SOUTHERN MISSOURI BANCORP, INC. - Annual Report: 2006 (Form 10-K)

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 1934

	For the fiscal year ended June 30, 2006 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 mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-B 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.       X

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
            Large accelerated filer                  Accelerated filer                 Non-accelerated filer    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 $28.5 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 28, 2006, there were issued and outstanding 2,236,331 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, 2006.
            Part III of Form 10-K - Portions of the Proxy Statement for the 2006 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, 2006, the Company had total assets of $350.7 million, total deposits of $258.1 million and stockholders' equity of $26.6 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.

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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:

further developments in the Company's ongoing review of and efforts to resolve the problem credit relationship described in this report, which could result in, among other things, further downgrades of aforementioned loans, additional provisions to the loan loss reserve and the incurrence of other material non-cash and cash charges;

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,

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employing approximately 1,200 persons, and Briggs & Stratton, a small engine manufacturing facility employing approximately 1,000 persons. Other major employers include Good Humor-Breyers, Gates Rubber, John Pershing VA Hospital, Nordyne, the Poplar Bluff School District, the Twin Rivers Regional Medical Center, Wal-Mart Stores, Emerson Electric, Tyson Foods, and Arvin. 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.

Competition

            The Bank faces strong competition in attracting deposits (its primary source of lendable funds) and originating loans. The Bank is one of 20 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 2006 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.

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.

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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 $500,000 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, 2006, the maximum amount which the Bank could lend to any one borrower and the borrower's related entities was approximately $7.9 million. At June 30, 2006, the Bank's five largest extensions of credit to one entity ranged from $6.0 million to $7.5 million, net of participation interests sold. The majority of these credits were commercial or commercial real estate loans and all of them were performing according to their terms.

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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,
			2006		2005		2004
			Amount	Percent	Amount	Percent	Amount	Percent
			(Dollars in thousands)
Type of Loan:
Mortgage Loans:
	One-to four-family		$127,205	45.28%	$125,775	47.01%	$122,392	49.28%
	Commercial real estate		65,374	23.27	58,144	21.73	56,112	22.59
	Construction		10,868	3.87	8,557	3.20	7,533	3.03
	Total mortgage loans		$203,447	72.42	$192,476	71.94	$186,037	74.90

Other Loans:
	Automobile loans		10,428	3.71	11,444	4.28	12,808	5.16
	Commercial business		65,109	23.18	59,284	22.16	45,923	18.49
	Home equity		7,007	2.49	7,504	2.80	5,901	2.38
	Other		2,671	0.95	2,466	0.92	2,768	1.11
		Total other loans	85,215	30.33	80,698	30.16	67,400	27.14

		Total loans	$288,662	102.75	$273,174	102.10	$253,437	102.04

Less:
	Undisbursed loans in process		$ 5,738	2.04	$ 3,627	1.36	$ 3,093	1.24
	Deferred fees and discounts		(65)	(0.02)	(37)	(0.01)	11	---
	Allowance for loan losses		2,058	0.73	2,016	0.75	1,978	0.80
		Net loans receivable	$280,731	100.00%	$267,568	100.00%	$248,355	100.00%

Type of Security:
Residential real estate
	One-to four-family		$134,111	47.74%	$130,610	48.82%	$125,051	50.35%
	Multi-family		1,571	0.56	1,752	0.65	1,531	0.62
Commercial real estate			54,544	19.41	50,486	18.87	51,692	20.81
Land			14,177	5.04	9,628	3.60	7,763	3.12
Commercial			64,153	22.84	59,284	22.16	45,923	18.49
Consumer and other			20,106	7.16	21,414	8.00	21,477	8.65
		Total loans	$288,662	102.75	$273,174	102.10	$253,437	102.04

Less:
	Undisbursed loans in process		5,738	2.04	3,627	1.36	3,093	1.24
	Deferred fees and discounts		(65)	(0.02)	(37)	(0.01)	11	---
	Allowance for loan losses		2,058	0.73	2,016	0.75	1,978	0.80
		Net loans receivable	$280,931	100.00%	$267,568	100.00%	$248,355	100.00%

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

			At June 30,
			2006		2005		2004
			Amount	Percent	Amount	Percent	Amount	Percent
					(Dollars in thousands)
Type of Loan:
Fixed-Rate Loans:
	One-to four-family		$ 88,261	31.42%	$ 84,440	31.56%	$ 81,430	32.79%
	Commercial real estate		25,667	9.13	18,430	6.89	17,963	7.23
	Construction		6,536	2.33	5,882	2.20	4,733	1.91
	Consumer		13,059	4.65	13,867	5.18	15,798	6.24
	Commercial business		25,315	9.01	24,247	9.06	15,191	6.12

