North Central Bancshares (FFFD) 10-Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended or   September 30, 2006

Commission File Number: 0-27672

NORTH CENTRAL BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

515-576-7531

(Registrant's telephone number, including area code)

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

Yes þ   No ¨

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ

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

Yes ¨   No þ

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

Class	Outstanding at October 31, 2006
Common Stock, $.01 par value	1,416,353

NORTH CENTRAL BANCSHARES, INC.

INDEX

Part I. Financial Information

Item 1. Consolidated Condensed

Financial Statements (Unaudited)

Consolidated Condensed Statements of

Financial Condition at September 30, 2006

and December 31, 2005

Consolidated Condensed Statements of

Income for the Three and Nine Months Ended

September 30, 2006 and 2005

Consolidated Condensed Statements of

Cash Flows for the Nine Months Ended

September 30, 2006 and 2005

Notes to Consolidated Condensed Financial

Statements

Item 2. Management's Discussion and Analysis

of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures

About Market Risk

Item 4. Controls and Procedures

Part II.Other Information

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Submission of Matters to a Vote of Security Holders

Item 5. Other Information

Item 6. Exhibits

Signatures

Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	September 30,		December 31,
ASSETS	2006		2005
Cash and due from banks:
Interest-bearing	$	568,759	$	552,456
Noninterest-bearing		7,222,420		8,087,216
Securities available-for-sale		15,433,136		15,457,942
Federal Home Loan Bank stock, at cost		5,755,700		5,250,100
Loans receivable, net		458,038,893		430,278,191
Loans held for sale		726,399		737,838
Accrued interest receivable		2,217,528		2,146,102
Foreclosed real estate		1,534,599		1,142,901
Premises and equipment, net		12,745,079		10,962,248
Rental real estate		2,614,300		2,684,484
Title plant		671,704		925,256
Goodwill		4,946,960		4,970,800
Deferred taxes		997,311		953,676
Prepaid expenses and other assets		1,034,051		1,041,915
Total assets	$	514,506,839	$	485,191,125

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Deposits	$	358,248,549	$	334,337,583
Borrowed funds		109,514,584		102,443,743
Advances from borrowers for taxes and insurance		1,072,724		1,897,511
Dividends payable		468,057		438,684
Accrued expenses and other liabilities		2,195,761		1,795,104
Total liabilities		471,499,675		440,912,625

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, authorized 3,000,000 shares; none issued and outstanding)		-		-
Common stock ($.01 par value, authorized 15,500,000shares; issued and outstanding at September 30, 2006, 1,416,353; at December 31, 2005, 1,507,703 shares)		14,163		15,077
Additional paid-in capital		17,671,208		18,447,059
Retained earnings, substantially restricted		25,088,336		25,847,345
Accumulated other comprehensive gain (loss)		233,457		(15,284	)
Unearned shares, employee stock ownership plan		-		(15,697	)
Total stockholders' equity		43,007,164		44,278,500
Total liabilities and stockholders' equity	$	514,506,839	$	485,191,125

See Notes to Consolidated Condensed Financial Statements

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Interest income:
Loans receivable	$	6,942,650	$	6,407,153	$	20,167,724	$	18,805,658
Securities and cash deposits		251,008		216,891		751,942		714,652
		7,193,658		6,624,044		20,919,666		19,520,310
Interest expense:
Deposits		2,678,721		2,036,841		7,266,614		5,766,677
Borrowed funds		1,297,092		1,224,001		3,823,614		3,472,603
		3,975,813		3,260,842		11,090,228		9,239,280
Net interest income		3,217,845		3,363,202		9,829,438		10,281,030
Provision for loan losses		60,000		60,000		180,000		180,000
Net interest income after provision for loan losses		3,157,845		3,303,202		9,649,438		10,101,030
Noninterest income:
Fees and service charges		996,376		1,629,250		3,297,477		3,450,228
Abstract fees		282,816		374,666		966,349		992,142
Provision for impairment on available-for-sale securities		-		-		-		(679,500	)
Mortgage banking income		67,818		93,702		165,129		210,113
Other income		277,440		320,400		893,184		928,199
Total noninterest income		1,624,450		2,418,018		5,322,139		4,901,182
Noninterest expense:
Compensation and employee benefits		1,725,358		1,711,284		5,364,825		4,896,488
Premises and equipment		378,185		365,679		1,126,650		1,070,027
Data processing		177,527		163,194		503,219		450,867
Other expenses		948,737		895,316		2,829,768		2,666,391
Total noninterest expense		3,229,807		3,135,473		9,824,462		9,083,773
Income before income taxes		1,552,488		2,585,747		5,147,115		5,918,439
Provision for income taxes		446,400		839,100		1,543,400		2,063,550
Net income	$	1,106,088	$	1,746,647	$	3,603,715	$	3,854,889
Basic earnings per common share	$	0.78	$	1.14	$	2.50	$	2.52
Diluted earnings per common share	$	0.77	$	1.11	$	2.47	$	2.45
Dividends declared per common share	$	0.33	$	0.29	$	0.99	$	0.87
Comprehensive income	$	1,415,765	$	1,568,068	$	3,852,456	$	4,331,066

See Notes to Consolidated Condensed Financial Statements.

