,189,216
Other comprehensive income:
Securities for which a portion of an other-than-temporary
impairment has been recorded in earnings:
Unrealized holding (gains) losses	$	-		$	851		$	(23,058	)
(Gains) loss recognized in earnings		-			(7,652	)		29,859
Net unrealized gain (loss) on securities with other-than-temporary
impairment before tax expense		-			(6,801	)		6,801
Tax (expense)		-			-			-
Net unrealized gain (loss) on securities with other-than-temporary
impairment, net of tax in other comprehensive income (loss)		-			(6,801	)		6,801
Other securities:
Unrealized holding gains (losses) arising during the period		1,710,820			(470,533	)		475,698
Realized net (gains) recognized into net income		(135,754	)		-			(369,076	)
Net unrealized gains (losses) on other securities
before tax (expense) benefit		1,575,066			(470,533	)		106,622
Tax (expense) benefit		(587,500	)		175,509			(39,770	)
Net unrealized gains (losses) on other securities, net of tax
in other comprehensive income (loss)		987,566			(295,024	)		66,852
Other comprehensive income (loss)	$	987,566		$	(301,825	)	$	73,653
Comprehensive income	$	3,625,929		$	1,403,500		$	3,262,869
See Notes to Consolidated Financial Statements.

39

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2011, 2010 and 2009
										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-in		Retained			Comprehensive			Stockholders’
	Stock		Stock		Capital		Earnings			Income (Loss)			Equity
Balance, December 31, 2008	$	-	$	13,421	$	17,819,096	$	17,240,779		$	138,847		$	35,212,143
Net income		-		-		-		3,189,216			-			3,189,216
Other comprehensive income		-		-		-		-			73,653			73,653
Dividends on preferred stock		-		-		-		(433,500	)					(433,500	)
Dividends on common stock		-		-		-		(53,848	)		-			(53,848	)
Employee stock-based compensation expense		-		30		61,124		-			-			61,154
Issuance of 2,000 shares of common stock
as a result of stock options exercised		-		20		29,980		-			-			30,000
Issuance of preferred stock and common stock warrant		10,100,732		-		99,268		-			-			10,200,000
Accretion of discount on preferred stock		17,849		-		-		(17,849	)		-			-
Balance, December 31, 2009	$	10,118,581	$	13,471	$	18,009,468	$	19,924,798		$	212,500		$	48,278,818
Net income		-		-		-		1,705,325			-			1,705,325
Other comprehensive income		-		-		-		-			(301,825	)		(301,825	)
Dividends on preferred stock		-		-		-		(510,000	)		-			(510,000	)
Dividends on common stock		-		-		-		(54,028	)		-			(54,028	)
Employee stock-based compensation expense		-		31		56,969		-			-			57,000
Accretion of discount on preferred stock		18,800		-		-		(18,800	)		-			-
Balance, December 31, 2010	$	10,137,381	$	13,502	$	18,066,437	$	21,047,295		$	(89,325	)	$	49,175,290
			(Continued)

40

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Continued)
Years Ended December 31, 2011, 2010 and 2009
											Accumulated
						Additional					Other			Total
	Preferred			Common		Paid-in		Retained			Comprehensive			Stockholders’
	Stock			Stock		Capital		Earnings			Income (Loss)			Equity
Balance, December 31, 2010	$	10,137,381		$	13,502	$	18,066,437	$	21,047,295		$	(89,325	)	$	49,175,290
Net income		-			-		-		2,638,363			-			2,638,363
Other comprehensive income		-			-		-		-			987,566			987,566
Dividends on preferred stock		-			-		-		(551,083	)		-			(551,083	)
Dividends on common stock		-			-		-		(54,167	)		-			(54,167	)
Issuance of 2,000 shares of common stock
as a result of stock options exercised		-			20		41,160		-			-			41,180
Employee stock-based compensation expense		-			35		60,298		-			-			60,333
Accretion of discount on preferred stock		62,619			-		-		(62,619	)		-			-
Redemption of preferred stock		(10,200,000	)		-		-		-			-			(10,200,000	)
Balance, December 31, 2011	$	-		$	13,557	$	18,167,895	$	23,017,789		$	898,241		$	42,097,482
See Notes to Consolidated Financial Statements.

41

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,638,363		$	1,705,325		$	3,189,216
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		2,135,000			4,091,000			2,450,000
Depreciation		841,281			911,858			902,435
Amortization and accretion		477,965			237,174			529,146
Deferred taxes		212,455			254,886			732,824
Stock-based compensation expense		60,333			57,000			61,154
Excess tax benefit related to stock-based compensation		-			-			13,667
Gain on sale of foreclosed real estate and loans, net		(674,662	)		(939,992	)		(981,048	)
Provision for impairment of securities available-for-sale		-			-			23,343
Provision for impairment of title plant		196,000			-			-
Foreclosed real estate impairment		556,447			479,045			518,136
Gain on sale of investments		(135,754	)		(7,652	)		(362,560	)
Increase in value of bank-owned life insurance		(235,708	)		(244,183	)		(249,810	)
Proceeds from sales of loans held for sale		35,599,684			51,365,870			70,576,019
Originations of loans held for sale		(36,234,103	)		(49,398,346	)		(70,204,005	)
Change in assets and liabilities:
Accrued interest receivable		131,525			113,678			228,814
Prepaid expenses and other assets		1,123,444			(327,902	)		(2,525,187	)
Accrued expenses and other liabilities		63,835			(1,440,538	)		(8,113	)
Net cash provided by operating activities		6,756,105			6,857,223			4,894,031
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans		18,474,837			31,774,842			35,145,907
Purchase of loans		-			-			(14,762,234	)
Proceeds from redemption of restricted equity securities		1,320,700			1,119,700			814,300
Purchase of restricted equity securities		(1,426,700	)		(212,200	)		(46,600	)
Proceeds from maturities on investments in certificates
of deposits		11,046,000			3,984,000			-
Purchase of investments in certificates of deposit		(1,988,000	)		(16,673,000	)		-
Proceeds from sale of securities available-for-sale		3,379,805			207,732			9,071,720
Proceeds from maturities and calls of securities
available-for-sale		16,073,021			14,554,417			6,688,029
Purchase of securities available-for-sale		(37,590,502	)		(40,638,953	)		(15,744,778	)
Purchase of premises, equipment and rental real estate		(833,455	)		(428,298	)		(557,198	)
Net proceeds from sale of foreclosed real estate		4,594,928			1,050,689			1,589,062
Net cash provided by (used in) investing activities		13,050,634			(5,261,071	)		22,198,208
(Continued)

42

North Central Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2011, 2010 and 2009
	2011			2010			2009
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	$	11,017,823		$	15,019,844		$	(15,356,865	)
Net increase (decrease) in advances from borrowers for
taxes and insurance		240,746			35,640			(130,968	)
Proceeds from other borrowed funds		5,500,000			7,250,000			8,500,000
Payments of other borrowed funds		(29,000,000	)		(24,500,000	)		(24,348,915	)
Redemption of preferred stock		(10,200,000	)		-			-
Proceeds from issuance of common stock, preferred stock and
common stock warrant		41,180			-			10,230,000
Excess tax expense related to stock-based compensation		-			-			(13,667	)
Common and preferred dividends paid		(605,214	)		(563,998	)		(487,298	)
Net cash (used in) financing activities		(23,005,465	)		(2,758,514	)		(21,607,713	)
Net change in cash and cash equivalents		(3,198,726	)		(1,162,362	)		5,484,526
CASH AND CASH EQUIVALENTS
Beginning		20,603,808			21,766,170			16,281,644
Ending	$	17,405,082		$	20,603,808		$	21,766,170
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash payments for:
Interest paid	$	5,829,327		$	7,914,981		$	10,604,172
Income taxes paid (refunds), net		(622,786	)		1,648,352			141,162
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES, transfer
of loans to foreclosed real estate	$	2,323,696		$	4,441,523		$	2,646,583
See Notes to Consolidated Financial Statements.

43

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 1.   Significant Accounting Policies

Nature of activities:  North Central Bancshares, Inc. (the Company), an Iowa corporation, owns 100% of the outstanding stock of First Federal Savings Bank of Iowa (the Bank), which 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.

Effective June 29, 2011, the Bank received regulatory approval from the Iowa Division of Banking and completed its conversion to a state-chartered commercial bank from a federally-chartered stock savings bank.  In connection with the conversion of the Bank, the Company also received approval from the Board of Governors of the Federal Reserve System and completed a reorganization to a bank holding company from a savings and loan holding company.

The Bank competes with other financial institutions and non-financial institutions providing similar financial products.  Although the loan activity of the Bank is diversified with commercial loans, real estate loans, automobile, installment and other consumer loans, the Bank’s credit is concentrated in real estate loans.

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, fair value of securities available-for-sale and related other-than-temporary impairments, fair value of foreclosed real estate, and fair value of financial instruments.

Revenue recognition:  Interest income is recognized on the accrual method based on the respective outstanding balances.  Other revenue is recognized at the time the service is provided or transaction occurs.

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.

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

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, net of the related deferred tax effect.  Amortization of premiums and accretion of discounts, computed by the interest method over their estimated 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.

44

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Declines in the 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 lack of intent of the Company to sell the security or whether it is more-likely-than-not that the Company will be required to sell the security before its anticipated recovery.

Restricted equity securities:  The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank (“FHLB”), is required to maintain investments in each of the organization’s capital stock.  The stock is carried at cost.  No ready market exists for these restricted equity securities, and they have no quoted market values.  Restricted equity securities are periodically reviewed for impairment based on ultimate recovery of par value.  There have been no other-than-temporary write-downs recorded on these securities.

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, net:  Loans that management has the intent and ability to hold for the foreseeable future, or until payoff 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 unamortized net deferred fees and/or costs on originated loans and net unearned premiums (discounts), with interest income recognized on the interest method based upon those outstanding loan balances.  Loan origination fees net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.  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.  As assets are 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.

Loans are placed on nonaccrual status when the full and timely collection of interest and principal becomes uncertain, or when the loan becomes 90 days past due (unless the loan is both well-secured and in the process of collection).  When a loan is placed on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income.  Income is subsequently recognized on a cash or cost recovery basis until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is no longer in doubt.  Generally, a loan is returned to accrual status when (a) all delinquent interest and principal payments become current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

The allowance for loan losses is an amount that management believes will be adequate to absorb probable losses on existing loans that may become uncollectible.  A disciplined process and methodology are used to establish the allowance for loan losses.  While the methodology attributes portions of the allowance to specific portfolios, the entire allowance for loan losses is available to absorb credit losses in the total loan portfolio.  To determine the total allowance for loan losses, a reserve is estimated for each component of the portfolio, including loans analyzed individually and loans analyzed on a pooled basis.  The allowance for loan losses consists of amounts applicable to: (1) the commercial real estate portfolio, (2) the residential real estate portfolio, and (3) the consumer portfolio.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as updated information becomes available.

To determine the residential real estate and consumer portfolio components of the allowance, loans are pooled by portfolio and losses are estimated using historical loss experience and management’s evaluation of the impact of risks associated with trends in delinquencies, concentrations of credit and regional and macro economic factors.  An individual impairment assessment is performed for residential real estate and consumer loans whose terms have been modified in a troubled debt restructuring (TDR).  These loans are excluded from the pooled analysis.

45

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The component of the allowance for the non-impaired commercial portfolio is estimated through the application of loss factors to loans grouped as nonresidential, multifamily and construction and development.  Loss factors are derived from historical loss experience, trends in delinquencies, concentrations of credit and regional and macro economic factors.  The commercial component of the allowance also includes an amount for the estimated impairment in individually identified impaired loans and commercial loans whose terms have been modified in a TDR.

For loans that are classified as impaired, including those loans modified in a TDR, a specific allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative and environmental factors.

A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Management evaluates loans for indicators of impairment upon substandard classification.  Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  The amount of impairment, if any and any subsequent changes are included in the allowance for loan losses.

Reflected in all components of the allowance for loan losses is an amount for imprecision or uncertainty, which represents management’s judgment of risks inherent in the process and assumptions used in establishing the allowance.  This imprecision considers economic environmental factors and other subjective factors.

Loans are generally charged off, fully or partially, when management judges the asset to be uncollectible or repayment is deemed to extend beyond a reasonable time frame.

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.

Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions.  Essentially, all loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as, breach of representation, warranty, or covenant, untimely document delivery, false or misleading statements, failure to obtain certain certificates or insurance, unmarketability, etc.  Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days/months since the purchase, the sequence number of the payment and/or the number of days of payment delinquency.  In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase is not significant, and accordingly no liabilities have been established related to such.

Foreclosed real estate:  Real estate properties acquired through loan foreclosure are initially recorded at fair value less estimated 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 noninterest expense if the carrying value of a property exceeds its fair value less estimated selling costs.

46

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

	Years
Building and improvements	5 - 50
Automobiles, furniture and equipment	3 - 20

Rental real estate:  Rental real estate is comprised of two low-income housing, multifamily apartment buildings and equipment which are stated at cost, net of accumulated depreciation of approximately $1,951,000 and $1,819,000 for the years ended December 31, 2011 and 2010, 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 an intangible asset that represents the value paid for the land tract files, plat books, indexes, and real estate records used in the abstracting services performed by First Iowa Title Services, Inc., a wholly-owned subsidiary of the Bank.  Title plant is carried at cost and is not depreciated.  Costs incurred to maintain and update the title plant are expensed as incurred.  Title plant is subject to an impairment test on an annual basis or more often if conditions indicate a possible impairment.  The Company determined in 2011 that title plant was impaired in the amount of $196,000, which is included in other noninterest expenses.  There was no impairment in 2010 or 2009.

Bank-owned life insurance:  The carrying amount of bank-owned life insurance consists of the initial premium paid plus increases in cash value less the carrying amount associated with any death benefit received.  Death benefits paid in excess of the applicable carrying amount are recognized as income, which is exempt from income taxes.

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.  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.

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority.  Interest and penalties related to income taxes are recorded as miscellaneous expense in the statements of income.

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.

47

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Earnings per common share:  Basic earnings per common share represents income or loss 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 was 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, restricted stock and common stock warrants.

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 one reporting segment.  The Company operates primarily in the banking industry, which accounts for the majority of its revenues, operating income and assets.  All other segments were considered minor and classified as other, with 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:  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 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 pre-vesting forfeiture rates on its stock-based incentive awards have been negligible.

Recent accounting pronouncements:  In January 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair Value Measurements, which amends ASC 820-10 to require new disclosures about transfers in and out of Level 1 and Level 2 fair value measurements and the roll forward activity in Level 3 fair value measurements.  ASU 2010-06 also clarifies existing disclosure requirements regarding the level of disaggregation of each class of assets and liabilities within a line item in the statement of financial condition and clarifies that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair value measurements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures about the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  The Company’s adoption of this guidance did not have an impact on its financial condition or results of operations.

In July 2010, the FASB issued ASU 2010-20, Disclosures about Credit Quality of Financing Receivables and the Allowance for Credit Losses, which amends ASC 310, Receivables, by requiring more robust and disaggregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses.  The objective of enhancing these disclosures is to improve a financial statement user’s understanding of (1) the nature of an entity’s credit risk associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes.  The new and amended disclosures that relate to information as of the end of a reporting period are effective for the first interim or annual reporting periods ending on or after December 15, 2010, which for the Company was the annual reporting period ending December 31, 2010.  However, the disclosures that include information for activity that occurs during a reporting period are effective for the first interim or annual periods beginning after December 15, 2010, which for the Company was the quarterly period beginning January 1, 2011.  Those disclosures include the activity in the allowance for credit losses for each period. In January 2011, the FASB temporarily delayed the effective date of the disclosures required for TDR loans for public companies.  Since the provisions of ASU 2010-20 are disclosure related, the Company’s adoption of this guidance did not have an impact on its financial statements.

48

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring, which amended guidance clarifying for creditors which restructured loans are considered TDR.  To qualify as a TDR, a creditor must separately conclude that the restructuring constitutes a concession and that the debtor is experiencing financial difficulty.  The amended guidance is effective for public companies for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  The Company adopted this guidance effective July 1, 2011.  The adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2011, FASB issued ASU No. 2011-05, Amendments to Topic 220, Comprehensive Income. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company adopted this guidance effective September 30, 2011. The adoption did not have a material impact on the Company's consolidated financial statements.

In September 2011, FASB issued ASU No. 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan.  For employers that participate in multiemployer pension plans, this guidance requires an employer to provide additional quantitative and qualitative disclosures. The amended disclosures provide users with more detailed information about an employer’s involvement in multiemployer pension plans.  For public entities, this guidance is effective for annual periods for fiscal years ending after December 15, 2011, which for the Company is December 31, 2011 and should be applied retrospectively for all prior periods presented.  Since the provisions of ASU 2011-09 are disclosure related, the Company’s adoption of this guidance did not have an impact on its financial statements.

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

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 $25,000 and $5,942,000 at December 31, 2011 and 2010, respectively.

49

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 3.   Securities

Securities available-for-sale as of December 31, 2011 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
Debt securities:
U.S. Government agencies	$	5,249,999	$	50,496	$	-		$	5,300,495
Mortgage-backed securities(1)		17,709,321		550,073		-			18,259,394
Collateralized mortgage obligations(1)		26,190,653		485,319		(19,124	)		26,656,848
State and local obligations		13,768,845		389,826		(5,468	)		14,153,203
Corporate bonds		3,615,538		4,750		(23,271	)		3,597,017
	$	66,534,356	$	1,480,464	$	(47,863	)	$	67,966,957

Securities available-for-sale as of December 31, 2010 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
Debt securities:
U.S. Government agencies	$	8,646,763	$	93,659	$	(46,503	)	$	8,693,919
Mortgage-backed securities(1)		13,735,714		290,895		(163,780	)		13,862,829
Collateralized mortgage obligations(1)		19,469,375		59,302		(240,553	)		19,288,124
State and local obligations		5,103,472		25,888		(139,697	)		4,989,663
Corporate bonds		1,622,912		-		(21,676	)		1,601,236
	$	48,578,236	$	469,744	$	(612,209	)	$	48,435,771
(1) All mortgage backed securities and collateralized mortgage obligations consist of securities issued by
FNMA, FHLMC and GNMA and are backed by residential mortgage loans.