		Total fixed-rate loans	158,838	56.54	146,866	54.89	135,115	54.29

Adjustable-Rate Loans:
	One-to four-family		38,944	13.86	41,335	15.45	40,962	16.49
	Commercial real estate		39,706	14.13	39,714	14.84	38,149	15.36
	Construction		4,333	1.54	2,675	1.00	2,800	1.13
	Consumer		7,047	2.51	7,547	2.82	5,679	2.41
	Commercial business		39,794	14.17	35,037	13.10	30,732	12.37

		Total adjustable-rate loans	129,824	46.21	126,308	47.21	118,322	47.76

		Total Loans	288,662	102.75	273,174	102.10	253,437	102.05

Less:
	Undisbursed loans in process		5,738	2.04	3,627	1.36	3,093	1.25
	Net deferred loan fees		(65)	(0.02)	(37)	(0.01)	11	---
	Allowance for loan loss		2,058	0.73	2,016	0.75	1,978	0.80
			$280,931	100.00%	$267,568	100.00%	$248,355	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 loans are 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, 2006, net mortgage loans secured by one- to four-family residences totaled $127.2 million, or 45.3% of net loans receivable.

            The Bank currently offers both fixed-rate and adjustable-rate mortgage ("ARM") loans. During the year ended June 30, 2006, the Bank originated $9.3 million of ARM loans and $21.3 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 25 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 amortized 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

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contain prepayment penalties. Most are written using secondary market guidelines. At June 30, 2006, one- to four-family loans with a fixed rate totaled $88.3 million, and had a weighted-average maturity of 196 months.

            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, 2006, loans tied to the CMT index totaled $33.4 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 11^th 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, 2006, loans tied to these indices totaled $5.9 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 2006, 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, 2006, the Bank had $65.4 million in commercial real estate loans, which represented 23.3% 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 adjusts at least annually after an initial period up to five years, based upon the Wall Street prime rate or the one year CMT. Current commercial real estate originations typically adjust 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 guaranties 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, 2006, the Bank had $10.9 million, or 3.9% of net loans receivable in construction loans outstanding.

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            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, 2006, the Bank had $10.9 million in construction loans, $6.8 million of which were secured by residential real estate (of which $1.6 million was for speculative construction), $3.4 million of which were secured by commercial real estate and $700,000 of which were secured by multi-family real estate. 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, 2006, the Bank's consumer loan portfolio totaled $20.1 million, or 7.2% of net loans receivable.

            Home equity loans represented 34.9% of the Bank's consumer loan portfolio at June 30, 2006, and totaled $7.0 million, or 2.5% of net loans receivable.

            Home equity lines of credit 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 home equity lines of credit 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. Home equity lines of credit, 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.

            Automobile loans represented 51.9% of the Bank's consumer loan portfolio at June 30, 2006, and totaled $10.4 million, or 3.7% of net loans receivable. Of that total, $1.5 million represented loans originated by auto dealers. These loans generally pay a negotiated fee back to the dealer. Typically, automobile loans are 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.

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            Consumer loans may entail greater credit risk than do residential mortgage loans, which are 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, 2006, the Bank also had $65.1 million in commercial business loans outstanding, or 23.2% 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 $25.3 million in fixed rate and $39.8 million of adjustable rate commercial business loans. The adjustable rate business loans can reprice daily, monthly 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.

            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, 2006. Commitments to extend credit totaled $40.6 million at June 30, 2006.

		Less Than 1 Year	1-3 Years	4-5 Years	More Than 5 Years	Total
		(In Thousands)
Federal Home Loan Bank
	advances	$ 6,000	$ 6,000	$34,000	$ ---	$ 46,000
Certificates of deposit		113,100	10,166	2,319	4	125,589
	Total	$119,100	$16,166	$36,319	$ 4	$171,589


		Less Than 1 Year	1-3 Years	4-5 Years	More Than 5 Years	Total
		(In Thousands)

Construction loans in process		$ 5,738	$ ---	$ ---	$ ---	$ 5,738
Other commitments		28,435	624	392	5,374	34,825
		$34,173	$624	$392	$5,374	$40,563

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Loan Maturity and Repricing

The following table sets forth certain information at June 30, 2006 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
	(Dollars in thousands)

One-to four-family	$ 18,405	$23,129	$13,029	$72,642	$127,205
Commercial real estate	34,632	27,043	2,276	1,423	65,374
Construction	10,868	---	---	---	10,868
Consumer	9,290	10,606	210	---	20,106
Commercial business	40,527	24,027	526	29	65,109
Total loans	$113,722	$84,805	$16,041	$74,084	$288,662

            As of June 30, 2006, loans with a maturity date after June 30, 2007 with fixed interest rates totaled $138.8 million, and loans with a maturity date after June 30, 2007 with adjustable rates totaled $36.2 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 to customers during fiscal year 2002 which are also originated by the Bank's staff.

            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 2006, the Bank originated $176.1 million of loans, compared to $167.0 million and $169.4 million in fiscal 2005 and 2004, respectively. Of these loans, mortgage loan originations were $78.1 million, $60.8 million and $80.2 million and $63.2 million in fiscal 2006, 2005 and 2004, respectively.