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,603,715		$	3,854,889
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		180,000			180,000
Depreciation		567,114			608,168
Amortization and accretion		365,131			299,099
Stock compensation		100,444			-
Deferred taxes		(191,658	)		(86,674	)
Effect of contribution to employee stock ownership plan		59,958			194,760
(Gain) on sale of foreclosed real estate and loans, net		(191,688	)		(257,083	)
Provision for impairment of available-for-sale securities & REO		82,035			679,500
Loss on disposal of equipment and other assets, net		50,836			26,796
Proceeds from sales of loans held for sale		13,024,808			14,788,927
Originations of loans held for sale		(12,848,240	)		(14,446,775	)
Change in assets and liabilities:
Accrued interest receivable		(71,426	)		(114,869	)
Prepaid expenses and other assets		7,864			(112,349	)
Accrued expenses and other liabilities		400,657			295,271
Net cash provided by operating activities		5,139,550			5,909,660

CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in loans	6,192,644		(1,122,061	)
Purchase of loans	(35,382,799	)	(21,861,220	)
Proceeds from sales of securities available-for-sale	860,900		782,000
Purchase of securities available-for-sale	(2,861,166	)	(1,810,400	)
Proceeds from maturities of securities available-for-sale	1,895,217		2,427,458
Purchase of premises and equipment and rental real estate	(2,303,203	)	(1,515,444	)
Proceeds from sale of premises and equipment	7,954		9,082
Other	700,212		645,042
Net cash (used in) investing activities	(30,890,241	)	(22,445,543	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	23,910,966		14,994,491
Net increase (decrease) in advances from borrowers for taxes and insurance	(824,787	)	(947,427	)
Net change in short-term borrowings	2,100,000		(6,000,000	)
Proceeds from other borrowed funds	24,500,000		21,000,000
Payments on other borrowings	(19,529,159	)	(10,524,194	)
Purchase of common stock for retirement	(4,494,705	)	(1,295,651	)
Dividends paid	(1,382,542	)	(1,265,847	)
Issuance of common stock	622,425		482,051
Net cash provided by financing activities	24,902,198		16,443,423
Net (decrease) in cash	(848,493	)	(92,460	)

CASH AND DUE FROM BANKS
Beginning		8,639,672		7,918,179
Ending	$	7,791,179	$	7,825,719

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors	$	6,867,872	$	5,685,852
Interest paid on borrowings		3,823,656		3,472,653
Income taxes		1,541,827		1,839,582

See Notes to Consolidated Condensed Financial Statements.

NORTH CENTRAL BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.SIGNIFICANT ACCOUNTING POLICIES

The consolidated condensed financial statements for the three and nine month periods ended September 30, 2006 and 2005 are unaudited. In the opinion of the management of North Central Bancshares, Inc. (the “Company”), these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary to present fairly these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of results that may be expected for an entire year. Certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the requirements for interim financial statements. The financial statements and notes thereto should be read in conjunction with the Company's 2005 Annual Report on Form 10-K.

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

2.EARNINGS PER SHARE

The earnings per share amounts were computed using the weighted average number of shares outstanding during the periods presented. In accordance with Statement of Position No. 93-6, Employers' Accounting for Employee Stock Ownership Plans, issued by the American Institute of Certified Public Accountants, shares owned by First Federal Savings Bank of Iowa’s Employee Stock Ownership Plan that have not been committed to be released are not considered to be outstanding for the purpose of computing earnings per share. For the three-month period ended September 30, 2006, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,420,875 and 1,437,785, respectively. For the nine-month period ended September 30, 2006, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,441,677 and 1,461,606, respectively. For the three-month period ended September 30, 2005, the weighted average number of shares outstanding for basic and diluted earnings per share computation were 1,527,761 and 1,567,743, respectively. For the nine-month period ended September 30, 2005, the weighted average number of shares outstanding for the basic and diluted earnings per share computation were 1,528,627 and 1,574,084, respectively.

3.DIVIDENDS

On August 25, 2006, the Company declared a cash dividend on its common stock, payable on October 6, 2006 to stockholders of record as of September 15, 2006, equal to $0.33 per share.

4.GOODWILL

As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets that eliminated the amortization and required a goodwill impairment test. The Company completed the goodwill impairment test during the year ended December 31, 2005 and has determined that there has been no impairment of goodwill.

As of September 30, 2006 and December 31, 2005, the Company had goodwill of $4,946,960 and $4,970,800, respectively. There was no goodwill impairment loss or amortization related to goodwill during the three and nine months ended September 30, 2006 or September 30, 2005. Goodwill declined $23,840 during the nine months ended September 30, 2006, due to the disposition of certain subsidiary assets.

5.STOCK OPTION PLAN

The Company has a share-based compensation plan, which is described below. The share-based compensation charged against income for the three and nine months ended September 30, 2006 were $12,703 and $100,444, respectively. The total income tax benefit recognized in the income statement for the share-based compensation for the three and nine months ended September 30, 2006 were $4,738 and $37,466, respectively.

