UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


___________________________





FORM
10-K





[X]
            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2008          OR[   ]
            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




Commission
File Number:  0-23406





SOUTHERN MISSOURI BANCORP, INC.


(Exact
name of small business issuer as specified in its charter)





Missouri
              (State
      or other jurisdiction of incorporation or organization)
            
            43-1665523
              (I.R.S.
      Employer Identification No.)531 Vine Street, Poplar Bluff, Missouri
              (Address
      of principal executive offices)
            
            63901
              (Zip
      Code)





Registrant's
telephone number, including area code:  (573)
778-1800





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
      registered pursuant to Section 12(g)of the Act:
            Common Stock, par
      value $0.01 per share
              (Title of
    Class)





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


YES __   NO X





Indicate
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 X





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 markwhether 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 the registrant's knowledge, in
definitive proxy or other information statements incorporated by reference in
Part III of this Form 10-K or any amendments to this Form 10-K.





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 definition
of "large accelerated filer," "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.




Large accelerated
      filer    o
            
            Accelerated
      filer   oNon-accelerated
      filer  o  (Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company   x




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


YES __   NO X





The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the bid and asked price of
such stock as of the last business day of the registrant's most recently
completed second fiscal quarter, was $23.4 million.  (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)





As of
September 12, 2008, there were issued and outstanding 2,210,833 shares of the
Registrant's common stock.





DOCUMENTS
INCORPORATED BY REFERENCE





Part II
of Form 10-K – Annual Report to Stockholders for the fiscal year ended June 30,
2008.


Part III
of Form 10-K – Portions of the Proxy Statement for the 2008 Annual Meeting of
Stockholders.





PART
I





Item
1.    Description of
Business





General





Southern
Missouri Bancorp, Inc. ("Company"), which changed its state of incorporation to
Missouri on April 1, 1999, was originally incorporated in Delaware on
December 30, 1993 for the purpose of becoming the holding company for Southern
Missouri Savings Bank upon completion of Southern Missouri Savings Bank's
conversion from a state chartered mutual savings and loan association to a state
chartered stock savings bank.  As part of the conversion in April
1994, the Company sold 1,803,201 shares of its common stock to the
public.  The Company's Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations ("NASDAQ") National
Market System under the symbol "SMBC".





Southern
Missouri Savings Bank was originally chartered as a mutual Missouri savings and
loan association in 1887.  On June 20, 1995, it converted to a
federally chartered stock savings bank and took the name Southern Missouri
Savings Bank, FSB.  On February 17, 1998, Southern Missouri Savings
Bank converted from a federally chartered stock savings bank to a Missouri
chartered stock savings bank and changed its name to Southern Missouri Bank
& Trust Co.  On June 4, 2004, Southern Missouri Bank & Trust
Co. ("Bank") converted from a Missouri chartered stock savings bank to a
Missouri state chartered trust company with banking powers ("Charter
Conversion").





The
primary regulator of the Bank is the Missouri Division of
Finance.  The Bank's deposits continue to be insured up to applicable
limits by the Deposit Insurance Fund ("DIF") of the Federal Deposit Insurance
Corporation ("FDIC").  With the Bank's conversion to a trust company
with banking powers, the Company became a bank holding company regulated by the
Federal Reserve Board ("FRB").





The
principal business of the Bank consists primarily of attracting retail deposits
from the general public and using such deposits along with wholesale funding
from the Federal Home Loan Bank of Des Moines ("FHLB"), and to a lesser extent,
brokered deposits, to invest in one- to four-family residential mortgage loans,
mortgage loans secured by commercial real estate, commercial non-mortgage
business loans and consumer loans.  These funds are also used to
purchase mortgage-backed and related securities ("MBS"), U.S. Government Agency
obligations and other permissible investments.





At June
30, 2008, the Company had total assets of $417.8 million, total deposits of
$292.3 million and stockholders' equity of $30.5 million.  The Company
has not engaged in any significant activity other than holding the stock of the
Bank.  Accordingly, the information set forth in this report,
including financial statements and related data, relates primarily to the
Bank.  The Company's revenues are derived principally from interest
earned on loans, investment securities, MBS, CMO's and, to a lesser extent,
banking service charges, loan late charges, increases in the cash surrender
value of bank owned life insurance and other fee income.





2


Forward
Looking Statements





This
document, including information incorporated by reference, contains
forward-looking statements about the Company and its subsidiaries which we
believe are within the meaning of the Private Securities Litigation Reform Act
of 1995.  These forward-looking statements include, without
limitation, statements with respect to anticipated future operating and
financial performance, growth opportunities, interest rates, cost savings and
funding advantages expected or anticipated to be realized by
management.  Words such as "may," "could," "should," "would,"
"believe," "anticipate," "estimate," "expect," "intend," "plan" and similar
expressions are intended to identify these forward-looking
statements.  Forward-looking statements by the Company and its
management are based on beliefs, plans, objectives, goals, expectations,
anticipations, estimates and the intentions of management and are not guarantees
of future performance.  The Company disclaims any obligation to update
or revise any forward-looking statements based on the occurrence of future
events, the receipt of new information, or otherwise. The important factors we
discuss below, as well as other factors discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and identified in our filings with the SEC and those presented
elsewhere by our management from time to time, could cause actual results to
differ materially from those indicated by the forward-looking statements made in
this document:





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





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





·
            inflation,
      interest rate, market and monetary
fluctuations;





·
            the  timely
      development of and acceptance of our 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 our products and services for products
      and services of our competitors;





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





·
            the
      impact of technological changes;





·
            acquisitions;





·
            changes
      in consumer spending and saving habits;
and





·
            our
      success at managing the risks involved in the
  foregoing.





The
Company disclaims any obligation to update or revise any forward-looking
statements based on the occurrence of future events, the receipt of new
information, or otherwise.





Market
Area





The Bank
provides its customers with a full array of community banking services and
conducts its business from its headquarters in Poplar Bluff and seven additional
full service offices located in Poplar Bluff, Van Buren, Dexter, Kennett,
Doniphan, Sikeston, and Qulin, Missouri.  The Bank's primary market
area includes all or portions of Butler, Carter, Dunklin, Ripley, Stoddard,
Scott, Mississippi, New Madrid, Wayne, and Pemiscot Counties in Missouri, and
Mississippi and Clay Counties in Arkansas.  The Bank's market area has
a population of approximately 200,000.  The largest employers in the
Bank's primary market area are the Poplar Bluff Regional Medial Center,
employing approximately 1,500 persons, and Briggs & Stratton, a small engine
manufacturing facility employing approximately 1,300 persons.  Other
major employers include Noranda Aluminum, Visiting Nurse Association, Good
Humor-Breyers, Gates Rubber, John Pershing VA Hospital, Nordyne, the Poplar
Bluff School District, the Missouri Delta Medical Center, Wal-Mart Stores,
Mid-Continent Nail, Tyson Foods, and ArvinMeritor.  The Bank's market
area is primarily rural in nature and relies heavily on the manufacturing
industries and agriculture, with products including livestock, rice, timber,
soybeans, wheat, melons, corn and cotton.






3






Competition





The Bank
faces strong competition in attracting deposits (its primary source of lendable
funds) and originating loans.  The Bank is one of 27 financial
institution groups located in its primary market area.  Competitors
for deposits include commercial banks, credit unions, money market funds, and
other investment alternatives, such as mutual funds, full service and discount
broker-dealers, equity markets, brokerage accounts and government
securities.  The Bank's competition for loans comes principally from
other financial institutions, mortgage banking companies, mortgage brokers and
life insurance companies.  The Bank expects competition to continue to
increase in the future as a result of legislative, regulatory and technological
changes within the financial services industry.  Technological
advances, for example, have lowered barriers to market entry, allowed banks to
expand their geographic reach by providing services over the Internet and made
it possible for non-depository institutions to offer products and services that
traditionally have been provided by banks.  The Gramm-Leach-Bliley
Act, which permits affiliation among banks, securities firms and insurance
companies, also has changed the competitive environment in which the Bank
conducts business.





Internet
Website





Bancorp
maintains a website at www.smbtonline.com. The information contained on that
website is not included as part of, or incorporated by reference into, this
Annual Report on Form 10-K. Bancorp currently makes available on or through its
website Bancorp's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K or amendments to these reports. These materials are
also available free of charge on the Securities and Exchange Commission's
website at www.sec.gov.





Selected
Consolidated Financial Information





This
information is incorporated by reference from pages 9 and 10 of the 2008 Annual
Report to Stockholders attached hereto as Exhibit 13 ("Annual
Report").





Yields
Earned and Rates Paid





This
information contained under the section captioned "Yields Earned and Rates Paid"
is incorporated herein by reference from page 18 of the Annual
Report.





Rate/Volume
Analysis





This
information is incorporated by reference from page 18 of the Annual
Report.





Average
Balance, Interest and Average Yields and Rates





This
information contained under the section captioned "Average Balance, Interest and
Average Yields and Rates" is incorporated herein by reference from pages 16 and
17 of the Annual Report.


4


Lending
Activities





General.  The
Bank's lending activities consist of origination of loans secured by mortgages
on one- to four-family residences and commercial real estate, construction loans
on residential and commercial properties, commercial business loans and consumer
loans.  The Bank has also occasionally purchased loan participation
interests originated by other lenders and secured by properties generally
located in the State of Missouri.





Supervision
of the loan portfolio is the responsibility of William D. Hribovsek, Chief
Lending Officer.  Loan officers have varying amounts of lending
authority depending upon experience and types of loans.  Loans beyond
their authority are presented to the Loan Officers Committee, comprised of
President Greg Steffens and Chief Lending Officer William D. Hribovsek, along
with various appointed loan officers.  Loans to one borrower (or group
of related borrowers), in aggregate, in excess of $750,000 require the approval
of a majority of the Discount Committee, which consists of all Bank directors,
prior to the closing of the loan.  All loans are subject to
ratification by the full Board of Directors.





The
aggregate amount of loans that the Bank is permitted to make under applicable
federal regulations to any one borrower, including related entities, or the
aggregate amount that the Bank could have invested in any one real estate
project, is based on the Bank's capital levels.  See "Regulation -
Loans to One Borrower."  At June 30, 2008, the maximum amount which
the Bank could lend to any one borrower and the borrower's related entities was
approximately $9.6 million.  At June 30, 2008, the Bank's five largest
extensions of credit to one entity ranged from $6.3 million to $8.6 million, net
of participation interests sold.  The majority of these credits were
commercial, commercial real estate, or multi-family real estate loans and all of
them were performing according to their terms.





5


Loan Portfolio
Analysis.  The following table sets forth the composition of
the Bank's loan portfolio by type of loan and type of security as of the dates
indicated.





At June 30,2008
            
            
            2007
            
            
            2006Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars in thousands)Type of Loan:Mortgage Loans:Residential
      real estate
            
            $
            149,340
            
            
            
            43.53
            %
            
            $
            135,288
            
            
            
            43.35
            %
            
            $
            127,205
            
            
            
            45.28
            %Commercial real estate
            
            
            85,860
            
            
            
            25.03
            
            
            
            77,723
            
            
            
            24.91
            
            
            
            65,374
            
            
            
            23.27Construction
            
            
            13,945
            
            
            
            4.06
            
            
            
            7,981
            
            
            
            2.56
            
            
            
            10,868
            
            
            
            3.87Total mortgage loans
            
            $
            249,145
            
            
            
            72.62
            
            
            $
            220,992
            
            
            
            70.82
            
            
            $
            203,447
            
            
            
            72.42Other Loans:Automobile loans
            
            
            8,872
            
            
            
            2.59
            
            
            
            9,462
            
            
            
            3.03
            
            
            
            10,428
            
            
            
            3.71Commercial business
            
            
            81,575
            
            
            
            23.78
            
            
            
            76,053
            
            
            
            24.37
            
            
            
            65,109
            
            
            
            23.18Home equity
            
            
            8,213
            
            
            
            2.39
            
            
            
            6,548
            
            
            
            2.10
            
            
            
            7,007
            
            
            
            2.49Other
            
            
            4,439
            
            
            
            1.29
            
            
            
            3,407
            
            
            
            1.09
            
            
            
            2,671
            
            
            
            0.95Total other loans
            
            
            103,099
            
            
            
            30.05
            
            
            
            95,470
            
            
            
            30.59
            
            
            
            85,215
            
            
            
            30.33Total loans
            
            $
            352,244
            
            
            
            102.67
            
            
            $
            316,462
            
            
            
            101.41
            
            
            $
            288,662
            
            
            
            102.75Less:Undisbursed loans in process
            
            $
            5,668
            
            
            
            1.65
            
            
            $
            1,913
            
            
            
            0.61
            
            
            $
            5,738
            
            
            
            2.04Deferred fees and discounts
            
            
            (61
            )
            
            
            (0.02
            )
            
            
            (52
            )
            
            
            (0.02
            )
            
            
            (65
            )
            
            
            (0.02
            )Allowance for loan losses
            
            
            3,567
            
            
            
            1.04
            
            
            
            2,538
            
            
            
            0.81
            
            
            
            2,058
            
            
            
            0.73Net loans receivable
            
            $
            343,070
            
            
            
            100.00
            %
            
            $
            312,063
            
            
            
            100.00
            %
            
            $
            280,931
            
            
            
            100.00
            %Type of Security:Residential real estateOne-to four-family
            
            $
            154,403
            
            
            
            45.01
            %
            
            $
            137,289
            
            
            
            43.99
            %
            
            $
            134,111
            
            
            
            47.74
            %Multi-family
            
            
            22,971
            
            
            
            6.70
            
            
            
            6,205
            
            
            
            1.99
            
            
            
            1,571
            
            
            
            0.56Commercial real estate
            
            
            58,365
            
            
            
            17.01
            
            
            
            63,139
            
            
            
            20.23
            
            
            
            54,544
            
            
            
            19.41Land
            
            
            24,891
            
            
            
            7.26
            
            
            
            16,187
            
            
            
            5.19
            
            
            
            14,177
            
            
            
            5.04Commercial
            
            
            68,379
            
            
            
            19.93
            
            
            
            74,226
            
            
            
            23.79
            
            
            
            64,153
            
            
            
            22.84Consumer and other
            
            
            23,235
            
            
            
            6.77
            
            
            
            19,416
            
            
            
            6.22
            
            
            
            20,106
            
            
            
            7.16Total loans
            
            $
            352,244
            
            
            
            102.67
            
            
            $
            316,462
            
            
            
            101.41
            
            
            $
            288,662
            
            
            
            102.75Less:Undisbursed loans in process
            
            $
            5,668
            
            
            
            1.65
            
            
            $
            1,913
            
            
            
            2.04
            
            
            $
            5,738
            
            
            
            2.04Deferred fees and discounts
            
            
            (61
            )
            
            
            (0.02
            )
            
            
            (52
            )
            
            
            (0.02
            )
            
            
            (65
            )
            
            
            (0.02
            )Allowance for loan losses
            
            
            3,567
            
            
            
            1.04
            
            
            
            2,538
            
            
            
            0.81
            
            
            
            2,058
            
            
            
            0.73Net loans receivable
            
            $
            343,070
            
            
            
            100.00
            %
            
            $
            312,063
            
            
            
            100.00
            %
            
            $
            280,931
            
            
            
            100.00
            %








6


The
following table shows the fixedand
adjustable rate composition of the Bank's loan portfolio at the dates
indicated.