            From time to time, the Bank has purchased loan participations consistent with its loan underwriting standards. In fiscal 2006, the Bank purchased $4.1 million of new loans. At June 30, 2006, loan participations totaled $14.7 million, or 5.2% of net loans receivable. All of these participations were secured by properties located in Missouri. At June 30, 2006, 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.

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

	Year Ended June 30,
	2006	2005	2004
	(Dollars in thousands)

Total loans at beginning of period	$273,174	$253,437	$226,430
Loans originated:
One-to four-family residential	31,079	33,306	43,640
Multi-family residential and commercial real estate	32,754	19,309	27,533
Construction loans	10,143	8,406	4,724
Commercial and industrial	36,265	39,703	33,147
Consumer and others	9,728	9,764	9,908
Total loans originated	119,969	110,488	118,952

Loans purchased:
Total loans purchased	4,118	9,819	7,690

Loans sold:
Total loans sold	(5,184)	(9,217)	(5,398)

Principal repayments	(103,159)	(91,343)	(94,101)

Foreclosures	(256)	(10)	(136)
Net loan activity	15,488	19,737	27,007

Total loans at end of period	$288,662	$273,174	$253,437

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 stand by letters-of-credit. The Bank had outstanding net loan commitments of approximately $39.3 million at June 30, 2006. See Note 13 of Notes to Consolidated Financial Statements contained in the Annual Report to Stockholders.

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.

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The following table sets forth the Bank's loan delinquencies by type and by amount at June 30, 2006.

	Loans Delinquent For:				Total Loans Delinquent 60 Days or More
	60-89 Days		90 Days and Over		Total Loans Delinquent 60 Days or More
	Numbers	Amounts	Numbers	Amounts	Numbers	Amounts
	(Dollars in thousands)

One-to four-family	1	$11	---	$---	1	$11
Commercial real estate	---	---	---	---	---	---
Commercial non-real estate	---	---	---	---	---	---
Other consumer	4	17	1	2	5	19
Totals	5	$28	1	$2	6	$30

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, 2006, the Bank had eleven loans on which interest was not being accrued in accordance with SFAS No. 114 as amended by SFAS No. 118. The Bank would have recorded interest income of $11,000, $146,000 and $700 on non-accrual loans during the years ended June 30, 2006, 2005 and 2004, respectively, if these loans had been performing in accordance with their terms during such periods. Interest income of approximately $9,000, $8,000 and $200 was recognized on these loans for the years ended June 30, 2006, 2005 and 2004, respectively.

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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,
	2006	2005	2004	2003	2002
	(Dollars in thousands)

Nonaccruing loans:
One-to four-family	$ ---	$ 52	$ ---	$ ---	$ 96
Commercial real estate	--	---	---	---	28
Consumer	51	41	4	7	10
Commercial business	---	334	---	---	---
Total	$ 51	$427	$ 4	$ 7	$ 134

Loans 90 days past due accruing interest:
One-to four-family	$ ---	$ 78	$ 114	$ 74	$ 177
Commercial real estate	--	---	---	---	---
Consumer	2	6	17	---	18
Commercial business	---	60	---	8	7
Total	$ 2	$144	$ 131	$ 82	$ 202

Total nonperforming loans	$ 53	$571	$ 135	$ 89	$ 336

Foreclosed assets held for sale:
Real estate owned	$200	$ 87	$ 163	$ 217	$ 383
Other nonperforming assets	16	7	17	41	5
Total nonperforming assets	$269	$665	$ 315	$ 347	$ 724

Total nonperforming loans to net loans	0.02%	0.21%	0.05%	0.04%	0.16%
Total nonperforming loans to net assets	0.02%	0.17%	0.04%	0.03%	0.13%
Total nonperforming assets to total assets	0.08%	0.20%	0.10%	0.12%	0.27%

            Other Loans of Concern. In addition to the non-performing assets discussed above, there was also an aggregate of $1.1 million in loans (all were commercial real estate and commercial business lending 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.

            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, 2006, the Company's balance of real estate owned totaled $200,000 and included one commercial lot and three 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

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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 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, 2006, classified assets totaled $1.1 million, or 0.27% of total assets as compared $1.3 million, or 0.54% of total assets at June 30, 2005. Of the amount classified as of June 30, 2006, $1.0 million were substandard and $49,000 were doubtful. The largest classified commercial lending relationship at June 30, 2006 totaled $354,000 and was performing in accordance with its terms. In addition, the Bank had classified three other commercial lending relationships, which in the aggregate totaled $541,000. The other borrowing relationships were classified due to concerns over whether the borrower was generating sufficient cash flow to amortize the loans in accordance with their terms.