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

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

On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. This Statement revised SFAS Statement No. 123, Accounting for Stock-Based Compensation, amends SFAS Statement No. 95, Statement of Cash Flows, and supersedes Accounting Principles Board (APB) Opinion No. 125, Accounting for Stock Issued to Employees. Upon adoption of SFAS No. 123(R), the Company used the modified prospective transition method. The modified prospective transition method requires that compensation expense be recorded for all non-vested options beginning with the first quarter after adoption. SFAS No. 123(R) requires that all share-based compensation now be measured at fair value and recognized as an expense in the income statement. The Company estimates the fair value of each option award on the date of grant using the Black-Scholes method. The Company uses historical data to estimate the expected term of the options granted, volatilities, and other factors. Expected volatilities are based on the historical volatility of the Company’s stock over a period of time equal to the expected lives of the options granted. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend rate is equal to the dividend rate in effect on the date of grant. The Company used the following weighted-average assumptions for grants in 2006 and 2005, respectively: dividend rates of 3.3% and 2.9%, price volatility of 21.7% and 15.3%, risk-free interest rates of 4.4% and 4.1%, and expected lives of 8 years for all periods.

A summary of option activity under the Plan as of September 30, 2006, and changes during the nine months ended September 30, 2006, is presented below:

Options	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2006		102,600		$	25.90
Granted		23,000			38.46
Exercised		(23,900	)		18.50
Forfeited or expired		-			-
Outstanding at September 30, 2006		101,700		$	30.48		6.6	$	1,030,542
Vested/exercisable at September 30, 2006		68,000		$	26.89		5.4	$	935,125

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2006 and 2005, was $8.08 and $6.59, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2006 and 2005, was $483,271 and $537,931, respectively.

A summary of the Company’s nonvested shares as of September 30, 2006, and changes during the nine months ended September 30, 2006, is presented below:

Nonvested Shares	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2006		26,500		$	5.83
Granted		23,000			8.08
Vested		(15,800	)		6.70
Forfeited		-			-
Nonvested at September 30, 2006		33,700			6.96

As of September 30, 2006, there was $204,180 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 4.0 years. The total fair value of shares vested during the nine months ended September 30, 2006, was $105,924.

The pro forma disclosures previously permitted under SFAS No. 123, Accounting for Stock-Based Compensation, are no longer an alternative to financial statement recognition. SFAS No. 123 established a fair value based method for financial accounting and reporting for stock-based employee compensation plans and for transactions in which an entity issued its equity instruments to acquire goods and services from nonemployees. However, the standard allowed compensation to continue to be measured by using the intrinsic value based method of accounting prescribed by APB No. 25, Accounting for Stock Issued to Employees, but required expanded disclosures. The Company had elected to apply the intrinsic value based method of accounting for stock options issued to employees. Accordingly, prior to January 1, 2006, no compensation cost had been recognized by the Company in its financial statements. Had compensation cost for the Plan been determined based on the grant date fair values of awards (the method described in SFAS No. 123), the approximate reported net income and earnings per common share would have been decreased to the pro forma amounts shown below:

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net income, as reported	$	1,746,647		$	3,854,889
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,742	)		(36,614	)
Pro forma net income	$	1,743,905		$	3,818,275
Earnings per common share - basic:
As reported	$	1.14		$	2.52
Pro forma		1.14			2.50
Earnings per common share - assuming dilution:
As reported	$	1.11		$	2.45
Pro forma		1.11			2.43

6.RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 is an amendment of SFAS No. 133, Accountingfor Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to interests in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instruments. SFAS No. 155 also allows an entity to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement event, on an instrument-by-instrument basis. This Statement is effective for the Company beginning on January 1, 2007. The Company does not expect this Statement to have a material effect on its financial condition or results of operations.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets. SFAS No. 156 is an amendment of SFAS No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset and requires each servicing asset or liability to be initially measured at fair value. Entities are permitted to choose the fair value measurement method or the amortization method for subsequent reporting periods. This Statement is effective for the Company beginning on January 1, 2007. The Company is assessing the impact of this pronouncement.

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, to clarify certain aspects of accounting for uncertain tax positions, including issues related to the recognition and measurement of those tax positions. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is assessing the impact of this pronouncement.

7.RECLASSIFICATIONS

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

ITEM 2.

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

EXPLANATORY NOTE

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

Executive Overview

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

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

Management believes the following points were the most important to that analysis this quarter:

• The Company has effectively managed its capital since the Company’s inception in 1996. Annual dividends per share have increased from $0.25 per share in 1997 to $1.16 per share in 2005. In 2006, the Company increased its quarterly dividend 13.8%, to $0.33 per share. An active stock repurchase program has also been consistently used by the Company to manage capital and increase earnings per share. The Company repurchased 13,000 and 115,250 shares during the three and nine months ended September 30, 2006. As of September 30, 2006, the Company has repurchased 2,900,804 shares at a cost of $58.6 million, since its inception.