Securities available-for-sale with fair market values of approximately $1,759,000 and $1,042,000 at December 31, 2011 and 2010, respectively, were pledged to the Federal Reserve Discount Window for borrowings.

State and local obligations included general obligation bonds totaling $6,943,324 and $2,455,869 at December 31, 2011 and 2010, respectively.

50

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Gross unrealized losses and estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2011 and 2010, are summarized as follows:

	2011
	Less than 12 Months					12 Months or More				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Debt securities:
Collateralized mortgage obligations	$	3,333,267	$	(19,124	)	$	-	$	-	$	3,333,267	$	(19,124	)
State and local obligations		1,121,587		(5,468	)		-		-		1,121,587		(5,468	)
Corporate bonds		2,337,518		(23,271	)		-		-		2,337,518		(23,271	)
	$	6,792,372	$	(47,863	)	$	-	$	-	$	6,792,372	$	(47,863	)
	2010
	Less than 12 Months					12 Months or More				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Debt securities:
U.S. Government agencies	$	1,577,870	$	(46,503	)	$	-	$	-	$	1,577,870	$	(46,503	)
Mortgage-backed securities		5,810,547		(163,780	)		-		-		5,810,547		(163,780	)
Collateralized mortgage obligations		12,776,228		(240,553	)		-		-		12,776,228		(240,553	)
State and local obligations		3,096,965		(139,697	)		-		-		3,096,965		(139,697	)
Corporate bonds		1,601,236		(21,676	)		-		-		1,601,236		(21,676	)
	$	24,862,846	$	(612,209	)	$	-	$	-	$	24,862,846	$	(612,209	)

The total number of securities in the investment portfolio in an unrealized loss position at December 31, 2011 was 9 compared to 35 at December 31, 2010.  The Company conducts quarterly reviews to identify and evaluate each investment that has an unrealized loss.  The unrealized losses for the above investment securities are generally due to changes in interest rates and, as such, are considered to be temporary by the Company.  The review takes into consideration the intent of the Company to not sell the security or whether it is more-likely-than-not that the Company will be required to sell the security before its anticipated recovery, as well as other qualitative factors.

51

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The amortized cost and fair value of debt securities as of December 31, 2011 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:

	December 31, 2011
	Amortized
	Cost		Fair Value
Due in one year or less	$	50,000	$	50,160
Due from one to five years		8,496,924		8,540,410
Due from five to ten years		6,375,400		6,608,823
Due in over ten years		7,712,058		7,851,322
Mortgage-backed securities and
collateralized mortgage obligations		43,899,974		44,916,242
	$	66,534,356	$	67,966,957

The following is a summary of securities sold during the years ended December 31, 2011, 2010 and 2009, excluding the redemption of restricted equity securities:

	2011		2010		2009
Sales proceeds	$	3,379,805	$	207,732	$	9,071,720
Gross realized gains		135,754		7,652		382,504
Gross realized losses		-		-		(19,944	)

Included in the interest income on securities was dividend income of $106,170, $92,338 and $71,096 for the years ended December 31, 2011, 2010 and 2009, respectively.

52

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 4.   Loans Receivable

Loans receivable at December 31, 2011 and 2010 are summarized as follows:

	2011			2010
First mortgage loans:
1-4 Family residential real estate	$	138,581,219		$	141,061,321
Multifamily real estate		48,656,251			57,461,170
Commercial real estate		67,322,328			69,253,792
Construction and land development		2,111,575			4,193,756
Total first mortgage loans		256,671,373			271,970,039
Consumer loans:
Automobile		13,829,186			13,548,710
Second mortgage		43,897,879			51,349,053
Other		3,666,196			4,282,717
Total consumer loans		61,393,261			69,180,480
Total loans		318,064,634			341,150,519
Undisbursed portion of construction loans		(470,938	)		(295,609	)
Unearned premiums, net		22,340			83,528
Net deferred loan origination fees		(392,443	)		(331,010	)
Allowance for loan losses		(5,845,730	)		(6,146,861	)
	$	311,377,863		$	334,460,567

53

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Activity in the allowance for loan losses by segment for the years ended December 31, 2011 and 2010 are summarized in the following tables.

	For the Year Ended December 31, 2011
										1-4 Family
	Commercial			Construction and			Multi-Family			Residential
	Real Estate			Land Development			Real Estate			Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	2,555,094		$	354,911		$	803,850		$	1,009,630		$	1,423,376		$	6,146,861
Charge-offs		(1,286,350	)		(70,000	)		(278,387	)		(184,456	)		(647,957	)		(2,467,150	)
Recoveries		10,083			-			-			126			20,810			31,019
Provisions		1,248,455			45,927			(9,356	)		303,018			546,956			2,135,000
Ending balance	$	2,527,282		$	330,838		$	516,107		$	1,128,318		$	1,343,185		$	5,845,730
	For the Year Ended December 31, 2010
										1-4 Family
	Commercial			Construction and			Multi-Family			Residential
	Real Estate			Land Development			Real Estate			Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	1,991,889		$	2,510,656		$	620,475		$	679,097		$	1,368,478		$	7,170,595
Charge-offs		(539,000	)		(3,491,360	)		(26,243	)		(511,065	)		(563,920	)		(5,131,588	)
Recoveries		-			-			-			675			16,179			16,854
Provisions		1,102,205			1,335,615			209,618			840,923			602,639			4,091,000
Ending balance	$	2,555,094		$	354,911		$	803,850		$	1,009,630		$	1,423,376		$	6,146,861

Activity in the allowance for loan losses is summarized as follows for the year ended December 31, 2009:

	2009
Balance, beginning	$	5,379,155
Provision charged to income		2,450,000
Loans charged off		(675,926	)
Recoveries		17,366
Balance, ending	$	7,170,595

54

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011 and 2010.

	December 31, 2011
							1-4 Family
	Commercial		Construction and		Multi-Family		Residential
	Real Estate		Land Development		Real Estate		Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	738,650	$	202,000	$	-	$	142,400	$	61,582	$	1,144,632
Collectively evaluated for impairment		1,788,632		128,838		516,107		985,918		1,281,603		4,701,098
Total ending allowance balance	$	2,527,282	$	330,838	$	516,107	$	1,128,318	$	1,343,185	$	5,845,730
Loans:
Individually evaluated for impairment	$	8,421,631	$	1,835,950	$	-	$	4,509,307	$	478,757	$	15,245,645
Collectively evaluated for impairment		58,900,697		275,625		48,656,251		134,071,912		60,914,504		302,818,989
Total ending loan balance	$	67,322,328	$	2,111,575	$	48,656,251	$	138,581,219	$	61,393,261	$	318,064,634
	December 31, 2010
							1-4 Family
	Commercial		Construction and		Multi-Family		Residential
	Real Estate		Land Development		Real Estate		Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	1,121,500	$	237,000	$	201,500	$	85,111	$	115,683	$	1,760,794
Collectively evaluated for impairment		1,433,594		117,911		602,350		924,519		1,307,693		4,386,067
Total ending allowance balance	$	2,555,094	$	354,911	$	803,850	$	1,009,630	$	1,423,376	$	6,146,861
Loans:
Individually evaluated for impairment	$	12,194,848	$	3,301,345	$	1,558,628	$	5,167,369	$	607,064	$	22,829,254
Collectively evaluated for impairment		57,058,944		892,411		55,902,542		135,893,952		68,573,416		318,321,265
Total ending loan balance	$	69,253,792	$	4,193,756	$	57,461,170	$	141,061,321	$	69,180,480	$	341,150,519

55

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The following tables summarize the recorded investment in impaired loans by segment, including loans for which no impairment is recorded, loans for which an impairment is recorded, and the resulting allowance for the impairment by segment as of December 31, 2011 and 2010.

	December 31, 2011
			Unpaid Principal		Associated		Average
	Carrying Amount		Balance		Allowance		Balance
With no specific allowance recorded:
Commercial Real Estate	$	-	$	-	$	-
Construction and Land Development		-		-		-
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		3,764,936		3,764,936		-
Consumer		349,300		349,300		-
With an allowance recorded:
Commercial Real Estate		8,421,631		8,421,631		738,650
Construction and Land Development		1,835,950		1,835,950		202,000
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		744,371		744,371		142,400
Consumer		129,457		129,457		61,582
Total:
Commercial Real Estate		8,421,631		8,421,631		738,650	$	8,797,584
Construction and Land Development		1,835,950		1,835,950		202,000		2,475,918
Multi-Family Real Estate		-		-		-		389,657
1-4 Family Residential Real Estate		4,509,307		4,509,307		142,400		4,782,398
Consumer		478,757		478,757		61,582		785,557
	$	15,245,645	$	15,245,645	$	1,144,632	$	17,231,114
	December 31, 2010
			Unpaid Principal		Associated		Average
	Carrying Amount		Balance		Allowance		Balance
With no specific allowance recorded:
Commercial Real Estate	$	1,584,352	$	1,852,852	$	-
Construction and Land Development		892,017		2,962,017		-
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		4,560,823		4,872,752		-
Consumer		433,793		442,786		-
With an allowance recorded:
Commercial Real Estate		10,610,496		10,610,496		1,121,500
Construction and Land Development		2,409,328		2,409,328		237,000
Multi-Family Real Estate		1,558,628		1,558,628		201,500
1-4 Family Residential Real Estate		606,546		606,546		85,111
Consumer		173,271		173,271		115,683
Total:
Commercial Real Estate		12,194,848		12,463,348		1,121,500	$	9,780,378
Construction and Land Development		3,301,345		5,371,345		237,000		7,277,842
Multi-Family Real Estate		1,558,628		1,558,628		201,500		519,543
1-4 Family Residential Real Estate		5,167,369		5,479,298		85,111		5,083,518
Consumer		607,064		616,057		115,683		544,684
	$	22,829,254	$	25,488,676	$	1,760,794	$	23,205,965

56

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Interest income recognized on impaired loans was approximately $617,000, $572,000, and $931,000 for years ended 2011, 2010 and 2009 respectively.

Credit Quality Indicators

Credit quality indicators are used by management in determining the allowance for loan losses.  The primary credit quality indicators used by management include loan classification and delinquency status.  These indicators are used to identify and evaluate trends and deterioration in the loan portfolio.

The primary credit quality indicator used by management in the commercial real estate, construction and land development, and multi-family real estate loan portfolios is the internal classification of the loans.  Loans in these portfolios that are over $500,000 are reviewed annually at which time they are assigned a classification.  Loans may also be reviewed prior to the annual review cycle based on current information that becomes available regarding the borrower’s ability to service the loan.  Loans may be classified as watch, special mention, substandard, or doubtful.  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 bank 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 that do not expose the bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve management’s close attention are designated as special mention.  If left uncorrected, these potential weaknesses could increase the level of risk to the Bank in the future.  Commercial loans to borrowers whose most recent financial information shows deterioration in the earliest stages and warrant greater than routine attention and monitoring by management are designated as watch.  Impaired loans and troubled debt restructurings are generally classified as substandard or doubtful.

The primary credit quality indicator used by management in the residential real estate and consumer loan portfolios is the delinquency status of the loans.

57

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The following tables summarize the recorded investment in loan segments by credit quality indicator as of December 31, 2011 and 2010.  Past due status is reported as of December 31, 2011 and 2010.  Internal classification ratings reflect the most recent classification assigned generally based on an annual review performed during the periods reported.

	Commercial Loans
	Credit risk profile by internally assigned grade
	December 31, 2011
	Commercial		Construction and		Multi-Family
	Real Estate		Land Development		Real Estate		Total
Grade:
Pass	$	52,737,956	$	275,625	$	45,239,400	$	98,252,981
Watch		6,162,741		-		3,416,851		9,579,592
Special Mention		-		-		-		-
Substandard		7,682,981		1,633,950		-		9,316,931
Doubtful		738,650		202,000		-		940,650
	$	67,322,328	$	2,111,575	$	48,656,251	$	118,090,154
	December 31, 2010
	Commercial		Construction and		Multi-Family
	Real Estate		Land Development		Real Estate		Total
Grade:
Pass	$	53,092,384	$	892,411	$	53,291,156	$	107,275,951
Watch		3,966,560		-		2,611,386		6,577,946
Special Mention		-		-		-		-
Substandard		11,073,348		3,064,345		1,357,128		15,494,821
Doubtful		1,121,500		237,000		201,500		1,560,000
	$	69,253,792	$	4,193,756	$	57,461,170	$	130,908,718
	Residential Real Estate and Consumer Loans
	Credit risk profile based on delinquency status
	December 31, 2011
	1-4 Family
	Residential		Second		Other Consumer
	Real Estate		Mortgage		Loans		Total
Current	$	136,573,437	$	43,582,655	$	17,201,581	$	197,357,673
Past due 30-89 days		921,298		117,620		233,208		1,272,126
Past due 90 days and greater		1,086,484		197,604		60,593		1,344,681
	$	138,581,219	$	43,897,879	$	17,495,382	$	199,974,480
	December 31, 2010
	1-4 Family
	Residential		Second		Other Consumer
	Real Estate		Mortgage		Loans		Total
Current	$	137,430,650	$	50,136,653	$	17,590,417	$	205,157,720
Past due 30-89 days		1,473,094		786,900		203,341		2,463,335
Past due 90 days and greater		2,157,577		425,500		37,669		2,620,746
	$	141,061,321	$	51,349,053	$	17,831,427	$	210,241,801

58

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

An aging analysis of the recorded investment in loans by segment at December 31, 2011 and 2010 are summarized as follows.

	December 31, 2011
	30-89 Days		90 Days Past Due
	Past Due		and Greater		Total Past Due		Current		Total
Commercial Loans:
Commercial Real Estate	$	26,796	$	-	$	26,796	$	67,295,532	$	67,322,328
Construction and Land Development		1,132,119		703,831		1,835,950		275,625		2,111,575
Multi-Family Real Estate		-		-		-		48,656,251		48,656,251
1-4 Family Residential Real Estate		921,298		1,086,484		2,007,782		136,573,437		138,581,219
Consumer:
Second mortgage		117,620		197,604		315,224		43,582,655		43,897,879
Other consumer loans		233,208		60,593		293,801		17,201,581		17,495,382
	$	2,431,041	$	2,048,512	$	4,479,553	$	313,585,081	$	318,064,634
	December 31, 2010
	30-89 Days		90 Days Past Due
	Past Due		and Greater		Total Past Due		Current		Total
Commercial Loans:
Commercial Real Estate	$	-	$	440,193	$	440,193	$	68,813,599	$	69,253,792
Construction and Land Development		-		1,411,752		1,411,752		2,782,004		4,193,756
Multi-Family Real Estate		373,518		1,558,628		1,932,146		55,529,024		57,461,170
1-4 Family Residential Real Estate		1,473,094		2,157,577		3,630,671		137,430,650		141,061,321
Consumer:
Second mortgage		786,900		425,500		1,212,400		50,136,653		51,349,053
Other consumer loans		203,341		37,669		241,010		17,590,417		17,831,427
	$	2,836,853	$	6,031,319	$	8,868,172	$	332,282,347	$	341,150,519

There were no loans greater than 90 days past due and still accruing interest at December 31, 2011 and 2010.  Nonaccrual loans at December 31, 2011 and 2010 by segment are summarized below:

	2011		2010
Commercial Loans:
Commercial Real Estate	$	1,511,299	$	5,408,650
Construction and Land Development		1,835,950		1,679,839
Multi-Family Real Estate		-		1,558,628
1-4 Family Residential Real Estate		1,086,485		2,459,406
Consumer:
Second mortgage		197,603		425,500
Other consumer loans		60,593		37,669
	$	4,691,930	$	11,569,692

59

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

TDRs are loans on which, due to the borrower’s financial difficulties, a concession has been granted that would not otherwise be considered.  In most cases, modifications of loan terms that could potentially qualify as a TDR include reduction of contractual interest rate, extension of the maturity date or a reduction of the principal balance.  A TDR is placed on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.  All loans classified as TDRs are considered to be impaired.

The following table summarizes loans that have been restructured for year ended December 31, 2011:

	December 31, 2011
	Number of Loans		Pre-restructuring Principal Balance		Post-restructuring Principal Balance
Troubled debt restructurings:
Commercial Real Estate		3	$	5,919,269	$	5,919,269
Construction and Land Development		1		743,761		743,761
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		15		1,515,061		1,570,377
Consumer		13		377,400		356,785
Total:		32	$	8,555,491	$	8,590,192

The TDRs described above increased the allowance for loan losses by approximately $123,000 for the year ended December 31, 2011 and resulted in charge-offs of $33,500 for the year ended December 31, 2011.  The majority of these TDRs were a result of changes in interest rates and accounted for approximately 90% of the modifications.  The difference between the post-restructuring principal balance compared to the pre-restructuring principal balance is due to charge-offs or capitalization of interest.  One 1-4 family residential real estate loan received an advance of additional funds of approximately $26,000.

A restructured loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.  The following table summarizes, as of December 31, 2011, loans that were restructured within the last 12 months that have subsequently defaulted during the reported period:

	December 31, 2011
	Number of Loans		Principal Balance of Defaulted Loans
Commercial Real Estate		-	$	-
Construction and Land Development		1		703,831
Multi-Family Real Estate		-		-
1-4 Family Residential Real Estate		4		472,363
Consumer		2		31,434
Total:		7	$	1,207,628

60

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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 made, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated third parties.

Activity in loans receivable from these related parties of the Company consisted of the following for the years ended December 31, 2011 and 2010:

	2011			2010
Beginning balance	$	496,638		$	301,882
New loans		448,000			491,414
Available line of credit balance		-			(155,537	)
Change in status		(378,136	)		(122,925	)
Repayments		(8,339	)		(18,196	)
Ending balance	$	558,163		$	496,638

Note 5.   Loan Servicing

Mortgage loans serviced for the Federal Home Loan Mortgage Corporation (FHLMC) and the Mortgage Partnership Finance (MPF) Program of the FHLB of Des Moines are not included in the accompanying consolidated statements of financial condition.  The unpaid principal balances of these loans at December 31, 2011 and 2010 were $134,178,766 and $134,303,273, respectively.  Included in deposits are custodial escrow balances maintained in connection with the foregoing loan servicing of $1,408,663 and $1,237,935 at December 31, 2011 and 2010, respectively.