            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, 2006, of $2.1 million, which represented 765% of nonperforming assets as compared to an allowance of $2.0 million, which represented 306% of nonperforming assets at June 30, 2005. See "Item 3. Legal Proceedings" for a discussion of the fiscal 2005 impact on the Bank of allegedly fraudulent actions by a significant borrower, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of the Years Ended June 30, 2005 and 2004," attached hereto as Exhibit 13.

            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.

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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,
	2006	2005	2004	2003	2002
	(Dollars in thousands)

Allowance at beginning of period	$2,016	$1,978	$1,836	$1,569	$1,462
Recoveries
One-to four-family	---	5	---	---	---
Commercial real estate	---	---	---	---	8
Commercial business	11	---	2	20	---
Consumer	54	39	24	42	29
Total recoveries	65	44	26	62	37

Charge offs:
One-to four-family	57	7	39	18	24
Commercial real estate	---	---	9	---	13
Commercial business	374	4,687	16	20	95
Consumer	147	127	95	87	148
Total charge offs	578	4,821	159	125	280

Net charge offs	(513)	(4,777)	(133)	(63)	(243)
Acquired allowance for losses	---	---	---	---	---
Provision for loan losses	555	4,815	275	330	350

Balance at end of period	$2,058	$2,016	$1,978	$1,836	$1,569

Ratio of allowance to total loans outstanding at the end of the period	0.73%	0.75%	0.80%	0.81%	0.73%
Ratio of net charge offs to average loans outstanding during the period	0.19%	1.84%	0.06%	0.03%	0.12%

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

	At June 30,
	2006		2005		2004		2003		2002
	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	Amount	Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)

One-to four-family	$ 205	44.07%	$ 225	46.04%	$ 219	48.29%	$ 214	51.59%	$ 237	56.04%
Construction	81	3.76	67	3.13	60	2.97	25	1.49	24	1.44
Commercial real estate	619	22.65	595	21.28	634	22.14	546	21.49	602	20.09
Consumer	293	6.97	306	7.84	321	8.48	326	9.07	254	8.77
Commercial business	857	22.55	770	21.71	743	18.12	536	16.36	450	13.66
Unallocated	3	---	53	---	1	---	189	---	2	---
Total allowance for loan losses	$2,058	100.00%	$2,016	100.00%	$1,978	100.00%	$1,836	100.00%	$1,569	100.00%

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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, 2006, AFS securities totaled $38.4 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 does not currently intend to purchase derivative instruments or enter into hedging activities.

            Investment and Other Securities. At June 30, 2006, the Company's investment securities portfolio totaled $26.6 million, or 7.6% of total assets as compared to $20.2 million, or 6.2% of total assets at June 30, 2005. During 2006, the Bank had $730,000 in maturities and $7.6 million in security purchases. Of the securities that matured, none were called for early redemption. At June 30, 2006, the investment securities portfolio included $20.2 million in U.S. government and government agency bonds and $850,000 in municipal bonds, $19.7 million of which are subject to early redemption at the option of the issuer. The remaining portfolio consists of $1.0 million in FNMA preferred stock, $2.6 million in FHLB stock, and $1.9 million in other securities. Based on the projected maturities, the weighted average life of the investment securities portfolio at June 30, 2006, excluding the FNMA preferred stock, was 45.4 months.

            Mortgage-Backed Securities. At June 30, 2006, MBS totaled $14.4 million, or 4.1%, of total assets as compared to $17.2 million, or 5.2%, of total assets at June 30, 2005. During fiscal 2006, the Bank had maturities and prepayments of $4.3 million and had purchases of $2.0 million in MBS. At June 30, 2006, the MBS portfolio included $685,000 in adjustable-rate MBS, $6.6 million in fixed-rate MBS and $7.1 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, 2006 was 31.0 months. Prepayment rates may cause the anticipated average life of MBS portfolio to extend or shorten based upon actual prepayment rates.

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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,
	2006		2005		2004
	Fair Value	Percent of Portfolio	Fair Value	Percent of Portfolio	Fair Value	Percent of Portfolio
	(Dollars in thousands)

U.S. government and government agencies	$20,164	75.80%	$14,373	69.85%	$11,314	50.55%
State and political subdivisions	850	3.19	1,600	7.78	777	3.47
FNMA preferred stock	1,000	3.76	984	4.78	1,002	4.48
Equity securities	---	---	---	---	3,415	15.25
FHLB stock	2,641	9.93	3,121	15.16	3,171	14.17
Other securities	1,948	7.32	500	2.43	2,704	12.07

Total	$26,603	100.00%	$20,578	100.00%	$22,383	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, 2006.