• The Bank has opened new offices in market areas where population growth trends are positive. New offices were opened in Ankeny, Iowa in February 2003 and in Clive, Iowa in March 2004. In August 2006, the Bank opened its Jordan Creek Town Center office in West Des Moines, Iowa. With the opening of the West Des Moines office, the Bank has eleven full service locations, including three in the Des Moines metro area, which is Iowa’s largest metropolitan area. The Company will continue to analyze de novo branch opportunities in the Des Moines metropolitan area. Noninterest expenses have increased during the three and nine months ended September 30, 2006 and the years ended December 31, 2005, 2004 and 2003 in part due to the Company’s strategy of opening de novo branch offices. We believe that this strategy will result in loan and deposit growth for the Company, but will negatively impact net earnings until each de novo branch achieves profitability.

• On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. SFAS No. 123(R) requires that all share-based compensation now be measured at fair value and recognized as expense in the income statement. Upon adoption of SFAS No. 123(R), the Company used the modified prospective transition method. The modified prospective transition method requires that compensation expense be recorded for all non-vested options beginning with the first quarter after adoption. Share-based compensation for the three and nine months ended September 30, 2006 was $12,703 and $100,444, respectively.

• The Company’s exposure to interest rate risk has increased from the prior year. This is primarily due to the growth of interest-bearing liabilities in higher cost certificates of deposit and borrowed funds. Also contributing to the increase of the cost of funds is the shift of lower cost non-maturing deposits into higher cost short-term certificates of deposit.

• Noninterest income for the quarter ended September 30, 2006, decreased primarily due to a decrease in loan prepayment fees. During the quarter ended September 30, 2006, the Company recorded $45,000 in loan prepayment fees, compared to $705,000 for the quarter ended September 30, 2005.

• Management believes that the allowance for loan losses is adequate. The allowance for loan losses to nonaccrual loans was 545% at September 30, 2006. Net annualized chargeoffs as of September 30, 2006 were 0.02% of total loans and have averaged 0.05% of total loans for the past five years. During the nine months ended September 30, 2006, the Company’s net loan portfolio increased $27.7 million, or 6.5%. A significant portion of this increase consisted of increases in commercial real estate, multi-family real estate and consumer loans. The Company’s provision for loan losses for the three and nine months ended September 30, 2006 was $60,000 and $180,000, respectively.

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

FINANCIAL CONDITION

Total assets increased $29.3 million, or 6.0%, to $514.5 million at September 30, 2006, from $485.2 million at December 31, 2005. The increase in assets was primarily due to the increase in net loans receivable and premises and equipment, net.

Net loans receivable increased by $27.7 million, or 6.5%, to $458.0 million at September 30, 2006, from $430.3 million at December 31, 2005, primarily due to the origination of $56.1 million of first mortgage loans primarily secured by one-to-four family residences and commercial real estate; the purchase of $35.4 million of first mortgage loans secured by commercial real estate, multifamily, and one-to-four family residences; and the origination of $22.5 million of second mortgage loans during the nine months ended September 30, 2006. These purchases and originations were offset in part by payments and prepayments of $85.1 million and loan sales of $12.9 million during the nine months ended September 30, 2006. The Company sells substantially all fixed-rate loans with maturities in excess of 15 years in the secondary mortgage market in order to reduce interest rate risk. Premises and equipment, net, increased by $1.8 million, to $12.8 million at September 30, 2006, from $11.0 million at December 31, 2005. The increase in premises and equipment was primarily due to the construction costs associated with the construction of a new branch office located at the Jordan Creek Town Center in West Des Moines, Iowa and the expansion of the Crossroads branch in Fort Dodge, Iowa.

Deposits increased $23.9 million, or 7.2%, to $358.2 million at September 30, 2006, from $334.3 million at December 31, 2005, primarily reflecting an increase in certificates of deposit, offset in part by decreases in checking, NOW, savings and money market account balances. The increase in certificates of deposit is primarily due to the utilization of brokered certificates of deposit, which increased $25.8 million for the nine months ended September 30, 2006. Borrowings, primarily Federal Home Loan Bank (the “FHLB”) advances, increased $7.1 million, or 6.9%, to $109.5 million at September 30, 2006, from $102.4 million at December 31, 2005. The Company utilized the increase in deposits and borrowed funds to fund loan growth.

Total stockholders' equity decreased $1.3 million, or 2.9%, to $43.0 million at September 30, 2006, from $44.3 million at December 31, 2005, primarily due to stock repurchases and declared dividends, offset in part by earnings, the exercise of stock options, and an increase in the unrealized gain on securities available-for-sale. During the nine months ended September 30, 2006, the Company repurchased $4.5 million, or 115,250 shares, of common stock at prevailing market prices averaging $39.00 per share.