At June 30,2008
            
            
            2007
            
            
            2006Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars in thousands)Type of Loan:Fixed-Rate Loans:Residential
      real estate
            
            $
            108,052
            
            
            
            31.50
            %
            
            $
            97,922
            
            
            
            31.38
            %
            
            $
            88,261
            
            
            
            31.42
            %Commercial real estate
            
            
            63,983
            
            
            
            18.65
            
            
            
            46,410
            
            
            
            14.87
            
            
            
            25,667
            
            
            
            9.13Construction
            
            
            13,005
            
            
            
            3.79
            
            
            
            5,329
            
            
            
            1.71
            
            
            
            6,536
            
            
            
            2.33Consumer
            
            
            13,280
            
            
            
            3.87
            
            
            
            12,821
            
            
            
            4.11
            
            
            
            13,059
            
            
            
            4.65Commercial business
            
            
            59,796
            
            
            
            17.43
            
            
            
            40,167
            
            
            
            12.87
            
            
            
            25,315
            
            
            
            9.01Total fixed-rate loans
            
            
            258,116
            
            
            
            75.24
            
            
            
            202,649
            
            
            
            64.94
            
            
            
            158,838
            
            
            
            56.54Adjustable-Rate Loans:Residential
      real estate
            
            
            41,288
            
            
            
            12.03
            
            
            
            37,366
            
            
            
            11.98
            
            
            
            38,944
            
            
            
            13.86Commercial real estate
            
            
            21,877
            
            
            
            6.38
            
            
            
            31,313
            
            
            
            10.03
            
            
            
            39,706
            
            
            
            14.13Construction
            
            
            940
            
            
            
            0.27
            
            
            
            2,652
            
            
            
            0.85
            
            
            
            4,333
            
            
            
            1.54Consumer
            
            
            8,244
            
            
            
            2.40
            
            
            
            6,595
            
            
            
            2.11
            
            
            
            7,047
            
            
            
            2.51Commercial business
            
            
            21,779
            
            
            
            6.35
            
            
            
            35,887
            
            
            
            11.50
            
            
            
            39,794
            
            
            
            14.17Total adjustable-rate loans
            
            
            94,128
            
            
            
            27.43
            
            
            
            113,813
            
            
            
            36.47
            
            
            
            129,824
            
            
            
            46.21Total Loans
            
            
            352,244
            
            
            
            102.67
            
            
            
            316,462
            
            
            
            101.41
            
            
            
            288,662
            
            
            
            102.75Less:Undisbursed loans in process
            
            
            5,668
            
            
            
            1.65
            
            
            
            1,913
            
            
            
            0.61
            
            
            
            5,738
            
            
            
            2.04Net deferred loan fees
            
            
            (61
            )
            
            
            (0.02
            )
            
            
            (52
            )
            
            
            (0.02
            )
            
            
            (65
            )
            
            
            (0.02
            )Allowance for loan loss
            
            
            3,567
            
            
            
            1.04
            
            
            
            2,538
            
            
            
            0.81
            
            
            
            2,058
            
            
            
            0.73Net
      loans receivable
            
            $
            343,070
            
            
            
            100.00
            %
            
            $
            312,063
            
            
            
            100.00
            %
            
            $
            280,931
            
            
            
            100.00
            %











One- to Four-Family
Residential Mortgage Lending.  The Bank actively
originates loans for the acquisition or refinance of one- to four-family
residences.  These loansare
originated as a result of customer and real estate agent referrals, existing and
walk-in customers and from responses to the Bank's marketing
campaigns.  At June 30, 2008, net mortgage loans secured by one- to
four-family residences totaled $136.7 million, or 39.9% of net loans
receivable.





The Bank
currently offers both fixed-rate and adjustable-rate mortgage ("ARM")
loans.  During the year ended June 30, 2008, the Bank originated $9.9
million of ARM loans and $22.0 million of fixed-rate loans that were secured by
one- to four-family residences.  Substantially all of the one- to
four-family residential mortgage originations in the Bank's portfolio are
located within the Bank's primary market area.





The Bank
generally originates one- to four-family residential mortgage loans in amounts
up to 90% of the lower of the purchase price or appraised value of residential
property.  For loans originated in excess of 80%, the Bank charges an
additional 37.5 basis points, but does not require private mortgage
insurance.  The majority of new residential mortgage loans originated
by the Bank conform to secondary market standards.  The interest rates
charged on these loans are competitively priced based on local market
conditions, the availability of funding, and anticipated profit
margins.  Fixed and ARM loans originated by the Bank are amortized
over periods as long as 30 years, but typically are repaid over shorter
periods.





Fixed-rate
loans secured by one- to four-family residences have contractual maturities up
to 30 years, and are generally fully amortizing with payments due
monthly.  These loans normally remain outstanding for a substantially
shorter period of time because of refinancing and other
prepayments.  A significant change in the interest rate environment
can alter the average life of a residential loan portfolio.  The one-
to four-family fixed-rate loans do not contain prepayment
penalties.  Most are written using secondary market
guidelines.  At June 30, 2008, one- to four-family loans with a fixed
rate totaled $98.6 million, and had a weighted-average maturity of 207
months.






7






The Bank
currently originates ARM loans, which adjust annually, after an initial period
of one, three or five years.  Typically, originated ARM loans secured
by owner occupied properties reprice at a margin of 2.75% to 3.00% over the
weekly average yield on United States Treasury securities adjusted to a constant
maturity of one year ("CMT").  Generally, ARM loans secured by
non-owner occupied residential properties reprice at a margin of 3.75% over the
CMT index.  Current residential ARM loan originations are subject to
annual and lifetime interest rate caps and floors.  As a consequence
of using interest rate caps, discounted initial rates and a "CMT" loan index,
the interest earned on the Bank's ARMs will react differently to changing
interest rates than the Bank's cost of funds.   At June 30, 2008,
loans tied to the CMT index totaled $35.1 million.





Until
1999, most of the owner occupied residential loans originated by the Bank
repriced annually at a margin of 2.50% or 2.75% over the 11th district cost of
funds index or the Bank's internal cost of funds, while non-owner occupied
residential loans typically repriced at a margin of 3.00% to 3.75% over these
same indices.  The maximum annual interest rate adjustment on these
ARMs was typically limited to a 1.00% to 2.00% adjustment, while the maximum
lifetime adjustment was generally limited to 5.00% to
6.00%.  Generally, each of these indices are considered a "lagging"
index because they adjust more slowly to changes in market interest rates than
most other indices.  At June 30, 2008, loans tied to these
indices totaled $3.3 million.





In
underwriting one- to four-family residential real estate loans, the Bank
evaluates the borrower's ability to meet debt service requirements at current as
well as fully indexed rates for ARM loans, as well as the value of the property
securing the loan.  During fiscal 2008, most properties securing real
estate loans made by the Bank had appraisals performed on them by independent
fee appraisers approved and qualified by the Board of Directors.  The
Bank generally requires borrowers to obtain title insurance and fire, property
and flood insurance (if indicated) in an amount not less than the amount of the
loan.  Real estate loans originated by the Bank generally contain a
"due on sale" clause allowing the Bank to declare the unpaid principal balance
due and payable upon the sale of the security property.





Commercial Real
Estate Lending.  The Bank actively originates loans secured by
commercial real estate including land (improved and unimproved), strip shopping
centers, retail establishments and other businesses generally located in the
Bank's primary market area.  At June 30, 2008, the Bank had $85.9
million in commercial real estate loans, which represented 25.0% of net loans
receivable.





Commercial
real estate loans originated by the Bank generally are based on amortization
schedules of up to 20 years with monthly principal and interest
payments.  Generally, the interest rate received on these loans is
fixed for a maturity for up to five years, with a balloon payment due at
maturity.  Alternatively, for some loans, the interest rate adjusts at
least annually after an initial period up to five years, based upon the Wall
Street prime rate or the one year CMT.  The Bank’s fixed-rate
commercial real estate portfolio has a weighted average maturity of 34.7
months.  Variable rate commercial real estate originations typically
adjust daily, monthly, quarterly or annually based on the Wall Street prime
rate.  Generally, improved commercial real estate loan amounts do not
exceed 80% of the lower of the appraised value or the purchase price of the
secured property.  Before credit is extended, the Bank analyzes the
financial condition of the borrower, the borrower's credit history, and the
reliability and predictability of the cash flow generated by the property and
the value of the property itself.  Generally, personal guarantees are
obtained from the borrower in addition to obtaining the secured property as
collateral for such loans.  The Bank also generally requires
appraisals on properties securing commercial real estate to be performed by a
Board-approved independent certified fee appraiser.





Generally,
loans secured by commercial real estate involve a greater degree of credit risk
than one- to four-family residential mortgage loans.  These loans
typically involve large balances to single borrowers or groups of related
borrowers.  Because payments on loans secured by commercial real
estate are often dependent on the successful operation or management of the
secured property, repayment of such loans may be subject to adverse conditions
in the real estate market or the economy.  See "Asset
Quality."





Construction
Lending.  The Bank originates real estate loans secured by
property or land that is under construction or development.  At June
30, 2008, the Bank had $13.9 million, or 4.1% of net loans receivable in
construction loans outstanding.


8





Construction
loans originated by the Bank are generally secured by permanent mortgage loans
for the construction of owner occupied residential real estate or to finance
speculative construction secured by residential real estate, land development or
owner-operated commercial real estate.  At June 30, 2008, the Bank had
$13.9 million in construction loans, $5.6 million of which were secured by one-
to four-family residential real estate (of which $2.1 million was for
speculative construction), $1.6 million of which were secured by commercial real
estate and $5.7 million of which were secured by multi-family real
estate.  An additional $1.0 million is secured by an assignment of a
lease agreement between the borrower/builder and a local government
entity.  The Bank’s increase in construction loans is primarily due to
one multi-family development with an outstanding balance of $1.6 million and
undisbursed commitments of $3.4 million.  During construction, these
loans typically require monthly interest-only payments and have maturities
ranging from 6 to 12 months. Once construction is completed, permanent
construction loans are converted to monthly payments using amortization
schedules of up to 30 years on residential and up to 20 years on commercial real
estate.





Speculative
construction and land development lending generally affords the Bank an
opportunity to receive higher interest rates and fees with shorter terms to
maturity than those obtainable from residential
lending.  Nevertheless, construction and land development lending is
generally considered to involve a higher level of credit risk than one- to
four-family residential lending due to (i) the concentration of principal among
relatively few borrowers and development projects, (ii) the increased difficulty
at the time the loan is made of accurately estimating building or development
costs and the selling price of the finished product, (iii) the increased
difficulty and costs of monitoring and disbursing funds for the
loan,  (iv) the higher degree of sensitivity to increases in market
rates of interest and changes in local economic conditions, and (v) the
increased difficulty of working out problem loans.  Due in part to
these risk factors, the Bank may be required from time to time to modify or
extend the terms of some of these types of loans.  In an effort to
reduce these risks, the application process includes a submission to the Bank of
accurate plans, specifications and costs of the project to be
constructed.  These items are also used as a basis to determine the
appraised value of the subject property.  Loan amounts are limited to
85% of the lesser of current appraised value and/or the cost of
construction.





Consumer
Lending.  The Bank offers a variety of secured consumer loans,
including home equity, direct and indirect automobile loans, second mortgages,
mobile homes and loans secured by deposits.  The Bank originates
substantially all of its consumer loans in its primary market
area.  Usually, consumer loans are originated with fixed rates for
terms of up to five years, with the exception of home equity lines of credit,
which are variable, tied to the prime rate of interest and are for a period of
ten years.  At June 30, 2008, the Bank's consumer loan portfolio
totaled $21.5 million, or 6.3% of net loans receivable.





Home
equity loans represented 38.2% of the Bank's consumer loan portfolio at June 30,
2008, and totaled $8.2 million, or 2.4% of net loans receivable.





Home
equity lines of credit (HELOCs) are secured with a deed of trust and are issued
up to 100% of the appraised or assessed value of the property securing the line
of credit, less the outstanding balance on the first mortgage. Interest rates on
the HELOCs are adjustable and are tied to the current prime interest rate. This
rate is obtained from the Wall Street Journal and adjusts on a daily
basis.  Interest rates are based upon the loan-to-value ratio of the
property with better rates given to borrowers with more equity. HELOCs, which
are secured by residential properties, are secured by stronger collateral than
automobile loans and because of the adjustable rate structure, contain less
interest rate risk to the Bank. Lending up to 100% of the value of the property
presents greater credit risk to the Bank. Consequently, the Bank limits this
product to customers with a favorable credit history.  At June 30,
2008, lines of credit up to 80% of the property value represented 77.6% of
outstanding balances, and 79.0% of balances and commitments; lines of credit for
more than 80%, but not exceeding 90%, of the property value represented 20.2% of
outstanding balances and 19.5% of balances and commitments; and lines of credit
in excess of 90% of the property value represented 2.2% of outstanding balances
and 1.5% of balances and commitments.





Automobile
loans represented 41.2% of the Bank's consumer loan portfolio at June 30,
2008, and totaled $8.9 million, or 2.6% of net loans receivable.  Of
that total, $716,000 represented loans originated by auto
dealers.  These loans generally pay a negotiated fee back to the
dealer.  Typically, automobile loans are


9


made for
terms of up to 60 months for new and used vehicles.  Loans secured by
automobiles have fixed rates and are generally made in amounts up to 100% of the
purchase price of the vehicle.





Consumer
loan terms vary according to the type and value of collateral, length of
contract and creditworthiness of the borrower.  The underwriting
standards employed for consumer loans include employment stability, an
application, a determination of the applicant's payment history on other debts,
and an assessment of ability to meet existing and proposed
obligations.  Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.





Consumer
loans may entail greater credit risk than do residential mortgage loans, because
they are generally unsecured or are secured by rapidly depreciable or mobile
assets, such as automobiles or mobile homes.  In the event of
repossession or default, there may be no secondary source of repayment or the
underlying value of the collateral could be insufficient to repay the
loan.  In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances.  Furthermore, the
application of various federal and state laws, including bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans. The
Bank's delinquency levels for these types of loans are reflective
of  these risks.   See "Asset
Classification."





Commercial
Business Lending.  At June 30, 2008, the Bank also had $81.6
million in commercial business loans outstanding, or 23.8% of net loans
receivable.  The Bank's commercial business lending activities
encompass loans with a variety of purposes and security, including loans to
finance accounts receivable, inventory, equipment and operating lines of
credit.





The Bank
currently offers both fixed and adjustable rate commercial business
loans.  At year end, the Bank had $59.8 million in fixed rate and
$21.8 million of adjustable rate commercial business loans.  The
adjustable rate business loans typically reprice daily, monthly, quarterly, or
annually, in accordance with the Wall Street prime rate of
interest.  The Bank expects to continue to maintain or increase the
current percentage of commercial business loans in its total loan
portfolio.





Commercial
business loan terms vary according to the type and value of collateral, length
of contract and creditworthiness of the borrower.  Generally,
commercial loans secured by fixed assets are amortized over periods up to five
years, while commercial operating lines of credit are generally for a one year
period.  The Bank's commercial business loans are evaluated based on
the loan application, a determination of the applicant's payment history on
other debts, business stability and an assessment of ability to meet existing
obligations and payments on the proposed loan.  Although
creditworthiness of the applicant is a primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount.





Unlike
residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more
easily ascertainable, commercial business loans are of higher risk and typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of the borrower's business.  As a result, the availability of
funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself.  Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the
business.


10


Contractual
Obligations and Commitments, Including Off-Balance Sheet
Arrangements.  The following table discloses our fixed and
determinable contractual obligations and commercial commitments by payment date
as of June 30, 2008.  Commitments to extend credit totaled $51.5
million at June 30, 2008.