	Available Securities for Sale June 30, 2006
	Amortized Cost	Fair Value	Weighted Average Yield
	(Dollars in thousands)

U.S. government, government agencies and other securities:
Due within 1 year	$ 1,450	$ 1,450	8.25%
Due after 1 year but within 5 years	20,673	20,164	4.21
Due after 5 years but within 10 years	---	---	---
Due over 10 years	500	498	4.60
Total	22,623	22,112	4.49

State and political subdivisions:
Due within 1 year	340	337	2.25
Due after 1 year but within 5 years	512	513	4.77
Due after 5 years but within 10 years	---	---	---
Total	852	850	3.77

No stated maturity:
FNMA preferred stock	1,000	1,000	5.09
FHLB stock	2,641	2,641	3.80
	3,641	3,641	4.15

Total Available for Sale	$27,116	$26,603	4.42%

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The following table sets forth certain information at June 30, 2006 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, 2006
	(Dollars in thousands)
Amounts due:
Within 1 year	$ 729
After 1 year through 3 years	268
After 3 years through 5 years	---
After 5 years	14,026
Total	$15,023

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, 2006, which have fixed interest rates and have floating or adjustable rates.

	At June 30, 2006
	(Dollars in thousands)
Interest rate terms on amounts due after 1 year:
Fixed	$14,294
Adjustable	729
Total	$15,023

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,
	2006		2005		2004
	Amortized Cost	Fair Value	Amortized Cost	Fair Value	Amortized Cost	Fair Value
	(Dollars in thousands)

FHLMC certificates	$1,854	$1,771	$ 2,705	$ 2,673	$ 3,634	$3,552
GNMA certificates	194	192	259	259	350	348
FNMA certificates	5,624	5,335	7,127	7,066	9,225	9,094
Collateralized mortgage obligations issued by government agencies	7,351	7,142	7,319	7,245	8,158	8,000
Collateralized mortgage obligations issued by private issuer	---	---	---	---	---	---

Total	$15,023	$14,440	$17,410	$17,243	$21,367	$20,994

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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 of 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.

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Weighted Average Interest Rate	Term	Category	Minimum Amount	Balance	Percentage of Total Deposits
				(In thousands)

0.00%	None	Non-interest Bearing	$ 100	$ 18,710	7.25%
1.44	None	NOW Accounts	100	31,037	12.03
3.73	None	Savings Accounts	100	73,825	28.61
2.02	None	Money Market Deposit Accounts	1,000	8,908	3.45

		Certificates of Deposit
4.75%	30-day	30-day Fixed-term/Fixed rate	1,000	189	0.07%
4.77	91-day	Fixed-term/Fixed-rate	1,000	497	0.19
3.21	91-day	IRA Fixed-term/Fixed-rate	1,000	20	0.01
4.31	5 month	Fixed-term/Fixed-rate	1,000	4,376	1.70
4.20	5 month	IRA Fixed-term/Fixed-rate	1,000	186	0.07
4.24	6 month	Fixed-term/Fixed-rate	1,000	9,180	3.56
3.30	6 month	IRA Fixed-term/Fixed-rate	1,000	321	0.13
5.03	7 month	Fixed-term/Fixed-rate	1,000	12,941	5.01
5.02	7 month	IRA Fixed-term/Fixed-rate	1,000	1,317	0.51
4.06	9 month	Fixed-term/Fixed-rate	1,000	9,286	3.60
3.90	9 month	IRA Fixed-term/Fixed-rate	1,000	1,067	0.41
4.19	11 month	Fixed-term/Fixed-rate	1,000	12,898	5.00
4.06	11 month	IRA Fixed-term/Fixed-rate	1,000	2,820	1.09
3.90	12 month	Fixed-term/Fixed-rate	1,000	15,282	5.92
3.58	12 month	IRA Fixed-term/Fixed-rate	1,000	1,347	0.52
3.88	13 month	Fixed-term/Fixed-rate	1,000	10,889	4.22
3.85	13 month	IRA Fixed-term/Fixed-rate	1,000	387	0.15
3.58	15 month	Fixed-term/Fixed-rate	1,000	7,363	2.85
3.51	15 month	IRA Fixed-term/Fixed-rate	1,000	1,365	0.53
3.53	18 month	Fixed-term/Fixed-rate	1,000	587	0.23
4.00	18 month	IRA Fixed-term/Fixed-rate	1,000	540	0.21
3.20	24 month	Fixed-term/Fixed-rate	1,000	2,409	0.93
2.87	24 month	IRA Fixed-term/Fixed-rate	1,000	370	0.14
4.83	24 month	IRA Fixed-term/Variable rate	1,000	314	0.12
3.01	25 month	Fixed-term/Fixed-rate	1,000	2,341	0.91
2.98	25 month	IRA Fixed-term/Fixed-rate	1,000	270	0.10
8.46	29 month	Fixed-term/Fixed-rate	1,000	1	---
3.23	30 month	Fixed-term/Fixed-rate	1,000	276	0.11
3.03	35 month	Fixed-term/Fixed-rate	1,000	57	0.03
3.37	35 month	IRA Fixed-term/Fixed-rate	1,000	118	0.05
3.06	36 month	Fixed-term/Fixed-rate	1,000	6,907	2.68
2.91	36 month	IRA Fixed-term/Fixed-rate	1,000	2,483	0.96
3.57	48 month	Fixed-term/Fixed-rate	1,000	825	0.32
3.47	48 month	IRA Fixed-term/Fixed-rate	1,000	231	0.09
4.94	55 month	Fixed-term/Fixed-rate	1,000	5,639	2.19
4.91	55 month	IRA Fixed-term/Fixed-rate	1,000	1,010	0.39
4.18	60 month	Fixed-term/Fixed-rate	1,000	6,912	2.68
3.14	60 month	IRA Fixed-term/Fixed-rate	1,000	2,463	0.95
4.00	84 month	Fixed-term/Fixed-rate	1,000	74	0.03
3.96	96 month	Fixed-term/Fixed-rate	1,000	1	---