Note 6.   Premises and Equipment

Premises and equipment consisted of the following at December 31:

	2011		2010
Land	$	3,765,799	$	3,765,799
Buildings and improvements		11,064,498		11,043,738
Leasehold improvements		203,567		58,552
Furniture, fixtures and equipment		5,770,582		5,149,780
Vehicles		128,811		156,807
		20,933,257		20,174,676
Less accumulated depreciation		9,329,055		8,676,093
	$	11,604,202	$	11,498,583

61

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 7.   Deposits

Deposits at December 31 were as follows:

	2011		2010
Demand deposit accounts:
Noninterest-bearing	$	20,611,897	$	19,089,162
Interest-bearing		133,265,490		116,865,788
Savings accounts		33,272,368		30,713,715
Money market savings		34,437,965		33,999,781
Certificates of deposit		139,263,007		149,164,458
	$	360,850,727	$	349,832,904

Scheduled maturities of certificates of deposit at December 31 were as follows:

Year ending December 31:	2011
2012	$	70,487,863
2013		29,447,716
2014		19,160,438
2015		11,267,030
2016		8,899,960
	$	139,263,007

Interest expense on deposits consisted of the following:

	Years Ended December 31,
	2011		2010		2009
Demand deposit accounts	$	1,051,315	$	773,780	$	171,281
Savings accounts		37,560		53,479		54,959
Money market savings		98,441		198,528		297,135
Certificates of deposit		3,367,803		4,288,145		6,278,631
	$	4,555,119	$	5,313,932	$	6,802,006

The aggregate amounts of certificates of deposit in excess of $100,000 were $31,395,546 and $25,588,973 as of December 31, 2011 and 2010, respectively.  Certificates of deposit include approximately $567,000 and $558,000 of brokered certificates of deposit as of December 31, 2011 and 2010, respectively.

62

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 8.   Borrowed Funds

Borrowed funds at December 31, 2011 consist of borrowings from the FHLB as follows:

	Weighted-
Stated	Average
Maturity	Interest Rate			Amount
2012		4.33	%	$	13,000,000
2013		0.98			4,750,000
2014		1.31			3,500,000
2015		1.68			1,500,000
2016		-			-
Thereafter		2.65			3,000,000
		2.95	%	$	25,750,000

Borrowed funds at December 31, 2010 included borrowings from the FHLB of $49,250,000.  Such borrowings carried a weighted-average interest rate of 3.77% with maturities ranging from 2010 through 2020.

The FHLB borrowings are collateralized by FHLB stock and qualifying first and second mortgage loans representing various percentages of the total borrowings outstanding.  At December 31, 2011, loans with a principal balance of $178,237,915 were pledged to the FHLB.

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, 2011, retained earnings contain 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.

63

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Income tax expense is summarized as follows:

	Years Ended December 31,
	2011		2010		2009
Current	$	573,545	$	222,614	$	791,876
Deferred		212,455		254,886		732,824
	$	786,000	$	477,500	$	1,524,700

Deferred tax assets and liabilities consisted of the following components as of December 31, 2011 and 2010:

	2011			2010
Deferred tax assets:
Allowance for loan losses	$	2,180,000		$	2,293,000
Capital loss carry forward		385,000			391,000
Deferred directors fees and compensation		68,000			60,000
Deferred income		24,000			32,000
Accrued expenses		403,000			323,000
Tax credit carryforward		-			59,000
Stock-based compensation expense		70,000			70,000
Unrealized losses on securities available for sale		-			53,000
Other		35,000			135,000
Total gross deferred tax assets		3,165,000			3,416,000
Valuation allowance		(382,000	)		(382,000	)
Net deferred tax assets		2,783,000			3,034,000
Deferred tax liabilities:
Premises and equipment		508,000			356,000
Unrealized gains on securities available-for-sale		534,000			-
Title plant		127,000			204,000
Servicing rights		239,000			287,000
Other		23,361			35,406
Total gross deferred tax liabilities		1,431,361			882,406
Net deferred tax assets	$	1,351,639		$	2,151,594

64

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The valuation allowance for deferred tax assets at December 31, 2011 and 2010, totaled $382,000.  The valuation allowance and the change in valuation allowance relate to realized and unrealized capital losses on certain equity investments in which the Company does not expect to be able to realize related tax benefits because of limitations on utilization of capital losses only against capital gains for federal and state tax purposes.

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:

	Year Ended December 31,
	2011						2010						2009
				Percent						Percent						Percent
				of Pretax						of Pretax						of Pretax
	Amount			Income			Amount			Income			Amount			Income
Income before income taxes	$	1,164,283			34.0	%	$	742,161			34.0	%	$	1,602,731			34.0	%
Nontaxable income		(180,127	)		(5.3	)		(142,534	)		(6.5	)		(134,292	)		(2.8	)
State income tax, net of
federal income tax benefit		92,312			2.7			59,477			2.7			109,659			2.3
Low-income housing tax credit		(225,401	)		(6.6	)		(191,356	)		(8.8	)		(139,287	)		(3.0	)
KSOP		(2,555	)		(0.1	)		(1,398	)		(0.1	)		(1,398	)		0.0
Increase (decrease) to valuation
allowance		-			0.0			(2,854	)		(0.1	)		(15,103	)		(0.3	)
Decrease in liability for unrecognized		-			0.0			(50,000	)		(2.3	)		-			0.0
tax benefits
Other		(62,512	)		(1.8	)		64,004			3.0			102,390			2.1
Income tax expense	$	786,000			23.0	%	$	477,500			21.9	%	$	1,524,700			32.3	%

Accounting guidance on uncertain tax positions addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements.  The Company recognizes the tax benefits from an uncertain tax position only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation.  The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.  As of December 31, 2011 and 2010 the liability for unrecognized tax benefits was $150,000.

The Company has established contingency reserves for material, known tax exposures, including potential tax audit adjustments with respect to its state nexus issues.  The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review.  While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve.  With respect to these reserves, the Company’s income tax expense would include (1) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue, and (2) any difference from the Company’s tax position as recorded in the financial statements and the final resolution of a tax issue during the period.

Income tax returns for the years 2008 through 2011, with few exceptions, remain open to examination by federal and state taxing authorities.

65

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 10.   Employee Benefit Plans

Retirement plans:  The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), a tax qualified defined-benefit pension plan.  The Pentegra DB Plan’s Employer Identification Number is 13-5645888 and the Plan Number is 333.  The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.  There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities.  Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers.  The funded status of the Pentegra DB Plan as of June 30, 2011 and 2010 exceeded 80%.  For the plan years ended June 30, 2011 and 2010, the Bank’s contributions to the Pentegra DB Plan were not more than 5% of the total contributions to the Pentegra DB Plan.  The Pentegra DB Plan is not under a funding improvement plan and there have been no changes in the plan affecting comparability of contributions from period to period.

The Bank recognized $317,000, $211,000 and $98,000 in pension expense for the years ended December 31, 2011, 2010 and 2009, respectively.  Effective July 1, 2008 the plan was frozen, eliminating future benefit accruals.

The Bank also has a defined contribution plan covering substantially all employees, the 401(k) and Stock Ownership Plan (the Plan).  The Plan consists of two components.  The first component is intended to qualify as a profit sharing plan under Code Section 401(a) and includes a qualified cash or deferred arrangement under Code Section 401(k).  This component includes elective deferral contributions, matching contributions and discretionary contributions invested in assets other than qualifying employer securities.  The second component, the employee stock option plan (“ESOP”) component, is intended to qualify as a qualified stock bonus plan under Code Section 401(a) and as an employee stock ownership plan under Code Section 4975(e)(7).  This component includes elective deferral contributions, matching contributions and discretionary contributions primarily invested in qualifying employer securities.  The plan provides for participant-directed investments and is intended to comply with the Employee Retirement Income Security Act of 1974, Section 404(c).

The contributions made by the Company to the Plan are determined by matching contributions on elective deferrals and a profit sharing component determined annually by the Board of Directors.  Contribution expense for the years ended December 31, 2011, 2010, and 2009 totaled approximately $140,482, $141,197, and $136,011, respectively.

As of December 2011 and 2010, the Plan held 181,797 shares and 189,941 shares respectively, of the Company stock. These shares are included in the computation of earnings per share.  Dividends on shares held in the plan may be reinvested in Company stock or paid in cash to the participants, at the election of the participants.

66

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 11.   Stock Based Compensation Plans

In 1996, the stockholders of the Company ratified the 1996 Incentive Stock Option Plan (the 1996 Plan), which permitted the grant of 441,105 shares of common stock to its directors and employees.  The 1996 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 employed with the Company or its subsidiaries.  The 1996 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 1996 Plan.  Options granted to directors vest 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 stockholder approval of the North Central Bancshares, Inc. 2006 Stock Incentive Plan (the 2006 Plan), no further awards under the 1996 Plan may be granted.

On April 28, 2006, the stockholders of the Company approved the Company’s adoption of 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 grants 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 is administered by the Compensation Committee of the Company’s Board of Directors, including determining the type of awards made and establishing other terms and conditions applicable to the award.  As of December 31, 2011, a total of 21,020 shares have been awarded under the 2006 Plan in the form of stock options and restricted stock grants.  Shares available for grant under the 2006 Plan totaled 103,980 shares as of December 31, 2011.

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 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 pre-vesting forfeiture rates on its stock-based incentive awards have been negligible.

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

	2011		2010		2009
Total employee stock-based compensation
expense recognized in income, net of tax effect
of $22,504 in 2011, $21,261 in 2010, and $22,810 in 2009	$	37,829	$	35,739	$	38,344

67

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

As of December 31, 2011, stock-based compensation expense not yet recognized in income totaled $23,804, which is expected to be recognized over a weighted average remaining period of 0.5 years.

At the 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.  There were no options granted in 2011, 2010, or 2009.  The intrinsic value of options exercised during the years ended December 31, 2011 and 2009 was none and $740, respectively.  No options were exercised during the year ended December 31, 2010.

The table below reflects option activity for the period indicated:

				Weighted-		Weighted-
				Average		Average
				Exercise		Remaining		Aggregate
	Number			Price per		Contractual		Intrinsic
	of Shares			Share		Term Years		Value (1)
Outstanding, December 31, 2010		65,200		$	31.52
Forfeited		(19,700	)		18.99
Exercised		(2,000	)		20.59
Outstanding, December 31, 2011		43,500		$	37.70		3.3	$	0
Exercisable at December 31, 2011		43,500		$	37.70		3.3

(1) Exercise price of all remaining options exceed December 31, 2011 trading price.

A summary of the status of the Company’s nonvested restricted shares as of December 31, 2011, and changes during the year ended December 31, 2011, is presented below:

			Weighted-
			Average
			Grant-Date
	Shares		Fair Value
Nonvested at January 1, 2011		3,500	$	19.01
Granted		3,625		16.50
Vested (2)		3,000		17.88
Forfeited		-		-
Nonvested at December 31, 2011		4,125	$	17.62
(2) Average fair value per share at vesting date equaled $16.50.

68

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 12.   Stockholders’ Equity

Preferred Stock:  On January 9, 2009, the Company issued 10,200 shares of perpetual cumulative senior preferred stock to the U.S. Department of the Treasury (the “Treasury”) under the Capital Purchase Program (“CPP”).  The preferred stock had a par value of $0.01 per share and a liquidation preference of $1,000 per share, or $10,200,000.  On December 14, 2011, the Company redeemed all 10,200 shares of its Series A preferred stock for $10,200,000.  The remaining unamortized discount was amortized at the same time.

The fair value of the preferred stock at issue was $10,100,732.  The fair value of the preferred stock was based on assumptions regarding the discount rate (market rate on the preferred stock, which was estimated to be approximately 99.03% at the date of issuance).  Proceeds from the investment by Treasury were then allocated based upon the relative fair value of the preferred stock and common stock warrant described below.  Dividends were payable quarterly at the rate of five percent per annum until the fifth anniversary date of the issuance and at a rate of nine percent per annum thereafter.  The dividends were computed on the basis of a 360-day year consisting of twelve 30-day months.  The dividends were payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year.

Common Stock Warrant:  In connection with the issuance of the preferred stock described above, a common stock warrant exercisable for 99,157 shares of common stock (the “Warrant”) was issued to Treasury.  The Warrant was exercisable on or before January 9, 2019.  The fair value of the Warrant was $99,268.  The fair value of the Warrant was estimated at issue date using a Black-Scholes valuation model, with a market price of common stock on issue date of $10.50, a risk-free interest rate of 2.13%, expected price volatility of 19.48%, an expected life of 5 years, and an expected dividend yield of 0.38%.  The Warrant entitled the Treasury to purchase 99,157 shares of common stock at $15.43 per share.  The difference between the market value of a share of common stock and the exercise price of a share of common stock under the warrant was $2.53 per share as of December 31, 2011.

As more fully discussed below under “Subsequent Events,” on January 11, 2012, the Company completed the repurchase of the Warrant held by the Treasury. The Company paid $600,000 to the Treasury to repurchase the Warrant.  With this transaction, the Treasury no longer holds any investment in the Company.

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 average assets (as defined).  Management believes, as of December 31, 2011, the Bank meets all capital adequacy requirements to which it is subject.

The Bank continues to meet the requirements to be categorized 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.

69

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

													To Be Well-Capitalized
							For Capital						Under Prompt Corrective
	Actual						Adequacy Purposes						Action Provisions
	Amount			Ratio			Amount			Ratio			Amount			Ratio
		(000’s	)					(000’s	)					(000’s	)
As of December 31, 2011:
Total Capital (to risk-
weighted assets)	$	42,624			14.7	%	$	23,139			8.0	%	$	28,924			10.0	%
Tier I Capital (to risk-
weighted assets)		38,981			13.5			11,570			4.0			17,354			6.0
Tier I Capital (to
average assets)		38,981			8.7			17,956			4.0			22,445			5.0
As of December 31, 2010:
Total Capital (to risk-
weighted assets)	$	50,029			16.5	%	$	24,194			8.0	%	$	30,242			10.0	%
Tier I Capital (to risk-
weighted assets)		46,278			15.3			12,097			4.0			18,145			6.0
Tier I (Core) Capital
(to adjusted assets)		46,278			10.2			18,096			4.0			22,620			5.0
Tangible Capital (to
adjusted assets) (1)		46,278			10.2			6,786			1.5			-			-
(1) Under regulations as a federally-chartered stock savings bank, the Bank was subject to minimum tangible capital requirements
at December 31, 2010.

The ability of the Company to pay dividends to its stockholders is dependent upon dividends paid by the Bank.  The Bank is subject to certain statutory and regulatory restrictions on the amount it may pay in dividends. To maintain acceptable capital ratios in the Bank, certain of its retained earnings are not available for the payment of dividends.

Note 13.   Other Noninterest Income and Expense

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

	2011		2010		2009
Increase in cash surrender value - BOLI	$	235,708	$	244,183	$	249,810
Investment and insurance sales		787,100		637,822		772,575
Rental income		486,864		484,725		480,050
Loan prepayment fees		43,142		35,563		250,118
All other		53,908		160,617		12,791
	$	1,606,722	$	1,562,910	$	1,765,344

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 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

	2011		2010		2009
Advertising and promotion	$	392,181	$	366,681	$	511,567
Professional fees		796,726		615,313		772,602
Foreclosed real estate net expense		312,091		195,388		79,743
Printing, postage, stationery and supplies		436,646		442,916		441,802
Checking account charges		247,470		335,364		370,229
Insurance (non-employee)		149,560		166,783		167,613
Regulatory fees		100,733		127,248		129,935
Telephone		153,737		155,501		148,215
Apartment operating costs		370,575		347,492		344,438
Employee costs		214,088		208,154		165,926
Card service expenses		679,679		623,188		576,693
Title plant impairment		196,000		-		-
All other		1,122,731		1,128,006		1,075,556
	$	5,172,217	$	4,712,034	$	4,784,319

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.

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:

	Contract or Notional Amount
	December 31,
	2011		2010
Home equity lines	$	14,197,903	$	13,513,957
Other		7,719,211		2,142,750

71

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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.

The Bank has committed to purchase $1,500,000 of pro rata loan participation ownership interests from the Neighborhood Finance Corporation (NFC).  NFC is a non-profit organization with a mission to provide lending programs and related services to help revitalize targeted low-to-moderate income neighborhoods in Polk County, Iowa.  At December 31, 2011 and 2010, the remaining commitment was $423,953 and $798,105, respectively.

The Bank is a limited partner in two low income housing tax credit partnerships and has committed to a total investment of $865,861 in the partnerships.  At December 31, 2011 and 2010, the remaining commitment was $413,158 and $476,223, respectively.

Contingencies:  In the normal course of business, the Company is involved in various legal proceedings.  In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

Note 15.   Lending Activities and Concentrations of Credit Risk

The Bank generally originates single family residential loans within its primary lending area comprised 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 $71,376,000 of the Bank’s first mortgage loan portfolio at December 31, 2011 consisted of loans purchased or originated outside the State of Iowa.  At December 31, 2011, concentrations by state include California with $18,717,000, Washington with $8,574,000 and Colorado with $7,406,000.  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 consists of security agreements and/or Uniform Commercial Code filings on the purchased asset.

Note 16.   Fair Value

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.  The Company did not have any liabilities that were required to be valued at fair value under ASC 820 at December 31, 2011.  The Company’s securities available-for-sale are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate and impaired loans.  These non-recurring fair value adjustments involve the application of lower-of-cost-or-fair value accounting or write-downs of individual assets.

72

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

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

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

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

73

Fair value measurements for assets measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010 were as follows:

	Fair Value Measurements at December 31, 2011
	Quoted Prices in Active
	Markets For		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Description
Debt securities:
U.S. Government agencies	$	-	$	5,300,495	$	-	$	5,300,495
Mortgage-backed securities		-		18,259,394		-		18,259,394
Collateralized mortgage obligations		-		26,656,848		-		26,656,848
State and local obligations		-		14,153,203		-		14,153,203
Corporate bonds		3,597,017		-		-		3,597,017
Total Securities available-for-sale	$	3,597,017	$	64,369,940	$	-	$	67,966,957
	Fair Value Measurements at December 31, 2010
	Quoted Prices in Active
	Markets For		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Description
Debt securities:
U.S. Government agencies	$	-	$	8,693,919	$	-	$	8,693,919
Mortgage-backed securities		-		13,862,829		-		13,862,829
Collateralized mortgage obligations		-		19,288,124		-		19,288,124
State and local obligations		-		4,989,663		-		4,989,663
Corporate bonds		1,601,236		-		-		1,601,236
Total Securities available-for-sale	$	1,601,236	$	46,834,535	$	-	$	48,435,771

When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  Examples include equity securities, U.S. Treasury securities and certain corporate bonds.  For other securities, the Company determines fair value based on various sources and may include observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.  The fair values of Level 2 securities are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers, and live trading systems.  Certain securities are not valued based on observable inputs and are, therefore, classified as Level 3.  