Less
      Than
                1
      Year
              
              
              1-3
      Years
              
              
              4-5
      Years
              
              
              More
      Than
                5
      Years
              
              
              Total(In Thousands)Federal
      Home Loan Bank
                advances
              
              $
              5,550
              
              
              $
              34,000
              
              
              $
              6,000
              
              
              $
              18,500
              
              
              $
              64,050Certificates
      of deposit
              
              
              130,025
              
              
              
              13,457
              
              
              
              6,876
              
              
              
              ---
              
              
              
              150,358Total
              
              $
              135,575
              
              
              $
              47,457
              
              
              $
              12,867
              
              
              $
              18,500
              
              
              $
              214,408Less
      Than
                1
      Year
              
              
              1-3
      Years
              
              
              4-5
      Years
              
              
              More
      Than
                5
      Years
              
              
              Total(In Thousands)Construction
      loans in process
              
              $
              5,668
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              5,668Other
      commitments
              
              
              39,493
              
              
              
              607
              
              
              
              876
              
              
              
              4,864
              
              
              
              45,840$
              45,161
              
              
              $
              607
              
              
              $
              876
              
              
              $
              4,864
              
              
              $
              51,508





Loan
Maturity and Repricing





The
following table sets forth certain information at June 30, 2008 regarding the
dollar amount of loans maturing or repricing in the Bank's portfolio based on
their contractual terms to maturity or repricing, but does not include scheduled
payments or potential prepayments.  Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less.  Mortgage loans that have
adjustable rates are shown as maturing at their next repricing
date.  Listed loan balances are shown before deductions for
undisbursed loan proceeds, unearned discounts, unearned income and allowance for
loan losses.





Within
              One
      Year
            
            
            After
              One
      Year
              Through
              5
      Years
            
            
            After
              5
      Years
              Through
              10
      Years
            
            
            After
              10
      Years
            
            
            Total(In
      thousands)Residential
      real estate
            
            $
            27,781
            
            
            $
            26,194
            
            
            $
            15,373
            
            
            $
            79,992
            
            
            $
            149,340Commercial
      real estate
            
            
            40,021
            
            
            
            39,101
            
            
            
            3,585
            
            
            
            3,152
            
            
            
            85,859Construction
            
            
            13,622
            
            
            
            323
            
            
            
            ---
            
            
            
            ---
            
            
            
            13,945Consumer
            
            
            6,223
            
            
            
            10,744
            
            
            
            4,558
            
            
            
            ---
            
            
            
            21,525Commercial
      business
            
            
            49,874
            
            
            
            30,721
            
            
            
            448
            
            
            
            532
            
            
            
            81,575Total
      loans
            
            $
            137,521
            
            
            $
            107,083
            
            
            $
            23,964
            
            
            $
            83,676
            
            
            $
            352,244








As of
June 30, 2008, loans with a maturity date after June 30, 2009 with fixed
interest rates totaled $182.5 million, and loans with a maturity date after June
30, 2009 with adjustable rates totaled $84.2 million.





Loan
Originations, Sales and Purchases





Generally,
all loans are originated by the Bank's staff, who are salaried loan
officers.  Loan applications are taken and processed at each of the
Bank's full-service locations.  The Bank began offering secondary
market loans, which are also originated by the Bank’s staff, to customers during
fiscal year 2002.





While the
Bank originates both adjustable-rate and fixed-rate loans, the ability to
originate loans is dependent upon the relative customer demand for loans in its
market.  In fiscal 2008, the Bank originated


11


$123.6
million of loans, compared to $130.9 million and $120.0 million in fiscal 2007
and 2006, respectively.  Of these loans, mortgage loan originations
were $82.2 million, $77.8 million and $74.0 million in fiscal 2008, 2007 and
2006, respectively.





From time
to time, the Bank has purchased loan participations consistent with its loan
underwriting standards.  In fiscal 2008, the Bank purchased $17.7
million of new loans.  At June 30, 2008, loan participations totaled
$28.9 million, or 8.4% of net loans receivable.  At June 30,
2008, all of these participations were performing in accordance to their
respective terms.  The Bank will evaluate purchasing additional loan
participations, based in part on local loan demand, liquidity, portfolio and
leverage rate.





The
following table shows total loans originated, purchased, sold and repaid during
the periods indicated.





Year Ended June 30,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Total
      loans at beginning of period
            
            $
            316,462
            
            
            $
            288,662
            
            
            $
            273,174Loans
      originated:One-to four-family residential
            
            
            31,879
            
            
            
            29,935
            
            
            
            31,079Multi-family residential and
              commercial real estate
            
            
            39,518
            
            
            
            36,976
            
            
            
            32,754Construction
      loans
            
            
            10,815
            
            
            
            10,887
            
            
            
            10,143Commercial
      and industrial
            
            
            25,350
            
            
            
            38,342
            
            
            
            36,265Consumer
      and
      others
            
            
            16,065
            
            
            
            14,803
            
            
            
            9,728Total loans originated
            
            
            123,627
            
            
            
            130,943
            
            
            
            119,969Loans
      purchased:Total loans
      purchased
            
            
            17,725
            
            
            
            14,220
            
            
            
            4,118Loans
      sold:Total
      loans
      sold
            
            
            (4,566
            )
            
            
            (10,599
            )
            
            
            (5,184
            )Principal
      repayments
            
            
            (90,425
            )
            
            
            (98,655
            )
            
            
            (97,141
            )Participation
      principal repayments
            
            
            (9,925
            )
            
            
            (7,820
            )
            
            
            (6,018
            )Foreclosures
            
            
            (654
            )
            
            
            (289
            )
            
            
            (256
            )Net
      loan
      activity
            
            
            35,782
            
            
            
            27,800
            
            
            
            15,488Total loans at end of period
            
            $
            352,244
            
            
            $
            316,462
            
            
            $
            288,662





Loan
Commitments





The Bank
issues commitments for one- to four-family residential mortgage loans, operating
or working capital lines of credit.  Such commitments may be oral or
in writing with specified terms, conditions and at a specified rate of interest
and standby letters-of-credit.  The Bank had outstanding net loan
commitments of approximately $51.5 million at June 30, 2008.  See Note
13 of Notes to Consolidated Financial Statements contained in the Annual Report
to Stockholders.


12


Loan
Fees




In addition to
interest earned on loans, the Bank receives income from fees in connection with
loan originations, loan modifications, late payments and for miscellaneous
services related to its loans.  Income from these activities varies
from period to period depending upon the volume and type of loans made and
competitive conditions.





Asset
Quality





Delinquent
Loans.  Generally, when a borrower fails to make a required
payment on mortgage or installment loans, the Bank begins the collection process
by mailing a computer generated notice to the customer.  If the
delinquency is not cured promptly, the customer is contacted again by notice or
telephone.  After an account secured by real estate becomes over 60
days past due, the Bank will send a 30-day demand notice to the customer which,
if not cured or unless satisfactory arrangements have been made, will lead to
foreclosure.  For consumer loans, the Missouri Right-To-Cure Statute
is followed, which requires issuance of specifically worded notices at specific
time intervals prior to repossession or further collection efforts.





The
following table sets forth the Bank's loan delinquencies by type and by amount
at June 30, 2008.





Loans
      Delinquent For:60-89
      Days
            
            
            90
      Days and Over
            
            
            Total
      Loans
              Delinquent
      60 Days
              or
      MoreNumbers
            
            
            Amounts
            
            
            Numbers
            
            
            Amounts
            
            
            Numbers
            
            
            Amounts(Dollars
      in thousands)Residential
      real estate
            
            
            13
            
            
            $
            770
            
            
            
            ---
            
            
            $
            ---
            
            
            
            13
            
            
            $
            770Commercial
      real estate
            
            
            2
            
            
            
            211
            
            
            
            ---
            
            
            
            ---
            
            
            
            2
            
            
            
            211Commercial
      non-real estate
            
            
            1
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            1
            
            
            
            ---Other
      consumer
            
            
            6
            
            
            
            16
            
            
            
            2
            
            
            
            6
            
            
            
            8
            
            
            
            22Totals
            
            
            22
            
            
            $
            997
            
            
            
            2
            
            
            $
            6
            
            
            
            24
            
            
            $
            1,003








Non-Performing
Assets.  The table below sets forth the amounts and categories
of non-performing assets in the Bank's loan portfolio.  Loans are
placed on non-accrual status when the collection of principal and/or interest
become doubtful, and as a result, previously accrued interest income on the loan
is removed from current income.  The Bank has no reserves for
uncollected interest and does not accrue interest on non-accrual
loans.  A loan may be transferred back to accrual status once a
satisfactory repayment history has been restored.  Foreclosed assets
held for sale include assets acquired in settlement of loans and are shown net
of reserves.





At June
30, 2008, the Bank had one loan on which interest was not being accrued, in
accordance with SFAS No. 114 as amended by SFAS No. 118.  The Bank
would have recorded a nominal amount of interest income during the years ended
June 30, 2008 and 2007, and 2006, on non-accrual loans, if these loans had been
performing in accordance with their terms during such
periods.  Interest income recognized on non-accrual loans for the
years ended June 30, 2008, 2007, and 2006, was considered
nominal.


13


The
following table sets forth information with respect to the Bank's non-performing
assets as of the dates indicated.  At the dates indicated, the Bank
had no restructured loans within the meaning of SFAS 15.





At
      June 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars in thousands)Nonaccruing loans:Residential
      real estate
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            52
            
            
            $
            ---Commercial real estate
            
            
            ---
            
            
            
            ---
            
            
            
            --
            
            
            
            ---
            
            
            
            ---Consumer
            
            
            ---
            
            
            
            2
            
            
            
            51
            
            
            
            41
            
            
            
            4Commercial business
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            334
            
            
            
            ---Total
            
            
            ---
            
            
            $
            2
            
            
            $
            51
            
            
            $
            427
            
            
            $
            4Loans 90 days past due
              accruing interest:Residential
      real estate
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            78
            
            
            $
            114Commercial real estate
            
            
            ---
            
            
            
            20
            
            
            
            --
            
            
            
            ---
            
            
            
            ---Consumer
            
            
            6
            
            
            
            4
            
            
            
            2
            
            
            
            6
            
            
            
            17Commercial business
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            60
            
            
            
            ---Total
            
            $
            6
            
            
            $
            24
            
            
            $
            2
            
            
            $
            144
            
            
            $
            131Total nonperforming loans
            
            $
            6
            
            
            $
            26
            
            
            $
            53
            
            
            $
            571
            
            
            $
            135Foreclosed assets held for sale:Real estate owned
            
            $
            38
            
            
            $
            111
            
            
            $
            200
            
            
            $
            87
            
            
            $
            163Other nonperforming assets
            
            
            24
            
            
            
            11
            
            
            
            16
            
            
            
            7
            
            
            
            17Total nonperforming assets
            
            $
            68
            
            
            $
            148
            
            
            $
            269
            
            
            $
            665
            
            
            $
            315Total nonperforming loans
              to net loans
            
            
            0.00
            %
            
            
            0.01
            %
            
            
            0.02
            %
            
            
            0.21
            %
            
            
            0.05
            %Total nonperforming loans
              to net assets
            
            
            0.00
            %
            
            
            0.01
            %
            
            
            0.02
            %
            
            
            0.17
            %
            
            
            0.04
            %Total nonperforming assets
              to total assets
            
            
            0.02
            %
            
            
            0.04
            %
            
            
            0.08
            %
            
            
            0.20
            %
            
            
            0.10
            %








Real Estate
Owned.  Real estate properties acquired through foreclosure or
by deed in lieu of foreclosure are recorded at the lower of cost or fair value,
less estimated disposition costs.  If fair value at the date of
foreclosure is lower than the balance of the related loan, the difference will
be charged-off to the allowance for loan losses at the time of
transfer.  Management periodically updates real estate valuations and
if the value declines, a specific provision for losses on such property is
established by a charge to operations.  At June 30, 2008, the
Company's balance of real estate owned totaled $38,000 and included two
residential properties.





Asset
Classification.  Applicable regulations require that each
insured institution review and classify its assets on a regular
basis.  In addition, in connection with examinations of insured
institutions, regulatory examiners have authority to identify problem assets
and, if appropriate, require them to be classified.  There are three
classifications for problem assets: substandard, doubtful and
loss.  Substandard assets must have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected.  Doubtful
assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss.  An asset classified loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted.  When an insured institution classifies
problem assets as loss, it charges off the balance of the
assets.  Assets, which do not currently expose the Bank to sufficient
risk to warrant classification in one of the aforementioned categories but
possess weaknesses, may be designated as special mention.  The Bank's
determination as to the classification of its assets and the amount of its
valuation


14


allowances
is subject to review by the FDIC and the Missouri Division of Finance, which can
order the establishment of additional loss allowances.





On the
basis of management's review of the assets of the Company, at June 30, 2008,
classified assets totaled $4.5 million, or 1.07% of total assets as compared
$1.1 million, or 0.30% of total assets at June 30, 2007.  The
full amount classified as of June 30, 2008, was considered
substandard.  At June 30, 2008, one loan relationship with outstanding
classified balances of $3.5 million, secured by commercial and agricultural real
estate, was classified due to concerns regarding the borrower’s ability to
generate sufficient cash flows to service the debt.  The relationship
was performing in accordance with its terms at June 30, 2008.  Three
additional, commercial lending relationships, which in the aggregate totaled
$1.0 million, were classified due to the same reason, and were also performing
in accordance with terms at June 30, 2008.





Other Loans of
Concern.  In addition to the non-performing assets discussed
above, there was also an aggregate of $86,000 in loans (most were commercial
real estate relationships) with respect to which management has doubts as to the
ability of the borrowers to continue to comply with present loan repayment
terms, which may ultimately result in the classification of such
assets.





Allowance for
Loan Losses.  The Bank's allowance for loan losses is
established through a provision for loan losses based on management's evaluation
of the risk inherent in the loan portfolio and changes in the nature and volume
of loan activity, including those loans which are being specifically
monitored.  Such evaluation, which includes a review of loans for
which full collectibility may not be reasonably assured, considers among other
matters, the estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate provision for loan
losses.  These provisions for loan losses are charged against earnings
in the year they are established.  The Bank had an allowance for loan
losses at June 30, 2008, of $3.6 million, which represented 5,305% of
nonperforming assets as compared to an allowance of $2.5 million, which
represented 1,712% of nonperforming assets at June 30, 2007.  See
"Item 3. Legal Proceedings" for a discussion of the fiscal 2005 impact on the
Bank of allegedly fraudulent actions by a significant borrower.





Although
management believes that it uses the best information available to determine the
allowance, unforeseen market conditions could result in adjustments and net
earnings could be significantly affected if circumstances differ substantially
from assumptions used in making the final determination.  Future
additions to the allowance will likely be the result of periodic loan, property
and collateral reviews and thus cannot be predicted with certainty in
advance.





15


The
following table sets forth an analysis of the Bank's allowance for loan losses
for the periods indicated.  Where specific loan loss reserves have
been established, any difference between the loss reserve and the amount of loss
realized has been charged or credited to current income.