				$258,069	100.00%

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The following table indicates the amount of the Bank's jumbo certificates of deposit by time remaining until maturity as of June 30, 2006. Jumbo certificates of deposit require minimum deposits of $100,000 and rates paid on such accounts are negotiable.

Maturity Period	Amount
	(Dollars in thousands)

Three months or less	$28,091
Over three through six months	9,149
Over six through twelve months	7,548
Over 12 months	2,721
Total	$47,509

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,
	2006	2005	2004
	(Dollars in thousands)

0.00 - 0.99%	$ ---	$ ---	$ 13
1.00 - 1.99%	---	9,291	40,381
2.00 - 2.99%	9,475	40,481	9,209
3.00 - 3.99%	56,044	36,306	14,629
4.00 - 4.99%	49,635	10,600	14,262
5.00 - 5.99%	10,435	3,036	3,834
6.00 - 6.99%	---	213	265

Total	$125,589	$99,927	$82,593

The following table sets forth the amount and maturities of all time deposits at June 30, 2006.

	Amount Due
	Less Than One Year	1-2 Years	2-3 Years	3-4 Years	After 4 Years	Total	Percent of Total Certificate Accounts
	(Dollars in thousands)

2.00 - 2.99%	$ 8,559	$ 891	$ 25	$ ---	$ ---	$ 9,475	7.55%
3.00 - 3.99%	49,405	3,832	2,400	406	1	56,044	44.62
4.00 - 4.99%	44,891	2,579	249	1,531	385	49,635	39.52
5.00 - 5.99%	10,245	190	---	---	---	10,435	8.31

Total	$113,100	$7,492	$2,674	$1,937	$386	$125,589	100.00%

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Deposit Flow

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

	At June 30,
	2006			2005			2004
	Amount	Percent of Total	Increase (Decrease)	Amount	Percent of Total	Increase (Decrease)	Amount	Percent of Total	Increase (Decrease)
	(Dollars in thousands)

Noninterest bearing	$ 18,710	7.25%	$ 3,052	$ 15,658	6.97%	$ 1,515	$ 14,143	6.67%	$ 1,432
NOW checking	31,037	12.03	2,066	28,971	12.90	(1,607)	30,578	14.43	6,581
Savings accounts	73,825	28.61	8,275	65,550	29.18	636	64,914	30.63	8,134
Money market deposit	8,908	3.45	(5,652)	14,560	6.48	(5,171)	19,731	9.31	4,988
Fixed-rate certificates which mature⁽¹⁾:
Within one year	112,952	43.77	52,447	60,505	26.93	6,748	53,757	25.36	(1,116)
Within three years	10,000	3.87	(25,214)	35,214	15.67	12,503	22,711	10.71	5,594
After three years	2,323	0.90	(1,542)	3,865	1.72	(1,883)	5,748	2.71	(8,115)
Variable-rate certificates which mature within one year	148	0.06	(54)	202	0.09	40	162	0.08	(112)
Variable-rate certificates which mature within two years	166	0.06	25	141	0.06	(74)	215	0.10	41
Total	$258,069	100.00%	$33,403	$224,666	100.00%	$12,707	$211,959	100.00%	$17,427

___________________________

⁽¹⁾ At June 30, 2006, 2005 and 2004, certificates in excess of $100,000 totaled $47.5 million, $33.7 million and $24.0 million, respectively.

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

	At June 30,
	2006	2005	2004
	(Dollars in thousands)

Beginning Balance	$224,666	$211,959	$194,532

Net increase before interest credited	27,511	9,105	14,770
Interest credited	5,892	3,602	2,657
Net increase in deposits	33,403	12,707	17,427

Ending balance	$258,069	$224,666	$211,959

            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, 2006, the Bank had $46.0 million in FHLB advances, of which $37.0 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 three to six years and no short-term borrowings. In order for the Bank to borrow from the FHLB, it has pledged $55.2 million of its residential loans to the FHLB and has purchased $2.6 million in FHLB stock. At June 30, 2006, the Bank had additional borrowing capacity on its pledged residential loans from the FHLB of $51.2 million as compared to $32.3 million at June 30, 2005.

            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.