74

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The fair value of these securities is based on management’s best estimates.  The Company’s policy is to recognize transfer between levels at the end of each reporting period, if applicable.  There were no transfers between levels during the years ended December 31, 2011 and 2010.

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

	2011
	Quoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	-	$	-	$	9,986,777	$	9,986,777
Foreclosed real estate		-		-		1,749,986		1,749,986
Title plant		-		-		475,704		475,704
Total	$	-	$	-	$	12,212,467	$	12,212,467
	2010
	Quoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	-	$	-	$	13,597,475	$	13,597,475
Foreclosed real estate		-		-		4,586,399		4,586,399
Total	$	-	$	-	$	18,183,874	$	18,183,874

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

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

Title plant is carried at cost and is subject to impairment testing on an annual basis or more often if conditions indicate a possible impairment.  In determining the amount of impairment, fair value was estimated using industry multiples and cash flow data and included management adjustments based on current industry conditions and as such are classified in Level 3.

Fair Value Disclosures

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

75

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

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

Restricted equity securities:  The fair value of this untraded stock is estimated at its carrying value because the Company is able to redeem the stock 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, 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, 2011 and 2010, the carrying amount and fair value of the commitments were not significant.

76

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

The carrying amounts and fair values of the Company’s financial instruments as of December 31, 2011 and 2010 were as follows:

	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
			(nearest 000)				(nearest 000)
Financial assets:
Cash and due from banks	$	17,405,082	$	17,405,000	$	20,603,808	$	20,604,000
Investments in certificates of deposit		3,631,000		3,631,000		12,689,000		12,689,000
Securities available for sale		67,966,957		67,967,000		48,435,771		48,436,000
Restricted equity securities		3,123,200		3,123,000		3,017,200		3,017,000
Loans, net		311,377,863		320,358,000		334,460,567		341,055,000
Loans held for sale		1,657,813		1,658,000		332,178		332,000
Accrued interest receivable		1,622,767		1,623,000		1,754,292		1,754,000
Financial liabilities:
Deposits		360,850,727		362,938,000		349,832,904		353,328,000
Borrowed funds		25,750,000		26,697,000		49,250,000		51,118,000
Accrued interest payable		21,377		21,000		162,034		162,000

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.

77

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 18.   Earnings Per Common Share

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

	2011		2010		2009
Basic earnings per common share:
Net income	$	2,638,363	$	1,705,325	$	3,189,216
Preferred stock dividends and accretion of discount		550,127		528,800		514,924
Net income available to common stockholders	$	2,088,236	$	1,176,525	$	2,674,292
Weighted average common shares outstanding - basic		1,350,077		1,346,949		1,342,320
Basic earnings per common share	$	1.55	$	0.87	$	1.99
Diluted earnings per common share:
Net income available to common stockholders	$	2,088,236	$	1,176,525	$	2,674,292
Weighted average common shares outstanding - basic		1,350,077		1,346,949		1,342,320
Effect of dilutive securities:
Stock options (1)		-		-		69
Restricted stock		3,943		3,578		3,356
Common stock warrant		7,416		2,115		708
Total diluted average common shares issued and outstanding		1,361,436		1,352,642		1,346,453
Diluted earnings per common share	$	1.53	$	0.87	$	1.99
(1) For the years ending December 31, 2011 and 2010, outstanding options to purchase common stock totaled 43,500 and
65,200, respectively. These options were not dilutive because the exercise price of the options exceeded the average closing
price of the Company's common stock.

78

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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

	Statements of Financial Condition
	December 31,
	2011		2010
ASSETS
Cash	$	160,272	$	202,722
Loans receivable, net		1,500,000		2,075,000
Investment in First Federal Savings Bank of Iowa		40,395,085		46,860,296
Deferred taxes		10,000		2,455
Prepaid and other assets		46,676		49,332
Total assets	$	42,112,033	$	49,189,805
LIABILITIES AND EQUITY
LIABILITIES
Accrued expenses and other liabilities	$	14,551	$	14,515
Total liabilities		14,551		14,515
EQUITY
Preferred stock		-		10,137,381
Common stock		13,557		13,502
Additional paid-in capital		18,167,895		18,066,437
Retained earnings		23,017,789		21,047,295
Accumulated other comprehensive income (loss)		898,241		(89,325	)
Total equity		42,097,482		49,175,290
Total liabilities and equity	$	42,112,033	$	49,189,805

79

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

	Statements of Income
	Years Ended December 31,
	2011			2010			2009
Operating income:
Equity in net income of subsidiary	$	2,686,890		$	1,770,807		$	3,252,339
Interest income		60,902			78,365			73,662
		2,747,792			1,849,172			3,326,001
Operating expenses:
Compensation and employee benefits		18,000			18,000			17,575
Other		154,329			168,047			151,810
		172,329			186,047			169,385
Income before income tax		2,575,463			1,663,125			3,156,616
Income tax (benefit)		(62,900	)		(42,200	)		(32,600	)
Net income	$	2,638,363		$	1,705,325		$	3,189,216

80

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,638,363		$	1,705,325		$	3,189,216
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in net (income) of First Federal Savings
Bank of Iowa		(2,686,890	)		(1,770,807	)		(3,252,339	)
Dividends received from First Federal Savings
Bank of Iowa		10,200,000			-			-
Change in deferred income taxes		(7,545	)		-			-
Change in assets and liabilities:
Prepaid expenses and other assets		2,656			(49,332	)		16,665
Accrued expenses and other liabilities		-			(65,360	)		66,362
Net cash provided by (used in) operating activities		10,146,584			(180,174	)		19,904
CASH FLOWS FROM INVESTING ACTIVITIES, net
(increase) decrease in loans receivable		575,000			825,000			(2,841,822	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, preferred
stock and common stock warrant		41,180			-			10,230,000
Redemption of preferred stock		(10,200,000	)		-			-
Capital contribution to subsidiary		-			-			(6,800,000	)
Common and preferred dividends paid		(605,214	)		(563,998	)		(487,298	)
Net cash provided by (used in) financing activities		(10,764,034	)		(563,998	)		2,942,702
Net change in cash and cash equivalents		(42,450	)		80,828			120,784
CASH
Beginning		202,722			121,894			1,110
Ending	$	160,272		$	202,722		$	121,894

81

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

Note 20.   Quarterly Results of Operations (Unaudited)

	Year Ended December 31, 2011
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In thousands, except per share amounts)
Interest income	$	5,176	$	5,120	$	4,987	$	4,932
Interest expense		1,606		1,523		1,335		1,225
Net interest income		3,570		3,597		3,652		3,707
Provision for loan losses		300		485		350		1,000
Net interest income after
provision for loan losses		3,270		3,112		3,302		2,707
Noninterest income:
Fees and service charges		1,150		1,231		1,247		1,089
Abstract fees		131		152		141		137
Mortgage banking income		116		108		247		220
Loan prepayment fees		1		12		2		28
Other income		371		397		382		414
Total noninterest income		1,769		1,900		2,019		1,888
Investment securities gains (losses), net:
Total other-than-temporary impairment losses		-		-		-		-
Portion of loss recognized in other
comprehensive income (loss) before taxes		-		-		-		-
Net impairment losses recognized in earnings		-		-		-		-
Realized securities gains (losses), net		-		30		86		20
Total securities gains (losses), net		-		30		86		20
Noninterest expense:
Compensation and employee benefits		1,880		1,911		2,033		1,986
Premises and equipment		505		443		439		454
Data processing		193		240		219		217
FDIC insurance expense		144		114		96		77
Foreclosed real estate impairment		71		318		64		103
Other		1,280		1,374		1,207		1,311
Total noninterest expense		4,073		4,400		4,058		4,148
Income before income taxes		966		642		1,349		467
Provision for income taxes		276		94		325		91
Net income	$	690	$	548	$	1,024	$	376
Basic earnings per common share	$	0.41	$	0.31	$	0.66	$	0.17
Diluted earnings per common share	$	0.41	$	0.31	$	0.65	$	0.16

82

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

	Year Ended December 31, 2010
	First		Second			Third		Fourth
	Quarter		Quarter			Quarter		Quarter
	(In thousands, except per share amounts)
Interest income	$	5,788	$	5,594		$	5,476	$	5,351
Interest expense		2,022		1,964			1,942		1,818
Net interest income		3,766		3,630			3,534		3,533
Provision for loan losses		800		1,610			168		1,513
Net interest income after
provision for loan losses		2,966		2,020			3,366		2,020
Noninterest income:
Fees and service charges		1,077		1,216			1,266		1,214
Abstract fees		143		164			175		155
Mortgage banking income		112		129			351		374
Loan prepayment fees		10		17			2		6
Other income		323		348			404		257
Total noninterest income		1,665		1,874			2,198		2,006
Investment securities gains (losses), net:
Total other-than-temporary impairment losses		-		-			-		-
Portion of loss recognized in other
comprehensive income (loss) before taxes		-		-			-		-
Net impairment losses recognized in earnings		-		-			-		-
Realized securities gains (losses), net		8		-
Total securities gains (losses), net		8		-			-		-
Noninterest expense:
Compensation and employee benefits		1,890		1,880			1,929		1,916
Premises and equipment		501		484			460		450
Data processing		213		230			217		212
FDIC insurance expense		144		140			135		143
Foreclosed real estate impairment		10		307			7		155
Other		996		1,162			1,139		1,220
Total noninterest expense		3,754		4,203			3,887		4,096
Income (loss) before income taxes		885		(309	)		1,677		(70	)
Provision (benefit) for income taxes		256		(180	)		512		(110	)
Net income (loss)	$	629	$	(129	)	$	1,165	$	40
Basic earnings (loss) per common share	$	0.37	$	(0.19	)	$	0.77	$	(0.07	)
Diluted earnings (loss) per common share	$	0.37	$	(0.19	)	$	0.76	$	(0.07	)

83

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

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 one reportable segment, which is the traditional banking segment.  All other segments were considered quantitatively insignificant and grouped in the category “All Others.”  The traditional banking segment consists of the Company and the Bank.  The Bank operates as a federal savings bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where the Bank’s offices are located.  The remaining grouping under the heading “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 intersegment revenue category, are conducted at market prices, meaning prices that would be paid if the companies were not affiliates.

	Year Ended December 31, 2011
	Traditional
	Banking		All Others			Total
Interest income	$	20,214,912	$	-		$	20,214,912
Interest expense		5,581,551		107,116			5,688,667
Net interest income (loss)		14,633,361		(107,116	)		14,526,245
Provision for loan losses		2,135,000		-			2,135,000
Net interest income (loss) after
provision for loan losses		12,498,361		(107,116	)		12,391,245
Noninterest income		5,827,515		1,748,428			7,575,943
Securities gains, net		135,754		-			135,754
Noninterest expense		14,804,879		1,873,700			16,678,579
Income (loss) before income taxes		3,656,751		(232,388	)		3,424,363
Provision for income taxes		827,100		(41,100	)		786,000
Net income (loss)	$	2,829,651	$	(191,288	)	$	2,638,363
Intersegment revenue (expense)	$	487,518	$	(487,518	)	$	-
Total assets		429,659,504		3,362,114			433,021,618
Total deposits		360,850,727		-			360,850,727

84

 North Central Bancshares, Inc. and Subsidiaries

 Notes to Consolidated Financial Statements

	Year Ended December 31, 2010
	Traditional
	Banking		All Others			Total
Interest income	$	22,208,615	$	-		$	22,208,615
Interest expense		7,634,844		111,370			7,746,214
Net interest income (loss)		14,573,771		(111,370	)		14,462,401
Provision for loan losses		4,091,000		-			4,091,000
Net interest income (loss) after
provision for loan losses		10,482,771		(111,370	)		10,371,401
Noninterest income		6,255,171		1,683,194			7,938,365
Securities gain (losses), net		7,652		-			7,652
Noninterest expense		14,504,681		1,629,912			16,134,593
Income before income taxes		2,240,913		(58,088	)		2,182,825
Provision for income taxes		468,800		8,700			477,500
Net income	$	1,772,113	$	(66,788	)	$	1,705,325
Intersegment revenue (expense)	$	687,592	$	(687,592	)	$	-
Total assets		448,725,812		3,537,854			452,263,666
Total deposits		349,832,904		-			349,832,904

Note 22.   Subsequent Events

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.  Through that date, there were no events requiring disclosure, except for the following:

On January 11, 2012, the Company completed the repurchase of the Warrant to purchase the Company’s common stock held by the Treasury. The Company paid $600,000 to the Treasury to repurchase the Warrant. With this transaction, the Treasury no longer holds any investment in the Company. In accordance with an undertaking made by the Company in its selling shareholder “shelf“ registration statement filed with the U.S. Securities and Exchange Commission to remove from registration, by means of a post-effective amendment, any of the securities that had been registered for issuance that remained unsold at the termination of its offering, on February 9, 2012, the Company filed a post-effective amendment to remove from registration the Warrant previously issued to the Treasury, and the shares of common stock underlying the Warrant.

In February 2012, the Company implemented a plan to sell First Iowa Title, the Bank’s subsidiary which provides real estate abstracting services.  The Company expects the sale of First Iowa Title to be completed during 2012.  First Iowa Title’s major asset and liability classes include $475,704 of title plant, $80,397 of other assets and $168,915 of liabilities.

85

First Federal Savings Bank

OF IOWA

www.firstfederaliowa.com

Fort Dodge 825 Central 515-576-7531 Fort Dodge 201 So. 25th St. 515-576-3177 Nevada 404 Lincoln Hwy. 515-382-5408 Ames 316 So. Duff 515-232-4304 Perry 1111 – 141st St. 515-465-3187

Ankeny 2110 SE Delaware 515-963-4488 Clive 13150 Hickman Road 515-440-6300 Burlington 1010 No. Roosevelt 319-754-6521 Burlington 321 No. Third St. 319-754-7517 Mt. Pleasant 102 So. Main 319-385-8000 West Des Moines 120 So. 68th St. 515-226-0800

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Restriction on Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Restriction on Stockholders' Equity [Abstract]

Restriction on Stockholders' Equity

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.

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Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies [Abstract]

Significant Accounting Policies

Note 1.   Significant Accounting Policies

Nature of activities:  North Central Bancshares, Inc. (the Company), an Iowa corporation, owns 100% of the outstanding stock of First Federal Savings Bank of Iowa (the Bank), which 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.

Effective June 29, 2011, the Bank received regulatory approval from the Iowa Division of Banking and completed its conversion to a state-chartered commercial bank from a federally-chartered stock savings bank.  In connection with the conversion of the Bank, the Company also received approval from the Board of Governors of the Federal Reserve System and completed a reorganization to a bank holding company from a savings and loan holding company.

The Bank competes with other financial institutions and non-financial institutions providing similar financial products.  Although the loan activity of the Bank is diversified with commercial loans, real estate loans, automobile, installment and other consumer loans, the Bank's credit is concentrated in real estate loans.

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, fair value of securities available-for-sale and related other-than-temporary impairments, fair value of foreclosed real estate, and fair value of financial instruments.

Revenue recognition:  Interest income is recognized on the accrual method based on the respective outstanding balances.  Other revenue is recognized at the time the service is provided or transaction occurs.

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.

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

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, net of the related deferred tax effect.  Amortization of premiums and accretion of discounts, computed by the interest method over their estimated 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 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 lack of intent of the Company to sell the security or whether it is more-likely-than-not that the Company will be required to sell the security before its anticipated recovery.

Restricted equity securities:  The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank (“FHLB”), is required to maintain investments in each of the organization's capital stock.  The stock is carried at cost.  No ready market exists for these restricted equity securities, and they have no quoted market values.  Restricted equity securities are periodically reviewed for impairment based on ultimate recovery of par value.  There have been no other-than-temporary write-downs recorded on these securities.

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, net:  Loans that management has the intent and ability to hold for the foreseeable future, or until payoff 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 unamortized net deferred fees and/or costs on originated loans and net unearned premiums (discounts), with interest income recognized on the interest method based upon those outstanding loan balances.  Loan origination fees net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.  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.  As assets are 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.

Loans are placed on nonaccrual status when the full and timely collection of interest and principal becomes uncertain, or when the loan becomes 90 days past due (unless the loan is both well-secured and in the process of collection).  When a loan is placed on nonaccrual status, the accrued unpaid interest receivable is reversed against interest income.  Income is subsequently recognized on a cash or cost recovery basis until, in management's judgment, the borrower's ability to make periodic interest and principal payments is no longer in doubt.  Generally, a loan is returned to accrual status when (a) all delinquent interest and principal payments become current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

The allowance for loan losses is an amount that management believes will be adequate to absorb probable losses on existing loans that may become uncollectible.  A disciplined process and methodology are used to establish the allowance for loan losses.  While the methodology attributes portions of the allowance to specific portfolios, the entire allowance for loan losses is available to absorb credit losses in the total loan portfolio.  To determine the total allowance for loan losses, a reserve is estimated for each component of the portfolio, including loans analyzed individually and loans analyzed on a pooled basis.  The allowance for loan losses consists of amounts applicable to: (1) the commercial real estate portfolio, (2) the residential real estate portfolio, and (3) the consumer portfolio.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as updated information becomes available.

To determine the residential real estate and consumer portfolio components of the allowance, loans are pooled by portfolio and losses are estimated using historical loss experience and management's evaluation of the impact of risks associated with trends in delinquencies, concentrations of credit and regional and macro economic factors.  An individual impairment assessment is performed for residential real estate and consumer loans whose terms have been modified in a troubled debt restructuring (TDR).  These loans are excluded from the pooled analysis.

The component of the allowance for the non-impaired commercial portfolio is estimated through the application of loss factors to loans grouped as nonresidential, multifamily and construction and development.  Loss factors are derived from historical loss experience, trends in delinquencies, concentrations of credit and regional and macro economic factors.  The commercial component of the allowance also includes an amount for the estimated impairment in individually identified impaired loans and commercial loans whose terms have been modified in a TDR.