Year
      Ended June 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars
      in thousands)Allowance at beginning of period
            
            $
            2,538
            
            
            $
            2,058
            
            
            $
            2,016
            
            
            $
            1,978
            
            
            $
            1,836RecoveriesResidential
      real estate
            
            
            1
            
            
            
            1
            
            
            
            ---
            
            
            
            5
            
            
            
            ---Commercial real estate
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Commercial business
            
            
            168
            
            
            
            22
            
            
            
            11
            
            
            
            ---
            
            
            
            2Consumer
            
            
            14
            
            
            
            15
            
            
            
            54
            
            
            
            39
            
            
            
            24Total recoveries
            
            
            183
            
            
            
            38
            
            
            
            65
            
            
            
            44
            
            
            
            26Charge offs:Residential
      real estate
            
            
            34
            
            
            
            83
            
            
            
            57
            
            
            
            7
            
            
            
            39Commercial real estate
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            9Commercial business
            
            
            5
            
            
            
            24
            
            
            
            374
            
            
            
            4,687
            
            
            
            16Consumer
            
            
            55
            
            
            
            56
            
            
            
            147
            
            
            
            127
            
            
            
            95Total charge offs
            
            
            94
            
            
            
            163
            
            
            
            578
            
            
            
            4,821
            
            
            
            159Net recoveries
      (charge offs)
            
            
            89
            
            
            
            (125
            )
            
            
            (513
            )
            
            
            (4,777
            )
            
            
            (133
            )Provision for loan losses
            
            
            940
            
            
            
            605
            
            
            
            555
            
            
            
            4,815
            
            
            
            275Balance at end of period
            
            $
            3,567
            
            
            $
            2,538
            
            
            $
            2,058
            
            
            $
            2,016
            
            
            $
            1,978Ratio of allowance to total loans
              outstanding at the end of the
              period
            
            
            1.03
            %
            
            
            0.81
            %
            
            
            0.73
            %
            
            
            0.75
            %
            
            
            0.80
            %Ratio of net charge offs to
              average loans outstanding
              during the period
            
            
            (0.03
            )%
            
            
            0.09
            %
            
            
            0.19
            %
            
            
            1.84
            %
            
            
            0.06
            %





16


The following
table sets forth the breakdown of the allowance for loan losses by loan category
for the periods indicated.





At
      June 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Amount
            
            
            Percent
      of
              Loans
      in
              Each
              Category
              to
      Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      in
              Each
              Category
              to
      Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      in
              Each
              Category
              to
      Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      in
              Each
              Category
              to
      Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      in
              Each
              Category
              to
      Total
              Loans(Dollars
      in thousands)Residential
      real estate
            
            $
            626
            
            
            
            42.40
            %
            
            $
            279
            
            
            
            42.98
            %
            
            $
            205
            
            
            
            44.07
            %
            
            $
            225
            
            
            
            46.04
            %
            
            $
            219
            
            
            
            48.29
            %Construction
            
            
            88
            
            
            
            3.96
            
            
            
            70
            
            
            
            2.52
            
            
            
            81
            
            
            
            3.76
            
            
            
            67
            
            
            
            3.13
            
            
            
            60
            
            
            
            2.97Commercial real estate
            
            
            969
            
            
            
            24.37
            
            
            
            774
            
            
            
            24.49
            
            
            
            619
            
            
            
            22.65
            
            
            
            595
            
            
            
            21.28
            
            
            
            634
            
            
            
            22.14Consumer
            
            
            333
            
            
            
            6.11
            
            
            
            256
            
            
            
            6.10
            
            
            
            293
            
            
            
            6.97
            
            
            
            306
            
            
            
            7.84
            
            
            
            321
            
            
            
            8.48Commercial business
            
            
            1,320
            
            
            
            23.16
            
            
            
            935
            
            
            
            23.91
            
            
            
            857
            
            
            
            22.55
            
            
            
            770
            
            
            
            21.71
            
            
            
            743
            
            
            
            18.12Unallocated
            
            
            231
            
            
            
            ---
            
            
            
            234
            
            
            
            ---
            
            
            
            3
            
            
            
            ---
            
            
            
            53
            
            
            
            ---
            
            
            
            1
            
            
            
            ---Total allowance for
              loan losses
            
            $
            3,567
            
            
            
            100.00
            %
            
            $
            2,538
            
            
            
            100.00
            %
            
            $
            2,058
            
            
            
            100.00
            %
            
            $
            2,016
            
            
            
            100.00
            %
            
            $
            1,978
            
            
            
            100.00
            %








17


Investment
Activities





General.  Under
Missouri law, the Bank is permitted to invest in various types of liquid assets,
including U.S. Government and State of Missouri obligations, securities of
various federal agencies, certain certificates of deposit of insured banks and
savings institutions, banker's acceptances, repurchase agreements, federal
funds, commercial paper, investment grade corporate debt securities and
obligations of States and their political sub-divisions. Generally, the
investment policy of the Company is to invest funds among various categories of
investments and repricing characteristics based upon the Bank's need for
liquidity, to provide collateral for borrowings and public unit deposits, to
help reach financial performance targets and to help maintain asset/liability
management objectives.





The
Company's investment portfolio is managed in accordance with the Bank's
investment policy which was adopted by the Board of Directors of the Bank and is
implemented by members of the asset/liability management committee which
consists of the President, the CFO, the COO and three outside
directors.





Investment
purchases and/or sales must be authorized by the appropriate party, depending on
the aggregate size of the investment transaction, prior to any investment
transaction.  The Board of Directors reviews all investment
transactions.  All investment purchases are identified as
available-for-sale ("AFS") at the time of purchase.  The Company has
not classified any investment securities as hold-to-maturity over the last five
years.  Securities classified as "AFS" must be reported at fair value
with unrealized gains and losses recorded as a separate component of
stockholders' equity.  At June 30, 2008, AFS securities totaled $39.9
million (excluding FHLB stock).  For information regarding the
amortized cost and market values of the Company's investments, see Note 2 of
Notes to Consolidated Financial Statements contained in the Annual
Report.





Presently,
the Company has no high risk derivative instruments and no outstanding hedging
activities. Management has reviewed potential uses for derivative instruments
and hedging activities, but has no immediate plans to employ these
tools.





Investment and
Other Securities.  At June 30, 2008, the Company's investment
securities portfolio totaled $15.2 million, or 3.6% of total assets as compared
to $27.2 million, or 7.2% of total assets at June 30, 2007.  During
2008, the Bank had $20.0 million in maturities and $8.3 million in security
purchases.  Of the securities that matured, $11.3 million was called
for early redemption.  At June 30, 2008, the investment securities
portfolio included $4.0 million in U.S. government and government agency bonds
and $6.0 million in municipal bonds, $5.2 million of which are subject to early
redemption at the option of the issuer.  The remaining portfolio
consists of $3.3 million in FHLB stock, $1.6 million in trust preferred
collateralized debt obligations, and $0.3 million in FHLMC preferred
stock.  On September 15, 2008, subsequent to the fiscal year end, the
Company announced that, based on the placement of the FHLMC into conservatorship
by the U.S. Treasury Department and the coinciding indefinite suspension of
dividend payments on its preferred stock obligations, its holdings of FHLMC
preferred stock were considered other-than-temporarily impaired.  The
Company's announcement indicated that it expected a pre-tax impairment charge of
approximately $300,000 to be recorded during the quarter ending September 30,
2008.  See the September 15, 2008, 8-K filing for more information. 
Based on the projected maturities, the weighted average life of the investment
securities portfolio at June 30, 2008, excluding the FHLB stock, was 116
months.





Mortgage-Backed
Securities.  At June 30, 2008, MBS totaled $28.0 million, or
6.7%, of total assets as compared to $10.7 million, or 2.8%, of total assets at
June 30, 2007.  During fiscal 2008, the Bank had maturities and
prepayments of $4.7 million and had purchases of $22.1 million in
MBS.  At June 30, 2008, the MBS portfolio included $276,000 in
adjustable-rate MBS, $23.8 million in fixed-rate MBS and $4.0 million in fixed
rate collateralized mortgage obligations (CMOs), which passed the Federal
Financial Institutions Examination Council's sensitivity test.  Based
on recent prepayment rates, the weighted average life of the MBS and CMOs at
June 30, 2008 was 52 months.  Prepayment rates may cause the
anticipated average life of MBS portfolio to extend or shorten based upon actual
prepayment rates.


18


Investment
Securities Analysis





The
following table sets forth the Company's investment securities AFS portfolio at
carrying value and FHLB stock at the dates indicated.





At
      June 30,2008
            
            
            2007
            
            
            2006Fair
              Value
            
            
            Percent
      of
              Portfolio
            
            
            Fair
              Value
            
            
            Percent
      of
              Portfolio
            
            
            Fair
              Value
            
            
            Percent
      of
              Portfolio(Dollars
      in thousands)U.S.
      government and government
              agencies
            
            $
            4,019
            
            
            
            26.39
            %
            
            $
            21,484
            
            
            
            78.91
            %
            
            $
            20,164
            
            
            
            75.80
            %State
      and political subdivisions
            
            
            6,031
            
            
            
            39.59
            
            
            
            2,016
            
            
            
            7.40
            
            
            
            850
            
            
            
            3.19FNMA
      preferred stock
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            1,000
            
            
            
            3.76FHLMC
      preferred stock
            
            
            295
            
            
            
            1.94
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---FHLB
      stock
            
            
            3,324
            
            
            
            21.82
            
            
            
            3,071
            
            
            
            11.28
            
            
            
            2,641
            
            
            
            9.93Other
      securities
            
            
            1,563
            
            
            
            10.26
            
            
            
            656
            
            
            
            2.41
            
            
            
            1,948
            
            
            
            7.32Total
            
            $
            15,232
            
            
            
            100.00
            %
            
            $
            27,232
            
            
            
            100.00
            %
            
            $
            26,603
            
            
            
            100.00
            %








The
following table sets forth the maturities and weighted average yields of AFS
debt securities in the Company's investment securities portfolio at June 30,
2008.





Available
      for Sale Securities
              June
      30, 2008Amortized
              Cost
            
            
            Fair
              Value
            
            
            Weighted
              Average
              Yield(Dollars
      in thousands)U.S.
      government, government agencies and
              other
      securities:Due
      within 1 year
            
            $
            ---
            
            
            $
            ---
            
            
            
            ---
            %Due
      after 1 year but within 5 years
            
            
            1,301
            
            
            
            1,324
            
            
            
            5.81Due
      after 5 years but within 10 years
            
            
            2,996
            
            
            
            2,990
            
            
            
            5.43Due
      over 10 years
            
            
            1,889
            
            
            
            1,563
            
            
            
            4.07Total
            
            
            6,186
            
            
            
            5,877
            
            
            
            5.09State
      and political subdivisions:Due
      within 1 year
            
            
            250
            
            
            
            254
            
            
            
            6.08Due
      after 1 year but within 5 years
            
            
            336
            
            
            
            339
            
            
            
            3.63Due
      after 5 years but within 10 years
            
            
            ---
            
            
            
            ---
            
            
            
            ---Due
      over 10 years
            
            
            5,714
            
            
            
            5,438
            
            
            
            3.36Total
            
            
            6,300
            
            
            
            6,031
            
            
            
            3.48No
      stated maturity:FHLB
      stock
            
            
            3,324
            
            
            
            3,324
            
            
            
            4.00Total
      Available for Sale
            
            $
            15,810
            
            
            $
            15,232
            
            
            
            4.22
            %





19


The
following table sets forth certain information at June 30, 2008 regarding the
dollar amount of MBS and CMOs in the Bank's portfolio based on their contractual
terms to maturity, but does not include scheduled payments or potential
prepayments.  MBS that have adjustable rates are shown at amortized
cost as maturing at their next repricing date.





At
      June 30,
              2008(In
      thousands)Amounts
      due:Within 1 year
            
            $
            278After 1 year through 3 years
            
            
            ---After 3 years through 5 years
            
            
            776After 5 years
            
            
            27,370Total
            
            $
            28,424








The
following table sets forth the dollar amount of all MBS and CMOs at amortized
cost due, based on their contractual terms to maturity, one year after June 30,
2008, which have fixed interest rates and have floating or adjustable
rates.





At
      June 30, 2008(In
      thousands)Interest
      rate terms on amounts due after 1 year:Fixed
            
            $
            28,146Adjustable
            
            
            ---Total
            
            $
            28,146








The following
table sets forth certain information with respect to each security (other than
U.S. Government and agency securities) at the dates indicated.





At
      June 30,2008
            
            
            2007
            
            
            2006Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value
            
            
            Amortized
              Cost
            
            
            Fair
              Value(In
      thousands)FHLMC
      certificates
            
            $
            13,114
            
            
            $
            12,825
            
            
            $
            1,229
            
            
            $
            1,183
            
            
            $
            1,854
            
            
            $
            1,771GNMA certificates
            
            
            128
            
            
            
            127
            
            
            
            156
            
            
            
            156
            
            
            
            194
            
            
            
            192FNMA certificates
            
            
            11,247
            
            
            
            11,093
            
            
            
            4,387
            
            
            
            4,213
            
            
            
            5,624
            
            
            
            5,335Collateralized mortgage obligations issued
              by government agencies
            
            
            3,935
            
            
            
            3,961
            
            
            
            5,274
            
            
            
            5,171
            
            
            
            7,351
            
            
            
            7,142Total
            
            $
            28,424
            
            
            $
            28,006
            
            
            $
            11,051
            
            
            $
            10,723
            
            
            $
            15,023
            
            
            $
            14,440








20


Deposit Activities
and Other Sources of Funds





General.  The
Company's primary sources of funds are deposits, borrowings, payments of
principal and interest on loans, MBS and CMOs, interest and principal received
on investment securities and other short-term investments, and funds provided
from operating results.  Loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general market interest rates and overall economic
conditions.





Borrowings,
including FHLB advances, have been used at times to provide additional
liquidity.  Borrowings are used on an overnight or short-term basis to
compensate for periodic fluctuations in cash flows, and are used on a longer
term basis to fund loan growth and to help manage the Company's sensitivity to
fluctuating interest rates.





Deposits.  Substantially
all of the Bank's depositors are residents and entities located in the State of
Missouri or Northeast Arkansas.  Deposits are attracted from within
the Bank's market area through the offering of a broad selection of deposit
instruments, including checking accounts, negotiable order of withdrawal ("NOW")
accounts, money market deposit accounts, saving accounts, certificates of
deposit and retirement savings plans.  Deposit account terms vary
according to the minimum balance required, the time periods the funds may remain
on deposit and the interest rate, among other factors.  In determining
the terms of its deposit accounts, the Bank considers current market interest
rates, profitability to the Bank, managing interest rate sensitivity and its
customer preferences and concerns.  The Bank's Asset/Liability
Committee regularly reviews its deposit mix and pricing.





The Bank
will periodically promote a particular deposit product as part of the Bank's
overall marketing plan.  Deposit products have been promoted through
various mediums, which include radio and newspaper
advertisements.  The emphasis of these campaigns is to increase
consumer awareness and market share of the Bank.