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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,
			2006	2005	2004
			(Dollars in thousands)
Year end balances
	Short-term FHLB advances		$ ---	$ 9,500	$ 7,250
	Securities sold under agreements to repurchase		11,296	10,757	6,448
		Total short-term borrowings	$11,296	$20,257	$13,698

	Weighted average rate at year end		4.69%	3.16%	1.24%

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

		Year Ended June 30,
		2006	2005	2004
		(Dollars in thousands)
FHLB advances
	Daily average balance	$54,642	$60,263	$56,234
	Weighted average interest rate	5.28%	4.93%	5.01%
	Maximum outstanding at any month end	$67,750	$68,750	$62,900

Securities sold under agreements to repurchase
	Daily average balance	$10,420	$ 8,847	$ 6,341
	Weighted average interest rate	3.84%	2.11%	1.15%
	Maximum outstanding at any month end	$12,589	$13,231	$ 8,073

Subordinated Debt
	Daily average balance	$ 7,217	$ 7,217	$ 2,904
	Weighted average interest rate	7.10%	5.12%	4.02%
	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, 2006 and is currently inactive. The activities of the subsidiary are not significant to the financial condition or results of the Bank's operations.

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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, 2006, 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, 2006, the Bank had $2.6 million in FHLB stock, which was in compliance with this requirement. The Bank is paid a quarterly dividend on this stock which averaged 2.75% in 2006.

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            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, by November 5, 2006, the Federal Deposit Insurance Corporation must promulgate new regulations on risk-based deposit insurance assessments. The Federal Deposit Insurance Corporation has proposed regulations that would create four Risk Categories. Risk Category I would apply 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 would 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 would 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. A different method would apply for institutions with assets of $10 billion or more. Any Risk Category I institution less than 7 years old would be assessed at the highest rate for Risk Category I. The Federal Deposit Insurance Corporation has stated that currently, 95% of institutions it insures would 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 would be 7, 25 and 40 basis points, respectively.

            Under the proposed regulations, the FDIC would be able to increase the base assessment rates by up to 5 basis points without new regulations. Any institution insured by the FDIC on December 31, 1996 which had previously paid assessments (or its successor in a merger or consolidation) would be eligible for a one-time credit against assessments under the new regulations. Federal Deposit Insurance Corporation officials have indicated that base assessment rates in the final regulations could be higher than stated in the proposed regulations.

            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

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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 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, 2006, 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.

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            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 holding gains or losses on

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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, 2006, 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.

            Loans to One Borrower. As a result of the 10(1) Election made by the Bank in connection with the Charter Conversion (see "Item 1. Description of Business - General,") the Bank remains subject to the loans to one borrower regulations applicable to federal savings associations.

            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.

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            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 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

            The Company is a bank holding company that has elected to be treated as a financial holding company by the FRB. Financial holding companies are subject to comprehensive regulation by the FRB under the Bank Holding Company Act, and the regulations of the FRB. As a financial holding company, the Company is required to file reports with the FRB and such additional information as the FRB may require, and is subject to regular examinations by the FRB. The FRB also has extensive enforcement authority over financial holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.

            Under FRB policy, a financial 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, that a holding company to contribute additional capital to an undercapitalized subsidiary bank.

            Under the Bank Holding Company Act, a financial 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 or financial holding company; or (iii) merging or consolidating with another bank or financial holding company.

            The Bank Holding Company Act also prohibits a financial holding company generally from engaging directly or indirectly in activities other than those involving banking, activities closely related to banking that are permitted for a bank holding company, securities, insurance or merchant banking.

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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, and taxes on tangible personal property owned by the Bank and held for lease or rentals to others - income-based calculation; and (ii) the

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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, 2006, the Company had 88 full-time employees and 9 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.

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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.

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, 2006, $88.3 million, or 31.42%, of our loan portfolio consisted of fixed rate residential 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.

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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.
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.

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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.

Item 2.            Description of Properties

            The following table sets forth certain information regarding the Bank's offices as of June 30, 2006.

Location	Year Opened	Building Net Book Value as of June 30, 2006	Land Owned/ Leased	Building Owned/ Leased
	(Dollars in thousands)
Main Office

531 Vine Street Poplar Bluff, Missouri	1966	$633	Owned	Owned

Branch Offices

502 Main Street Van Buren, Missouri	1982	37	Owned	Owned

1330 N. Westwood Blvd. Poplar Bluff, Missouri	1976	3	Leased⁽¹⁾	Owned

4214 Highway PP Poplar Bluff, Missouri	2001	554	Owned	Owned

713 Business 60 West Dexter, Missouri	1979	74	Owned	Owned

301 First Street Kennett, Missouri	1982	853	Owned	Owned

302 Washington Doniphan, Missouri	2001	604	Owned	Owned

13371 Highway 53 Qulin, Missouri	2000	53	Owned	Owned

1205 S. Main St. Sikeston, Missouri	2006	969	Owned	Owned

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

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. At June 30, 2006, the Bank no longer reports any amount of this loan relationship, or any collateral related thereto, as an asset. The resolution of the borrower's assets has resulted in litigation between the Bank and another financial institution with non-

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performing loans to the same borrower, as well as several other entities, including the accounting firm which performed audits on said borrower. The litigation is based on who was the rightful lien holder of various assets of the borrower. To the extent this litigation is settled or resolved in favor of the Bank, a portion of the amounts charged off could be recovered. The Company cannot predict whether or to what extent such a recovery may occur.