The Office of Thrift Supervision (the "OTS") requires that the Bank meet minimum tangible, leverage (core) and risk-based capital requirements. As of September 30, 2006, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of September 30, 2006 were as follows:

	Amount		Percentage of Assets
	(Dollars in thousands)
Tangible capital:
Capital level	$	35,950		7.04	%
Less Requirement		7,656		1.50	%
Excess	$	28,294		5.54	%
Core capital:
Capital level	$	35,950		7.04	%
Less Requirement		20,415		4.00	%
Excess	$	15,535		3.04	%
Risk-based capital:
Capital level	$	39,764		11.24	%
Less Requirement		28,291		8.00	%
Excess	$	11,473		3.24	%

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of funds are cash provided by operating activities (including net income), certain financing activities (including increases in deposits and proceeds from borrowings) and certain investing activities (including principal payments on loans and maturities, calls and proceeds from the sale of securities). During the first nine months of 2006 and 2005, principal payments, prepayments, and proceeds from the sale of loans totaled $98.0 million and $90.3, respectively. The net increase in deposits during the first nine months of 2006 and 2005 totaled $23.9 million and $15.0 million, respectively. The proceeds from borrowed funds during the nine months ended September 30, 2006 and 2005 totaled $24.5 million and $21.0 million, respectively. The net increase (decrease) in short term borrowings during the nine months ended September 30, 2006 and 2005 totaled $2.1 million and ($6.0) million, respectively. During the first nine months of 2006 and 2005, the proceeds from the maturities, calls and sales of securities totaled $2.8 million and $3.2 million, respectively. Cash provided from operating activities during the first nine months of 2006 and 2005 totaled $5.1 million and $5.9 million, respectively. The Company's primary use of funds is to originate and purchase loans, purchase securities available-for-sale, repay borrowed funds and other financing activities. During the first nine months of 2006 and 2005, the Company's gross purchases and origination of loans totaled $122.8 million and $111.3 million, respectively. The purchase of securities available-for-sale for the nine months ended September 30, 2006 and 2005 totaled $2.9 million and $1.8 million, respectively. The repayment of borrowed funds during the first nine months of 2006 and 2005 totaled $19.5 million and $10.5 million, respectively. For additional information about cash flows from the Company's operating, financing and investing activities, see the Consolidated Condensed Statements of Cash Flows in the Company’s financial statements included as Item 1 of this report.

OTS regulations require the Company to maintain sufficient liquidity to ensure its safe and sound operation.

The Company has a line of credit agreement in the amount of $3.0 million with an unaffiliated bank. As of September 30, 2006, there were no borrowings outstanding on this line of credit. The Company may use this line of credit to fund stock repurchases in the future and for general corporate purposes.

On July 6, 2006, the Company paid a quarterly cash dividend of $0.33 per share on common stock outstanding as of the close of business on June 16, 2006, aggregating $471,000. On August 25, 2006, the Company declared a quarterly cash dividend of $0.33 per share payable on October 6, 2006 to shareholders of record as of the close of business on September 15, 2006, aggregating $468,000.

RESULTS OF OPERATIONS

Net Income. Net income decreased by $641,000 to $1.11 million for the quarter ended September 30, 2006, compared to $1.75 million for the quarter ended September 30, 2005. Net income is an aggregate of net interest income, noninterest income, noninterest expense and income tax expense. The decrease in net income was due to decreases in noninterest income, primarily loan prepayment fees, and net interest income, and an increase in noninterest expense, offset in part by a decrease in income tax expense.

Net income decreased by $251,000 to $3.60 million for the nine months ended September 30, 2006, compared to $3.85 million for the nine months ended September 30, 2005. The decrease in net income was primarily due to an increase in noninterest expense and a decrease in net interest income, offset in part by an increase in noninterest income and a decrease in income tax expense.

Net Interest Income. Net interest income before provision for loan losses decreased by $145,000 to $3.22 million for the quarter ended September 30, 2006, from $3.36 million for the quarter ended September 30, 2005. The decrease is due to an increase in the average balance of interest-bearing liabilities and an increase in the average cost of funds, offset in part by an increase in the average balance of interest-earning assets and an increase in the yield on interest-earning assets. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.52% for the quarter ended September 30, 2006, from 2.75% for the quarter ended September 30, 2005. The decrease in interest rate spread reflects the increase in the overall cost of interest-bearing liabilities, offset in part by an increase in the yield on interest-earning assets. The increase in the cost of interest-bearing liabilities primarily reflects the repricing of interest-bearing liabilities at higher current market interest rates and the growth of interest-bearing liabilities in higher cost certificates of deposit and borrowed funds. Also contributing to the increase of the cost of funds is the continuing shift of lower cost non-maturing deposits into higher cost short-term certificates of deposit.

Net interest income before provision for loan losses decreased by $452,000 to $9.83 million for the nine months ended September 30, 2006, from $10.28 million for the nine months ended September 30, 2005. The decrease is due to an increase in the average balance of interest-bearing liabilities and an increase in the average cost of funds, offset in part by an increase in the average balance of interest-earning assets and an increase in the yield on interest-earning assets. The interest rate spread (i.e., the difference in the average yield on assets and average cost of liabilities) decreased to 2.58% for the nine months ended September 30, 2006, from 2.86% for the nine months ended September 30, 2005. The decrease in interest rate spread reflects the increase in the overall cost of interest-bearing liabilities, offset in part by an increase in the yield on interest-earning assets. The increase in the cost of interest-bearing liabilities primarily reflects the repricing of interest-bearing liabilities at higher current market interest rates and the growth of interest-bearing liabilities in higher cost certificates of deposit and borrowed funds. Also contributing to the increase of the cost of funds is the shift of lower cost non-maturing deposits into higher cost short-term certificates of deposit.