The flow
of deposits is influenced significantly by general economic conditions, changes
in prevailing interest rates, and competition.  The Bank has become
more susceptible to short-term fluctuations in deposit flows, as customers have
become more interest rate conscious.  Based on its experience, the
Bank believes that its deposits are relatively stable sources of
funds.  However, the ability of the Bank to attract and maintain
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions.  The table
on the following page depicts the composition of the Bank’s deposits at June 30,
2008:





21


Weighted
              Average
      Interest
              Rate
      at 6/30
            
            Term
            Category
            
            Minimum
              Amount
            
            
            Balance
            
            
            Percentage
              of
      Total
              Deposits(In
      thousands)0.00
            %
            None
            Non-interest
      Bearing
            
            $
            100
            
            
            $
            19,221
            
            
            
            6.58
            %1.17
            
            None
            NOW
      Accounts
            
            
            100
            
            
            
            37,150
            
            
            
            12.712.22
            
            None
            Savings
      Accounts
            
            
            100
            
            
            
            73,423
            
            
            
            25.121.63
            
            None
            Money
      Market Deposit Accounts
            
            
            1,000
            
            
            
            12,105
            
            
            
            4.14Certificates
      of Deposit3.12
            
            Less
      than 6 months
            Fixed
      Rate/Term
            
            
            1,000
            
            
            
            12,657
            
            
            
            4.332.76
            
            Less
      than 6 months
            IRA
      Fixed Rate/Term
            
            
            1,000
            
            
            
            789
            
            
            
            0.273.41
            
            7-12
      months
            Fixed
      Rate/Term
            
            
            1,000
            
            
            
            86,723
            
            
            
            29.673.77
            
            7-12
      months
            IRA
      Fixed Rate/Term
            
            
            1,000
            
            
            
            10,416
            
            
            
            3.563.65
            
            13-24
      months
            Fixed
      Rate/Term
            
            
            1,000
            
            
            
            18,402
            
            
            
            6.303.39
            
            13-24
      months
            IRA
      Fixed Rate/Term
            
            
            1,000
            
            
            
            2,733
            
            
            
            0.941.86
            
            13-24
      months
            IRA
      Variable Rate/Fixed Term
            
            
            1,000
            
            
            
            282
            
            
            
            0.103.82
            
            25-36
      months
            Fixed
      Rate/Term
            
            
            1,000
            
            
            
            4,701
            
            
            
            1.613.88
            
            25-36
      months
            IRA
      Fixed Rate/Term
            
            
            1,000
            
            
            
            2,286
            
            
            
            0.784.35
            
            48
      months and more
            Fixed
      Rate/Term
            
            
            1,000
            
            
            
            8,734
            
            
            
            2.994.24
            
            48
      months and more
            IRA
      Fixed Rate/Term
            
            
            1,000
            
            
            
            2,635
            
            
            
            0.90$
            292,257
            
            
            
            100.00
            %





The
following table indicates the amount of the Bank's jumbo certificates of deposit
by time remaining until maturity as of June 30, 2008.  Jumbo
certificates of deposit require minimum deposits of $100,000 and rates paid on
such accounts are negotiable.





Maturity Period
            
            Amount(In
      thousands)Three
      months or less
            
            $
            21,445Over
      three through six months
            
            
            15,876Over
      six through twelve months
            
            
            14,909Over 12 months
            
            
            5,950Total
            
            $
            58,180








Time Deposits
by Rates





The
following table sets forth the time deposits in the Bank classified by rates at
the dates indicated.





At June 30,2008
            
            
            2007
            
            
            2006(In thousands)1.00 - 1.99
            %
            
            $
            7,135
            
            
            $
            ---
            
            
            $
            ---2.00 - 2.99
            %
            
            
            33,105
            
            
            
            1,087
            
            
            
            9,4753.00 - 3.99
            %
            
            
            50,555
            
            
            
            6,558
            
            
            
            56,0444.00 - 4.99
            %
            
            
            48,414
            
            
            
            27,805
            
            
            
            49,6355.00 - 5.99
            %
            
            
            11,149
            
            
            
            95,119
            
            
            
            10,435Total
            
            
            $
            150,358
            
            
            $
            130,569
            
            
            $
            125,589








22


The following
table sets forth the amount and maturities of all time deposits at June 30,
2008.





Amount
      DueLess
              Than
      One
              Year
            
            
            1-2
              Years
            
            
            2-3
              Years
            
            
            3-4
              Years
            
            
            After
              4
      Years
            
            
            Total
            
            
            Percent
              of
      Total
              Certificate
              Accounts(Dollars
      in thousands)1.00 – 1.99
            %
            
            $
            6,996
            
            
            $
            139
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---
            
            
            $
            7,135
            
            
            
            4.75
            %2.00 - 2.99
            %
            
            
            30,923
            
            
            
            2,160
            
            
            
            14
            
            
            
            8
            
            
            
            ---
            
            
            
            33,105
            
            
            
            22.023.00 - 3.99
            %
            
            
            43,463
            
            
            
            1,917
            
            
            
            3,443
            
            
            
            79
            
            
            
            1,653
            
            
            
            50,555
            
            
            
            33.624.00 - 4.99
            %
            
            
            38,898
            
            
            
            3,664
            
            
            
            2,007
            
            
            
            1,835
            
            
            
            2,010
            
            
            
            48,414
            
            
            
            32.205.00 - 5.99
            %
            
            
            9,745
            
            
            
            30
            
            
            
            83
            
            
            
            797
            
            
            
            494
            
            
            
            11,149
            
            
            
            7.41Total
            
            
            $
            130,025
            
            
            $
            7,910
            
            
            $
            5,547
            
            
            $
            2,719
            
            
            $
            4,157
            
            
            $
            150,358
            
            
            
            100.00
            %





23


Deposit
Flow





The
following table sets forth the balance of deposits in the various types of
accounts offered by the Bank at the dates indicated.





At
      June 30,2008
            
            
            2007
            
            
            2006Amount
            
            
            Percent
      of
              Total
            
            
            Increase
              (Decrease)
            
            
            Amount
            
            
            Percent
      of
              Total
            
            
            Increase
              (Decrease)
            
            
            Amount
            
            
            Percent
      of
              Total
            
            
            Increase
              (Decrease)(Dollars in thousands)Noninterest bearing
            
            $
            19,221
            
            
            
            6.58
            %
            
            
            (3,055
            )
            
            $
            22,276
            
            
            
            8.25
            %
            
            $
            3,566
            
            
            $
            18,710
            
            
            
            7.25
            %
            
            $
            3,052NOW checking
            
            
            37,150
            
            
            
            12.71
            
            
            
            6,027
            
            
            
            31,123
            
            
            
            11.52
            
            
            
            86
            
            
            
            31,037
            
            
            
            12.03
            
            
            
            2,066Savings accounts
            
            
            73,423
            
            
            
            25.12
            
            
            
            (5,485
            )
            
            
            78,908
            
            
            
            29.22
            
            
            
            5,083
            
            
            
            73,825
            
            
            
            28.61
            
            
            
            8,275Money market deposit
            
            
            12,105
            
            
            
            4.14
            
            
            
            4,893
            
            
            
            7,212
            
            
            
            2.67
            
            
            
            (1,646
            )
            
            
            8,908
            
            
            
            3.45
            
            
            
            (5,652
            )Fixed-rate certificates
              which mature(1):Within one year
            
            
            129,881
            
            
            
            44.44
            
            
            
            12,976
            
            
            
            116,905
            
            
            
            43.28
            
            
            
            3,953
            
            
            
            112,952
            
            
            
            43.77
            
            
            
            52,447Within three years
            
            
            13,318
            
            
            
            4.56
            
            
            
            4,565
            
            
            
            8,753
            
            
            
            3.24
            
            
            
            (1,247
            )
            
            
            10,000
            
            
            
            3.87
            
            
            
            (25,214
            )After three years
            
            
            6,876
            
            
            
            2.35
            
            
            
            2,282
            
            
            
            4,594
            
            
            
            1.70
            
            
            
            2,271
            
            
            
            2,323
            
            
            
            0.90
            
            
            
            (1,542
            )Variable-rate certificates
              which mature within
              one year
            
            
            144
            
            
            
            0.05
            
            
            
            (33
            )
            
            
            177
            
            
            
            0.07
            
            
            
            84
            
            
            
            148
            
            
            
            0.06
            
            
            
            (54
            )Variable-rate certificates
              which mature within
              two years
            
            
            139
            
            
            
            0.05
            
            
            
            (1
            )
            
            
            140
            
            
            
            0.05
            
            
            
            (26
            )
            
            
            166
            
            
            
            0.06
            
            
            
            25Total
            
            $
            292,257
            
            
            
            100.00
            %
            
            
            22,169
            
            
            $
            270,088
            
            
            
            100.00
            %
            
            $
            12,019
            
            
            $
            258,069
            
            
            
            100.00
            %
            
            $
            33,403


___________________________





(1)
            At
      June 30, 2008, 2007 and 2006, certificates in excess of $100,000 totaled
      $58.2 million, $41.4 million and $47.5 million,
    respectively.








24


The
following table sets forth the deposit activities of the Bank for the periods
indicated.





At June 30,2008
            
            
            2007
            
            
            2006(In
      thousands)Beginning
      Balance
            
            $
            270,088
            
            
            $
            258,069
            
            
            $
            224,666Net
      increase before interest credited
            
            
            14,355
            
            
            
            4,198
            
            
            
            27,511Interest
      credited
            
            
            7,814
            
            
            
            7,821
            
            
            
            5,892Net
      increase in deposits
            
            
            22,169
            
            
            
            12,019
            
            
            
            33,403Ending
      balance
            
            $
            292,257
            
            
            $
            270,088
            
            
            $
            258,069








In the
unlikely event the Bank is liquidated, depositors will be entitled to payment of
their deposit accounts prior to any payment being made to the Company as the
sole stockholder of the Bank.





Borrowings.  As
a member of the FHLB of Des Moines, the Bank has the ability to apply for FHLB
advances. These advances are available under various credit programs, each of
which has its own maturity, interest rate and repricing
characteristics.  Additionally, FHLB advances have prepayment
penalties as well as limitations on size or term.  In order to utilize
FHLB advances, the Bank must be a member of the FHLB system, have sufficient
collateral to secure the requested advance and own stock in the FHLB equal to
4.45% of the amount borrowed.  See "REGULATION – The Bank -- Federal
Home Loan Bank System."





Although
deposits are the Bank's primary and preferred source of funds, the Bank actively
uses FHLB advances.  The Bank's general policy has been to utilize
borrowings to meet short-term liquidity needs, or to provide a longer-term
source of funding loan growth when other cheaper funding sources are unavailable
or to aide in asset/liability management.  As of June 30, 2008, the
Bank had $64.1 million in FHLB advances, of which $49.5 million had an original
term of ten years, subject to early redemption by the FHLB after an initial
period of one to five years, $9.0 million in borrowings, all of which had fixed
rates and original maturities of five to seven years, and $5.6 million in
short-term borrowings.  In order for the Bank to borrow from the FHLB,
it has pledged $131.3 million of its residential loans to the FHLB and has
purchased $3.3 million in FHLB stock.  At June 30, 2008, the Bank had
additional borrowing capacity on its pledged residential loans from the FHLB of
$37.4 million as compared to $42.4 million at June 30, 2007.





Southern
Missouri Statutory Trust I, a Delaware business trust subsidiary of the Company,
issued $7.0 million in Floating Rate Capital Securities (the "Trust Preferred
Securities") with a liquidation value of $1,000 per share in March,
2004.  The securities are due in 30 years, redeemable after five years
and bear interest at a floating rate based on LIBOR.  The securities
represent undivided beneficial interests in the trust, which was established by
Southern Missouri Bancorp for the purpose of issuing the
securities.  The Trust Preferred Securities were sold in a private
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Act") and have not been registered under the Act.  The
securities may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.





Southern
Missouri Statutory Trust I used the proceeds of the sale of the Trust Preferred
Securities to purchase Junior Subordinated Debentures of Southern Missouri
Bancorp.  Southern Missouri Bancorp is using the net proceeds for
working capital and investment in its subsidiaries.   Trust
Preferred Securities  qualify as Tier I Capital for regulatory
purposes.


25


The
following table sets forth certain information regarding short-term borrowings
by the Bank at the end of and during the periods indicated:





Year Ended June 30,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Year
      end balancesShort-term
      FHLB advances
            
            $
            5,550
            
            
            $
            7,000
            
            
            $
            ---Securities sold under agreements to repurchase
            
            
            21,804
            
            
            
            17,758
            
            
            
            11,296Total short-term borrowings
            
            $
            27,354
            
            
            $
            24,758
            
            
            $
            11,296Weighted average rate at year end
            
            
            1.90
            %
            
            
            5.06
            %
            
            
            4.69
            %








The
following table sets fort certain information as to the Bank's borrowings for
the periods indicated:





Year Ended June 30,2008
            
            
            2007
            
            
            2006(Dollars in thousands)FHLB advancesDaily average balance
            
            $
            58,526
            
            
            $
            62,906
            
            
            $
            54,642Weighted average interest rate
            
            
            5.25
            %
            
            
            5.40
            %
            
            
            5.28
            %Maximum outstanding at any month end
            
            $
            65,600
            
            
            $
            71,150
            
            
            $
            67,750Securities sold under agreements to repurchaseDaily average balance
            
            $
            20,567
            
            
            $
            11,863
            
            
            $
            10,420Weighted average interest rate
            
            
            3.31
            %
            
            
            4.84
            %
            
            
            3.84
            %Maximum outstanding at any month end
            
            $
            24,659
            
            
            $
            17,758
            
            
            $
            12,589Subordinated DebtDaily average balance
            
            $
            7,217
            
            
            $
            7,217
            
            
            $
            7,217Weighted average interest rate
            
            
            7.47
            %
            
            
            8.24
            %
            
            
            7.10
            %Maximum outstanding at month end
            
            $
            7,217
            
            
            $
            7,217
            
            
            $
            7,217








Subsidiary
Activities





The Bank
has one subsidiary, SMS Financial Services, Inc., which had no assets or
liabilities at June 30, 2008 and is currently inactive.  The
activities of the subsidiary are not significant to the financial condition or
results of the Bank's operations.





26


REGULATION





The
Bank





General.  As
a state-chartered, federally-insured trust company with banking powers, the Bank
is subject to extensive regulation.  Lending activities and other
investments must comply with various statutory and regulatory requirements,
including prescribed minimum capital standards.  The Bank is regularly
examined by the FDIC and the Missouri Division of Finance and files periodic
reports concerning the Bank's activities and financial condition with its
regulators.  The Bank's relationship with depositors and borrowers
also is regulated to a great extent by both federal law and the laws of
Missouri, especially in such matters as the ownership of savings accounts and
the form and content of mortgage documents.





Federal
and state banking laws and regulations govern all areas of the operation of the
Bank, including reserves, loans, mortgages, capital, issuance of securities,
payment of dividends and establishment of branches.  Federal and state
bank regulatory agencies also have the general authority to limit the dividends
paid by insured banks and bank holding companies if such payments should be
deemed to constitute an unsafe and unsound practice.  The respective
primary federal regulators of the Company and the Bank have authority to impose
penalties, initiate civil and administrative actions and take other steps
intended to prevent banks from engaging in unsafe or unsound
practices.





State Regulation
and Supervision.  As a state-chartered trust company with
banking powers, the Bank is subject to applicable provisions of Missouri law and
the regulations of the Missouri Division of Finance adopted
thereunder.  Missouri law and regulations govern the Bank's ability to
take deposits and pay interest thereon, to make loans on or invest in
residential and other real estate, to make consumer loans, to invest in
securities, to offer various banking services to its customers, and to establish
branch offices.  The Bank is subject to periodic examination and
reporting requirements by and of the Missouri Division of Finance.





Federal
Securities Law.  The stock of the Company is registered with
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").  As such, the Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.





The
Company's stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale
restrictions.  If the Company meets specified current public
information requirements, each affiliate of the Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.





Federal Reserve
System.  The Federal Reserve Board ("FRB") requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (checking, NOW and Super NOW checking
accounts).  At June 30, 2008, the Bank was in compliance with these
reserve requirements.





The Bank
is authorized to borrow from the Federal Reserve Bank "discount window," but FRB
regulations require associations to exhaust other reasonable alternative sources
of funds, including FHLB borrowings, before borrowing from the FRB.