For loans that are classified as impaired, including those loans modified in a TDR, a specific allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative and environmental factors.

A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Management evaluates loans for indicators of impairment upon substandard classification.  Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  The amount of impairment, if any and any subsequent changes are included in the allowance for loan losses.

Reflected in all components of the allowance for loan losses is an amount for imprecision or uncertainty, which represents management's judgment of risks inherent in the process and assumptions used in establishing the allowance.  This imprecision considers economic environmental factors and other subjective factors.

Loans are generally charged off, fully or partially, when management judges the asset to be uncollectible or repayment is deemed to extend beyond a reasonable time frame.

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.

Residential mortgage loans sold to investors in the secondary market are sold with varying recourse provisions.  Essentially, all loan sales agreements require the repurchase of a mortgage loan by the seller in situations such as, breach of representation, warranty, or covenant, untimely document delivery, false or misleading statements, failure to obtain certain certificates or insurance, unmarketability, etc.  Certain loan sales agreements contain repurchase requirements based on payment-related defects that are defined in terms of the number of days/months since the purchase, the sequence number of the payment and/or the number of days of payment delinquency.  In the opinion of management, the risk of recourse and the subsequent requirement of loan repurchase is not significant, and accordingly no liabilities have been established related to such.

Foreclosed real estate:  Real estate properties acquired through loan foreclosure are initially recorded at fair value less estimated 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 noninterest expense 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:

	Years
Building and improvements	5 - 50
Automobiles, furniture and equipment	3 - 20

Rental real estate:  Rental real estate is comprised of two low-income housing, multifamily apartment buildings and equipment which are stated at cost, net of accumulated depreciation of approximately $1,951,000 and $1,819,000 for the years ended December 31, 2011 and 2010, 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 an intangible asset that represents the value paid for the land tract files, plat books, indexes, and real estate records used in the abstracting services performed by First Iowa Title Services, Inc., a wholly-owned subsidiary of the Bank.  Title plant is carried at cost and is not depreciated.  Costs incurred to maintain and update the title plant are expensed as incurred.  Title plant is subject to an impairment test on an annual basis or more often if conditions indicate a possible impairment.  The Company determined in 2011 that title plant was impaired in the amount of $196,000, which is included in other noninterest expenses.  There was no impairment in 2010 or 2009.

Bank-owned life insurance:  The carrying amount of bank-owned life insurance consists of the initial premium paid plus increases in cash value less the carrying amount associated with any death benefit received.  Death benefits paid in excess of the applicable carrying amount are recognized as income, which is exempt from income taxes.

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.  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.

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.  The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.  The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions.  Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the applicable taxing authority.  Interest and penalties related to income taxes are recorded as miscellaneous expense in the statements of income.

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.

Earnings per common share:  Basic earnings per common share represents income or loss 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 was 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, restricted stock and common stock warrants.

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 one reporting segment.  The Company operates primarily in the banking industry, which accounts for the majority of its revenues, operating income and assets.  All other segments were considered minor and classified as other, with 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:  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 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 pre-vesting forfeiture rates on its stock-based incentive awards have been negligible.

Recent accounting pronouncements:  In January 2010, the FASB issued ASU 2010-06, Improving Disclosures About Fair Value Measurements, which amends ASC 820-10 to require new disclosures about transfers in and out of Level 1 and Level 2 fair value measurements and the roll forward activity in Level 3 fair value measurements.  ASU 2010-06 also clarifies existing disclosure requirements regarding the level of disaggregation of each class of assets and liabilities within a line item in the statement of financial condition and clarifies that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair value measurements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures about the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  The Company's adoption of this guidance did not have an impact on its financial condition or results of operations.

In July 2010, the FASB issued ASU 2010-20, Disclosures about Credit Quality of Financing Receivables and the Allowance for Credit Losses, which amends ASC 310, Receivables, by requiring more robust and disaggregated disclosures about the credit quality of an entity's financing receivables and its allowance for credit losses.  The objective of enhancing these disclosures is to improve a financial statement user's understanding of (1) the nature of an entity's credit risk associated with its financing receivables and (2) the entity's assessment of that risk in estimating its allowance for credit losses as well as changes in the allowance and the reasons for those changes.  The new and amended disclosures that relate to information as of the end of a reporting period are effective for the first interim or annual reporting periods ending on or after December 15, 2010, which for the Company was the annual reporting period ending December 31, 2010.  However, the disclosures that include information for activity that occurs during a reporting period are effective for the first interim or annual periods beginning after December 15, 2010, which for the Company was the quarterly period beginning January 1, 2011.  Those disclosures include the activity in the allowance for credit losses for each period. In January 2011, the FASB temporarily delayed the effective date of the disclosures required for TDR loans for public companies.  Since the provisions of ASU 2010-20 are disclosure related, the Company's adoption of this guidance did not have an impact on its financial statements.

In April 2011, the FASB issued ASU 2011-02, A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring, which amended guidance clarifying for creditors which restructured loans are considered TDR.  To qualify as a TDR, a creditor must separately conclude that the restructuring constitutes a concession and that the debtor is experiencing financial difficulty.  The amended guidance is effective for public companies for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption.  The Company adopted this guidance effective July 1, 2011.  The adoption did not have a material impact on the Company's consolidated financial statements.

In June 2011, FASB issued ASU No. 2011-05, Amendments to Topic 220, Comprehensive Income. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company adopted this guidance effective September 30, 2011. The adoption did not have a material impact on the Company's consolidated financial statements.

In September 2011, FASB issued ASU No. 2011-09, Disclosures about an Employer's Participation in a Multiemployer Plan.  For employers that participate in multiemployer pension plans, this guidance requires an employer to provide additional quantitative and qualitative disclosures. The amended disclosures provide users with more detailed information about an employer's involvement in multiemployer pension plans.  For public entities, this guidance is effective for annual periods for fiscal years ending after December 15, 2011, which for the Company is December 31, 2011 and should be applied retrospectively for all prior periods presented.  Since the provisions of ASU 2011-09 are disclosure related, the Company's adoption of this guidance did not have an impact on its financial statements.

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

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Segment Reporting

12 Months Ended

Dec. 31, 2011

Segment Reporting [Abstract]

Segment Reporting

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 one reportable segment, which is the traditional banking segment.  All other segments were considered quantitatively insignificant and grouped in the category “All Others.”  The traditional banking segment consists of the Company and the Bank.  The Bank operates as a federal savings bank providing deposit, loan and other related products to individuals and small businesses, primarily in the communities where the Bank's offices are located.  The remaining grouping under the heading “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 intersegment revenue category, are conducted at market prices, meaning prices that would be paid if the companies were not affiliates.

	Year Ended December 31, 2011
	Traditional
	Banking		All Others			Total
Interest income	$	20,214,912	$	-		$	20,214,912
Interest expense		5,581,551		107,116			5,688,667
Net interest income (loss)		14,633,361		(107,116	)		14,526,245
Provision for loan losses		2,135,000		-			2,135,000
Net interest income (loss) after
provision for loan losses		12,498,361		(107,116	)		12,391,245
Noninterest income		5,827,515		1,748,428			7,575,943
Securities gains, net		135,754		-			135,754
Noninterest expense		14,804,879		1,873,700			16,678,579
Income (loss) before income taxes		3,656,751		(232,388	)		3,424,363
Provision for income taxes		827,100		(41,100	)		786,000
Net income (loss)	$	2,829,651	$	(191,288	)	$	2,638,363
Intersegment revenue (expense)	$	487,518	$	(487,518	)	$	-
Total assets		429,659,504		3,362,114			433,021,618
Total deposits		360,850,727		-			360,850,727

	Year Ended December 31, 2010
	Traditional
	Banking		All Others			Total
Interest income	$	22,208,615	$	-		$	22,208,615
Interest expense		7,634,844		111,370			7,746,214
Net interest income (loss)		14,573,771		(111,370	)		14,462,401
Provision for loan losses		4,091,000		-			4,091,000
Net interest income (loss) after
provision for loan losses		10,482,771		(111,370	)		10,371,401
Noninterest income		6,255,171		1,683,194			7,938,365
Securities gain (losses), net		7,652		-			7,652
Noninterest expense		14,504,681		1,629,912			16,134,593
Income before income taxes		2,240,913		(58,088	)		2,182,825
Provision for income taxes		468,800		8,700			477,500
Net income	$	1,772,113	$	(66,788	)	$	1,705,325
Intersegment revenue (expense)	$	687,592	$	(687,592	)	$	-
Total assets		448,725,812		3,537,854			452,263,666
Total deposits		349,832,904		-			349,832,904

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Quarterly Results of Operations (Unaudited)

12 Months Ended

Dec. 31, 2011

Quarterly Results of Operations (Unaudited) [Abstract]

Quarterly Results of Operations (Unaudited)

Note 20.   Quarterly Results of Operations (Unaudited)

	Year Ended December 31, 2011
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In thousands, except per share amounts)
Interest income	$	5,176	$	5,120	$	4,987	$	4,932
Interest expense		1,606		1,523		1,335		1,225
Net interest income		3,570		3,597		3,652		3,707
Provision for loan losses		300		485		350		1,000
Net interest income after
provision for loan losses		3,270		3,112		3,302		2,707
Noninterest income:
Fees and service charges		1,150		1,231		1,247		1,089
Abstract fees		131		152		141		137
Mortgage banking income		116		108		247		220
Loan prepayment fees		1		12		2		28
Other income		371		397		382		414
Total noninterest income		1,769		1,900		2,019		1,888
Investment securities gains (losses), net:
Total other-than-temporary impairment losses		-		-		-		-
Portion of loss recognized in other
comprehensive income (loss) before taxes		-		-		-		-
Net impairment losses recognized in earnings		-		-		-		-
Realized securities gains (losses), net		-		30		86		20
Total securities gains (losses), net		-		30		86		20
Noninterest expense:
Compensation and employee benefits		1,880		1,911		2,033		1,986
Premises and equipment		505		443		439		454
Data processing		193		240		219		217
FDIC insurance expense		144		114		96		77
Foreclosed real estate impairment		71		318		64		103
Other		1,280		1,374		1,207		1,311
Total noninterest expense		4,073		4,400		4,058		4,148
Income before income taxes		966		642		1,349		467
Provision for income taxes		276		94		325		91
Net income	$	690	$	548	$	1,024	$	376
Basic earnings per common share	$	0.41	$	0.31	$	0.66	$	0.17
Diluted earnings per common share	$	0.41	$	0.31	$	0.65	$	0.16

	Year Ended December 31, 2010
	First		Second			Third		Fourth
	Quarter		Quarter			Quarter		Quarter
	(In thousands, except per share amounts)
Interest income	$	5,788	$	5,594		$	5,476	$	5,351
Interest expense		2,022		1,964			1,942		1,818
Net interest income		3,766		3,630			3,534		3,533
Provision for loan losses		800		1,610			168		1,513
Net interest income after
provision for loan losses		2,966		2,020			3,366		2,020
Noninterest income:
Fees and service charges		1,077		1,216			1,266		1,214
Abstract fees		143		164			175		155
Mortgage banking income		112		129			351		374
Loan prepayment fees		10		17			2		6
Other income		323		348			404		257
Total noninterest income		1,665		1,874			2,198		2,006
Investment securities gains (losses), net:
Total other-than-temporary impairment losses		-		-			-		-
Portion of loss recognized in other
comprehensive income (loss) before taxes		-		-			-		-
Net impairment losses recognized in earnings		-		-			-		-
Realized securities gains (losses), net		8		-
Total securities gains (losses), net		8		-			-		-
Noninterest expense:
Compensation and employee benefits		1,890		1,880			1,929		1,916
Premises and equipment		501		484			460		450
Data processing		213		230			217		212
FDIC insurance expense		144		140			135		143
Foreclosed real estate impairment		10		307			7		155
Other		996		1,162			1,139		1,220
Total noninterest expense		3,754		4,203			3,887		4,096
Income (loss) before income taxes		885		(309	)		1,677		(70	)
Provision (benefit) for income taxes		256		(180	)		512		(110	)
Net income (loss)	$	629	$	(129	)	$	1,165	$	40
Basic earnings (loss) per common share	$	0.37	$	(0.19	)	$	0.77	$	(0.07	)
Diluted earnings (loss) per common share	$	0.37	$	(0.19	)	$	0.76	$	(0.07	)

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Subsequent Events

12 Months Ended

Dec. 31, 2011

Subsequent Events [Abstract]

Subsequent Events

Note 22.   Subsequent Events

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.  Through that date, there were no events requiring disclosure, except for the following:

On January 11, 2012, the Company completed the repurchase of the Warrant to purchase the Company's common stock held by the Treasury. The Company paid $600,000 to the Treasury to repurchase the Warrant. With this transaction, the Treasury no longer holds any investment in the Company. In accordance with an undertaking made by the Company in its selling shareholder “shelf“ registration statement filed with the U.S. Securities and Exchange Commission to remove from registration, by means of a post-effective amendment, any of the securities that had been registered for issuance that remained unsold at the termination of its offering, on February 9, 2012, the Company filed a post-effective amendment to remove from registration the Warrant previously issued to the Treasury, and the shares of common stock underlying the Warrant.

In February 2012, the Company implemented a plan to sell First Iowa Title, the Bank's subsidiary which provides real estate abstracting services.  The Company expects the sale of First Iowa Title to be completed during 2012.  First Iowa Title's major asset and liability classes include $475,704 of title plant, $80,397 of other assets and $168,915 of liabilities.

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 2,638,363	$ 1,705,325	$ 3,189,216
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,135,000	4,091,000	2,450,000
Depreciation	841,281	911,858	902,435
Amortization and accretion	477,965	237,174	529,146
Deferred taxes	212,455	254,886	732,824
Stock-based compensation expense	60,333	57,000	61,154
Excess tax benefit (expense) related to stock-based compensation	0	0	13,667
Gain on sale of foreclosed real estate and loans, net	(674,662)	(939,992)	(981,048)
Provision for impairment of securities available-for-sale	0	0	23,343
Provision for impairment of title plant	196,000	0	0
Foreclosed real estate impairment	556,447	479,045	518,136
(Gain) loss on sale of investments	(135,754)	(7,652)	(362,560)
Increase in value of bank-owned life insurance	(235,708)	(244,183)	(249,810)
Proceeds from sales of loans held for sale	35,599,684	51,365,870	70,576,019
Originations of loans held for sale	(36,234,103)	(49,398,346)	(70,204,005)
Change in assets and liabilities:
Accrued interest receivable	131,525	113,678	228,814
Prepaid expenses and other assets	1,123,444	(327,902)	(2,525,187)
Accrued expenses and other liabilities	63,835	(1,440,538)	(8,113)
Net cash provided by operating activities	6,756,105	6,857,223	4,894,031
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans	18,474,837	31,774,842	35,145,907
Purchase of loans	0	0	(14,762,234)
Proceeds from redemption of restricted equity securities	1,320,700	1,119,700	814,300
Purchase of restricted equity securities	(1,426,700)	(212,200)	(46,600)
Procceeds from maturities on investments in certificates of deposits	11,046,000	3,984,000	0
Purchase of investments in certificates of deposit	(1,988,000)	(16,673,000)	0
Proceeds from sale of securities available-for-sale	3,379,805	207,732	9,071,720
Proceeds from maturities and calls of securities available-for-sale	16,073,021	14,554,417	6,688,029
Purchase of securities available-for-sale	(37,590,502)	(40,638,953)	(15,744,778)
Purchase of premises, equipment and rental real estate	(833,455)	(428,298)	(557,198)
Net proceeds from sale of foreclosed real estate	4,594,928	1,050,689	1,589,062
Net cash provided by (used in) investing activities	13,050,634	(5,261,071)	22,198,208
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	11,017,823	15,019,844	(15,356,865)
Net increase (decrease) in advances from borrowers for taxes and insurance	240,746	35,640	(130,968)
Proceeds from other borrowed funds	5,500,000	7,250,000	8,500,000
Payments of other borrowed funds	(29,000,000)	(24,500,000)	(24,348,915)
Redemption of preferred stock	(10,200,000)	0	0
Proceeds from issuance of common stock, preferred stock and common stock warrant	41,180	0	10,230,000
Excess tax benefit (expense) related to stock-based compensation	0	0	(13,667)
Common and preferred dividends paid	(605,214)	(563,998)	(487,298)
Net cash (used in) financing activities	(23,005,465)	(2,758,514)	(21,607,713)
Net change in cash and cash equivalents	(3,198,726)	(1,162,362)	5,484,526
Beginning	20,603,808	21,766,170	16,281,644
Ending	17,405,082	20,603,808	21,766,170
Cash payments for:
Interest	5,829,327	7,914,981	10,604,172
Income taxes paid (refunds), net	(622,786)	1,648,352	141,162
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of loans to foreclosed real estate	$ 2,323,696	$ 4,441,523	$ 2,646,583

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Consolidated Statements of Financial Condition (USD $)	Dec. 31, 2011	Dec. 31, 2010
Cash and due from banks:
Interest-bearing	$ 9,167,235	$ 13,563,234
Noninterest-bearing	8,237,847	7,040,574
Total cash and cash equivalents	17,405,082	20,603,808
Investments in certificates of deposit	3,631,000	12,689,000
Securities available-for-sale	67,966,957	48,435,771
Restricted equity securities	3,123,200	3,017,200
Loans receivable, net (less allowance for loan losses of $5,845,730 and $6,146,861)	311,377,863	334,460,567
Loans held for sale	1,657,813	332,178
Accrued interest receivable	1,622,767	1,754,292
Foreclosed real estate	1,749,986	4,586,399
Premises and equipment, net	11,604,202	11,498,583
Rental real estate	2,036,455	2,144,400
Title plant	475,704	671,704
Deferred taxes	1,351,639	2,151,594
Bank-owned life insurance (BOLI)	6,023,572	5,787,864
Prepaid FDIC assessment	954,947	1,353,121
Prepaid expenses and other assets	2,040,431	2,777,185
Total assets	433,021,618	452,263,666
LIABILITIES
Deposits	360,850,727	349,832,904
Borrowed funds	25,750,000	49,250,000
Advances from borrowers for taxes and insurance	2,069,176	1,828,430
Accrued expenses and other liabilities	2,254,233	2,177,042
Total liabilities	390,924,136	403,088,376
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding 2011 - none; 2010 - 10,200 shares	0	10,137,381
Common stock, $.01 par value, authorized 15,500,000 shares; issued and outstanding 2011 - 1,357,073 shares; 2010 - 1,351,448 shares	13,557	13,502
Additional paid-in capital	18,167,895	18,066,437
Retained earnings, substantially restricted	23,017,789	21,047,295
Accumulated other comprehensive income (loss)	898,241	(89,325)
Total stockholders' equity	42,097,428	49,175,290
Total liabilities and stockholders' equity	$ 433,021,618	$ 452,263,666