Interest Income. Interest income increased by $570,000 to $7.19 million for the quarter ended September 30, 2006, compared to $6.62 million for the quarter ended September 30, 2005. The increase in interest income was due to an increase in the average balance of interest-earning assets and an increase in the yield on interest-earning assets. The average balance of interest-earning assets increased $15.5 million to $470.6 million for the quarter ended September 30, 2006, from $455.1 million for the quarter ended September 30, 2005. The average yield on interest-earning assets increased to 6.11% for the quarter ended September 30, 2006, from 5.82% for the quarter ended September 30, 2005, primarily due to an increase in market interest rates on consumer loans and adjustable rate mortgage loans. The increase in the average balance of interest-earning assets primarily reflects increases in the average balances of first mortgage loans and consumer loans, offset in part by a decrease in securities available-for-sale. The increase in the average balance of first mortgage loans was derived from the origination and purchase of first mortgage loans secured by one-to-four family real estate, commercial real estate, and multifamily residences, which originations and purchases were offset in part by payments, prepayments, and sales of loans during the twelve months ended September 30, 2006. This reflects the Company's continued emphasis on real estate lending. The decrease in the average balance of securities available-for-sale was derived from payments and calls of securities, offset in part by purchases during the twelve months ended September 30, 2006. See “Financial Condition” above.

Interest income increased by $1.40 million to $20.92 million for the nine months ended September 30, 2006, compared to $19.52 million for the nine months ended September 30, 2005. The increase in interest income is due to an increase in the average balance of interest-earning assets and an increase in the average yield on interest-earning assets. The average balance of interest-earning assets increased $19.2 million to $464.9 million for the nine months ended September 30, 2006, from $445.7 million for 2005. The average yield on interest-earning assets increased to 6.00% for the nine months ended September 30, 2006, from 5.84% for the nine months ended September 30, 2005, primarily due to the repricing of interest-earning assets at generally higher current market interest rates. The increase in the average balance of interest-earning assets primarily reflects increases in the average balances of first mortgage loans and consumer loans, offset in part by a decrease in securities available-for-sale. The increase in the average balance of first mortgage loans was derived from the origination and purchase of first mortgage loans secured by one-to-four family residences, commercial real estate, and multifamily residences, which originations and purchases were offset in part by payments, prepayments, and sales of loans during the twelve months ended September 30, 2006. This reflects the Company's continued emphasis on residential lending. The decrease in the average balance of securities available-for-sale was derived from payments and calls of securities, offset in part by purchases during the twelve months ended September 30, 2006. See “Financial Condition” above.

Interest Expense. Interest expense increased by $715,000 to $3.98 million for the quarter ended September 30, 2006, compared to $3.26 million for the quarter ended September 30, 2005. The increase in interest expense was due to an increase in the average balance of interest-bearing liabilities and an increase in the average cost of funds. The average balance of interest-bearing liabilities increased $17.5 million to $439.8 million for the quarter ended September 30, 2006, from $422.3 million for the quarter ended September 30, 2005. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balances of certificates of deposit and borrowed funds, offset in part by decreases in NOW, money market, and savings account balances. The increase in average interest-bearing liabilities was due in part to the Company’s utilization of brokered certificates of deposit, which increased $20.2 million for the three months ended September 30, 2006. The average cost of funds increased to 3.59% for the quarter ended September 30, 2006, from 3.06% for the quarter ended September 30, 2005, due to an increase in the current market interest rates, a shift of core deposits into higher cost certificates of deposits, and an increase in certificates of deposit and borrowed funds.

Interest expense increased by $1.85 million to $11.09 million for the nine months ended September 30, 2006, compared to $9.24 million for the nine months ended September 30, 2005. The increase in interest expense was due to an increase in the average balance of interest-bearing liabilities and an increase in the average cost of funds. The average balance of interest-bearing liabilities increased $19.3 million to $433.6 million for the nine months ended September 30, 2006, from $414.3 million for the nine months ended September 30, 2005. The increase in the average balance of interest-bearing liabilities primarily reflects an increase in the average balances of certificates of deposit and borrowed funds, offset in part by decreases in NOW, money market and savings balances. The increase in average interest-bearing liabilities was due in part to the Company’s utilization of brokered certificates of deposit, which increased $25.8 million for the nine months ended September 30, 2006. The average cost of funds increased to 3.42% for the nine months ended September 30, 2006, from 2.98% for the nine months ended September 30, 2005, due to an increase in the current market rates, a shift of core deposits into higher cost certificates of deposit, and an increase in certificates of deposit and borrowed funds.

The following table sets forth certain information relating to the Company's average balance sheets and reflects the average yield on assets and average cost of liabilities for the three months and nine months ended September 30, 2006 and 2005, respectively.