Federal Home Loan
Bank System.  The Bank is a member of the FHLB of Des Moines,
which is one of 12 regional FHLBs that administers the home financing credit
function of financial institutions.  Each FHLB serves as a reserve or
central bank for its members within its assigned region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System.  It makes loans to members (i.e., advances) in accordance
with policies and procedures established by the board of directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance
Board.  All advances from the FHLB are required to be fully secured by
sufficient collateral as determined by the FHLB.  In addition, all
long-term advances are required to provide funds for residential home
financing.  As a member, the Bank is required to purchase and maintain
stock in the FHLB of Des Moines.  At June 30, 2008, the Bank had $3.3
million in


27


FHLB
stock, which was in compliance with this requirement.  The Bank is
paid a quarterly dividend on this stock which averaged 4.31% in
2008.





Under
federal law, the FHLBs are required to provide funds for the resolution of
troubled savings associations and to contribute to low- and moderately priced
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing
projects.  These contributions have adversely affected the level of
FHLB dividends paid and could continue to do so in the future.  These
contributions could also have an adverse effect on the value of FHLB stock in
the future.  A reduction in value of the Bank's FHLB stock may result
in a corresponding reduction in the Bank's capital.





Deposit
Insurance.  The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of depository
institutions through the DIF.  As insurer of the Bank's deposits, the
FDIC has examination, supervisory and enforcement authority over the
Bank.





The
Bank's accounts are insured by the DIF to the maximum extent permitted by
law.  The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC.  Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system,
as discussed below.  These three groups are then divided into three
subgroups, which reflect varying levels of supervisory concern, from those which
are considered to be healthy to those which are considered to be of substantial
supervisory concern.





Prior to
the Federal Deposit Insurance Reform Act of 2005, the Bank participated in the
Savings Association Insurance Fund ("SAIF").  Pursuant to the Deposit
Insurance Funds Act ("DIF Act"), which was enacted on September 30, 1996, the
FDIC imposed a special assessment on each depository institution with
SAIF-assessable deposits, which resulted in the SAIF achieving its designated
reserve ratio.  In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Bank, paying
0%.  This assessment schedule has been the same as that for the Bank
Insurance Fund ("BIF"), which reached its designated reserve ratio in
1995.  In addition, since January 1, 1997, DIF members are charged an
assessment based on DIF-assessable deposits for the purpose of paying interest
on the obligations issued by the Financing Corporation ("FICO") in the 1980s to
help fund the thrift industry cleanup.  The FICO assessment is
currently equal to about 1.60 basis points for each $100 in domestic deposits
for institutions that were insured through the BIF and SAIF.





Under the
Federal Deposit Insurance Reform Act of 2005, the FDIC promulgated new
regulations on risk-based deposit insurance assessments. The FDIC created four
Risk Categories.  Risk Category I applies to institutions that are
well capitalized and have composite CAMELS ratings of 1 or 2.  CAMELS
is an acronym for the six supervisory ratings assigned in examinations for an
institution’s capital adequacy, asset quality, management, earnings, liquidity
and sensitivity to market risk.  Annual base rate assessments for Risk
Category I will range between 2 and 4 basis points, applied to an institution’s
assessment base, which is generally its deposits.  Within Risk
Category I, the precise base rate for an institution will be determined for an
institution with less than $10 billion in assets by a formula using the
institution’s CAMELS ratings, certain financial ratios and other
factors.  The Federal Deposit Insurance Corporation has stated that
currently, 95% of institutions it insures will be in Risk Category
I.  Risk Categories II, III and IV would apply to institutions with
progressively greater risk of loss to the deposit insurance fund.  The
proposed base rates for these categories will be 7, 25 and 40 basis points,
respectively.  The FDIC has authority to increase the base assessment
rates by up to 3 basis points without new regulations.  The bank
anticipates increased deposit insurance assessments in FY 2009 as the one-time
credit provided based on previous assessments has been depleted and the fund
falls below targeted ratios due to the failure of insured
depositories.





The FDIC
may terminate the deposit insurance of any insured depository institution if it
determines after a hearing that the institution has engaged or is engaging in
unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, order or any
condition imposed by an agreement with the FDIC.  It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible
capital.  If


28


insurance
of accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the
FDIC.  Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Bank.





Prompt Corrective
Action.  Under the Federal Deposit Insurance Act ("FDIA"), each
federal banking agency is required to implement a system of prompt corrective
action for institutions that it regulates.  The federal banking
agencies have promulgated substantially similar regulations to implement this
system of prompt corrective action.  Under the regulations, an
institution shall be deemed to be (i) "well capitalized" if it has a total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not subject
to specified requirements to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, has a Tier I risk-based capital ratio of
4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;"
(iii) "undercapitalized" if it has a total risk-based capital ratio that is
less than 8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or
has a leverage ratio that is less than 4.0% (3.0% under certain circumstances);
(iv) "significantly undercapitalized" if it has a total risk-based capital
ratio that is less than 6.0%, has a Tier I risk-based capital ratio that is
less than 3.0% or has a leverage ratio that is less than 3.0%; and
(v) "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%.





A federal
banking agency may, after notice and an opportunity for a hearing, reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply
with supervisory actions as if it were in the next lower category if the
institution is in an unsafe or unsound condition or has received in its most
recent examination, and has not corrected, a less than satisfactory rating for
asset quality, management, earnings or liquidity.  (The FDIC may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)





An
institution generally must file a written capital restoration plan that meets
specified requirements, as well as a performance guaranty by each company that
controls the institution, with the appropriate federal banking agency within 45
days of the date that the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly undercapitalized or critically
undercapitalized.  Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.





At June
30, 2008, the Bank was categorized as "well capitalized" under the prompt
corrective action regulations of the FDIC.





Standards for
Safety and Soundness.  The federal banking regulatory agencies
have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi)
asset quality; (vii) earnings; and (viii) compensation, fees and benefits
("Guidelines").  The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes
impaired.  If the FDIC determines that the Bank fails to meet any
standard prescribed by the Guidelines, the agency may require the Bank to submit
to the agency an acceptable plan to achieve compliance with the
standard.  FDIC regulations establish deadlines for the submission and
review of such safety and soundness compliance plans.





Capital
Requirements.  The FDIC's minimum capital standards applicable
to FDIC-regulated banks and savings banks require the most highly-rated
institutions to meet a "Tier 1" leverage capital ratio of at least 3% of total
assets.  Tier 1 (or "core capital") consists of common stockholders'
equity, noncumulative perpetual preferred stock and minority interests in
consolidated subsidiaries minus all intangible assets other than limited amounts
of purchased mortgage servicing rights and certain other accounting
adjustments.  All other banks must have a Tier 1 leverage ratio of at
least 100-200 basis points above the 3% minimum.  The FDIC capital
regulations establish a minimum leverage ratio of not less than 4% for banks
that are not the most highly rated or are anticipating or experiencing
significant growth.


29


The FDIC's capital
regulations require higher capital levels for banks which exhibit more than a
moderate degree of risk or exhibit other characteristics which necessitate that
higher than minimum levels of capital be maintained.  Any insured bank
with a Tier 1 capital to total assets ratio of less than 2% is deemed to be
operating in an unsafe and unsound condition pursuant to Section 8(a) of the
FDIA unless the insured bank enters into a written agreement, to which the FDIC
is a party, to correct its capital deficiency. Insured banks operating with Tier
1 capital levels below 2% (and which have not entered into a written agreement)
are subject to an insurance removal action. Insured banks operating with lower
than the prescribed minimum capital levels generally will not receive approval
of applications submitted to the FDIC. Also, inadequately capitalized state
nonmember banks will be subject to such administrative action as the FDIC deems
necessary.





FDIC
regulations also require that banks meet a risk-based capital
standard.  The risk-based capital standard requires the maintenance of
total capital (which is defined as Tier 1 capital and Tier 2 or supplementary
capital) to risk weighted assets of 8% and Tier 1 capital to risk-weighted
assets of 4%.  In determining the amount of risk-weighted assets, all
assets, plus certain off balance sheet items, are multiplied by a risk-weight of
0% to 100%, based on the risks the FDIC believes are inherent in the type of
asset or item.  The components of Tier 1 capital are equivalent to
those discussed above under the 3% leverage requirement.  The
components of supplementary capital currently include cumulative perpetual
preferred stock, adjustable-rate perpetual preferred stock, mandatory
convertible securities, term subordinated debt, intermediate-term preferred
stock and allowance for possible loan and lease losses.  Allowance for
possible loan and lease losses includable in supplementary capital is limited to
a maximum of 1.25% of risk-weighted assets.  Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of Tier 1
capital.  The FDIC includes in its evaluation of a bank's capital
adequacy an assessment of the exposure to declines in the economic value of the
bank's capital due to changes in interest rates.  However, no
measurement framework for assessing the level of a bank's interest rate risk
exposure has been codified.  In the future, the FDIC will issue a
proposed rule that would establish an explicit minimum capital charge for
interest rate risk, based on the level of a bank's measured interest rate risk
exposure.





An
undercapitalized, significantly undercapitalized, or critically undercapitalized
institution is required to submit an acceptable capital restoration plan to its
appropriate federal banking agency.  The plan must specify (i) the
steps the institution will take to become adequately capitalized, (ii) the
capital levels to be attained each year, (iii) how the institution will comply
with any regulatory sanctions then in effect against the institution and (iv)
the types and levels of activities in which the institution will
engage.  The banking agency may not accept a capital restoration plan
unless the agency determines, among other things, that the plan "is based on
realistic assumptions, and is likely to succeed in restoring the institution's
capital" and "would not appreciably increase the risk...to which the institution
is exposed."





The FDIA
provides that the appropriate federal regulatory agency must require an insured
depository institution that is significantly undercapitalized or is
undercapitalized and either fails to submit an acceptable capital restoration
plan within the time period allowed or fails in any material respect to
implement a capital restoration plan accepted by the appropriate federal banking
agency to take one or more of the following actions:  (i) sell enough
shares, including voting shares, to become adequately capitalized; (ii) merge
with (or be sold to) another institution (or holding company), but only if
grounds exist for appointing a conservator or receiver; (iii) restrict certain
transactions with banking affiliates as if the "sister bank" requirements of
Section 23A of the Federal Reserve Act ("FRA") did not exist; (iv) otherwise
restrict transactions with bank or non-bank affiliates; (v) restrict interest
rates that the institution pays on deposits to "prevailing rates" in the
institution's region; (vi) restrict asset growth or reduce total assets; (vii)
alter, reduce or terminate activities; (viii) hold a new election of directors;
(ix) dismiss any director or senior executive officer who held office for more
than 180 days immediately before the institution became undercapitalized; (x)
employ "qualified" senior executive officers; (xi) cease accepting deposits from
correspondent depository institutions; (xii) divest certain non-depository
affiliates which pose a danger to the institution; (xiii) be divested by a
parent holding company; and (xiv) take any other action which the agency
determines would better carry out the purposes of the Prompt Corrective Action
provisions.  See "-- Prompt Corrective Action."





The FDIC
has adopted the Federal Financial Institutions Examination Council's
recommendation regarding the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."  Specifically, the agencies determined that net
unrealized


30


holding
gains or losses on available for sale debt and equity securities should not be
included when calculating core and risk-based capital ratios.





FDIC
capital requirements are designated as the minimum acceptable standards for
banks whose overall financial condition is fundamentally sound, which are
well-managed and have no material or significant financial
weaknesses.  The FDIC capital regulations state that, where the FDIC
determines that the financial history or condition, including off-balance sheet
risk, managerial resources and/or the future earnings prospects of a bank are
not adequate and/or a bank has a significant volume of assets classified
substandard, doubtful or loss or otherwise criticized, the FDIC may determine
that the minimum adequate amount of capital for that bank is greater than the
minimum standards established in the regulation.





The
Bank's management believes that, under the current regulations, the Bank will
continue to meet its minimum capital requirements in the foreseeable
future.  However, events beyond the control of the Bank, such as a
downturn in the economy in areas where the Bank has most of its loans, could
adversely affect future earnings and, consequently, the ability of the Bank to
meet its capital requirements.





For a
discussion of the Bank’s capital position relative to its FDIC Capital
requirements at June 30, 2008, see Note 12 of the Notes to the Consolidated
Financial Statements in the annual report to stockholders included in Exhibit 13
and hereby incorporated by reference.





Activities and
Investments of Insured State-Chartered Banks.  The FDIA
generally limits the activities and equity investments of FDIC-insured,
state-chartered banks to those that are permissible for national
banks.  Under regulations dealing with equity investments, an insured
state bank generally may not directly or indirectly acquire or retain any equity
investment of a type, or in an amount, that is not permissible for a national
bank.  An insured state bank is not prohibited from, among other
things, (i) acquiring or retaining a majority interest in a subsidiary, (ii)
investing as a limited partner in a partnership the sole purpose of which is
direct or indirect investment in the acquisition, rehabilitation or new
construction of a qualified housing project, provided that such limited
partnership investments may not exceed 2% of the bank's total assets, (iii)
acquiring up to 10% of the voting stock of a company that solely provides or
reinsures directors', trustees' and officers' liability insurance coverage or
bankers' blanket bond group insurance coverage for insured depository
institutions, and (iv) acquiring or retaining the voting shares of a depository
institution if certain requirements are met.





Subject
to certain regulatory exceptions, FDIC regulations provide that an insured
state-chartered bank may not, directly, or indirectly through a subsidiary,
engage as "principal" in any activity that is not permissible for a national
bank unless the FDIC has determined that such activities would pose no risk to
the insurance fund of which it is a member and the bank is in compliance with
applicable regulatory capital requirements.  Any insured
state-chartered bank directly or indirectly engaged in any activity that is not
permitted for a national bank or for which the FDIC has granted and exception
must cease the impermissible activity.





Affiliate
Transactions.  The Company and the Bank are legal entities
separate and distinct.  Various legal limitations restrict the Bank
from lending or otherwise supplying funds to the Company (an "affiliate"),
generally limiting such transactions with the affiliate to 10% of the bank's
capital and surplus and limiting all such transactions to 20% of the bank's
capital and surplus.  Such transactions, including extensions of
credit, sales of securities or assets and provision of services, also must be on
terms and conditions consistent with safe and sound banking practices, including
credit standards, that are substantially the same or at least as favorable to
the bank as those prevailing at the time for transactions with unaffiliated
companies.





Federally
insured banks are subject, with certain exceptions, to certain restrictions on
extensions of credit to their parent holding companies or other affiliates, on
investments in the stock or other securities of affiliates and on the taking of
such stock or securities as collateral from any borrower.  In
addition, such banks are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or the providing of any property or
service.





Community
Reinvestment Act.  Banks are also subject to the provisions of
the Community Reinvestment Act of 1977 ("CRA"), which requires the appropriate
federal bank regulatory agency, in


31


connection
with its regular examination of a bank, to assess the bank's record in meeting
the credit needs of the community serviced by the bank, including low and
moderate income neighborhoods.  The regulatory agency's assessment of
the bank's record is made available to the public.  Further, such
assessment is required of any bank which has applied, among other things, to
establish a new branch office that will accept deposits, relocate an existing
office or merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution.  The Bank
received a "satisfactory" rating during its most recent CRA
examination.





Dividends.  Dividends
from the Bank constitute the major source of funds for dividends that may be
paid by the Company.  The amount of dividends payable by the Bank to
the Company depends upon the Bank's earnings and capital position, and is
limited by federal and state laws, regulations and policies.