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, 2006.

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.

            The following table summarizes the Company's stock repurchase activity for each month during the three months ended June 30, 2006. All shares repurchased during three months ended June 30, 2006, 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 Purchased
06/01/06-06/30/06 period	---	---	---	26,355
05/01/06-05/31/06 period	---	---	---	26,355
04/01/06-04/30/06 period	---	---	---	26,355

Item 6. Selected Financial Data

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

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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.

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, 2006 and 2005*
	(b)	Consolidated Statements of Income for the Years Ended June 30, 2006, 2005 and 2004*
	(c)	Consolidated Statements of Stockholders' Equity For the Years Ended June 30, 2006, 2005 and 2004*
	(d)	Consolidated Statements of Cash Flows For the Years Ended June 30, 2006, 2005 and 2004*
	(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

            On April 2, 2004, the Company dismissed Kraft, Miles and Tatum, LLC ("KMT") as its independent accountant. The reports of KMT on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit committee of the board of directors made the decision to change independent accountants. In connection with its audits for the two most recent fiscal years and through April 2, 2004, there were no disagreements with KMT on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KMT would have caused KMT to make reference thereto in its report on the company's financial statements. During the two most recent fiscal years and through April 2, 2004, there were no reportable events (as set forth in Regulation S-B Item 304 (a)(1)(iv)(B)) with KMT. KMT furnished the Company with a letter addressed to the SEC stating that it agrees with the above statements. A copy of this letter was included as an exhibit to the Current Report on Form 8-K filed on April 4, 2004 announcing this decision.

            On April 2, 2004, the Company engaged BKD, LLP ("BKD") as its independent accountant for the fiscal year ending June 30, 2005. Prior to April 2, 2004, the Company had engaged BKD for consulting services. The Company did not consult with BKD regarding (1) the application of accounting principles to a specific completed or proposed transaction, (2) the type of audit opinion that might be rendered on the company's financial statements or (3) the subject matter of a disagreement or reportable event with the former auditor (as set forth in Regulation S-B Item 304 (a)(1)(iv)(B)).

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, 2006, 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

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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, 2006, 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.

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 16, 2006, 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 16, 2006, 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.

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, 2006. 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, 2004, the Company adopted a written Code of Ethics based upon the standards set forth under Item 406 of Regulation S-B of the Securities Exchange Act. The Code of Ethics applies to all of the Company's directors, officers and employees.

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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 16, 2006, 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 16, 2006, 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, 2006 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 plans

Equity Compensation Plans Approved By Security Holders	180,500	$10.64	27,500
Equity 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 16, 2006, 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 2006 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.

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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 Hereto

3(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	**
			(ii)	James W. Duncan	****
		(d)		Director's Retirement Agreements
			(ii)	Thadis R. Seifert	***
			(iv)	Leonard W. Ehlers	***
			(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				11
13	2006 Annual Report to Stockholders				13
14	Code of Conduct and Ethics				+++
21	Subsidiaries of the Registrant				21
23	Consent of Auditors				23
31	Rule 13a-14(a)/15d-14(a) Certifications
32	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.

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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 27, 2006	By:	/s/ Greg A. Steffens Greg 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 James W. Tatum Chairman of the Board of Directors	September 27, 2006

By:	/s/ Greg A. Steffens Greg A. Steffens President (Principal Executive and Financial and Accounting Officer)	September 27, 2006

By:	/s/ Samuel H. Smith Samuel H. Smith Vice President and Director	September 27, 2006

By:	/s/ Ronnie D. Black Ronnie D. Black Secretary and Director	September 27, 2006

By:	/s/ L. Douglas Bagby L. Douglas Bagby Director	September 27, 2006

By:	/s/ Sammy A. Schalk Sammy A. Schalk Director	September 27, 2006

By:	/s/ Rebecca McLane Brooks Rebecca McLane Brooks Director	September 27, 2006

By:	/s/ Charles R. Love Charles R. Love Director	September 27, 2006

By:	/s/ Charles R. Moffitt Charles R. Moffitt Director	September 27, 2006

Index to Exhibits

Regulation S-B Exhibit Number	Document

11	Statement Regarding Computation of Per Share Earnings

13	2006 Annual Report to Stockholders

21	Subsidiaries of the Registrant

23	Consent of Auditors

31	Rule 13a-14(a)/15d-14(a) Certifications

32	Section 1350 Certifications

End.