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Consolidated Statements of Stockholders' Equity (USD $)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2008	$ 0	$ 13,421	$ 17,819,096	$ 17,240,779	$ 138,847	$ 35,212,143
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	0	3,189,216	0	3,189,216
Other comprehensive income	0	0	0	0	73,653	73,653
Dividends on preferred stock	0	0	0	(433,500)		(433,500)
Dividends on common stock	0	0	0	(53,848)	0	(53,848)
Employee stock-based compensation expense	0	30	61,124	0	0	61,154
Issuance of common stock as a result of stock options exercised	0	20	29,980	0	0	30,000
Issuance of preferred stock and common stock warrant	10,100,732	0	99,268	0	0	10,200,000
Accretion of discount on preferred stock	17,849	0	0	(17,849)	0	0
Balance at Dec. 31, 2009	10,118,581	13,471	18,009,468	19,924,798	212,500	48,278,818
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	0	1,705,325	0	1,705,325
Other comprehensive income	0	0	0	0	(301,825)	(301,825)
Dividends on preferred stock	0	0	0	(510,000)	0	(510,000)
Dividends on common stock	0	0	0	(54,028)	0	(54,028)
Employee stock-based compensation expense	0	31	56,969	0	0	57,000
Accretion of discount on preferred stock	18,800	0	0	(18,800)	0	0
Balance at Dec. 31, 2010	10,137,381	13,502	18,066,437	21,047,295	(89,325)	49,175,290
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	0	2,638,363	0	2,638,363
Other comprehensive income	0	0	0	0	987,566	987,566
Dividends on preferred stock	0	0	0	(551,083)	0	(551,083)
Dividends on common stock	0	0	0	(54,167)	0	(54,167)
Employee stock-based compensation expense	0	35	60,298	0	0	60,333
Issuance of common stock as a result of stock options exercised	0	20	41,160	0	0	41,180
Accretion of discount on preferred stock	62,619	0	0	(62,619)	0	0
Redemption of preferred stock	(10,200,000)	0	0	0	0	(10,200,000)
Balance at Dec. 31, 2011	$ 0	$ 13,557	$ 18,167,895	$ 23,017,789	$ 898,241	$ 42,097,428

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Financial Instruments with Off-Statement of Financial Condition Risk

12 Months Ended

Dec. 31, 2011

Financial Instruments with Off Statement of Financial Condition Risk [Abstract]

Financial Instruments with Off-Statement of Financial Condition Risk

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.

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:

	Contract or Notional Amount
	December 31,
	2011		2010
Home equity lines	$	14,197,903	$	13,513,957
Other		7,719,211		2,142,750

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.

The Bank has committed to purchase $1,500,000 of pro rata loan participation ownership interests from the Neighborhood Finance Corporation (NFC).  NFC is a non-profit organization with a mission to provide lending programs and related services to help revitalize targeted low-to-moderate income neighborhoods in Polk County, Iowa.  At December 31, 2011 and 2010, the remaining commitment was $423,953 and $798,105, respectively.

The Bank is a limited partner in two low income housing tax credit partnerships and has committed to a total investment of $865,861 in the partnerships.  At December 31, 2011 and 2010, the remaining commitment was $413,158 and $476,223, respectively.

Contingencies:  In the normal course of business, the Company is involved in various legal proceedings.  In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

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Fair Value

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value

Note 16.   Fair Value

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures.  The Company did not have any liabilities that were required to be valued at fair value under ASC 820 at December 31, 2011.  The Company's securities available-for-sale are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as foreclosed real estate and impaired loans.  These non-recurring fair value adjustments involve the application of lower-of-cost-or-fair value accounting or write-downs of individual assets.

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

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

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

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

Fair value measurements for assets measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010 were as follows:

	Fair Value Measurements at December 31, 2011
	Quoted Prices in Active
	Markets For		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Description
Debt securities:
U.S. Government agencies	$	-	$	5,300,495	$	-	$	5,300,495
Mortgage-backed securities		-		18,259,394		-		18,259,394
Collateralized mortgage obligations		-		26,656,848		-		26,656,848
State and local obligations		-		14,153,203		-		14,153,203
Corporate bonds		3,597,017		-		-		3,597,017
Total Securities available-for-sale	$	3,597,017	$	64,369,940	$	-	$	67,966,957
	Fair Value Measurements at December 31, 2010
	Quoted Prices in Active
	Markets For		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Description
Debt securities:
U.S. Government agencies	$	-	$	8,693,919	$	-	$	8,693,919
Mortgage-backed securities		-		13,862,829		-		13,862,829
Collateralized mortgage obligations		-		19,288,124		-		19,288,124
State and local obligations		-		4,989,663		-		4,989,663
Corporate bonds		1,601,236		-		-		1,601,236
Total Securities available-for-sale	$	1,601,236	$	46,834,535	$	-	$	48,435,771

When available, quoted market prices are used to determine the fair value of investment securities and such items are classified within Level 1 of the fair value hierarchy.  Examples include equity securities, U.S. Treasury securities and certain corporate bonds.  For other securities, the Company determines fair value based on various sources and may include observable prices for similar bonds where a price for the identical bond is not observable.  Securities measured at fair value by such methods are classified as Level 2.  The fair values of Level 2 securities are determined by pricing models that consider observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers, and live trading systems.  Certain securities are not valued based on observable inputs and are, therefore, classified as Level 3.  

The fair value of these securities is based on management's best estimates.  The Company's policy is to recognize transfer between levels at the end of each reporting period, if applicable.  There were no transfers between levels during the years ended December 31, 2011 and 2010.

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

	2011
	Quoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	-	$	-	$	9,986,777	$	9,986,777
Foreclosed real estate		-		-		1,749,986		1,749,986
Title plant		-		-		475,704		475,704
Total	$	-	$	-	$	12,212,467	$	12,212,467
	2010
	Quoted Prices
	in Active Markets		Significant Other		Significant
	for Identical Assets		Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Impaired loans	$	-	$	-	$	13,597,475	$	13,597,475
Foreclosed real estate		-		-		4,586,399		4,586,399
Total	$	-	$	-	$	18,183,874	$	18,183,874

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

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

Title plant is carried at cost and is subject to impairment testing on an annual basis or more often if conditions indicate a possible impairment.  In determining the amount of impairment, fair value was estimated using industry multiples and cash flow data and included management adjustments based on current industry conditions and as such are classified in Level 3.

Fair Value Disclosures

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

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

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

Restricted equity securities:  The fair value of this untraded stock is estimated at its carrying value because the Company is able to redeem the stock 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, 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, 2011 and 2010, the carrying amount and fair value of the commitments were not significant.

The carrying amounts and fair values of the Company's financial instruments as of December 31, 2011 and 2010 were as follows:

	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
			(nearest 000)				(nearest 000)
Financial assets:
Cash and due from banks	$	17,405,082	$	17,405,000	$	20,603,808	$	20,604,000
Investments in certificates of deposit		3,631,000		3,631,000		12,689,000		12,689,000
Securities available for sale		67,966,957		67,967,000		48,435,771		48,436,000
Restricted equity securities		3,123,200		3,123,000		3,017,200		3,017,000
Loans, net		311,377,863		320,358,000		334,460,567		341,055,000
Loans held for sale		1,657,813		1,658,000		332,178		332,000
Accrued interest receivable		1,622,767		1,623,000		1,754,292		1,754,000
Financial liabilities:
Deposits		360,850,727		362,938,000		349,832,904		353,328,000
Borrowed funds		25,750,000		26,697,000		49,250,000		51,118,000
Accrued interest payable		21,377		21,000		162,034		162,000

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Consolidated Statements of Stockholders' Equity (Parenthetical)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2009
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock (in shares)	2,000	2,000

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Consolidated Statements of Financial Condition (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
ASSETS
Loans receivable, net	$ 5,845,730	$ 6,146,861
STOCKHOLDERS' EQUITY
Preferred stock, par value (in dollars per share)	$ 0.1	$ 0.1
Preferred stock, shares authorized (in shares)	3,000,000	3,000,000
Preferred stock, shares issued (in shares)	0	10,200
Preferred stock, shares outstanding (in shares)	0	10,200
Common stock, par value (in dollars per share)	$ 0.1	$ 0.1
Common stock, shares authorized (in shares)	15,500,000	15,500,000
Common stock, shares issued (in shares)	1,357,073	1,351,448
Common stock, shares outstanding (in shares)	1,357,073	1,351,448

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Income Taxes and Retained Earnings

12 Months Ended

Dec. 31, 2011

Income Taxes and Retained Earnings [Abstract]

Income Taxes and Retained Earnings

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, 2011, retained earnings contain 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:

	Years Ended December 31,
	2011		2010		2009
Current	$	573,545	$	222,614	$	791,876
Deferred		212,455		254,886		732,824
	$	786,000	$	477,500	$	1,524,700

Deferred tax assets and liabilities consisted of the following components as of December 31, 2011 and 2010:

	2011			2010
Deferred tax assets:
Allowance for loan losses	$	2,180,000		$	2,293,000
Capital loss carry forward		385,000			391,000
Deferred directors fees and compensation		68,000			60,000
Deferred income		24,000			32,000
Accrued expenses		403,000			323,000
Tax credit carryforward		-			59,000
Stock-based compensation expense		70,000			70,000
Unrealized losses on securities available for sale		-			53,000
Other		35,000			135,000
Total gross deferred tax assets		3,165,000			3,416,000
Valuation allowance		(382,000	)		(382,000	)
Net deferred tax assets		2,783,000			3,034,000
Deferred tax liabilities:
Premises and equipment		508,000			356,000
Unrealized gains on securities available-for-sale		534,000			-
Title plant		127,000			204,000
Servicing rights		239,000			287,000
Other		23,361			35,406
Total gross deferred tax liabilities		1,431,361			882,406
Net deferred tax assets	$	1,351,639		$	2,151,594

The valuation allowance for deferred tax assets at December 31, 2011 and 2010, totaled $382,000.  The valuation allowance and the change in valuation allowance relate to realized and unrealized capital losses on certain equity investments in which the Company does not expect to be able to realize related tax benefits because of limitations on utilization of capital losses only against capital gains for federal and state tax purposes.

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:

	Year Ended December 31,
	2011						2010						2009
				Percent						Percent						Percent
				of Pretax						of Pretax						of Pretax
	Amount			Income			Amount			Income			Amount			Income
Income before income taxes	$	1,164,283			34.0	%	$	742,161			34.0	%	$	1,602,731			34.0	%
Nontaxable income		(180,127	)		(5.3	)		(142,534	)		(6.5	)		(134,292	)		(2.8	)
State income tax, net of
federal income tax benefit		92,312			2.7			59,477			2.7			109,659			2.3
Low-income housing tax credit		(225,401	)		(6.6	)		(191,356	)		(8.8	)		(139,287	)		(3.0	)
KSOP		(2,555	)		(0.1	)		(1,398	)		(0.1	)		(1,398	)		0.0
Increase (decrease) to valuation
allowance		-			0.0			(2,854	)		(0.1	)		(15,103	)		(0.3	)
Decrease in liability for unrecognized		-			0.0			(50,000	)		(2.3	)		-			0.0
tax benefits
Other		(62,512	)		(1.8	)		64,004			3.0			102,390			2.1
Income tax expense	$	786,000			23.0	%	$	477,500			21.9	%	$	1,524,700			32.3	%

Accounting guidance on uncertain tax positions addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements.  The Company recognizes the tax benefits from an uncertain tax position only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation.  The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.  As of December 31, 2011 and 2010 the liability for unrecognized tax benefits was $150,000.

The Company has established contingency reserves for material, known tax exposures, including potential tax audit adjustments with respect to its state nexus issues.  The Company's tax reserves reflect management's judgment as to the resolution of the issues involved if subject to judicial review.  While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve.  With respect to these reserves, the Company's income tax expense would include (1) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue, and (2) any difference from the Company's tax position as recorded in the financial statements and the final resolution of a tax issue during the period.

Income tax returns for the years 2008 through 2011, with few exceptions, remain open to examination by federal and state taxing authorities.

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011
Entity Registrant Name	NORTH CENTRAL BANCSHARES INC
Entity Central Index Key	0001005188
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float	$ 1
Entity Common Stock, Shares Outstanding	1
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 10.   Employee Benefit Plans

Retirement plans:  The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (“The Pentegra DB Plan”), a tax qualified defined-benefit pension plan.  The Pentegra DB Plan's Employer Identification Number is 13-5645888 and the Plan Number is 333.  The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.  There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities.  Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers.  The funded status of the Pentegra DB Plan as of June 30, 2011 and 2010 exceeded 80%.  For the plan years ended June 30, 2011 and 2010, the Bank's contributions to the Pentegra DB Plan were not more than 5% of the total contributions to the Pentegra DB Plan.  The Pentegra DB Plan is not under a funding improvement plan and there have been no changes in the plan affecting comparability of contributions from period to period.

The Bank recognized $317,000, $211,000 and $98,000 in pension expense for the years ended December 31, 2011, 2010 and 2009, respectively.  Effective July 1, 2008 the plan was frozen, eliminating future benefit accruals.

The Bank also has a defined contribution plan covering substantially all employees, the 401(k) and Stock Ownership Plan (the Plan).  The Plan consists of two components.  The first component is intended to qualify as a profit sharing plan under Code Section 401(a) and includes a qualified cash or deferred arrangement under Code Section 401(k).  This component includes elective deferral contributions, matching contributions and discretionary contributions invested in assets other than qualifying employer securities.  The second component, the employee stock option plan (“ESOP”) component, is intended to qualify as a qualified stock bonus plan under Code Section 401(a) and as an employee stock ownership plan under Code Section 4975(e)(7).  This component includes elective deferral contributions, matching contributions and discretionary contributions primarily invested in qualifying employer securities.  The plan provides for participant-directed investments and is intended to comply with the Employee Retirement Income Security Act of 1974, Section 404(c).

The contributions made by the Company to the Plan are determined by matching contributions on elective deferrals and a profit sharing component determined annually by the Board of Directors.  Contribution expense for the years ended December 31, 2011, 2010, and 2009 totaled approximately $140,482, $141,197, and $136,011, respectively.

As of December 2011 and 2010, the Plan held 181,797 shares and 189,941 shares respectively, of the Company stock. These shares are included in the computation of earnings per share.  Dividends on shares held in the plan may be reinvested in Company stock or paid in cash to the participants, at the election of the participants.

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Consolidated Statements of Income (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Interest income:
Loans, including fees	$ 18,285,197	$ 20,951,183	$ 23,814,290
Securities
Taxable	1,539,672	937,453	974,773
Nontaxable	255,953	151,511	96,100
Interest bearing deposits and other	134,090	168,468	13,522
Interest Income	20,214,912	22,208,615	24,898,685
Interest expense:
Deposits	4,555,119	5,313,932	6,802,006
Borrowed funds	1,133,548	2,432,282	3,535,522
Interest expense	5,688,667	7,746,214	10,337,528
Net interest income	14,526,245	14,462,401	14,561,157
Provision for loan losses	2,135,000	4,091,000	2,450,000
Net interest income after provision for loan losses	12,391,245	10,371,401	12,111,157
Noninterest income:
Fees and service charges	4,716,612	4,772,904	4,708,225
Abstract fees	561,393	636,782	929,279
Gain on sale of loans	691,216	965,769	975,481
Other income	1,606,722	1,562,910	1,765,344
Total noninterest income	7,575,943	7,938,365	8,378,329
Investment securities gains (losses), net:
Total other-than-temporary impairment losses	0	0	(23,343)
Portion of loss recognized in other comprehensive income (loss) before taxes	0	0	0
Net impairment losses recognized in earnings	0	0	(23,343)
Realized securities gains (losses), net	135,754	7,652	362,560
Total securities gains (losses), net	135,754	7,652	339,217
Noninterest expense:
Compensation and employee benefits	7,809,460	7,614,858	7,364,215
Premises and equipment	1,841,130	1,894,850	1,878,967
Data processing	868,437	871,816	809,416
FDIC insurance expense	430,888	561,990	759,734
Foreclosed real estate impairment	556,447	479,045	518,136
Other expenses	5,172,217	4,712,034	4,784,319
Total noninterest expense	16,678,579	16,134,593	16,114,787
Income before income taxes	3,424,363	2,182,825	4,713,916
Provision for income taxes	786,000	477,500	1,524,700
Net income	2,638,363	1,705,325	3,189,216
Preferred stock dividends and discount	550,127	528,800	514,924
Net income available to common stockholders	$ 2,088,236	$ 1,176,525	$ 2,674,292
Basic earnings per common share (in dollars per share)	$ 1.55	$ 0.87	$ 1.99
Diluted earnings per common share (in dollars per share)	$ 1.53	$ 0.87	$ 1.99
Dividends declared per common share (in dollars per share)	$ 0.04	$ 0.04	$ 0.04

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Loans Receivable

12 Months Ended

Dec. 31, 2011

Receivables [Abstract]

Loans Receivable

Note 4.   Loans Receivable

Loans receivable at December 31, 2011 and 2010 are summarized as follows:

	2011			2010
First mortgage loans:
1-4 Family residential real estate	$	138,581,219		$	141,061,321
Multifamily real estate		48,656,251			57,461,170
Commercial real estate		67,322,328			69,253,792
Construction and land development		2,111,575			4,193,756
Total first mortgage loans		256,671,373			271,970,039
Consumer loans:
Automobile		13,829,186			13,548,710
Second mortgage		43,897,879			51,349,053
Other		3,666,196			4,282,717
Total consumer loans		61,393,261			69,180,480
Total loans		318,064,634			341,150,519
Undisbursed portion of construction loans		(470,938	)		(295,609	)
Unearned premiums, net		22,340			83,528
Net deferred loan origination fees		(392,443	)		(331,010	)
Allowance for loan losses		(5,845,730	)		(6,146,861	)
	$	311,377,863		$	334,460,567

Activity in the allowance for loan losses by segment for the years ended December 31, 2011 and 2010 are summarized in the following tables.