The
amount of dividends actually paid during any one period will be strongly
affected by the Bank's management policy of maintaining a strong capital
position.  Federal law further provides that no insured depository
institution may make any capital distribution (which would include a cash
dividend) if, after making the distribution, the institution would be
"undercapitalized," as defined in the prompt corrective action
regulations.  Moreover, the federal bank regulatory agencies also have
the general authority to limit the dividends paid by insured banks if such
payments should be deemed to constitute an unsafe and unsound
practice.





The
Company





Bank Holding Company
Regulation.  Bank holding companies are subject to
comprehensive regulation by the FRB under the BHCA. As a bank holding company,
the Company is required to file reports with the FRB and such additional
information as the FRB may require, and the Company and its non-banking
affiliates will be subject to examination by the FRB. Under FRB policy, a bank
holding company must serve as a source of strength for its subsidiary
banks.  Under this policy the FRB may require, and has required in the
past, a holding company to contribute additional capital to an undercapitalized
subsidiary bank.  Under the BHCA, a bank holding company must obtain
FRB approval before: (i) acquiring, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.





The Company is
subject to the activity limitations imposed on bank holding companies. The BHCA
prohibits a bank holding company, with certain exceptions, from acquiring direct
or indirect  ownership or control of more than 5% of the voting shares
of any company which is not a bank or bank holding company, or from engaging
directly or indirectly in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal
exceptions to these prohibitions involve certain non-bank activities which, by
statute or by FRB regulation or order, have been identified as activities
closely related to the business of banking or managing or controlling banks. The
list of activities permitted by the FRB includes, among other things, operating
a savings institution, mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
certain investment and financial advice; underwriting and acting as an insurance
agent for certain types of credit-related insurance; leasing property on a
full-payout, non-operating basis; selling money orders, travelers' checks and
United States Savings Bonds; real estate and personal property appraising;
providing tax planning and preparation services; and, subject to certain
limitations, providing securities brokerage services for customers. The scope of
permissible activities may be expanded from time to time by the FRB. Such
activities may also be affected by federal legislation.


32





TAXATION





Federal
Taxation





General.  The
Company and the Bank report their income on a fiscal 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 reserve for bad debts discussed below.  The following
discussion of tax matters is intended only as a summary and does not purport to
be a comprehensive description of the tax rules applicable to the Bank or the
Company.





Bad Debt
Reserve.  Historically, savings institutions, such as the Bank
used to be, which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift"), were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income.  The
Bank's deductions with respect to their loans, which are generally loans secured
by certain interests in real property, are computed using an amount based on the
Bank's actual loss experience, in accordance with IRS Section
585(B)(2).  Due to the Bank's loss experience, the Bank generally
recognized a bad debt deduction equal to their net charge-offs.





Distributions.  To
the extent that the Bank makes "nondividend distributions" to the Company, such
distributions will be considered to result in distributions from the balance of
its bad debt reserve as of December 31, 1987 (or a lesser amount if the Bank's
loan portfolio decreased since December 31, 1987) and then from the supplemental
reserve for losses on loans ("Excess Distributions"), and an amount based on the
Excess Distributions 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 be considered to result in a distribution from the Bank's bad debt
reserve.  The amount of additional taxable income created from an
Excess Distribution is an amount that, when reduced by the tax attributable to
the income, is equal to the amount of the distribution.  Thus, if the
Bank makes a "nondividend distribution," then approximately one and one-half
times the Excess Distribution would be includable in gross income for federal
income tax purposes, assuming a 34% corporate income tax rate (exclusive of
state and local taxes).  See "REGULATION" for limits on the payment of
dividends by the Bank.  The Bank does not intend to pay dividends that
would result in a recapture of any portion of its tax bad debt
reserve.





Corporate
Alternative Minimum Tax.  The Internal Revenue Code imposes a
tax on alternative minimum taxable income ("AMTI") at a rate of
20%.  In addition, only 90% of AMTI can be offset by net operating
loss carry-overs.  AMTI is increased by an amount equal to 75% of the
amount by which the Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this preference and prior to reduction for net
operating losses).





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.  The corporate dividends-received deduction is generally
70% in the case of dividends received from unaffiliated corporations with which
the Company and the Bank will not file a consolidated tax return, except that if
the Company or the Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may be
deducted.





Missouri
Taxation





Missouri-based
banks, such as the Bank, are subject to a Missouri bank franchise and income
tax.  The Missouri bank franchise tax is based on the Bank's taxable
income, however, it is reduced by its portion of the Missouri income
tax.





The
Missouri franchise tax is imposed on (i) the bank's taxable income at the rate
of 7% of the taxable income (determined without regard for any net operating
losses), less credits for all other state or local taxes, including income tax,
however, the credits excludes taxes paid for real estate, unemployment taxes,
bank tax,


33


and taxes
on tangible personal property owned by the Bank and held for lease or rentals to
others - income-based calculation; and (ii) the bank's assets at a rate of .033%
of total assets less deposits and the investment in greater than 50% owned
subsidiaries - asset-based calculation.





The Bank
and its holding company and related subsidiaries are subject to an income tax
that is imposed on the consolidated taxable income at the rate of
6.25%.  The return is filed on a consolidated basis by all members of
the consolidated group including the Bank.





Audits





There
have been no IRS audits of the Company's Federal income tax returns or audits of
the Bank's state income tax returns during the past five years.





For
additional information regarding taxation, see Note 10 of Notes to Consolidated
Financial Statements contained in the Annual Report.





Personnel





As of
June 30, 2008, the Company had 93 full-time employees and nine part-time
employees.  The Company believes that employees play a vital role in
the success of a service company and that the Company's relationship with its
employees is good.  The employees are not represented by a collective
bargaining unit.





34


Item
1A.   Risk Factors





An
investment in our common stock is subject to risks inherent in our business.
Before making an investment decision, you should carefully consider the risks
and uncertainties described below together with all of the other information
included and incorporated by reference in this report. In addition to the risks
and uncertainties described below, other risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially and
adversely affect our business, financial condition and results of operations.
The value or market price of our common stock could decline due to any of these
identified or other risks, and you could lose all or part of your
investment.





Our
allowance for loan losses may prove to be insufficient to absorb probable losses
in our loan portfolio.





Lending
money is a substantial part of our business. Every loan carries a certain risk
that it will not be repaid in accordance with its terms or that any underlying
collateral will not be sufficient to assure repayment. This risk is affected by,
among other things:





·
            cash
      flow of the borrower and/or the project being
  financed;


·
            in
      the case of a collateralized loan, the changes and uncertainties as to the
      future value of the collateral;


·
            the
      credit history of a particular
borrower;


·
            changes
      in economic and industry conditions;
and


·
            the
      duration of the loan.





We
maintain an allowance for loan losses which we believe is appropriate to provide
for potential losses in our loan portfolio. The amount of this allowance is
determined by our management through a periodic review and consideration of
several factors, including, but not limited to:





·
            an
      ongoing review of the quality, size and diversity of the loan
      portfolio;


·
            evaluation
      of non-performing loans;


·
            historical
      default and loss experience;


·
            historical
      recovery experience;


·
            existing
      economic conditions;


·
            risk
      characteristics of the various classifications of loans;
    and


·
            the
      amount and quality of collateral, including guarantees, securing the
      loans.





If our
loan losses exceed our allowance for probable loan losses, our business,
financial condition and profitability may suffer.





Changes
in economic conditions, particularly a significant economic slowdown in
Southeast Missouri, could hurt our business.




Our
business is directly affected by market conditions, trends in industry and
finance, legislative and regulatory changes, and changes in governmental
monetary and fiscal policies and inflation, all of which are beyond our
control.  In 2007, the housing and real estate sectors experienced an
economic slowdown that has continued into 2008.  Further deterioration
in economic conditions, in particular within our primary market area in
Southeast Missourireal estate markets, could
result in the following consequences, among others, any of which could hurt our
business materially:




·
              loan
      delinquencies may increase;
 ·
              problem
      assets and foreclosures may
increase;
 ·
              demand
      for our products and services may decline;
and
 ·
              collateral
      for loans made by us, especially real estate, may decline in value, in
      turn reducing a customer’s borrowing power and reducing the value of
      assets and collateral securing our
loans.
    35


Downturns
in the real estate markets in our primary market area could hurt our
business.




Our
business activities and credit exposure are primarily concentrated inSoutheast
Missouri.  While we did not and do not have a sub-prime lending
program, our residential real estate, construction and land loan portfolios, our
commercial and multifamily loan portfolios and certain of our other loans could
be affected by the downturn in the residential real estate market.  We
anticipate that significant declines in the real estate markets in our primary
market area would hurt our business and would mean that collateral for our loans
would hold less value.  As a result, our ability to recover on
defaulted loans by selling the underlying real estate would be diminished, and
we would be more likely to suffer losses on defaulted loans.  The
events and conditions described in this risk factor could therefore have a
material adverse effect on our business, results of operations and financial
condition.




Liquidity
risk could impair our ability to fund operations and jeopardize our financial
condition.




Liquidity
is essential to our business. An inability to raise funds through deposits,
borrowings, the sale of loans and other sources could have a substantial
negative effect on our liquidity. Our access to funding sources in amounts
adequate to finance our activities or the terms of which are acceptable to us
could be impaired by factors that affect us specifically or the financial
services industry or economy in general. Factors that could detrimentally impact
our access to liquidity sources include a decrease in the level of our business
activity as a result of a downturn in the markets in which our loans are
concentrated or adverse regulatory action against us. Our ability to borrow
could also be impaired by factors that are not specific to us, such as a
disruption in the financial markets or negative views and expectations about the
prospects for the financial services industry in light of the recent turmoil
faced by banking organizations and the continued deterioration in credit
markets.




Rising
interest rates may hurt our profits.





To be
profitable we have to earn more interest on our loans and investments than we
pay on our deposits and borrowings.  If interest rates continue to
rise, our net interest income and the value of our assets could be reduced if
interest paid on interest-bearing liabilities, such as deposits and borrowings,
increases more quickly than interest received on interest-earning assets, such
as loans and investments. This is most likely to occur if short-term interest
rates increase at a faster rate than long-term interest rates, which would cause
income to go down.  At June 30, 2008, $98.6 million, or 28.0%, of our
loan portfolio consisted of fixed rate one- to four-family residential real
estate loans.  In addition, rising interest rates may hurt our income
because they may reduce the demand for loans and the value of our
securities.  A flat yield curve may also hurt our income, because it
would reduce our ability to reinvest proceeds from loan and investment
repayments at higher rates.  See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Annual Report
as Exhibit 13.





Non-compliance
with USA Patriot Act, Bank Secrecy Act, or other laws and regulations could
result in fines or sanctions.





The USA
Patriot and Bank Secrecy Acts require financial institutions to develop programs
to prevent financial institutions from being used for money laundering and
terrorist activities. If such activities are detected, financial institutions
are obligated to file suspicious activity reports with the U.S. Treasury
Department's Office of Financial Crimes Enforcement Network. These rules require
financial institutions to establish procedures for identifying and verifying the
identity of customers seeking to open new financial accounts. Failure to comply
with these regulations could result in fines or sanctions. During the last year,
several banking institutions have received large fines for non-compliance with
these laws and regulations. Although we have developed policies and procedures
designed to assist in compliance with these laws and regulations, no assurance
can be given that these policies and procedures will be effective in preventing
violations of these laws and regulations.





36


New
or changes in existing tax, accounting, and regulatory rules and interpretations
could significantly impact strategic initiatives, results of operations, cash
flows, and financial condition.





The
financial services industry is extensively regulated. Federal and state banking
regulations are designed primarily to protect the deposit insurance funds and
consumers, not to benefit a financial company's shareholders. These regulations
may sometimes impose significant limitations on operations. The significant
federal and state banking regulations that affect us are described in this
report under the heading "Item 1. Business-Supervision and Regulation." These
regulations, along with the currently existing tax, accounting, securities,
insurance, and monetary laws, regulations, rules, standards, policies, and
interpretations control the methods by which financial institutions conduct
business, implement strategic initiatives and tax compliance, and govern
financial reporting and disclosures. These laws, regulations, rules, standards,
policies, and interpretations are constantly evolving and may change
significantly over time.





Significant
legal actions could subject the Company to substantial liabilities.





The
Company is from time to time subject to claims related to its operations. These
claims and legal actions, including supervisory actions by the Company's
regulators, could involve large monetary claims and significant defense costs.
As a result, the Company may be exposed to substantial liabilities, which could
adversely affect the Company's results of operations and financial
condition.





Our
future success is dependent on our ability to compete effectively in the highly
competitive banking industry.





We face
substantial competition in all phases of our operations from a variety of
different competitors. Our future growth and success will depend on our ability
to compete effectively in this highly competitive environment. To date, we have
grown our business successfully by focusing on our business lines in geographic
markets and emphasizing the high level of service and responsiveness desired by
our customers. We compete for loans, deposits and other financial services with
other commercial banks, thrifts, credit unions, brokerage houses, mutual funds,
insurance companies and specialized finance companies. Many of our competitors
offer products and services which we do not offer, and many have substantially
greater resources and lending limits, name recognition and market presence that
benefit them in attracting business. In addition, larger competitors may be able
to price loans and deposits more aggressively than we do, and smaller newer
competitors may also be more aggressive in terms of pricing loan and deposit
products than we are in order to obtain a share of the market. Some of the
financial institutions and financial services organizations with which we
compete are not subject to the same degree of regulation as is imposed on bank
holding companies, federally insured state-chartered banks and national banks
and federal savings banks. As a result, these nonbank competitors have certain
advantages over us in accessing funding and in providing various
services.





We
are subject to security and operational risks relating to our use of technology
that could damage our reputation and our business.





Security
breaches in our internet banking activities could expose us to possible
liability and damage our reputation. Any compromise of our security also could
deter customers from using our internet banking services that involve the
transmission of confidential information. We rely on standard internet security
systems to provide the security and authentication necessary to effect secure
transmission of data. These precautions may not protect our systems from
compromises or breaches of our security measures that could result in damage to
our reputation and our business. Additionally, we outsource our data processing
to a third party. If our third party provider encounters difficulties or if we
have difficulty in communicating with such third party, it will significantly
affect our ability to adequately process and account for customer transactions,
which would significantly affect our business operations.





Item
      1B.
            Unresolved Staff
      Comments





None.





37


Item
2.               Description of
Properties





The
following table sets forth certain information regarding the Bank's offices as
of June 30, 2008.





Location
            Year
              Opened
            Building
      Net
              Book
      Value as of
              June
      30, 2008
            Land
              Owned/
              Leased
            Building
              Owned/
              Leased(Dollars
      in thousands)Main
      Office531
      Vine Street
              Poplar
      Bluff, Missouri
            1966
            $546
            Owned
            OwnedBranch
      Offices502
      Main Street
              Van
      Buren, Missouri
            1982
            $26
            Owned
            Owned1330
      N. Westwood Blvd.
              Poplar
      Bluff, Missouri
            1976
            $43
            Leased(1)
            Owned4214
      Highway PP
              Poplar
      Bluff, Missouri
            2001
            $521
            Owned
            Owned713
      Business 60 West
              Dexter,
      Missouri
            1979
            $45
            Owned
            Owned301
      First Street
              Kennett,
      Missouri
            2000
            $798
            Owned
            Owned302
      Washington
              Doniphan,
      Missouri
            2001
            $570
            Owned
            Owned13371
      Highway 53
              Qulin,
      Missouri
            2000
            $48
            Owned
            Owned1205
      S. Main St.
              Sikeston,
      Missouri
            2006
            $915
            Owned
            Owned


______________________


(1)           Lease
expires on November 30, 2014 but includes options to renew at lessee's
discretion.