	For the Three Months Ended September 30,
	2006							2005
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	448,778	$	6,943		6.19	%	$	431,631	$	6,407		5.94	%
Securities available-for-sale		21,117		243		4.59			22,315		210		3.76
Interest-bearing cash		722		8		4.65			1,114		7		2.58
Total interest-earning assets		470,617		7,194		6.11	%		455,060	$	6,624		5.82	%
Noninterest-earning assets		30,398							28,879
Total assets	$	501,015						$	483,939
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings	$	83,511	$	272		1.29	%	$	95,791	$	285		1.18	%
Passbook savings		25,939		22		0.33			28,666		23		0.32
Certificates of deposit		222,298		2,385		4.26			192,909		1,729		3.56
Borrowed funds		108,015		1,297		4.76			104,899		1,224		4.63
Total interest-bearing liabilities		439,763	$	3,976		3.59	%		422,265	$	3,261		3.06	%
Noninterest-bearing liabilities		18,605							17,608
Total liabilities		458,368							439,873
Equity		42,647							44,066
Total liabilities and equity	$	501,015						$	483,939
Net interest income			$	3,218						$	3,363
Net interest rate spread						2.52	%						2.75	%
Net interest margin						2.74	%						2.96	%
Ratio of average interest-earning assets to average interest-bearing liabilities						107.02	%						107.77	%

	For the Nine Months Ended September 30,
	2006							2005
	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	442,462	$	20,167		6.08	%	$	421,470	$	18,806		5.95	%
Securities available-for-sale		21,400		718		4.47			22,934		690		4.01
Interest-bearing cash		1,067		34		4.23			1,279		24		2.55
Total interest-earning assets		464,929		20,919		6.00	%		445,683	$	19,520		5.84	%
Noninterest-earning assets		29,314							28,795
Total assets	$	494,243						$	474,478
Liabilities and Equity:
Interest-bearing liabilities:
NOW and money market savings	$	86,231	$	785		1.22	%	$	96,860	$	792		1.09	%
Passbook savings		26,734		64		0.32			29,133		68		0.31
Certificates of deposit		212,305		6,417		4.04			187,174		4,907		3.50
Borrowed funds		108,314		3,824		4.72			101,110		3,472		4.59
Total interest-bearing liabilities		433,584	$	11,090		3.42	%		414,277	$	9,239		2.98	%
Noninterest-bearing liabilities		17,751							17,103
Total liabilities		451,335							431,380
Equity		42,908							43,098
Total liabilities and equity	$	494,243						$	474,478
Net interest income			$	9,829						$	10,281
Net interest rate spread						2.58	%						2.86	%
Net interest margin						2.82	%						3.08	%
Ratio of average interest-earning assets to average interest-bearing liabilities						107.23	%						107.58	%

Provision for Loan Losses. The Company's provision for loan losses was $60,000 for each of the quarters ended September 30, 2006 and 2005. The Company’s provision for loan losses was $180,000 for each of the nine months ended September 30, 2006 and 2005. The Company establishes provisions for loan losses, which are charged to operations, in order to maintain the allowance for loan losses at a level which is deemed to be appropriate based upon an assessment of prior loss experience, industry standards, past due loans, economic conditions, the volume and type of loans in the Company's portfolio, and other factors related to the collectibility of the Company's loan portfolio. The Company’s total loan portfolio increased $22.9 million, or 5.2%, from September 30, 2005 to September 30, 2006. This increase primarily consisted of increases in commercial and one-to-four family real estate loans. The Company’s out-of-state loans decreased $5.0 million, or 3.4%, from September 30, 2005 to September 30, 2006. The properties securing the loans purchased are primarily out of state and constitute a higher rate of risk than originated loans due to the size, locations and type of collateral securing such loans. The economic conditions in the Bank’s primary market areas remain stable. The net charge-offs were $63,000 for the nine months ended September 30, 2006, compared to $98,000 for the nine months ended September 30, 2005. The resulting allowance for loan loss was $3.4 million and $3.3 million at September 30, 2006 and September 30, 2005, respectively.

The allowance for loan losses as a percentage of total loans receivable decreased to 0.74% at September 30, 2006 from 0.75% at September 30, 2005. The level of nonperforming loans was $632,000 at September 30, 2006 and $870,000 at September 30, 2005.

Management believes that the allowance for loan losses is adequate as of September 30, 2006. While management estimates loan losses using the best available information, such as independent appraisals for significant collateral properties, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans, and other factors, both within and outside of management's control.

Noninterest Income. Total noninterest income decreased by $794,000, or 32.8%, to $1.62 million for the quarter ended September 30, 2006, from $2.42 million for the quarter ended September 30, 2005. The decrease in noninterest income was primarily due to a decrease in fees and service charges, including loan prepayment fees. During the quarter ended September 30, 2006, the Company recorded $45,000 in loan prepayment fees, compared to $705,000 for the quarter ended September 30, 2005. The decrease in noninterest income was also due to decreases in abstract fees and other noninterest income. Abstract fees decreased $92,000, primarily due to the sale of one of the Company’s three abstract offices at the end of the second quarter of 2006.