	For the Year Ended December 31, 2011
										1-4 Family
	Commercial			Construction and			Multi-Family			Residential
	Real Estate			Land Development			Real Estate			Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	2,555,094		$	354,911		$	803,850		$	1,009,630		$	1,423,376		$	6,146,861
Charge-offs		(1,286,350	)		(70,000	)		(278,387	)		(184,456	)		(647,957	)		(2,467,150	)
Recoveries		10,083			-			-			126			20,810			31,019
Provisions		1,248,455			45,927			(9,356	)		303,018			546,956			2,135,000
Ending balance	$	2,527,282		$	330,838		$	516,107		$	1,128,318		$	1,343,185		$	5,845,730
	For the Year Ended December 31, 2010
										1-4 Family
	Commercial			Construction and			Multi-Family			Residential
	Real Estate			Land Development			Real Estate			Real Estate			Consumer			Total
Allowance for Loan Losses:
Beginning balance	$	1,991,889		$	2,510,656		$	620,475		$	679,097		$	1,368,478		$	7,170,595
Charge-offs		(539,000	)		(3,491,360	)		(26,243	)		(511,065	)		(563,920	)		(5,131,588	)
Recoveries		-			-			-			675			16,179			16,854
Provisions		1,102,205			1,335,615			209,618			840,923			602,639			4,091,000
Ending balance	$	2,555,094		$	354,911		$	803,850		$	1,009,630		$	1,423,376		$	6,146,861

Activity in the allowance for loan losses is summarized as follows for the year ended December 31, 2009:

	2009
Balance, beginning	$	5,379,155
Provision charged to income		2,450,000
Loans charged off		(675,926	)
Recoveries		17,366
Balance, ending	$	7,170,595

The following tables present the balance in the allowance for loan losses and recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011 and 2010.

	December 31, 2011
							1-4 Family
	Commercial		Construction and		Multi-Family		Residential
	Real Estate		Land Development		Real Estate		Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	738,650	$	202,000	$	-	$	142,400	$	61,582	$	1,144,632
Collectively evaluated for impairment		1,788,632		128,838		516,107		985,918		1,281,603		4,701,098
Total ending allowance balance	$	2,527,282	$	330,838	$	516,107	$	1,128,318	$	1,343,185	$	5,845,730
Loans:
Individually evaluated for impairment	$	8,421,631	$	1,835,950	$	-	$	4,509,307	$	478,757	$	15,245,645
Collectively evaluated for impairment		58,900,697		275,625		48,656,251		134,071,912		60,914,504		302,818,989
Total ending loan balance	$	67,322,328	$	2,111,575	$	48,656,251	$	138,581,219	$	61,393,261	$	318,064,634
	December 31, 2010
							1-4 Family
	Commercial		Construction and		Multi-Family		Residential
	Real Estate		Land Development		Real Estate		Real Estate		Consumer		Total
Allowance for Loan Losses:
Individually evaluated for impairment	$	1,121,500	$	237,000	$	201,500	$	85,111	$	115,683	$	1,760,794
Collectively evaluated for impairment		1,433,594		117,911		602,350		924,519		1,307,693		4,386,067
Total ending allowance balance	$	2,555,094	$	354,911	$	803,850	$	1,009,630	$	1,423,376	$	6,146,861
Loans:
Individually evaluated for impairment	$	12,194,848	$	3,301,345	$	1,558,628	$	5,167,369	$	607,064	$	22,829,254
Collectively evaluated for impairment		57,058,944		892,411		55,902,542		135,893,952		68,573,416		318,321,265
Total ending loan balance	$	69,253,792	$	4,193,756	$	57,461,170	$	141,061,321	$	69,180,480	$	341,150,519

The following tables summarize the recorded investment in impaired loans by segment, including loans for which no impairment is recorded, loans for which an impairment is recorded, and the resulting allowance for the impairment by segment as of December 31, 2011 and 2010.

	December 31, 2011
			Unpaid Principal		Associated		Average
	Carrying Amount		Balance		Allowance		Balance
With no specific allowance recorded:
Commercial Real Estate	$	-	$	-	$	-
Construction and Land Development		-		-		-
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		3,764,936		3,764,936		-
Consumer		349,300		349,300		-
With an allowance recorded:
Commercial Real Estate		8,421,631		8,421,631		738,650
Construction and Land Development		1,835,950		1,835,950		202,000
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		744,371		744,371		142,400
Consumer		129,457		129,457		61,582
Total:
Commercial Real Estate		8,421,631		8,421,631		738,650	$	8,797,584
Construction and Land Development		1,835,950		1,835,950		202,000		2,475,918
Multi-Family Real Estate		-		-		-		389,657
1-4 Family Residential Real Estate		4,509,307		4,509,307		142,400		4,782,398
Consumer		478,757		478,757		61,582		785,557
	$	15,245,645	$	15,245,645	$	1,144,632	$	17,231,114
	December 31, 2010
			Unpaid Principal		Associated		Average
	Carrying Amount		Balance		Allowance		Balance
With no specific allowance recorded:
Commercial Real Estate	$	1,584,352	$	1,852,852	$	-
Construction and Land Development		892,017		2,962,017		-
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		4,560,823		4,872,752		-
Consumer		433,793		442,786		-
With an allowance recorded:
Commercial Real Estate		10,610,496		10,610,496		1,121,500
Construction and Land Development		2,409,328		2,409,328		237,000
Multi-Family Real Estate		1,558,628		1,558,628		201,500
1-4 Family Residential Real Estate		606,546		606,546		85,111
Consumer		173,271		173,271		115,683
Total:
Commercial Real Estate		12,194,848		12,463,348		1,121,500	$	9,780,378
Construction and Land Development		3,301,345		5,371,345		237,000		7,277,842
Multi-Family Real Estate		1,558,628		1,558,628		201,500		519,543
1-4 Family Residential Real Estate		5,167,369		5,479,298		85,111		5,083,518
Consumer		607,064		616,057		115,683		544,684
	$	22,829,254	$	25,488,676	$	1,760,794	$	23,205,965

Interest income recognized on impaired loans was approximately $617,000, $572,000, and $931,000 for years ended 2011, 2010 and 2009 respectively.

Credit Quality Indicators

Credit quality indicators are used by management in determining the allowance for loan losses.  The primary credit quality indicators used by management include loan classification and delinquency status.  These indicators are used to identify and evaluate trends and deterioration in the loan portfolio.

The primary credit quality indicator used by management in the commercial real estate, construction and land development, and multi-family real estate loan portfolios is the internal classification of the loans.  Loans in these portfolios that are over $500,000 are reviewed annually at which time they are assigned a classification.  Loans may also be reviewed prior to the annual review cycle based on current information that becomes available regarding the borrower's ability to service the loan.  Loans may be classified as watch, special mention, substandard, or doubtful.  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 bank 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 that do not expose the bank to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve management's close attention are designated as special mention.  If left uncorrected, these potential weaknesses could increase the level of risk to the Bank in the future.  Commercial loans to borrowers whose most recent financial information shows deterioration in the earliest stages and warrant greater than routine attention and monitoring by management are designated as watch.  Impaired loans and troubled debt restructurings are generally classified as substandard or doubtful.

The primary credit quality indicator used by management in the residential real estate and consumer loan portfolios is the delinquency status of the loans.

The following tables summarize the recorded investment in loan segments by credit quality indicator as of December 31, 2011 and 2010.  Past due status is reported as of December 31, 2011 and 2010.  Internal classification ratings reflect the most recent classification assigned generally based on an annual review performed during the periods reported.

	Commercial Loans
	Credit risk profile by internally assigned grade
	December 31, 2011
	Commercial		Construction and		Multi-Family
	Real Estate		Land Development		Real Estate		Total
Grade:
Pass	$	52,737,956	$	275,625	$	45,239,400	$	98,252,981
Watch		6,162,741		-		3,416,851		9,579,592
Special Mention		-		-		-		-
Substandard		7,682,981		1,633,950		-		9,316,931
Doubtful		738,650		202,000		-		940,650
	$	67,322,328	$	2,111,575	$	48,656,251	$	118,090,154
	December 31, 2010
	Commercial		Construction and		Multi-Family
	Real Estate		Land Development		Real Estate		Total
Grade:
Pass	$	53,092,384	$	892,411	$	53,291,156	$	107,275,951
Watch		3,966,560		-		2,611,386		6,577,946
Special Mention		-		-		-		-
Substandard		11,073,348		3,064,345		1,357,128		15,494,821
Doubtful		1,121,500		237,000		201,500		1,560,000
	$	69,253,792	$	4,193,756	$	57,461,170	$	130,908,718
	Residential Real Estate and Consumer Loans
	Credit risk profile based on delinquency status
	December 31, 2011
	1-4 Family
	Residential		Second		Other Consumer
	Real Estate		Mortgage		Loans		Total
Current	$	136,573,437	$	43,582,655	$	17,201,581	$	197,357,673
Past due 30-89 days		921,298		117,620		233,208		1,272,126
Past due 90 days and greater		1,086,484		197,604		60,593		1,344,681
	$	138,581,219	$	43,897,879	$	17,495,382	$	199,974,480
	December 31, 2010
	1-4 Family
	Residential		Second		Other Consumer
	Real Estate		Mortgage		Loans		Total
Current	$	137,430,650	$	50,136,653	$	17,590,417	$	205,157,720
Past due 30-89 days		1,473,094		786,900		203,341		2,463,335
Past due 90 days and greater		2,157,577		425,500		37,669		2,620,746
	$	141,061,321	$	51,349,053	$	17,831,427	$	210,241,801

An aging analysis of the recorded investment in loans by segment at December 31, 2011 and 2010 are summarized as follows.

	December 31, 2011
	30-89 Days		90 Days Past Due
	Past Due		and Greater		Total Past Due		Current		Total
Commercial Loans:
Commercial Real Estate	$	26,796	$	-	$	26,796	$	67,295,532	$	67,322,328
Construction and Land Development		1,132,119		703,831		1,835,950		275,625		2,111,575
Multi-Family Real Estate		-		-		-		48,656,251		48,656,251
1-4 Family Residential Real Estate		921,298		1,086,484		2,007,782		136,573,437		138,581,219
Consumer:
Second mortgage		117,620		197,604		315,224		43,582,655		43,897,879
Other consumer loans		233,208		60,593		293,801		17,201,581		17,495,382
	$	2,431,041	$	2,048,512	$	4,479,553	$	313,585,081	$	318,064,634
	December 31, 2010
	30-89 Days		90 Days Past Due
	Past Due		and Greater		Total Past Due		Current		Total
Commercial Loans:
Commercial Real Estate	$	-	$	440,193	$	440,193	$	68,813,599	$	69,253,792
Construction and Land Development		-		1,411,752		1,411,752		2,782,004		4,193,756
Multi-Family Real Estate		373,518		1,558,628		1,932,146		55,529,024		57,461,170
1-4 Family Residential Real Estate		1,473,094		2,157,577		3,630,671		137,430,650		141,061,321
Consumer:
Second mortgage		786,900		425,500		1,212,400		50,136,653		51,349,053
Other consumer loans		203,341		37,669		241,010		17,590,417		17,831,427
	$	2,836,853	$	6,031,319	$	8,868,172	$	332,282,347	$	341,150,519

There were no loans greater than 90 days past due and still accruing interest at December 31, 2011 and 2010.  Nonaccrual loans at December 31, 2011 and 2010 by segment are summarized below:

	2011		2010
Commercial Loans:
Commercial Real Estate	$	1,511,299	$	5,408,650
Construction and Land Development		1,835,950		1,679,839
Multi-Family Real Estate		-		1,558,628
1-4 Family Residential Real Estate		1,086,485		2,459,406
Consumer:
Second mortgage		197,603		425,500
Other consumer loans		60,593		37,669
	$	4,691,930	$	11,569,692

TDRs are loans on which, due to the borrower's financial difficulties, a concession has been granted that would not otherwise be considered.  In most cases, modifications of loan terms that could potentially qualify as a TDR include reduction of contractual interest rate, extension of the maturity date or a reduction of the principal balance.  A TDR is placed on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.  All loans classified as TDRs are considered to be impaired.

The following table summarizes loans that have been restructured for year ended December 31, 2011:

	December 31, 2011
	Number of Loans		Pre-restructuring Principal Balance		Post-restructuring Principal Balance
Troubled debt restructurings:
Commercial Real Estate		3	$	5,919,269	$	5,919,269
Construction and Land Development		1		743,761		743,761
Multi-Family Real Estate		-		-		-
1-4 Family Residential Real Estate		15		1,515,061		1,570,377
Consumer		13		377,400		356,785
Total:		32	$	8,555,491	$	8,590,192

The TDRs described above increased the allowance for loan losses by approximately $123,000 for the year ended December 31, 2011 and resulted in charge-offs of $33,500 for the year ended December 31, 2011.  The majority of these TDRs were a result of changes in interest rates and accounted for approximately 90% of the modifications.  The difference between the post-restructuring principal balance compared to the pre-restructuring principal balance is due to charge-offs or capitalization of interest.  One 1-4 family residential real estate loan received an advance of additional funds of approximately $26,000.

A restructured loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.  The following table summarizes, as of December 31, 2011, loans that were restructured within the last 12 months that have subsequently defaulted during the reported period:

	December 31, 2011
	Number of Loans		Principal Balance of Defaulted Loans
Commercial Real Estate		-	$	-
Construction and Land Development		1		703,831
Multi-Family Real Estate		-		-
1-4 Family Residential Real Estate		4		472,363
Consumer		2		31,434
Total:		7	$	1,207,628

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 made, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated third parties.

Activity in loans receivable from these related parties of the Company consisted of the following for the years ended December 31, 2011 and 2010:

	2011			2010
Beginning balance	$	496,638		$	301,882
New loans		448,000			491,414
Available line of credit balance		-			(155,537	)
Change in status		(378,136	)		(122,925	)
Repayments		(8,339	)		(18,196	)
Ending balance	$	558,163		$	496,638

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Securities

12 Months Ended

Dec. 31, 2011

SECURITIES [Abstract]

Securities

Note 3.   Securities

Securities available-for-sale as of December 31, 2011 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
Debt securities:
U.S. Government agencies	$	5,249,999	$	50,496	$	-		$	5,300,495
Mortgage-backed securities(1)		17,709,321		550,073		-			18,259,394
Collateralized mortgage obligations(1)		26,190,653		485,319		(19,124	)		26,656,848
State and local obligations		13,768,845		389,826		(5,468	)		14,153,203
Corporate bonds		3,615,538		4,750		(23,271	)		3,597,017
	$	66,534,356	$	1,480,464	$	(47,863	)	$	67,966,957

Securities available-for-sale as of December 31, 2010 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
Debt securities:
U.S. Government agencies	$	8,646,763	$	93,659	$	(46,503	)	$	8,693,919
Mortgage-backed securities(1)		13,735,714		290,895		(163,780	)		13,862,829
Collateralized mortgage obligations(1)		19,469,375		59,302		(240,553	)		19,288,124
State and local obligations		5,103,472		25,888		(139,697	)		4,989,663
Corporate bonds		1,622,912		-		(21,676	)		1,601,236
	$	48,578,236	$	469,744	$	(612,209	)	$	48,435,771
(1) All mortgage backed securities and collateralized mortgage obligations consist of securities issued by
FNMA, FHLMC and GNMA and are backed by residential mortgage loans.

Securities available-for-sale with fair market values of approximately $1,759,000 and $1,042,000 at December 31, 2011 and 2010, respectively, were pledged to the Federal Reserve Discount Window for borrowings.

State and local obligations included general obligation bonds totaling $6,943,324 and $2,455,869 at December 31, 2011 and 2010, respectively.

Gross unrealized losses and estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2011 and 2010, are summarized as follows:

	2011
	Less than 12 Months					12 Months or More				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Debt securities:
Collateralized mortgage obligations	$	3,333,267	$	(19,124	)	$	-	$	-	$	3,333,267	$	(19,124	)
State and local obligations		1,121,587		(5,468	)		-		-		1,121,587		(5,468	)
Corporate bonds		2,337,518		(23,271	)		-		-		2,337,518		(23,271	)
	$	6,792,372	$	(47,863	)	$	-	$	-	$	6,792,372	$	(47,863	)
	2010
	Less than 12 Months					12 Months or More				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
Debt securities:
U.S. Government agencies	$	1,577,870	$	(46,503	)	$	-	$	-	$	1,577,870	$	(46,503	)
Mortgage-backed securities		5,810,547		(163,780	)		-		-		5,810,547		(163,780	)
Collateralized mortgage obligations		12,776,228		(240,553	)		-		-		12,776,228		(240,553	)
State and local obligations		3,096,965		(139,697	)		-		-		3,096,965		(139,697	)
Corporate bonds		1,601,236		(21,676	)		-		-		1,601,236		(21,676	)
	$	24,862,846	$	(612,209	)	$	-	$	-	$	24,862,846	$	(612,209	)

The total number of securities in the investment portfolio in an unrealized loss position at December 31, 2011 was 9 compared to 35 at December 31, 2010.  The Company conducts quarterly reviews to identify and evaluate each investment that has an unrealized loss.  The unrealized losses for the above investment securities are generally due to changes in interest rates and, as such, are considered to be temporary by the Company.  The review takes into consideration the intent of the Company to not sell the security or whether it is more-likely-than-not that the Company will be required to sell the security before its anticipated recovery, as well as other qualitative factors.

The amortized cost and fair value of debt securities as of December 31, 2011 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:

	December 31, 2011
	Amortized
	Cost		Fair Value
Due in one year or less	$	50,000	$	50,160
Due from one to five years		8,496,924		8,540,410
Due from five to ten years		6,375,400		6,608,823
Due in over ten years		7,712,058		7,851,322
Mortgage-backed securities and
collateralized mortgage obligations		43,899,974		44,916,242
	$	66,534,356	$	67,966,957

The following is a summary of securities sold during the years ended December 31, 2011, 2010 and 2009, excluding the redemption of restricted equity securities:

	2011		2010		2009
Sales proceeds	$	3,379,805	$	207,732	$	9,071,720
Gross realized gains		135,754		7,652		382,504
Gross realized losses		-		-		(19,944	)

Included in the interest income on securities was dividend income of $106,170, $92,338 and $71,096 for the years ended December 31, 2011, 2010 and 2009, respectively.