38


Item
3.    Legal
Proceedings





Except as
set forth below, in the opinion of management, the Bank is not a party to any
pending claims or lawsuits that are expected to have a material effect on the
Bank's financial condition or operations.  Periodically, there have
been various claims and lawsuits involving the Bank mainly as a defendant, such
as claims to enforce liens, condemnation proceedings on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans and other issues incident to the Bank's
business.  Aside from such pending claims and lawsuits, which are
incident to the conduct of the Bank's ordinary business, the Bank is not a party
to any material pending legal proceedings that would have a material effect on
the financial condition or operations of the Bank.





In April 2005, the Bank discovered there
had been an adverse development with respect to a substandard loan that resulted
from allegedly fraudulent activities on the part of the borrower. To date, we
have liquidated all assets of the borrower of which we were able to take
possession, and have incurred charge-offs of $4.7 million. Since June 30, 2006,
the Bank no longer reports any amount of this loan relationship, or any
collateral related thereto, as an asset. On October 22, 2007, the Bank announced
a recovery of $162,500, resulting from claims made by the Bank and other
financial institutions against the bonding company insuring the accounting firm
that performed audits on said borrower. The Bank does not anticipate further
significant recoveries related to this loan relationship.





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





No
matters were submitted to a vote of security holders during the quarter ended
June 30, 2008.








PART
II





Item
      5.
            Market for the
      Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity
Securities





The
information contained in the section captioned "Common Stock" in the Annual
Report is incorporated herein by reference.





Information
regarding our equity compensation plans is included in Item 12 of this Form
10-K.





The
following table summarizes the Company's stock repurchase activity for each
month during the three months ended June 30, 2008.  All shares
repurchased during three months ended June 30, 2008, were repurchased in the
open market.





Total
      #
              of
      Shares
              Purchased
            
            
            Average
              Price
              Paid
      Per
              Share
            
            
            Total
      # of Shares
              Purchased
      as Part of a Publicly
              Announced
              Program
            
            
            Maximum
      Number of Shares That
              May
      Yet Be Purchased06/01/08-06/30/08
      period
            
            
            33,500
            
            
            $
            14.32
            
            
            
            33,500
            
            
            
            16,85705/01/08-05/31/08
      period
            
            
            10,300
            
            
            
            14.90
            
            
            
            10,300
            
            
            
            50,35704/01/08-04/30/08
      period
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            60,657





Item
      6.
            Selected Financial
      Data





The
information contained in the section captioned "Financial Review" in the Annual
Report is incorporated herein by reference.





Item
7.    Management's Discussion and
Analysis of Financial Condition and Results of Operations





The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference.


39





Item
      7A
            Quantitative and
      Qualitative Disclosures About Market
Risk





The
information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate
Sensitivity Analysis" in the Annual Report is incorporated herein by
reference.





Item
8.    Financial Statements and
Supplementary Data





Report
From Independent Registered Public Accounting Firm*





(a)
            Consolidated
      Balance Sheets as of June 30, 2008 and 2007*(b)
            Consolidated
      Statements of Income for the Years Ended June 30, 2008, 2007 and
      2006*(c)
            Consolidated
      Statements of Stockholders' Equity For the Years Ended June 30, 2008, 2007
      and 2006*(d)
            Consolidated
      Statements of Cash Flows For the Years Ended June 30, 2008, 2007 and
      2006*(e)
            Notes
      to Consolidated Financial
Statements*





*
            Contained
      in the Annual Report filed as an exhibit hereto and incorporated herein by
      reference.  All schedules have been omitted as the required
      information is either inapplicable or contained in the Consolidated
      Financial Statements or related Notes contained in the Annual
      Report.





Item
9.    Changes in and Disagreements
With Accountants on Accounting and Financial Disclosure





None.





Item
9A.  Controls and
Procedures





(a)
            Evaluation
      of Disclosure Controls and
Procedures





An
evaluation of the Company's disclosure controls and procedures (as defined in
Rule13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as
of June 30, 2008, was carried out under the supervision and with the
participation of our Chief Executive Officer, who is also our Chief Financial
Officer, and several other members of our senior management.  Our
Chief Executive Officer concluded that our disclosure controls and procedures as
currently in effect are effective in ensuring that the information required to
be disclosed in the reports the Company files or submits under the Exchange Act
is (i) accumulated and communicated to our management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.  There have been no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Act) that occurred during the year ended June 30, 2008, that has materially
effected, or is reasonably likely to materially affect, our internal control
over financial reporting.





We intend
to continually review and evaluate the design and effectiveness of the Company's
disclosure controls and procedures and to improve the Company's controls and
procedures over time and to correct any deficiencies that we may discover in the
future.  The goal is to ensure that senior management has timely
access to all material financial and non-financial information concerning the
Company's business.  While we believe the present design of the
disclosure controls and procedures is effective to achieve its goal, future
events affecting its business may cause the Company to modify its disclosure
controls and procedures.




The Company does not
expect that its disclosure controls and procedures will prevent all error and
all fraud.  A control procedure, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control procedure are met.  Because of
the


40






inherent
limitations in all control procedures, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.  These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control.  The design of any control procedure also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate.  Because of the
inherent limitations in a cost-effective control procedure, misstatements due to
error or fraud may occur and not be detected.
  Management’s
Report on Internal Control Over Financial Reporting
  The management of Southern Missouri
Bancorp, Inc. is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f).  The Company’s internal control over financial reporting is
a process designed to provide reasonable assurance to the Company’s management
and board of directors regarding the reliability of financial reporting and the
preparation of the financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America.
  The Company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
  Because of its inherent limitations,
internal controls over financial reporting may not prevent or detect
misstatements.  All internal control systems, no matter how well
designed, have inherent limitations, including the possibility of human error
and the circumvention of overriding controls.  Accordingly, even
effective internal control over financial reporting can provide only reasonable
assurance with respect to financial statement preparation.  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.
  Our management assessed the
effectiveness of the Company’s internal control over financial reporting as of
June 30, 2008.  In making this assessment, it used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal
Control-Integrated Framework.  Based on our assessment, we
believe that, as of June 30, 2008, the Company’s internal control over financial
reporting was effective based on those criteria.
  This annual report does not include an
attestation of our independent public accounting firm regarding internal
controls over financial reporting.  Management’s report was not
subject to attestation by our independent public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.
  Date:  September
      29, 2008
              By:
              /s/ Greg A.
      Steffens
                Greg
      A. Steffens
                President
                (Principal
      Executive and Principal Financial
                and
      Accounting Officer)




41





Item
9B.  Other
Information





None.





PART
III





Item
10.  Directors, Executive
Officers, Promoters and Control Persons; Compliance with


Section 16(a) of the
Exchange Act





Directors





Information
concerning the Directors of the Company is incorporated herein by reference from
the definitive proxy statement for the annual meeting of shareholder to be held
October 20, 2008, a copy of which will be filed not later than 120 days after
the close of the fiscal year.





Executive
Officers





Information
concerning the Executive Officers of the Company is incorporated herein by
reference from the definitive proxy statement for the annual meeting of
shareholders to be held October 20, 2008, except for information contained under
the headings "Compensation Committee Report" and "Stock Performance
Presentation," a copy of which will be field not later than 120 days after the
close of the fiscal year.





Audit
Committee Matters and Audit Committee Financial Expert





The Board
of Directors of the Company has a standing Audit/Compliance Committee, which has
been established in accordance with Section 3(a)(58)(A) of the Exchange
Act.  The members of that committee are Directors Love (Chairman),
Tatum, Smith, Bagby, Black, Schalk, Moffitt and Brooks, all of whom are
considered independent under applicable Nasdaq listing standards.  The
Board of Directors has determined that Mr. Love is an "audit committee financial
expert" as defined in applicable SEC rules. Additional information concerning
the audit committee of the Company's Board of Directors is incorporated herein
by reference from the Company's definitive proxy statement for its Annual
Meeting of Stockholders to be held in October 2008, except for information
contained under the heading "Compensation Committee Report" and "Report of the
Audit Committee", a copy of which will be filed not later than 120 days after
the close of the fiscal year.





Section
16(a) Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, file with the SEC initial reports of ownership and
reports of changes in ownership of the Company's Common
Stock.  Officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.  To the Company's knowledge no late reports
occurred during the fiscal year ended June 30, 2008.  All other
Section 16(a) filing requirements applicable to our executive officers,
directors and greater than 10% beneficial owners were complied
with.





Code
of Ethics





On
January 20, 2005, the Company adopted a written Code of Ethics based upon the
standards set forth under Item 406 of the Securities Exchange
Act.  The Code of Ethics applies to all of the Company's directors,
officers and employees.





Nomination
Procedures





There
have been no material changes to the procedures by which stockholders may
recommend nominees to the Company's Board of Directors.


42


Item
      11.
            Executive
      Compensation





Information
concerning executive compensation is incorporated herein by reference from the
definitive proxy statement for the annual meeting of shareholders to be held
October 20, 2008, except for information contained under the headings
"Compensation Committee Report" and "Stock Performance Presentation," a copy of
which will be filed not later than 120 days after the close of the fiscal
year.





Item
      12.
            Security Ownership of
      Certain Beneficial Owners and Management and Related Stockholder
      Matters





Information
concerning security ownership of certain beneficial owners and management is
incorporated herein by reference from the definitive proxy statement for the
annual meeting of shareholders to be held October 20, 2008, except for
information contained under the headings "Compensation Committee Report" and
"Stock Performance Presentation," a copy of which will be filed not later than
120 days after the close of the fiscal year.





The
following table sets forth information as of June 30, 2008 with respect to
compensation plans under which shares of common stock were issued.





Equity
Compensation Plan Information





Plan Category
            
            Number
      of securities to
              be
      issued upon exercise
              of
      outstanding options
              warrants and rights
            
            
            Weighted-average
              exercise
      price of
              outstanding
      options
              warrants and rights
            
            
            Number
      of Securities
              remaining
      available for
              future
      issuance under
              equity compensation plansEquity
      Compensation
              Plans
      Approved By
              Security
      Holders
            
            
            104,500
            
            
            
            $12.43
            
            
            
            29,500Equity
      Compensation
              Plans
      Not Approved By
              Security
      Holders
            
            
            ---
            
            
            
            ---
            
            
            
            ---








Item
13.  Certain
Relationships and Related Transactions





Information
concerning certain relationships and related transactions is incorporated herein
by reference from the definitive proxy statement for the annual meeting of
shareholders to be held October 20, 2008, except for information contained under
the headings "Compensation Committee Report" and "Stock Performance
Presentation," a copy of which will be filed not later than 120 days after the
close of the fiscal year.





Item
      14.
            Principal Accountant
      Fees and Services





Information
concerning fees and services by our principal accountants is incorporated herein
by reference from our definitive Proxy Statement for the 2008 Annual Meeting of
Stockholders, a copy of which will be filed not later than 120 days after the
close of the fiscal year.





43


PART
IV





Item
15.             Exhibits and Financial
Statement Schedules





(a)(1)
            Financial
      Statements:





Part II,
Item 8 is hereby incorporated by reference.





(a)(2)
            Financial
      Statement Schedules:





All
financial statement schedules have been omitted as the information is not
required under the related instructions or is not applicable.





(a)(3)
            Exhibits:





Regulation
      S-K
              Exhibit
      Number
            Document
            Reference
      to
              Prior Filing
              or
      Exhibit Number
              Attached
      Hereto3(i)
            Certificate
      of Incorporation of the Registrant
            ++3(ii)
            Bylaws
      of the Registrant
            ++10
            Material
      contracts:(a)
            Registrant's
      1994 Stock Option Plan
            *(b)
            Southern
      Missouri Savings Bank, FSB
              Management
      Recognition and Development Plans
            *(c)
            Employment
      Agreements:
            **(i)
            Greg
      A. Steffens
            **(d)
            
            Director's
      Retirement Agreements(v)
            James
      W. Tatum
            ***(vi)
            Samuel
      H. Smith
            ***(vii)
            Sammy
      A. Schalk
            ****(viii)
            Ronnie
      D. Black
            ****(ix)
            L.
      Douglas Bagby
            ****(x)
            Rebecca
      McLane Brooks
            *****(xi)
            Charles
      R. Love
            *****(xii)
            Charles
      R. Moffitt
            *****(e)
            
            Tax
      Sharing Agreement
            ***11
            Statement
      Regarding Computation of Per Share Earnings
            1113
            2008
      Annual Report to Stockholders
            1314
            Code
      of Conduct and Ethics
            +++21
            Subsidiaries
      of the Registrant
            2123
            Consent
      of Auditors
            2331
            Rule
      13a-14(a)/15d-14(a) Certifications32
            Section
      1350 Certifications


_______________________


*
            Filed
      as an exhibit to the Registrant's 1994 annual meeting proxy statement
      dated October 21, 1994.**
            Filed
      as an exhibit to the Registrant's Annual Report on Form 10-KSB for the
      year ended June 30, 1999.***
            Filed
      as an exhibit  to the Registrant's Annual Report on Form 10-KSB
      for the year ended June 30, 1995.****
            Filed
      as an exhibit to the Registrant's Report on Form 10-QSB for the quarter
      ended December 31, 2000.*****
            Filed
      as an exhibit to the Registrant's Report on Form 10-QSB for the quarter
      ended December 31, 2004.++
            Filed
      as an exhibit to the Registrant's Annual Report on Form 10-K for the year
      ended June 30, 1999.+++
            Filed
      as an exhibit to the Current Report on Form 8-K filed on September 15,
      2005.





44


SIGNATURES





Pursuant
to the requirements of 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.











SOUTHERN
      MISSOURI BANCORP, INC.Date:
            September
      29, 2008
            
            By:
            /s/
      Greg A. SteffensGreg
      A. Steffens
              President
              (Duly Authorized
      Representative)





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.








By:
            /s/
      James W. Tatum
            
            September
      29, 2008James
      W. Tatum

              Chairman
      of the Board of DirectorsBy:
            /s/ Greg A. Steffens
            
            September
      29, 2008Greg
      A. Steffens
              President
              (Principal Executive and
      Financial
              and Accounting
      Officer)By:
            /s/
      Samuel H. Smith
            
            September
      29, 2008Samuel
      H. Smith
              Vice
      Chairman and DirectorBy:
            /s/
      Ronnie D. Black
            
            September
      29, 2008Ronnie
      D. Black
              Secretary
      and DirectorBy:
            /s/ L. Douglas Bagby
            
            September
      29, 2008L.
      Douglas Bagby
              DirectorBy:
            /s/
      Sammy A. Schalk
            
            September
      29, 2008Sammy
      A. Schalk
              DirectorBy:
            /s/
      Rebecca McLane Brooks
            
            September
      29, 2008Rebecca
      McLane Brooks
              DirectorBy:
            /s/
      Charles R. Love
            
            September
      29, 2008Charles
      R. Love
              DirectorBy:
            /s/
      Charles R. Moffitt
            
            September
      29, 2008Charles
      R. Moffitt
              Director






45


Index
to Exhibits





Regulation
      S-B
              Exhibit Number
            
            Document10.1
            
            Named
      Executive Officer Salary and Bonus Agreement for 200810.2
            
            Director
      Fee Arrangements11
            
            Statement
      Regarding Computation of Per Share Earnings13
            
            2007
      Annual Report to Stockholders21
            
            Subsidiaries
      of the Registrant23
            
            Consent
      of Auditors31
            
            Rule
      13a-14(a)/15d-14(a) Certifications32
            
            Section
      1350 Certifications