Total noninterest income increased by $421,000, or 8.6%, to $5.32 million for the nine months ended September 30, 2006, from $4.90 million for the nine months ended September 30, 2005. The increase in noninterest income was primarily due to an impairment of securities available-for-sale recognized during the nine months ended September 30, 2005. During the nine months ended September 30, 2005, the Company recorded an other-than-temporary impairment of $679,500 related to three Freddie Mac adjustable rate, perpetual preferred stocks with a face value of $3,499,000, due to the facts and circumstances surrounding these securities at the time, including the duration and amount of the unrealized loss in the securities, as well as the prospect for a change in market value within a reasonable period of time. These perpetual preferred stock issues are investment grade securities that are held in the Company’s available-for-sale securities portfolio. The increase was offset in part by decreases in fees and service charges, including loan prepayment fees, mortgage banking income, and abstract fees. Fees and service charges decreased $153,000 primarily due to a decrease in loan prepayment fees, offset in part by an increase in fees associated with checking accounts, including overdraft fees. During the nine months ended September 30, 2006, the Company recorded $489,000 in loan prepayment fees, compared to $922,000 for the nine months ended September 30, 2005. Mortgage banking income decreased $45,000 due to a decline in loans originated for the secondary market. Abstract fees decreased $26,000 due in part to the sale of one of the Company’s three abstract offices at the end of the second quarter of 2006.

Noninterest Expense. Total noninterest expense increased by $94,000, or 3.0%, to $3.23 million for the quarter ended September 30, 2006, from $3.14 million for the quarter ended September 30, 2005. The increase is primarily due to an increase in other operating expenses. The Company's efficiency ratio for the quarter ended September 30, 2006 and 2005, was 66.70% and 54.24%, respectively. The Company's ratio of noninterest expense to average assets for the quarters ended September 30, 2006 and 2005 was 2.58% and 2.59%, respectively.

Total noninterest expense increased by $741,000, or 8.2%, to $9.82 million for the nine months ended September 30, 2006, from $9.08 million for the nine months ended September 30, 2005. The increase is primarily due to an increase in compensation, other operating expenses, premises and equipment expenses, and data processing expenses. The Company's efficiency ratio for the nine months ended September 30, 2006 and 2005, was 64.84% and 59.83%, respectively. The Company's ratio of noninterest expense to average assets for the nine months ended September 30, 2006 and 2005 was 2.65% and 2.55%, respectively.

Income Taxes. Income taxes decreased by $393,000 to $446,000 for the quarter ended September 30, 2006, compared to $839,000 for the quarter ended September 30, 2005. The decrease was primarily due to the decrease in income before income taxes.

Income taxes decreased by $520,000 to $1.54 million for the nine months ended September 30, 2006, compared to $2.06 million for the nine months ended September 30, 2005. The decrease was primarily due to the limited deductibility of the other-than-temporary impairment of securities available-for-sale in 2005. The decrease was also due to the decrease in income before income taxes.

OFF BALANCE SHEET ARRANGEMENTS

The Company is a party to off balance sheet arrangements 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 Company uses the same credit policies in making commitments and conditional obligations as it does for on-statement of financial condition instruments. The Company does require collateral or other security to support financial instruments with credit risks. No material changes in the Company's off-statement of financial condition arrangements have occurred since December 31, 2005.

CRITICAL ACCOUNTING POLICIES

The section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures included within this report, are based on the Company’s 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 critical accounting policies are described in the Company’s 2005 Annual Report on Form 10-K in the “Notes to Consolidated Financial Statements.” Management, based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments, has identified the Company’s most critical accounting policies to be that related to the allowance for loan losses and asset impairment judgments, including the recoverability of goodwill.

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

Asset impairment judgments include evaluating the decline in fair value of held-to-maturity and available-for-sale securities below their cost. Declines in fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In management's opinion, there has not been a material change in the Company’s market risk profile since December 31, 2005. Please see the Company’s 2005 Annual Report on Form 10-K for a more detailed discussion of the Company’s interest rate sensitivity analysis.

ITEM 4.

CONTROLS AND PROCEDURES

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

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Company believes that these routine legal proceedings, in the aggregate, are immaterial to its financial condition and results of operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed on the Company’s 2005 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In March 2006, the Company approved a new Stock Repurchase Plan which provides for the repurchase of up to 100,000 shares of the Company’s common stock. At September 30, 2006, there were 84,750 shares which could be purchased under the plan.

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchases” (as defined in rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended September 30, 2006.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Maximum Number of Shares that May Yet Be Purchased Under The Plan
July 1, 2006 to July 31, 2006		-		-		-		97,750
August 1, 2006 to August 31, 2006		9,000	$	39.95		9,000		88,750
September 1, 2006 to September 30, 2006		4,000	$	40.00		4,000		84,750
Total		13,000				13,000

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

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

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

(2) Incorporated herein by reference to the Exhibits to the Annual Report on Form 10-K of the Registrant filed with the Commission on March 22, 2004.

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

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

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

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

(7) Incorporated herein by reference to the Annual Report on Form 10-K of the Registrant filed with the Commission on March 31, 2006.

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

(9) Incorporated herein by reference to the Proxy Statement on Schedule 14A of the Registrant filed with the Commission on March 20, 2006.

(10) Incorporated herein by reference to the Exhibits to the Form 10-Q of the Registrant filed with the Commission on August 11, 2006.

SIGNATURES

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

		NORTH CENTRAL BANCSHARES, INC.
DATE:	November 10, 2006
		By:	/s/ David M. Bradley
			David M. Bradley, Chairman, President and Chief Executive Officer
DATE:	November 10, 2006
		By:	/s/ David W. Edge
			David W. Edge, Chief Financial Officer and Treasurer