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Lending Activities and Concentrations of Credit Risk

12 Months Ended

Dec. 31, 2011

Lending Activities and Concentrations of Credit Risk [Abstract]

Lending Activities and Concentrations of Credit Risk

Note 15.   Lending Activities and Concentrations of Credit Risk

The Bank generally originates single family residential loans within its primary lending area comprised 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 $71,376,000 of the Bank's first mortgage loan portfolio at December 31, 2011 consisted of loans purchased or originated outside the State of Iowa.  At December 31, 2011, concentrations by state include California with $18,717,000, Washington with $8,574,000 and Colorado with $7,406,000.  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 consists of security agreements and/or Uniform Commercial Code filings on the purchased asset.

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Stock Based Compensation Plans

12 Months Ended

Dec. 31, 2011

Stock Based Compensation Plans [Abstract]

Stock Based Compensation Plans

Note 11.   Stock Based Compensation Plans

In 1996, the stockholders of the Company ratified the 1996 Incentive Stock Option Plan (the 1996 Plan), which permitted the grant of 441,105 shares of common stock to its directors and employees.  The 1996 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 employed with the Company or its subsidiaries.  The 1996 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 1996 Plan.  Options granted to directors vest 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 stockholder approval of the North Central Bancshares, Inc. 2006 Stock Incentive Plan (the 2006 Plan), no further awards under the 1996 Plan may be granted.

On April 28, 2006, the stockholders of the Company approved the Company's adoption of 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 grants 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 is administered by the Compensation Committee of the Company's Board of Directors, including determining the type of awards made and establishing other terms and conditions applicable to the award.  As of December 31, 2011, a total of 21,020 shares have been awarded under the 2006 Plan in the form of stock options and restricted stock grants.  Shares available for grant under the 2006 Plan totaled 103,980 shares as of December 31, 2011.

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 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 pre-vesting forfeiture rates on its stock-based incentive awards have been negligible.

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

	2011		2010		2009
Total employee stock-based compensation
expense recognized in income, net of tax effect
of $22,504 in 2011, $21,261 in 2010, and $22,810 in 2009	$	37,829	$	35,739	$	38,344

As of December 31, 2011, stock-based compensation expense not yet recognized in income totaled $23,804, which is expected to be recognized over a weighted average remaining period of 0.5 years.

At the 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.  There were no options granted in 2011, 2010, or 2009.  The intrinsic value of options exercised during the years ended December 31, 2011 and 2009 was none and $740, respectively.  No options were exercised during the year ended December 31, 2010.

The table below reflects option activity for the period indicated:

				Weighted-		Weighted-
				Average		Average
				Exercise		Remaining		Aggregate
	Number			Price per		Contractual		Intrinsic
	of Shares			Share		Term Years		Value (1)
Outstanding, December 31, 2010		65,200		$	31.52
Forfeited		(19,700	)		18.99
Exercised		(2,000	)		20.59
Outstanding, December 31, 2011		43,500		$	37.70		3.3	$	0
Exercisable at December 31, 2011		43,500		$	37.70		3.3

(1) Exercise price of all remaining options exceed December 31, 2011 trading price.

A summary of the status of the Company's nonvested restricted shares as of December 31, 2011, and changes during the year ended December 31, 2011, is presented below:

			Weighted-
			Average
			Grant-Date
	Shares		Fair Value
Nonvested at January 1, 2011		3,500	$	19.01
Granted		3,625		16.50
Vested (2)		3,000		17.88
Forfeited		-		-
Nonvested at December 31, 2011		4,125	$	17.62
(2) Average fair value per share at vesting date equaled $16.50.

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Deposits

12 Months Ended

Dec. 31, 2011

Deposits [Abstract]

Deposits

Note 7.   Deposits

Deposits at December 31 were as follows:

	2011		2010
Demand deposit accounts:
Noninterest-bearing	$	20,611,897	$	19,089,162
Interest-bearing		133,265,490		116,865,788
Savings accounts		33,272,368		30,713,715
Money market savings		34,437,965		33,999,781
Certificates of deposit		139,263,007		149,164,458
	$	360,850,727	$	349,832,904

Scheduled maturities of certificates of deposit at December 31 were as follows:

Year ending December 31:	2011
2012	$	70,487,863
2013		29,447,716
2014		19,160,438
2015		11,267,030
2016		8,899,960
	$	139,263,007

Interest expense on deposits consisted of the following:

	Years Ended December 31,
	2011		2010		2009
Demand deposit accounts	$	1,051,315	$	773,780	$	171,281
Savings accounts		37,560		53,479		54,959
Money market savings		98,441		198,528		297,135
Certificates of deposit		3,367,803		4,288,145		6,278,631
	$	4,555,119	$	5,313,932	$	6,802,006

The aggregate amounts of certificates of deposit in excess of $100,000 were $31,395,546 and $25,588,973 as of December 31, 2011 and 2010, respectively.  Certificates of deposit include approximately $567,000 and $558,000 of brokered certificates of deposit as of December 31, 2011 and 2010, respectively.

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Loan Servicing

12 Months Ended

Dec. 31, 2011

Loan Servicing [Abstract]

Loan Servicing

Note 5.   Loan Servicing

Mortgage loans serviced for the Federal Home Loan Mortgage Corporation (FHLMC) and the Mortgage Partnership Finance (MPF) Program of the FHLB of Des Moines are not included in the accompanying consolidated statements of financial condition.  The unpaid principal balances of these loans at December 31, 2011 and 2010 were $134,178,766 and $134,303,273, respectively.  Included in deposits are custodial escrow balances maintained in connection with the foregoing loan servicing of $1,408,663 and $1,237,935 at December 31, 2011 and 2010, respectively.

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Premises and Equipment

12 Months Ended

Dec. 31, 2011

Premises and Equipment [Abstract]

Premises and Equipment

Note 6.   Premises and Equipment

Premises and equipment consisted of the following at December 31:

	2011		2010
Land	$	3,765,799	$	3,765,799
Buildings and improvements		11,064,498		11,043,738
Leasehold improvements		203,567		58,552
Furniture, fixtures and equipment		5,770,582		5,149,780
Vehicles		128,811		156,807
		20,933,257		20,174,676
Less accumulated depreciation		9,329,055		8,676,093
	$	11,604,202	$	11,498,583

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Borrowed Funds

12 Months Ended

Dec. 31, 2011

Borrowed Funds [Abstract]

Borrowed Funds

Note 8.   Borrowed Funds

Borrowed funds at December 31, 2011 consist of borrowings from the FHLB as follows:

	Weighted-
Stated	Average
Maturity	Interest Rate			Amount
2012		4.33	%	$	13,000,000
2013		0.98			4,750,000
2014		1.31			3,500,000
2015		1.68			1,500,000
2016		-			-
Thereafter		2.65			3,000,000
		2.95	%	$	25,750,000

Borrowed funds at December 31, 2010 included borrowings from the FHLB of $49,250,000.  Such borrowings carried a weighted-average interest rate of 3.77% with maturities ranging from 2010 through 2020.

The FHLB borrowings are collateralized by FHLB stock and qualifying first and second mortgage loans representing various percentages of the total borrowings outstanding.  At December 31, 2011, loans with a principal balance of $178,237,915 were pledged to the FHLB.

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Other Noninterest Income and Expense

12 Months Ended

Dec. 31, 2011

Other Noninterest Income and Expense [Abstract]

Other Noninterest Income and Expense

Note 13.   Other Noninterest Income and Expense

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

	2011		2010		2009
Increase in cash surrender value - BOLI	$	235,708	$	244,183	$	249,810
Investment and insurance sales		787,100		637,822		772,575
Rental income		486,864		484,725		480,050
Loan prepayment fees		43,142		35,563		250,118
All other		53,908		160,617		12,791
	$	1,606,722	$	1,562,910	$	1,765,344

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

	2011		2010		2009
Advertising and promotion	$	392,181	$	366,681	$	511,567
Professional fees		796,726		615,313		772,602
Foreclosed real estate net expense		312,091		195,388		79,743
Printing, postage, stationery and supplies		436,646		442,916		441,802
Checking account charges		247,470		335,364		370,229
Insurance (non-employee)		149,560		166,783		167,613
Regulatory fees		100,733		127,248		129,935
Telephone		153,737		155,501		148,215
Apartment operating costs		370,575		347,492		344,438
Employee costs		214,088		208,154		165,926
Card service expenses		679,679		623,188		576,693
Title plant impairment		196,000		-		-
All other		1,122,731		1,128,006		1,075,556
	$	5,172,217	$	4,712,034	$	4,784,319

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Earnings Per Common Share

12 Months Ended

Dec. 31, 2011

Earnings Per Common Share [Abstract]

Earnings Per Common Share

Note 18.   Earnings Per Common Share

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

	2011		2010		2009
Basic earnings per common share:
Net income	$	2,638,363	$	1,705,325	$	3,189,216
Preferred stock dividends and accretion of discount		550,127		528,800		514,924
Net income available to common stockholders	$	2,088,236	$	1,176,525	$	2,674,292
Weighted average common shares outstanding - basic		1,350,077		1,346,949		1,342,320
Basic earnings per common share	$	1.55	$	0.87	$	1.99
Diluted earnings per common share:
Net income available to common stockholders	$	2,088,236	$	1,176,525	$	2,674,292
Weighted average common shares outstanding - basic		1,350,077		1,346,949		1,342,320
Effect of dilutive securities:
Stock options (1)		-		-		69
Restricted stock		3,943		3,578		3,356
Common stock warrant		7,416		2,115		708
Total diluted average common shares issued and outstanding		1,361,436		1,352,642		1,346,453
Diluted earnings per common share	$	1.53	$	0.87	$	1.99
(1) For the years ending December 31, 2011 and 2010, outstanding options to purchase common stock totaled 43,500 and
65,200, respectively. These options were not dilutive because the exercise price of the options exceeded the average closing
price of the Company's common stock.

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Consolidated Statements of Comprehensive Income (USD $)	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 2,638,363	$ 1,705,325	$ 3,189,216
Securities for which a portion of an other-than-temporary impairment has been recorded in earnings:
Unrealized holding (gains) losses	0	851	(23,058)
(Gains) loss recognized in earnings	0	(7,652)	29,859
Net unrealized gain (loss) on securities with other-than-temporary impairment before tax expense	0	(6,801)	6,801
Tax (expense)	0	0	0
Net unrealized gain (loss) on securities with other-than-temporary impairment, net of tax in other comprehensive income (loss)	0	(6,801)	6,801
Other securities:
Unrealized holding gains (losses) arising during the period	1,710,820	(470,533)	475,698
Realized net (gains) recognized into net income	(135,754)	0	(369,076)
Net unrealized gains (losses) on other securities before tax (expense) benefit	1,575,066	(470,533)	106,622
Tax (expense) benefit	(587,500)	175,509	(39,770)
Net unrealized gains (losses) on other securities, net of tax in other comprehensive income (loss)	987,566	(295,024)	66,852
Other comprehensive income (loss)	987,566	(301,825)	73,653
Comprehensive income	$ 3,625,929	$ 1,403,500	$ 3,262,869

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Restrictions on Cash and Due from Banks

12 Months Ended

Dec. 31, 2011

Restrictions on Cash and Due from Banks [Abstract]

Restrictions on Cash and Due from Banks

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 $25,000 and $5,942,000 at December 31, 2011 and 2010, respectively.

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

12 Months Ended

Dec. 31, 2011

North Central Bancshares, Inc. (Parent Company Only) Condensed Financial Statements [Abstract]

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

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

	Statements of Financial Condition
	December 31,
	2011		2010
ASSETS
Cash	$	160,272	$	202,722
Loans receivable, net		1,500,000		2,075,000
Investment in First Federal Savings Bank of Iowa		40,395,085		46,860,296
Deferred taxes		10,000		2,455
Prepaid and other assets		46,676		49,332
Total assets	$	42,112,033	$	49,189,805
LIABILITIES AND EQUITY
LIABILITIES
Accrued expenses and other liabilities	$	14,551	$	14,515
Total liabilities		14,551		14,515
EQUITY
Preferred stock		-		10,137,381
Common stock		13,557		13,502
Additional paid-in capital		18,167,895		18,066,437
Retained earnings		23,017,789		21,047,295
Accumulated other comprehensive income (loss)		898,241		(89,325	)
Total equity		42,097,482		49,175,290
Total liabilities and equity	$	42,112,033	$	49,189,805

	Statements of Income
	Years Ended December 31,
	2011			2010			2009
Operating income:
Equity in net income of subsidiary	$	2,686,890		$	1,770,807		$	3,252,339
Interest income		60,902			78,365			73,662
		2,747,792			1,849,172			3,326,001
Operating expenses:
Compensation and employee benefits		18,000			18,000			17,575
Other		154,329			168,047			151,810
		172,329			186,047			169,385
Income before income tax		2,575,463			1,663,125			3,156,616
Income tax (benefit)		(62,900	)		(42,200	)		(32,600	)
Net income	$	2,638,363		$	1,705,325		$	3,189,216

Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,638,363		$	1,705,325		$	3,189,216
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in net (income) of First Federal Savings
Bank of Iowa		(2,686,890	)		(1,770,807	)		(3,252,339	)
Dividends received from First Federal Savings
Bank of Iowa		10,200,000			-			-
Change in deferred income taxes		(7,545	)		-			-
Change in assets and liabilities:
Prepaid expenses and other assets		2,656			(49,332	)		16,665
Accrued expenses and other liabilities		-			(65,360	)		66,362
Net cash provided by (used in) operating activities		10,146,584			(180,174	)		19,904
CASH FLOWS FROM INVESTING ACTIVITIES, net
(increase) decrease in loans receivable		575,000			825,000			(2,841,822	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, preferred
stock and common stock warrant		41,180			-			10,230,000
Redemption of preferred stock		(10,200,000	)		-			-
Capital contribution to subsidiary		-			-			(6,800,000	)
Common and preferred dividends paid		(605,214	)		(563,998	)		(487,298	)
Net cash provided by (used in) financing activities		(10,764,034	)		(563,998	)		2,942,702
Net change in cash and cash equivalents		(42,450	)		80,828			120,784
CASH
Beginning		202,722			121,894			1,110
Ending	$	160,272		$	202,722		$	121,894

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Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 12.   Stockholders' Equity

Preferred Stock:  On January 9, 2009, the Company issued 10,200 shares of perpetual cumulative senior preferred stock to the U.S. Department of the Treasury (the “Treasury”) under the Capital Purchase Program (“CPP”).  The preferred stock had a par value of $0.01 per share and a liquidation preference of $1,000 per share, or $10,200,000.  On December 14, 2011, the Company redeemed all 10,200 shares of its Series A preferred stock for $10,200,000.  The remaining unamortized discount was amortized at the same time.

The fair value of the preferred stock at issue was $10,100,732.  The fair value of the preferred stock was based on assumptions regarding the discount rate (market rate on the preferred stock, which was estimated to be approximately 99.03% at the date of issuance).  Proceeds from the investment by Treasury were then allocated based upon the relative fair value of the preferred stock and common stock warrant described below.  Dividends were payable quarterly at the rate of five percent per annum until the fifth anniversary date of the issuance and at a rate of nine percent per annum thereafter.  The dividends were computed on the basis of a 360-day year consisting of twelve 30-day months.  The dividends were payable quarterly in arrears on February 15, May 15, August 15, and November 15 of each year.

Common Stock Warrant:  In connection with the issuance of the preferred stock described above, a common stock warrant exercisable for 99,157 shares of common stock (the “Warrant”) was issued to Treasury.  The Warrant was exercisable on or before January 9, 2019.  The fair value of the Warrant was $99,268.  The fair value of the Warrant was estimated at issue date using a Black-Scholes valuation model, with a market price of common stock on issue date of $10.50, a risk-free interest rate of 2.13%, expected price volatility of 19.48%, an expected life of 5 years, and an expected dividend yield of 0.38%.  The Warrant entitled the Treasury to purchase 99,157 shares of common stock at $15.43 per share.  The difference between the market value of a share of common stock and the exercise price of a share of common stock under the warrant was $2.53 per share as of December 31, 2011.

As more fully discussed below under “Subsequent Events,” on January 11, 2012, the Company completed the repurchase of the Warrant held by the Treasury. The Company paid $600,000 to the Treasury to repurchase the Warrant.  With this transaction, the Treasury no longer holds any investment in the Company.

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 average assets (as defined).  Management believes, as of December 31, 2011, the Bank meets all capital adequacy requirements to which it is subject.

The Bank continues to meet the requirements to be categorized 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:

													To Be Well-Capitalized
							For Capital						Under Prompt Corrective
	Actual						Adequacy Purposes						Action Provisions
	Amount			Ratio			Amount			Ratio			Amount			Ratio
		(000's	)					(000's	)					(000's	)
As of December 31, 2011:
Total Capital (to risk-
weighted assets)	$	42,624			14.7	%	$	23,139			8.0	%	$	28,924			10.0	%
Tier I Capital (to risk-
weighted assets)		38,981			13.5			11,570			4.0			17,354			6.0
Tier I Capital (to
average assets)		38,981			8.7			17,956			4.0			22,445			5.0
As of December 31, 2010:
Total Capital (to risk-
weighted assets)	$	50,029			16.5	%	$	24,194			8.0	%	$	30,242			10.0	%
Tier I Capital (to risk-
weighted assets)		46,278			15.3			12,097			4.0			18,145			6.0
Tier I (Core) Capital
(to adjusted assets)		46,278			10.2			18,096			4.0			22,620			5.0
Tangible Capital (to
adjusted assets) (1)		46,278			10.2			6,786			1.5			-			-
(1) Under regulations as a federally-chartered stock savings bank, the Bank was subject to minimum tangible capital requirements
at December 31, 2010.

The ability of the Company to pay dividends to its stockholders is dependent upon dividends paid by the Bank.  The Bank is subject to certain statutory and regulatory restrictions on the amount it may pay in dividends. To maintain acceptable capital ratios in the Bank, certain of its retained earnings are not available for the payment of dividends.